<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 March 31, 1998

                                                   OR

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


Commission File Number 0-20421


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


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


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


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


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


The number of shares outstanding of Tele-Communications, Inc.'s common stock
(net of treasury shares and shares held by subsidiaries) as of April 30, 1998,
was:

<TABLE>
<S>                                                               <C>
      Tele-Communications, Inc. Series A TCI Group common stock - 472,207,363 shares,
       Tele-Communications, Inc. Series B TCI Group common stock - 50,126,345 shares,
 Tele-Communications, Inc. Series A Liberty Media Group common stock - 326,076,668 shares,
  Tele-Communications, Inc. Series B Liberty Media Group common stock - 31,745,757 shares,
  Tele-Communications, Inc. Series A TCI Ventures Group common stock - 377,114,654 shares,
and Tele-Communications, Inc. Series B TCI Ventures Group common stock - 45,367,134 shares.
</TABLE>
<PAGE>   2


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                        March 31,     December 31,
                                                                          1998           1997 
                                                                       ----------     ----------
         Assets                                                           amounts in millions
<S>                                                                    <C>                   <C>
         Cash and cash equivalents                                     $      172            284

         Trade and other receivables, net                                     539            529

         Prepaid program rights                                               112            104
 
         Committed program rights                                             128            115

         Investments in affiliates, accounted for under the equity
            method, and related receivables (note 4)                        3,917          3,048

         Investment in Time Warner, Inc. ("Time Warner") (note 5)           4,129          3,555

         Property and equipment, at cost:
            Land                                                               82             96
            Distribution systems                                           10,143         10,784
            Support equipment and buildings                                 1,699          1,558
                                                                       ----------     ----------
                                                                           11,924         12,438
            Less accumulated depreciation                                   4,751          4,759
                                                                       ----------     ----------
                                                                            7,173          7,679
                                                                       ----------     ----------

         Franchise costs                                                   17,011         17,910
            Less accumulated amortization                                   2,705          2,763
                                                                       ----------     ----------
                                                                           14,306         15,147
                                                                       ----------     ----------

         Other assets, net of amortization                                  2,173          1,862
                                                                       ----------     ----------

                                                                       $   32,649         32,323
                                                                       ==========     ==========
 </TABLE>


                                                                     (continued)





                                       I-1
<PAGE>   3


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Balance Sheets, continued
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                      March 31,       December 31,
                                                                                        1998            1997 
                                                                                      ----------      ----------
         Liabilities and Stockholders' Equity                                            amounts in millions
<S>                                                                                   <C>                    <C>
         Accounts payable                                                             $      120             169

         Accrued interest                                                                    173             258

         Accrued programming expense                                                         432             399

         Other accrued expenses                                                              947             997

         Deferred option premium (note 5)                                                   --               306

         Debt (note 7)                                                                    14,643          15,250

         Deferred income taxes                                                             6,686           6,108

         Other liabilities                                                                   748             664
                                                                                      ----------      ----------

           Total liabilities                                                              23,749          24,151
                                                                                      ----------      ----------

         Minority interests in equity of consolidated subsidiaries                         1,401           1,565

         Redeemable securities:
            Preferred stock (note 8)                                                         312             655
            Common stock                                                                      21               5

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

          Stockholders' equity (note 10):
            Series Preferred Stock, $.01 par value                                          --              --
            Class B 6% Cumulative Redeemable Exchangeable Junior Preferred
               Stock, $.01 par value                                                        --              --
            Common stock, $1 par value:
               Series A TCI Group. Authorized 1,750,000,000 shares; issued
                   620,600,434 shares in 1998 and 605,616,143 shares in 1997                 621             606
               Series B TCI Group. Authorized 150,000,000 shares; issued
                   90,125,881 shares in 1998 and 78,203,044 shares in 1997                    90              78
               Series A Liberty Media Group.  Authorized 750,000,000 shares;
                   issued 357,948,125 shares in 1998 and 344,962,521 shares
                   in 1997                                                                   358             345
               Series B Liberty Media Group.  Authorized 75,000,000 shares;
                   issued 35,091,835 shares in 1998 and 35,180,385 shares in 1997             35              35
               Series A TCI Ventures Group. Authorized 750,000,000 shares;
                   issued 390,281,044 shares in 1998 and 377,386,032 shares
                   in 1997                                                                   390             377
               Series B TCI Ventures Group. Authorized 75,000,000 shares;
                   issued 45,892,732 shares in 1998 and 32,532,800 shares in 1997             46              33
            Additional paid-in capital                                                     6,086           5,063
            Accumulated other comprehensive earnings, net of taxes (note 1)                1,128             778
            Accumulated deficit                                                             (559)           (877)
                                                                                      ----------      ----------
                                                                                           8,195           6,438
            Treasury stock and common stock held by subsidiaries, at cost
               (note 10)                                                                  (2,529)         (1,991)
                                                                                      ----------      ----------

                   Total stockholders' equity                                              5,666           4,447
                                                                                      ----------      ----------
         Commitments and contingencies (note 13)
                                                                                      $   32,649          32,323
                                                                                      ==========      ==========
 </TABLE>

See accompanying notes to consolidated financial statements.





                                       I-2
<PAGE>   4


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                      Consolidated Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                         Three months ended
                                                                                            March 31,
                                                                                    --------------------------
                                                                                       1998            1997
                                                                                    ----------      ----------
                                                                                        amounts in millions,
                                                                                      except per share amounts
<S>                                                                                 <C>                  <C>  
         Revenue                                                                    $    1,872           1,827

         Operating costs and expenses:
           Operating                                                                       738             696
           Selling, general and administrative                                             428             393
           Stock compensation                                                              229              15
           Cost of distribution agreements (note 12)                                        83            --
           Depreciation and amortization                                                   423             374
                                                                                    ----------      ----------
                                                                                         1,901           1,478
                                                                                    ----------      ----------

                  Operating income (loss)                                                  (29)            349

         Other income (expense):
           Interest expense                                                               (285)           (289)
           Interest and dividend income                                                     21              21
           Share of losses of affiliates, net (note 4)                                    (238)           (156)
           Loss on early extinguishment of debt (note 7)                                   (16)           --
           Minority interests in losses (earnings) of consolidated
              subsidiaries, net (note 9)                                                    14             (38)
           Gain on issuance of equity interest by subsidiary (note 6)                       38            --
           Gain on disposition of assets (notes 5 and 6)                                 1,063              19
           Other, net                                                                      (10)             (2)
                                                                                    ----------      ----------
                                                                                           587            (445)
                                                                                    ----------      ----------

              Earnings (loss) before income taxes                                          558             (96)

         Income tax benefit (expense)                                                     (240)             38
                                                                                    ----------      ----------

              Net earnings (loss)                                                          318             (58)

         Dividend requirements on preferred stocks                                         (11)            (10)
                                                                                    ----------      ----------

              Net earnings (loss) attributable to common stockholders               $      307             (68)
                                                                                    ==========      ==========

         Net earnings (loss) attributable to common stockholders:
           TCI Group Series A and Series B common stock                             $      227             (84)
           Liberty Media Group Series A and Series B common stock                          303              16
           TCI Ventures Group Series A and Series B common stock                          (223)           --
                                                                                    ----------      ----------

                                                                                    $      307             (68)
                                                                                    ==========      ==========
         Basic earnings (loss) attributable to common stockholders per common
           share (note 2):
                  TCI Group Series A and Series B common stock                      $      .44            (.12)
                                                                                    ==========      ==========
                  Liberty Media Group Series A and Series B common stock            $      .85             .04
                                                                                    ==========      ==========
                  TCI Ventures Group Series A and Series B common stock             $     (.53)           --
                                                                                    ==========      ==========

         Diluted earnings (loss) attributable to common stockholders per common
           and potential common share (note 2):
             TCI Group Series A and Series B common stock                           $      .38            (.12)
                                                                                    ==========      ==========
             Liberty Media Group Series A and Series B common stock                 $      .78             .04
                                                                                    ==========      ==========
             TCI Ventures Group Series A and Series B common stock                  $     (.53)           --
                                                                                    ==========      ==========

         Comprehensive earnings (loss) (note 1)                                     $      668             (83)
                                                                                    ==========      ==========
 </TABLE>



See accompanying notes to consolidated financial statements.





                                      I-3
<PAGE>   5


                        TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                      Consolidated Statement of Stockholders' Equity

                            Three months ended March 31, 1998
                                       (unaudited)

<TABLE>
<CAPTION>


                                                                                       Common Stock
                                                            --------------------------------------------------------------------
                                                Class B           TCI Group         Liberty Media Group      TCI Ventures Group
                                               Preferred    --------------------    --------------------    --------------------
                                                 Stock      Series A    Series B    Series A    Series B    Series A    Series B
                                               ---------    --------    --------    --------    --------    --------    --------
                                                                               amounts in millions
<S>                                            <C>          <C>         <C>         <C>          <C>        <C>         <C>
Balance at January 1, 1998                     $    --           606          78         345          35         377          33

   Net earnings                                     --          --          --          --          --          --          --  
   Exchange of common stock in connection
     with the Magness Settlement (note 11)          --          --            11        --          --          --            13
   Issuance of common stock in connection
     with settlement of litigation                  --             1           1        --          --          --          --
   Reclassification to redeemable
     securities of redemption amount of
     common stock subject to put obligation         --          --          --          --          --          --          --
   Premium received in connection with put
     obligation                                     --          --          --          --          --          --          --
   Issuance of common stock for
     acquisitions (note 6)                          --             1        --             7        --             13       --
   Repurchase of common stock                       --          --          --          --          --          --          --
   Gain from issuance of equity by
     subsidiary and equity investee, net of
     taxes (note 4)                                 --          --          --          --          --          --          --
   Gain from contribution of cable
     television systems to joint ventures,
     net of taxes (note 6)                          --          --          --          --          --          --          --
   Issuance of common stock upon conversion
     of notes and preferred stock (notes 7
     and 8)                                         --            13        --             6       --           --          --
   Payment of call premiums (note 11)               --          --          --          --         --           --          --
   Reimbursement of fees related to
     Exchange (note 11)                             --          --          --          --         --           --          --
   Accreted dividends on all classes of
     preferred stock                                --          --          --          --         --           --          --
   Accreted dividends on all classes of
     preferred stock not subject to
     mandatory redemption requirements              --          --          --          --         --           --          --
   Payment of preferred stock dividends             --          --          --          --         --           --          --
   Foreign currency translation adjustment          --          --          --          --         --           --          --
   Change in unrealized holding gains for
     available-for-sale securities, net of
     taxes                                          --          --          --          --         --           --          --
                                               ---------    --------    --------    --------    --------    --------    --------
Balance at March 31, 1998                      $    --           621          90         358          35         390          46
                                               =========    ========    ========    ========     =======    ========    ========
<CAPTION>
                                                                                                  Treasury
                                                                                                  stock and
                                                                                                   common
                                                                Accumulated                         stock
                                                Additional         other                           held by            Total
                                                 paid-in       comprehensive     Accumulated     subsidiaries,     stockholders'
                                                 capital         earnings          deficit          at cost           equity
                                                ----------     -------------     -----------     -------------     -------------
                                                                                amounts in millions
<S>                                             <C>            <C>               <C>             <C>               <C>
Balance at January 1, 1998                           5,063             778             (877)          (1,991)            4,447

   Net earnings                                       --              --                318             --                 318
   Exchange of common stock in connection
     with the Magness Settlement (note 11)             509            --               --               (533)             --
   Issuance of common stock in connection
     with settlement of litigation                      48            --               --               --                  50
   Reclassification to redeemable
     securities of redemption amount of
     common stock subject to put obligation            (16)           --               --               --                 (16)
   Premium received in connection with put
     obligation                                          2            --               --               --                   2
   Issuance of common stock for
     acquisitions (note 6)                             349            --               --               --                 370
   Repurchase of common stock                         --              --               --                 (5)               (5)
   Gain from issuance of equity by
     subsidiary and equity investee, net of
     taxes (note 4)                                     35            --               --               --                  35
   Gain from contribution of cable
     television systems to joint ventures,
     net of taxes (note 6)                              58            --               --               --                  58
   Issuance of common stock upon conversion
     of notes and preferred stock (notes 7
     and 8)                                            320            --               --               --                 339
   Payment of call premiums (note 11)                 (274)           --               --               --                (274)
   Reimbursement of fees related to
     Exchange (note 11)                                 11            --               --               --                  11
   Accreted dividends on all classes of
     preferred stock                                   (11)           --               --               --                 (11)
   Accreted dividends on all classes of
     preferred stock not subject to
     mandatory redemption requirements                   2            --               --               --                   2
   Payment of preferred stock dividends                (10)           --               --               --                 (10)
   Foreign currency translation adjustment            --                 1             --               --                   1
   Change in unrealized holding gains for
     available-for-sale securities, net of
     taxes                                            --               349             --               --                 349

                                                 ---------       ---------        ---------         --------         ---------
Balance at March 31, 1998                            6,086           1,128             (559)          (2,529)            5,666
                                                 =========       =========        =========         ========         =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      I-4
<PAGE>   6


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows
                                  (unaudited)
<TABLE>
<CAPTION>
                                                                                                 Three months ended
                                                                                                     March 31,         
                                                                                          ----------------------------
                                                                                             1998             1997 
                                                                                          -----------      -----------
                                                                                              amounts in millions
                                                                                                  (see note 3)
<S>                                                                                       <C>                      <C> 
         Cash flows from operating activities:
           Net earnings (loss)                                                            $       318              (58)
           Adjustments to reconcile net earnings (loss) to net cash provided by
              operating activities:
                Depreciation and amortization                                                     423              374
                Cost of distribution agreements                                                    83             --
                Stock compensation                                                                229               15
                Payments of obligation relating to stock compensation                             (91)              (1)
                Share of losses of affiliates, net                                                238              156
                Loss on early extinguishment of debt                                               16             --
                Minority interests in earnings (losses) of consolidated subsidiaries,
                   net                                                                            (14)              38
                Gain on issuance of equity interest by subsidiary                                 (38)            --
                Gain on disposition of assets                                                  (1,063)             (19)
                Deferred income tax expense (benefit)                                             204              (66)
                Payments of restructuring charges                                                  (4)             (16)
                Other noncash charges                                                              11                3
                Changes in operating assets and liabilities, net of the
                   effect of acquisitions:
                     Change in receivables                                                        (19)             (16)
                     Change in prepaids                                                           (21)             (32)
                     Change in accrued interest                                                   (85)            (112)
                     Change in other accruals and payables                                        (94)             (27)
                                                                                          -----------      -----------

                        Net cash provided by operating activities                                  93              239
                                                                                          -----------      -----------

         Cash flows from investing activities:
           Cash paid for acquisitions                                                             (72)            (156)
           Capital expended for property and equipment                                           (246)             (90)
           Additional investments in and loans to affiliates                                     (252)             (35)
           Collections of loans to affiliates                                                     448               68
           Proceeds from disposition of assets                                                    334              140
           Cash received in exchanges                                                            --                 22
           Other investing activities                                                             (21)             (52)
                                                                                          -----------      -----------

                       Net cash provided (used) by investing activities                           191             (103)
                                                                                          -----------      -----------

         Cash flows from financing activities:
           Borrowings of debt                                                                   1,043              363
           Repayments of debt                                                                  (1,082)            (820)
           Prepayment penalties                                                                   (15)            --
           Repurchase of common stock to be held in treasury                                       (5)            --
           Repurchase of subsidiary common stock                                                   (7)              (7)
           Payment of preferred stock dividends                                                   (22)             (21)
           Payment of dividends on subsidiary preferred stock and Trust Preferred
              Securities                                                                          (47)             (34)
           Payment of call premiums                                                              (274)            --
           Proceeds from issuance of common stock                                                --                  4
           Proceeds from issuance of Trust Preferred Securities                                  --                490
           Other financing activities                                                              13             --
                                                                                          -----------      -----------

                       Net cash used by financing activities                                     (396)             (25)
                                                                                          -----------      -----------

                       Net increase (decrease) in cash and cash equivalents
                                                                                                 (112)             111

                       Cash and cash equivalents at beginning of period                           284              394
                                                                                          -----------      -----------

                       Cash and cash equivalents at end of period                         $       172              505
                                                                                          ===========      ===========
 </TABLE>

See accompanying notes to consolidated financial statements.





                                      I-5
<PAGE>   7


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



                                 March 31, 1998
                                  (unaudited)


(1)      General

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

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

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

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

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

                                                                     (continued)





                                      I-6
<PAGE>   8


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Targeted Stock

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

         On August 28, 1997, the stockholders of TCI authorized the Board to
         issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
         Stock, par value $1.00 per share (the "TCI Ventures Group Series A
         Stock") and Tele-Communications, Inc. Series B TCI Ventures Group
         Common Stock, par value $1.00 per share (the "TCI Ventures Group Series
         B Stock," and together with TCI Ventures Group Series A Stock, the "TCI
         Ventures Group Stock"). The TCI Ventures Group Stock is intended to
         reflect the separate performance of the "TCI Ventures Group," which is
         comprised of TCI's principal international assets and businesses and
         substantially all of TCI's non-cable and non-programming assets.

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

                                                                     (continued)





                                      I-7
<PAGE>   9


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         The TCI Group Stock is intended to reflect the separate performance of
         TCI and its subsidiaries and assets not attributed to Liberty Media
         Group or TCI Ventures Group. Such subsidiaries and assets are referred
         to as "TCI Group" and are comprised primarily of TCI's domestic cable
         and communications business. Collectively, the TCI Group, the Liberty
         Media Group and the TCI Ventures Group are referred to as the "Groups"
         and individually, may be referred to herein as a "Group." The TCI Group
         Series A Stock, TCI Ventures Group Series A Stock and the Liberty Group
         Series A Stock are sometimes collectively referred to herein as the
         "Series A Stock," and the TCI Group Series B Stock, TCI Ventures Group
         Series B Stock and Liberty Group Series B Stock are sometimes
         collectively referred to herein as the "Series B Stock."

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

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

                                                                     (continued)





                                      I-8
<PAGE>   10


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

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

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

                                                                     (continued)





                                      I-9
<PAGE>   11


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

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

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

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

                                                                     (continued)





                                      I-10
<PAGE>   12


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

(2)      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 earnings per share 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.


                                                                     (continued)





                                      I-11
<PAGE>   13


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(a)     TCI Group Stock

        The basic earnings attributable to TCI Group common stockholders per
        common share for the three months ended March 31, 1998 was computed by
        dividing net earnings attributable to TCI Group common stockholders by
        the weighted average number of common shares outstanding of TCI Group
        Stock during the period (517 million).

        The diluted earnings attributable to TCI Group common stockholders per
        common share for the three months ended March 31, 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 months ended March 31, 1998 to net
        earnings, assuming conversion of TCI Group convertible securities as of
        the beginning of the period, by the weighted average number of common
        shares outstanding of TCI Group Stock during the period.  Shares
        issuable upon conversion of the Convertible Preferred Stock, Series
        C-TCI Group ("Series C-TCI Group Preferred Stock"), the Redeemable
        Convertible TCI Group Preferred Stock, Series G ("Series G Preferred
        Stock"), preferred stock of subsidiaries, convertible notes payable,
        stock options and other fixed and nonvested performance awards have
        been included in the computation of weighted average shares, as
        illustrated below.  Shares of TCI Group Stock issuable upon conversion
        of Convertible Preferred Stock, Series D ("Series D Preferred Stock")
        and associated dividend payments for the three months ended March 31,
        1998 have been excluded as adjustments in computing the diluted
        earnings attributable to TCI Group common shareholders per common share
        as Series D Preferred Stock is antidilutive for the three months ended
        March 31, 1998.

        The basic and diluted loss attributable to TCI Group common
        stockholders per common share for the three months ended March 31, 1997
        was computed by dividing net loss attributable to TCI Group common
        stockholders by the weighted average number of common shares
        outstanding of TCI Group Stock during the period.  Potential common
        shares were not included in the computation of weighted average shares
        outstanding because their inclusion would be anti-dilutive.

        No material changes in the weighted average outstanding shares or
        potential common shares occurred after March 31, 1998.

                                                                     (continued)





                                      I-12
<PAGE>   14


                   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>
                                                                    Three months ended March 31,
                                                                    --------------------------
                                                                       1998            1997
                                                                    ----------      ----------
                                                                    amounts in millions, except
                                                                         per share amounts
<S>                                                                 <C>                    <C> 
        Basic EPS:
              Earnings (loss) attributable to common
                  stockholders                                      $      227             (84)
                                                                    ==========      ==========
              Weighted average common shares                               517             678
                                                                    ==========      ==========
              Basic earnings (loss) per share attributable to
                  common stockholders                               $      .44            (.12)
                                                                    ==========      ==========

           Diluted EPS:
              Earnings (loss) attributable to common
                  stockholders                                      $      227             (84)
              Add preferred dividend requirements                            4            --
              Add interest expense                                           1            --
                                                                    ----------      ----------
              Adjusted earnings (loss) attributable to common
                  stockholders assuming conversion of preferred
                  shares                                            $      232             (84)
                                                                    ==========      ==========

              Weighted average common shares                               517             678
                                                                    ----------      ----------
              Add dilutive potential common shares:
                  Employee and director options                              8            --
                  Convertible notes payable                                 24            --
                  Series C-TCI Group Preferred Stock                         7
                  Series D Preferred Stock                                --              --
                  Series G Preferred Stock                                   8            --
                  Preferred stock of subsidiaries                           45            --
                                                                    ----------      ----------
                      Dilutive potential common shares                      92            --
                                                                    ----------      ----------
              Diluted weighted average common shares                       609             678
                                                                    ==========      ==========
              Diluted earnings (loss) per share attributable to
                  common stockholders                               $      .38            (.12)
                                                                    ==========      ==========
 </TABLE>

                                                                     (continued)





                                      I-13
<PAGE>   15


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(b)     Liberty Group Stock

        The basic earnings attributable to Liberty Media Group common
        stockholders per common share for the three months ended March 31, 1998
        and 1997 was computed by dividing net earnings attributable to Liberty
        Media Group common stockholders by the weighted average number of
        common shares outstanding of Liberty Group Stock during the period (355
        million and 375 million, respectively).

        The diluted earnings attributable to Liberty Media Group common
        stockholders per common and potential common share for the three months
        ended March 31, 1998 and 1997 was computed by dividing earnings
        attributable to Liberty Media Group common stockholders by the weighted
        average number of common and potential common shares outstanding of
        Liberty Group Stock during the period.  Shares issuable upon conversion
        of the Convertible Preferred Stock, Series C-Liberty Media Group
        ("Series C-Liberty Media Group Preferred Stock"), the Series D
        Preferred Stock, the Redeemable Convertible Liberty Media Group
        Preferred Stock, Series H (the "Series H Preferred Stock"), convertible
        notes payable, stock options and other fixed and nonvested performance
        awards have been included in the computation of weighted average
        shares, as illustrated below.  Numerator adjustments for dividends and
        interest associated with the convertible preferred shares and
        convertible notes payable, respectively, were not made to the
        computation of diluted earnings per share as such dividends and
        interest are paid or payable by TCI Group.

        No material changes in the weighted average outstanding shares or
        potential common shares occurred after March 31, 1998.

                                                                     (continued)





                                      I-14
<PAGE>   16


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

<TABLE>
<CAPTION>
                                                        Three months ended March 31,
                                                        ---------------------------
                                                            1998            1997
                                                        -----------     -----------
                                                         amounts in millions, except
                                                             per share amounts
<S>                                                     <C>                      <C>
 Basic EPS:
    Earnings attributable to common stockholders        $       303              16
                                                        ===========     ===========
    Weighted average common shares                              355             375
                                                        ===========     ===========
    Basic earnings per share attributable to common     $       .85             .04
                                                        ===========     ===========
        stockholders

 Diluted EPS:
    Earnings attributable to common stockholders        $       303              16
                                                        ===========     ===========
    Weighted average common shares                              355             375
                                                        -----------     -----------
    Add dilutive potential common shares:
        Employee and director options                             8               4
        Convertible notes payable                                19              20
        Series C-Liberty Media Group Preferred                    
           Stock                                                  4               3 
        Series D Preferred Stock                               --                 6
        Series H Preferred Stock                                  4               3
                                                        -----------     -----------
           Dilutive potential common shares                      35              36
                                                        -----------     -----------
    Diluted weighted average common shares                      390             411
                                                        ===========     ===========
    Diluted earnings per share attributable to
        common stockholders                             $       .78             .04
                                                        ===========     ===========
 </TABLE>

(c)     TCI Ventures Group Stock

        The basic and diluted loss attributable to TCI Ventures Group common
        stockholders per common share for the three months ended March 31, 1998
        was computed by dividing net 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 (421
        million).  Potential common shares were not included in the computation
        of weighted average shares outstanding because their inclusion would be
        anti-dilutive.

        At March 31, 1998, there were 34 million potential common shares
        consisting of fixed and nonvested performance awards, stock options and
        convertible securities that could potentially dilute future EPS
        calculations in periods of net earnings.  Such potential common share
        amount does not take into account the assumed number of shares that
        would be repurchased by the Company upon the exercise of the fixed and
        nonvested performance awards.  No material changes in the weighted
        average outstanding shares or potential common shares occurred after
        March 31, 1998.

                                                                     (continued)





                                      I-15
<PAGE>   17


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(3)      Supplemental Disclosures to Consolidated Statements of Cash Flows

Cash paid for interest was $370 million and $401 million for the three months
ended March 31, 1998 and 1997, respectively.  Cash paid for income taxes was
not material for the three months ended March 31, 1998 and 1997.

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

<TABLE>
<CAPTION>
                                                                      Three months ended
                                                                         March 31,         
                                                               ----------------------------
                                                                  1998             1997 
                                                               -----------      -----------
                                                                   amounts in millions
<S>                                                            <C>                   <C>    
 Cash paid for acquisitions:
   Aggregate cost basis of assets acquired                     $      (708)          (1,065)
   Liabilities assumed, net of current assets                            3              616
   Deferred tax liability recorded in acquisitions                      89               34
   Minority interests in equity of acquired entities                  (179)               1
   Elimination of notes receivable from affiliates                     351              --
   Common stock and preferred stock issued in acquisitions             372              258
                                                               -----------      -----------

        Cash paid for acquisitions                             $       (72)            (156)
                                                               ===========      ===========

 Cash received in exchanges:
   Aggregate cost basis of assets acquired                     $      --               (294)
   Historical cost of assets exchanged                                --                305
   Gain recorded on exchange of assets                                --                 11
                                                               -----------      -----------

        Cash received in exchanges                             $      --                 22
                                                               ===========      ===========
</TABLE>


For a description of certain non-cash transactions, see note 6.


                                                                     (continued)





                                      I-16
<PAGE>   18


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(4)      Investments in Affiliates

The Company has various investments accounted for under the equity method.  The
following table includes the Company's carrying value of the more significant
investments at March 31, 1998 (amounts in millions).

<TABLE>
<S>                                                             <C> 
 Cablevision Systems Corporation ("CSC")                        $ 1,130
 Sprint Spectrum Holding Company, L.P., MinorCo, L.P. 
     and PhillieCo, L.P.                                            478
 Telewest Communications plc ("Telewest")                           298
 BDTV INC., BDTV II INC., BDTV III INC. and BDTV IV
     INC. (collectively "BDTV")                                     260
 Teleport Communications Group, Inc. ("TCG")                        277
 Various foreign equity investments (other than
     Telewest, Flextech p.l.c. and Cablevision S.A.)                266
 InterMedia Capital Partners IV, L.P. and InterMedia
     Capital Management IV, L.P.                                    262
 Flextech p.l.c. ("Flextech")                                       259
 Cablevision S.A. ("Cablevision")                                   236
 Home Shopping Network, Inc. ("HSN")                                147
 QVC, Inc.                                                          144
</TABLE>

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

<TABLE>
<CAPTION>
                                               Three months ended
Combined Operations                                 March 31,
                                          ----------------------------
                                              1998             1997
                                          -----------      -----------
                                              amounts in millions
<S>                                       <C>                    <C>
 Revenue                                  $     2,850            1,762
 Operating expenses                            (2,637)          (1,673)
 Depreciation and amortization                   (527)            (296)
                                          -----------      -----------

   Operating loss                                (314)            (207)

 Interest expense                                (383)            (176)
 Other, net                                       (76)            (124)
                                          -----------      -----------

   Net loss                               $      (773)            (507)
                                          ===========      ===========
</TABLE>


                                                                     (continued)





                                      I-17
<PAGE>   19


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         At March 31, 1998, the Company owned 24,471,086 shares of CSC Class A
         common stock, which had a closing market price of $65.75 per share on
         March 31, 1998. As described in note 6, the Company acquired such
         shares of CSC Class A common stock in March 1998.

         The Company is a partner in a series of partnerships formed to engage
         in the business of providing wireless communications services, using
         the radio spectrum for broadband personal communications services
         ("PCS"), to residential and business customers nationwide, using the
         "Sprint(R) brand (a registered trademark of Sprint Communications
         Company, L.P.) (the "PCS Ventures"). The PCS Ventures include Sprint
         Spectrum Holding Company, L. P. ("Sprint Spectrum") and MinorCo, L.P.
         (collectively, "Sprint PCS" or the "Sprint PCS Partnerships") and
         PhillieCo, L.P. ("PhillieCo"). The partners of each of the Sprint PCS
         Partnerships are subsidiaries of Sprint Corporation ("Sprint"), Comcast
         Corporation ("Comcast"), Cox Communications, Inc. ("Cox") and the
         Company. The partners of PhillieCo are subsidiaries of Sprint, Cox and
         the Company. The Company has a 30% partnership interest in each of the
         Sprint PCS Partnerships and a 35% interest as a partner in PhillieCo.
         During the three months ended March 31, 1998 and 1997, the PCS Ventures
         accounted for $155 million and $64 million, respectively, of the
         Company's share of affiliate losses.

         From inception through March 1998, the four partners have contributed
         approximately $4.2 billion to the Sprint PCS Partnerships (of which the
         Company contributed an aggregate of approximately $1.3 billion). The
         remaining capital that the Sprint PCS Partnerships will require to fund
         the construction and operation of the PCS systems and the commitments
         made to its affiliates will be substantial. The partners had agreed in
         forming the Sprint PCS Partnerships to contribute up to an aggregate of
         approximately $4.2 billion of equity thereto, from inception through
         fiscal 1999, subject to certain requirements. The Company expects that
         the remaining approximately $150 million of such amount (of which the
         Company's share is approximately $45 million) will be contributed by
         the end of the second quarter of 1998 (although there can be no
         assurance that any additional capital will be contributed). The Company
         expects that the Sprint PCS Partnerships will require additional equity
         thereafter.

         Sprint PCS's business plan will require additional capital financing
         prior to the end of 1998. Sources of funding for Sprint PCS's capital
         requirements may include vendor financing, public offerings or private
         placements of equity and/or debt securities, commercial bank loans
         and/or capital contributions from the Sprint PCS partners. However,
         there can be no assurance that any additional financing can be obtained
         on a timely basis, on terms acceptable to Sprint PCS or the Sprint PCS
         partners and within the limitations contained in the agreements
         governing Sprint PCS's existing debt.


                                                                     (continued)





                                      I-18
<PAGE>   20


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

         Furthermore, the fact that the proposed budget for Sprint PCS for
         fiscal 1998 has not yet been approved by the Sprint PCS partnership
         board has resulted in the occurrence of a "Deadlock Event" under the
         Sprint PCS partnership agreement as of January 1, 1998. Under the
         Sprint PCS partnership agreement, if one of the Sprint PCS partners
         refers the budget issue to the chief executive officers of the
         corporate parents of the Sprint PCS partners for resolution pursuant to
         specified procedures and the issue remains unresolved, buy/sell
         provisions would be triggered, which may result in the purchase by one
         or more of the Sprint PCS partners of the interests of the other Sprint
         PCS partners, or, in certain circumstances, liquidation of Sprint PCS.
         Discussions among the Sprint PCS partners about restructuring their
         interests in Sprint PCS in lieu of triggering such buy/sell procedures
         are ongoing. However, there is no certainty the discussions will result
         in a change to the partnership structure or will avert the triggering
         of the resolution and buy/sell procedures referred to above or a
         liquidation of Sprint PCS.

         On March 31, 1998, TCI owned 1,011,528 shares of TCG's Class A common
         stock and 48,779,000 shares of TCG's Class B common stock. TCG's Class
         A common stock had a closing price on the Nasdaq financial market of
         $58.75 per share on March 31, 1998.

         On April 22, 1998, TCG completed a merger transaction with ACC Corp.
         ("ACC") in which ACC shares were exchanged with shares of TCG in the
         ratio of .90909 share of TCG stock for each share of ACC stock. The
         transaction was valued at approximately $1.1 billion. As a result of
         such merger transaction, TCI's interest in TCG was reduced to
         approximately 26%.

         In January 1998, TCG entered into certain agreements pursuant to which
         it agreed to be acquired by AT&T Corporation ("AT&T"). Upon
         consummation of such merger, TCI would receive in exchange for all of
         its interest in TCG, approximately 46.95 million shares of AT&T common
         stock, which shares would be attributed to the TCI Ventures Group. The
         transaction is subject to a number of regulatory and other conditions,
         accordingly, there can be no assurance that such transaction will be
         consummated on the terms contemplated by the parties, or at all.


                                                                     (continued)





                                      I-19
<PAGE>   21


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         In February 1998, pursuant to an investment agreement among Universal
         Studios, Inc. ("Universal"), HSN, Inc. ("HSNI"), HSN and Liberty Media
         Group, dated as of October 1997 and amended and restated as of December
         1997, HSNI consummated a transaction (the "Universal Transaction")
         through which USA Networks Partners, Inc., a subsidiary of Universal,
         sold its 50% interest in USA Networks, Inc., a New York general
         partnership ("USAI") to HSNI and Universal contributed the remaining
         50% interest in USAI and its domestic television production and
         distribution operations to HSNI. Subsequent to these transactions, HSNI
         was renamed USAI. In connection with the Universal Transaction,
         Universal, USAI, HSN and Liberty Media Group became parties to a number
         of other agreements relating to, among other things, (i) the management
         of USAI, (ii) the purchase and sale or other transfer of voting
         securities of USAI, including securities convertible or exchangeable
         for voting securities of USAI, and (iii) the voting of such securities.
         As a result of the foregoing transactions, Liberty Media Group's
         ownership interest in USAI, which is held through BDTV, was reduced to
         18.6%.

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

         At the closing of the Universal Transaction, Liberty Media Group was
         issued approximately 1.2 million shares of USAI's Class B Common Stock,
         representing all of the remaining shares of USAI's Class B Common Stock
         issuable pursuant to Liberty Media Group's contractual right to receive
         shares of Class B common stock of USAI upon the occurrence of certain
         events. Of such shares, 800,000 shares of Class B Common Stock were
         contributed to BDTV IV INC., a newly-formed entity having substantially
         the same terms as BDTV INC., BDTV II INC. and BDTV III INC. (with the
         exception of certain transfer restrictions) in which Liberty Media
         Group owns over 99% of the equity and none of the voting power (except
         for protective rights with respect to certain fundamental corporate
         actions) and Barry Diller owns less than 1% of the equity and all of
         the voting power. In addition, Liberty Media Group purchased 10 LLC
         Shares at the closing of the Universal Transaction for an aggregate
         purchase price of $200. Liberty Media Group has also agreed to
         contribute $300 million in cash to USANi LLC by June 30, 1998 in
         exchange for an aggregate of 15 million LLC Shares and/or shares of
         USAI's Common Stock. Liberty Media Group's cash purchase price will
         increase at an annual interest rate of 7.5% beginning from the date of
         the closing of the Universal Transaction through the date of Liberty
         Media Group's purchase of such securities. Pursuant to the LLC Exchange
         Agreement, each LLC Share issued or to be issued to Liberty Media Group
         is exchangeable for one share of USAI's Common Stock.

                                                                     (continued)





                                      I-20
<PAGE>   22


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         In connection with the dilution of Liberty Media Group's ownership
         interest that resulted from the issuance of common stock by USAI, the
         Company recorded a $33 million increase to additional paid in capital
         (net of a deferred tax liability of $21 million) and an increase to
         investments in affiliates of $54 million. No gain was recognized due
         primarily to Liberty Media Group's commitment to purchase additional
         equity interests in USAI.

         In connection with the Universal Transaction, each of Universal and
         Liberty Media Group has been granted a preemptive right with respect to
         future issuances of USAI's capital stock, subject to certain
         limitations, to maintain their respective percentage ownership
         interests in USAI that they had immediately prior to such issuances. In
         addition, with respect to issuances of USAI's capital stock in certain
         specified circumstances, Universal will be obligated to maintain the
         percentage ownership interest in USAI that it had immediately prior to
         such issuances. During the first quarter of 1998, Liberty Media Group
         exercised its right to purchase approximately 4.7 million additional
         LLC shares or USAI shares of common stock pursuant to a preemptive
         right of $20 per share in cash, subject to receipt of regulatory
         approvals. This transaction is expected to close during the second
         quarter of 1998.

         USAI, Universal and Liberty Media Group have agreed that if the parties
         agree prior to June 30, 1998 (the date of mandatory cash contributions)
         on the identity of assets owned by Liberty Media Group that are to be
         contributed to the LLC and the form and terms of such contributions,
         Liberty Media Group will contribute those assets in exchange for LLC
         Shares valued at $20 per share. If Liberty Media Group contributes such
         additional assets, Liberty Media Group has the right to elect to reduce
         the number of LLC Shares it is obligated to purchase for cash by an
         amount equal to 45% of the value of the assets contributed by Liberty
         Media Group. If Liberty Media Group exercises the option to contribute
         assets and thereby reduces its cash contribution amount, Universal will
         be required to purchase a number of additional LLC shares (valued at
         $20 per share) equal to the value of Liberty Media Group's asset
         contribution, less the amount by which Liberty Media Group's asset
         contribution is applied towards reducing Liberty Media Group's cash
         contribution. In addition, Universal may purchase an additional number
         of LLC shares (valued at $20 per share), equal to the value of Liberty
         Media Group's asset contribution which is not applied towards reducing
         Liberty Media Group's cash contribution.

         Telewest is a company that is currently operating and constructing
         cable television and telephone systems in the United Kingdom ("UK").
         Telewest accounted for $30 million and $42 million of the Company's
         share of its affiliates' losses during the three months ended March 31,
         1998 and 1997, respectively.


                                                                     (continued)





                                      I-21
<PAGE>   23


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         On April 15, 1998, it was announced that Telewest and General Cable PLC
         ("General Cable") had agreed to the terms of a proposed merger (the
         "Merger Offer") in which holders of General Cable will be offered 1.243
         new Telewest shares and L.0.65 ($1.09) in cash for each share of
         General Cable. In addition, holders of American Depository shares of
         General Cable ("General Cable ADSs") (each representing five General
         Cable shares) will be offered 6.215 new Telewest shares and L.3.25
         ($5.43) in cash for each share of General Cable ADSs. Based upon
         Telewest's closing share price of L.0.89 ($1.49) on April 14, 1998, the
         Merger Offer is valued at approximately L.649 million ($1.1 billion).

         The cash portion of the Merger Offer will be financed through an offer
         to qualifying Telewest shareholders for the purchase of approximately
         261 million new Telewest shares at a price of L.0.925 ($1.55) per
         share. U S WEST, Inc. ("U S WEST"), Tele-Communications International,
         Inc. ("TINTA"), a majority-owned subsidiary of the Company, and Cox
         have agreed to subscribe for their full allocation of new Telewest
         shares (approximately 69 million shares in the case of TINTA) and to
         subscribe on a pro rata basis for any new Telewest shares not
         subscribed for by other Telewest shareholders. Together, U S WEST,
         TINTA and Cox held 67.9% of the issued and outstanding Telewest
         ordinary shares at March 31, 1998. In addition, it is anticipated that
         U S WEST, TINTA, Cox and SBC Communications, Inc. will convert their
         entire respective holdings of Telewest convertible preference shares
         into new Telewest shares. Following the issuance of new Telewest shares
         with respect to the above transactions, and assuming the exercise of
         all options under General Cable's share option schemes, it is
         anticipated that existing Telewest shareholders would hold 79% and
         existing General Cable shareholders would hold 21% of the then issued
         ordinary share capital of the combined group.

         Consummation of the merger is subject to (i) approval by the boards of
         directors of Telewest and General Cable, (ii) regulatory approval and
         (iii) other conditions. There can be no assurance that such merger will
         be consummated or consummated on the terms contemplated by the parties.

         On October 9, 1997, TINTA sold a portion of its 51% interest in
         Cablevision, a company engaged in the multi- channel video distribution
         business in Buenos Aires, Argentina, to unaffiliated third parties (the
         "Buyers") for cash proceeds of $120 million. In addition, on October 9,
         1997, Cablevision issued 3,541,829 shares of stock in the aggregate to
         the Buyers for $80 million in cash and notes receivable with an
         aggregate principal amount of $240 million, plus accrued interest at
         London Interbank Offered Rate ("LIBOR"), due within the earlier of two
         years or at the request of Cablevision's board of directors. The above
         transactions, (collectively, the "Cablevision Sale") reduced TINTA's
         interest in Cablevision to 26.2%. TINTA recognized a gain of $49
         million on the Cablevision Sale. As a result of the Cablevision Sale,
         effective October 1, 1997, TINTA ceased to consolidate Cablevision and
         began to account for Cablevision using the equity method of accounting.
         Cablevision accounted for $3 million of the Company's share of its
         affiliates' losses during the three months ended March 31, 1998.


                                                                     (continued)





                                      I-22
<PAGE>   24


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         In addition to Telewest and Cablevision, the Company has an equity
         method investment in Flextech, an entity engaged in the distribution
         and production of programming for multichannel video distribution
         systems in the UK, and other less significant equity method investments
         in video distribution and programming businesses located in the UK,
         other parts of Europe, Asia, Latin America and certain other foreign
         countries. In the aggregate, such other foreign equity method
         investments accounted for $20 million and $19 million of the Company's
         share of its affiliates' losses during the three months ended March 31,
         1998 and 1997, respectively.

         Certain of the Company's affiliates are general partnerships and any
         subsidiary of the Company that is a general partner in a general
         partnership is, as such, liable as a matter of applicable partnership
         law for all debts (other than non-recourse debts) of that partnership
         in the event liabilities of that partnership were to exceed its assets.

(5)      Investment in Time Warner

         Liberty Media Group holds approximately 57 million shares of a separate
         series of Time Warner common stock with limited voting rights (the "TW
         Exchange Stock"). Holders of the TW Exchange Stock are entitled to one
         one- hundredth (l/100th) of a vote for each share with respect to the
         election of directors. Holders of the TW Exchange Stock will not have
         any other voting rights, except as required by law or with respect to
         limited matters, including amendments of the terms of the TW Exchange
         Stock adverse to such holders. Subject to the federal communications
         laws, each share of the TW Exchange Stock will be convertible at any
         time at the option of the holder on a one-for-one basis for a share of
         Time Warner common stock. Holders of TW Exchange Stock are entitled to
         receive dividends ratably with the Time Warner common stock and to
         share ratably with the holders of Time Warner common stock in assets
         remaining for common stockholders upon dissolution, liquidation or
         winding up of Time Warner. See note 7.

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



                                                                     (continued)





                                      I-23
<PAGE>   25


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(6)      Acquisitions and Dispositions

         On March 4, 1998, the Company contributed to CSC certain of its cable
         television systems serving approximately 830,000 customers in exchange
         for approximately 24.5 million newly issued CSC Class A common shares
         (as adjusted for a stock dividend). Such shares represent an
         approximate 32.7% equity interest in CSC's total outstanding shares and
         an approximate 9% voting interest in CSC in all matters except for the
         election of directors, in which case the Company has an approximate 47%
         voting interest in the election of one-fourth of CSC's directors. CSC
         also assumed and repaid approximately $574 million of debt owed by the
         Company to external parties and $95 million of debt owed to the
         Company. As a result of this transaction, the Company recognized a
         $511 million gain in the accompanying consolidated statement of
         operations for the three months ended March 31, 1998. Such gain
         represents the excess of the $1,161 million fair value of the CSC
         Class A common shares received over the historical cost of the net
         assets transferred by the Company to CSC. The Company has also entered
         into letters of intent with CSC which provide for the Company to
         acquire a cable system in Michigan and an additional 3% of CSC's
         Class A common shares and for CSC to (i) acquire cable systems serving
         approximately 250,000 customers in Connecticut and (ii) assume $110
         million of the Company's debt. The ability of the Company to sell or
         increase its investment in CSC is subject to certain restrictions and
         limitations set forth in a stockholders agreement with CSC.

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

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

                                                                     (continued)





                                      I-24
<PAGE>   26


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Including the Q1 1998 Contribution Transactions and the above-described
         April 30, 1998 transaction, the Company, as of April 30, 1998, has,
         since January 1, 1997, contributed, or signed agreements or letters of
         intent to contribute within the next twelve months, certain cable
         television systems (the "Contributed Cable Systems") serving
         approximately 3.9 million basic customers to joint ventures in which
         the Company will retain non-controlling ownership interests (the
         "Contribution Transactions"). Following the completion of the
         Contribution Transactions, the Company will no longer consolidate the
         Contributed Cable Systems. Accordingly it is anticipated that the
         completion of the Contribution Transactions, as currently contemplated,
         will result in an aggregate estimated reduction (based on actual
         amounts with respect to the Q1 1998 Contribution Transactions and
         currently contemplated amounts with respect to the pending Contribution
         Transactions) to the Company's debt of $4.8 billion and aggregate
         estimated reductions (based on 1997 amounts) to the Company's annual
         revenue and annual operating income before depreciation, amortization
         and stock compensation of $1.8 billion and $815 million, respectively.
         No assurance can be given that any of the pending Contribution
         Transactions will be consummated.

         On January 12, 1998, the Company acquired from a minority shareholder
         of United Video Satellite Group, Inc. ("UVSG") 12.4 million shares of
         Class A common stock in exchange for 12.7 million shares of TCI
         Ventures Group Series A Stock and 7.3 million shares of Liberty Group
         Series A Stock. The aggregate $346 million value assigned to the shares
         issued by the Company was based upon the market value of such shares at
         the time the transaction was announced. As a result of such
         transaction, the Company increased its ownership in the equity of UVSG
         to approximately 73%, of which 17% is attributed to Liberty Media Group
         and 56% is attributed to TCI Ventures Group. In addition, TCI's
         collective voting power increased to 93%.

         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 and is being amortized over five years.
         (continued)





                                      I-25
<PAGE>   27


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         In April 1998, UVSG, Liberty Media Group and Turner Vision (the
         "Superstar/Netlink Owners") announced an agreement in principal with
         PRIMESTAR, Inc. ("PRIMESTAR") for the sale of Superstar/Netlink (the
         "PRIMESTAR Transaction"). The Superstar/Netlink Owners have agreed to
         an aggregate sales price of approximately $480 million based on the
         delivery of 1.2 million C-band subscribers at the close of the
         transaction. The consideration paid will be in the form of
         approximately $430 million in new convertible preferred stock of
         PRIMESTAR and approximately $50 million in assumed programming
         liabilities. The preferred stock will be convertible into approximately
         44.8 million shares of PRIMESTAR Class A common stock. Such preferred
         stock will also bear a 6% cumulative dividend, payable in cash, shares
         of PRIMESTAR Class A common stock or, under certain circumstances,
         shares of TCI Satellite Entertainment, Inc. Series A common stock, as
         PRIMESTAR shall elect. Consummation of the agreement is subject to
         certain conditions including receipt of applicable regulatory
         approvals. No assurance can be given that such transaction will be
         consummated or consummated on the terms contemplated by the parties.

         In February 1998, TCI, Liberty Media Group and UVSG announced an
         agreement in principal for UVSG to acquire Liberty Media Group's 40%
         interest in Superstar/Netlink and its 100% interest in certain
         businesses conducted under the name Netlink International in exchange
         for 6.4 million shares of UVSG's common stock. Liberty Media Group and
         UVSG have agreed in principal to restructure their transaction to
         provide for UVSG to acquire any shares of PRIMESTAR preferred stock
         received by Liberty Media Group in the PRIMESATR Transaction and
         Liberty Media Group's Netlink International businesses for 6.4 million
         shares of UVSG Class B common stock. The Netlink International
         businesses are being operated by Liberty Media Group for the benefit of
         UVSG from April 1, 1998 to the closing of the sale thereof.
         Consummation of the transaction between Liberty Media Group and UVSG is
         subject to the signing of a definitive agreement following receipt by
         UVSG of a satisfactory fairness opinion, UVSG stockholder approval and
         certain regulatory approvals. No assurance can be given that such
         transaction will be consummated.

(7)      Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                                March 31,           December 31,
                                                                                  1998                 1997       
                                                                               -----------          -----------
                                                                                      amounts in millions
                  <S>                                                          <C>                       <C>
                  Notes payable (a)                                            $     9,284                9,017
                  Bank credit facilities (b)                                         4,383                5,233
                  Commercial paper                                                     528                  533
                  Convertible notes (c)                                                 40                   40
                  Capital lease obligations and other debt                             408                  427
                                                                               -----------          -----------

                                                                               $    14,643               15,250
                                                                               ===========          ===========
</TABLE>

                                                                     (continued)





                                      I-26
<PAGE>   28


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

(b)     At March 31, 1998, subsidiaries of the Company had approximately $2.8
        billion in unused lines of credit, excluding amounts related to lines
        of credit which provide availability to support commercial paper.

        As security for borrowings under one of the Company's credit
        facilities, the Company has pledged a portion of its Time Warner common
        stock with an estimated market value of $1.6 billion, based upon the
        market value of the marketable common stock into which it is
        convertible.

        Certain of TCI's subsidiaries are required to maintain unused
        availability under bank credit facilities to the extent of outstanding
        commercial paper.  Also, certain of TCI's subsidiaries pay fees ranging
        from 1/4% to 1/2% per annum on the average unborrowed portion of the
        total amount available for borrowings under bank credit facilities.

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

The bank credit facilities and various other debt instruments of the Company's
subsidiaries generally contain restrictive covenants which require, among other
things, the maintenance of certain earnings, specified cash flow and financial
ratios (primarily the ratios of cash flow to total debt and cash flow to debt
service, as defined), and include certain limitations on indebtedness,
investments, guarantees, dispositions, stock repurchases and/or dividend
payments.

The fair value of the debt of the Company's subsidiaries is estimated based on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.  At March 31,
1998, the fair value of the Company's debt was $15,395 million, as compared to
a carrying value of $14,643 million on such date.


                                                                     (continued)





                                      I-27
<PAGE>   29


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

Information concerning the Company's Variable Rate Agreements at March 31, 1998
is as follows (dollar amounts in millions):


<TABLE>
<CAPTION>
                                                                     Amount to be paid
        Expiration             Interest rate           Notional       (received) upon
           date                to be received           amount        termination (a)
      --------------           --------------           ------        -------------- 
<S>                              <C>                   <C>                 <C>
September 1998                   4.8%-5.4%             $  450              $   1
April 1999                          7.4%                   50                 (1)
September 1999                      6.4%                  350                 (2)
February 2000                    5.8%-6.6%                300                 (2)
March 2000                       5.8%-6.0%                675                 --
September 2000                      5.1%                   75                  2
March 2027                          9.7%                  300                (18)
December 2036                       9.7%                  200                 (7)
                                                       ------              ----- 

                                                       $2,400              $ (27)
                                                       ======              ===== 
</TABLE>

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

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

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

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


                                                                     (continued)





                                      I-28
<PAGE>   30


                   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 March 31, 1998.

(8)      Redeemable Preferred Stock

         On February 20, 1998, the Company issued a Notice of Redemption which
         called for the redemption, on April 1, 1998 of all of its outstanding
         Series D Preferred Stock for a redemption price of $304.0233 per share.
         During the first quarter of 1998, 988,776 shares of Series D Preferred
         Stock were converted into 9,887,760 shares of TCI Group Series A Stock
         and 5,561,741 shares of Liberty Group Series A Stock.

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

         The Trust Preferred Securities are presented together in a separate
         line item in the accompanying consolidated balance sheets captioned
         "Company-obligated mandatorily redeemable preferred securities of
         subsidiary trusts holding solely subordinated debt securities of TCI
         Communications, Inc." Dividends accrued on the Trust Preferred
         Securities aggregated $35 million and $25 million during the three
         months ended March 31, 1998 and 1997, respectively, and are included in
         minority interests in earnings of consolidated subsidiaries in the
         accompanying consolidated financial statements.


                                                                     (continued)





                                      I-29
<PAGE>   31


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(10)     Stockholders' Equity

         Stock Repurchases

         During the three months ended March 31, 1998, pursuant to the stock
         repurchase program, 66,041 shares of TCI Group Series A Stock, 61,450
         shares of TCI Ventures Group Series A Stock, 94,000 shares of TCI
         Ventures Group Series B Stock and 44,283 shares of Liberty Group Series
         A Stock were repurchased at an aggregate cost of $5 million. Such
         shares are reflected as treasury stock in the accompanying consolidated
         financial statements.

         Treasury Stock and Common Stock Held by Subsidiaries, at Cost

<TABLE>
<CAPTION>
                                                     March 31, 1998                  December 31, 1997      
                                             ------------------------------   ------------------------------
                                               Number of                        Number of
                                                 shares        Cost basis         shares        Cost basis  
                                             --------------  --------------   --------------  --------------
                                                               (dollar amounts in millions)
<S>                                              <C>         <C>                  <C>         <C>           
       Treasury stock is summarized as
          follows:
            TCI Group Series A Stock             22,902,820  $          505       11,296,324  $          180
            TCI Group Series B Stock             30,876,766             518       30,876,766             518
            Liberty Group Series A Stock         25,126,455             490       25,082,172             489
            Liberty Group Series B Stock             82,074               2           82,074               2
            TCI Ventures Group Series A
            Stock                                13,259,792             211               --              --
            TCI Ventures Group Series B
            Stock                                   432,196               5          338,196               4

       Common stock held by subsidiaries
          is summarized as follows:
            TCI Group Series A Stock            125,645,656             464      125,645,656             464
            TCI Group Series B Stock              9,112,500             160        9,112,500             160
            Liberty Group Series A Stock          6,654,367             113        6,654,367             113
            Liberty Group Series B Stock          3,417,187              61        3,417,187              61
                                                             --------------                   --------------
                                                             $        2,529                   $        1,991
                                                             ==============                   ==============
</TABLE>

         Stock Based Compensation

         Certain key employees of the Company and members of the Board hold
         options with tandem stock appreciation rights ("SARs") to acquire TCI
         Group Series A Stock, Liberty Group Series A Stock and TCI Ventures
         Group Series A Stock as well as restricted stock awards of TCI Group
         Series A Stock, Liberty Group Series A Stock and TCI Ventures Group
         Series A Stock. Estimates of compensation relating to SARs granted to
         such employees of the Company have been recorded in the accompanying
         consolidated financial statements pursuant to Accounting Principles
         Board Opinion No. 25. Such estimates are subject to future adjustment
         based upon vesting of the related stock options and stock appreciation
         rights and the market value of TCI Group Series A Stock, Liberty Group
         Series A Stock and TCI Ventures Group Series A Stock (see note 1) and,
         ultimately, on the final determination of market value when the rights
         are exercised.

                                                                     (continued)





                                      I-30
<PAGE>   32


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Other

         During the fourth quarter of 1997, the Company entered into a Total
         Return Equity Swap Facility (the "Equity Swap Facility"). Pursuant to
         the Equity Swap Facility, the Company has the right to direct the
         counterparty (the "Counterparty") to use the Equity Swap Facility to
         purchase shares ("Equity Swap Shares") of TCI Group Series A Stock and
         TCI Ventures Group Series A Stock with an aggregate purchase price of
         up to $300 million. The Company has the right, but not the obligation,
         to purchase Equity Swap Shares through the September 30, 2000
         termination date of the Equity Swap Facility. During such period, the
         Company is to settle periodically any increase or decrease in the
         market value of the Equity Swap Shares. If the market value of the
         Equity Swap Shares exceeds the Counterparty's cost, Equity Swap Shares
         with a fair value equal to the difference between the market value and
         cost will be segregated from the other Equity Swap Shares. If the
         market value of Equity Swap Shares is less than the Counterparty's
         cost, the Company, at its option, will settle such difference with
         shares of TCI Group Series A Stock or TCI Ventures Group Series A Stock
         or, subject to certain conditions, with cash or letters of credit. In
         addition, the Company is required to periodically pay the Counterparty
         a fee equal to a LIBOR-based rate on the Counterparty's cost to acquire
         the Equity Swap Shares. Due to the Company's ability to issue shares to
         settle periodic price fluctuations and fees under the Equity Swap
         Facility, the Company records all amounts received or paid under this
         arrangement as increases or decreases, respectively, to equity. As of
         March 31, 1998, the Equity Swap Facility had acquired 2,089,480 shares
         of TCI Group Series A Stock and 513,500 shares of TCI Ventures Group
         Series A Stock at an aggregate cost that was approximately $10 million
         less than the fair value of such Equity Swap Shares at March 31, 1998.

         The excess of consideration received on the conversion of debentures or
         preferred stock or the exercise of options over the par value of the
         stock issued is credited to additional paid-in capital.

         At March 31, 1998, there were 99,247,030 shares of TCI Group Series A
         Stock, 39,286,137 shares of Liberty Group Series A Stock and 34,412,229
         shares of TCI Ventures Group Series A Stock reserved for issuance under
         exercise privileges related to options, convertible debt securities and
         convertible preferred stock. Also, one share of TCI Group Series A
         Stock is reserved for each share of TCI Group Series B Stock, one share
         of Liberty Group Series A Stock is reserved for each share of Liberty
         Group Series B Stock and one share of TCI Ventures Group Series A Stock
         is reserved for each share of TCI Ventures Group Series B Stock.
         Additionally, subsidiaries of TCI own an aggregate of 278,307 shares of
         TCI Convertible Redeemable Participating Preferred Stock, Series F
         ("Series F Preferred Stock"). Each share of Series F Preferred Stock is
         convertible into 1,496.65 shares of TCI Group Series A Stock.


                                                                     (continued)





                                      I-31
<PAGE>   33


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(11)     Transactions with Officers and Directors

         On June 16, 1997, the Company exchanged (the "Exchange") 30,545,864
         shares of TCI Group Series A Stock for the same number of shares of TCI
         Group Series B Stock owned by the Estate of Bob Magness (the "Magness
         Estate"), the late founder and former Chairman of the Board of TCI.
         Subsequent to the Exchange, the Magness Estate sold (the "Sale") the
         shares of TCI Group Series A Stock received in the Exchange, together
         with approximately 1.5 million shares of TCI Group Series A Stock that
         the Magness Estate previously owned (collectively, the "Option
         Shares"), to two investment banking firms (the "Investment Bankers")
         for approximately $530 million (the "Sale Price"). Subsequent to the
         Sale, TCI entered into an agreement with the Investment Bankers whereby
         TCI has the option, but not the obligation, to purchase the Option
         Shares at any time within two years (the "Option Period") from the date
         of the Sale. During the Option Period, the Company and the Investment
         Bankers are to settle quarterly any increase or decrease in the market
         value of the Option Shares. If the market value of the Option Shares
         exceeds the Investment Bankers' cost, Option Shares with a fair value
         equal to the difference between the market value and cost will be
         segregated from the other Option Shares in an account at the Investment
         Bankers. If the market value of the Option Shares is less than the
         Investment Bankers' cost, the Company, at its option, will settle such
         difference with shares of TCI Group Series A Stock or TCI Ventures
         Group Series A Stock or, subject to certain conditions, with cash or
         letters of credit. In addition, the Company is required to pay the
         Investment Bankers a quarterly fee equal to the LIBOR plus 1% on the
         Sale Price, as adjusted for payments made by the Company pursuant to
         any quarterly settlement with the Investment Bankers. Due to the
         Company's ability to settle quarterly price fluctuations and fees with
         shares of TCI Group Series A Stock or TCI Ventures Group Series A Stock
         the Company records all amounts received or paid under this arrangement
         as increases or decreases, respectively, to equity. During the fourth
         quarter of 1997, the Company repurchased 4,000,000 shares of TCI Group
         Series A Stock from one of the Investment Bankers for an aggregate cash
         purchase price of $66 million. Additionally, as a result of the
         Exchange Offers and certain open market transactions, the Investment
         Bankers disposed of 4,210,308 shares of TCI Group Series A Stock and
         acquired 23,407,118 shares of TCI Ventures Group Series A Stock during
         the last half of 1997. As a result of the foregoing transactions and
         certain transactions related to the January 5, 1998 settlement of
         litigation involving the Magness Estate, as described below, the Option
         Shares were comprised of 6,201,042 shares of TCI Group Series A Stock
         and 11,740,610 shares of TCI Ventures Group Series A Stock at March 31,
         1998. At March 31, 1998, the market value of the Option Shares exceeded
         the Investment Bankers' cost by $201 million.

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

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


                                                                     (continued)





                                      I-32
<PAGE>   34


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

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

         Also on February 9, 1998, in connection with the Magness Settlement,
         certain members of the Magness family, individually, and in certain
         cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
         Magness) and the Magness Estate (collectively, the "Magness Family")
         also entered into a call agreement with TCI (with substantially the
         same terms as the one entered into by the Malones, including a call on
         the shares owned by the Magness Family upon Dr. Malone's death) (the
         "Magness Call Agreement") on the Magness Family's aggregate of
         approximately 49 million High-Voting Shares. The Magness Family was
         paid $124 million by TCI for entering into the Magness Call Agreement.
         Additionally, on February 9, 1998, the Magness Family entered into a
         shareholders' agreement (the "Shareholders' Agreement") with the
         Malones and TCI under which (i) the Magness Family and the Malones
         agree to consult with each other in connection with matters to be
         brought to the vote of TCI's shareholders, subject to the proviso that
         if they cannot mutually agree on how to vote the shares, Dr. Malone has
         an irrevocable proxy to vote the High-Voting Shares owned by the
         Magness Family, (ii) the Magness Family may designate a nominee for
         TCI's Board of Directors and Dr. Malone has agreed to vote his High
         Voting Shares for such nominee and (iii) certain "tag along rights"
         have been created in favor of the Magness Family and certain "drag
         along rights" have been created in favor of the Malones. In addition,
         the Malone Right granted by TCI to Dr. Malone to acquire 30,545,864
         shares of TCI Group Series B Stock has been reduced to an option to
         acquire 14,511,570 shares of TCI Group Series B Stock. Pursuant to the
         terms of the Shareholders' Agreement, the Magness Family has the right
         to participate in the reduced Malone Right on a proportionate basis
         with respect to 12,406,238 shares of the 14,511,570 shares subject to
         the Malone Right.


                                                                     (continued)





                                      I-33
<PAGE>   35


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

(12)     At Home Corporation

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

         @Home has entered into exclusive distribution agreements with certain
         cable operators. In connection with the distribution agreements, @Home
         has issued warrants to such cable operators to purchase 17,946,956
         shares of @Home's Series A common stock. Of these warrants, warrants to
         purchase 10,581,298 shares were exercisable as of March 31, 1998.
         During the first quarter of 1998, @Home recorded a non-cash,
         non-recurring charge of $83 million to operations based on the fair
         value of 2,705,514 shares which were underlying warrants which became
         exercisable during the period. Such charges are included in cost of
         distribution agreements in the accompanying consolidated statements of
         operations. @Home may issue additional stock, or warrants in connection
         with its efforts to expand its distribution of the @Home service to
         other cable operators. The exercise of warrants or stock issued by
         @Home will reduce the Company's equity interest and voting power in
         @Home.

(13)     Commitments and Contingencies

         On October 5, 1992, the United States Congress enacted the Cable
         Television Consumer Protection and Competition Act of 1992 (the "1992
         Cable Act"). In 1993 and 1994, the Federal Communications Commission
         (the "FCC") adopted certain rate regulations required by the 1992 Cable
         Act and imposed a moratorium on certain rate increases. As a result of
         such actions, the Company's basic and tier service rates and its
         equipment and installation charges (the "Regulated Services") are
         subject to the jurisdiction of local franchising authorities and the
         FCC. Basic and tier service rates are evaluated against competitive
         benchmark rates as published by the FCC, and equipment and installation
         charges are based on actual costs. Any rates for Regulated Services
         that exceeded the benchmarks were reduced as required by the 1993 and
         1994 rate regulations. The rate regulations do not apply to the
         relatively few systems which are subject to "effective competition" or
         to services offered on an individual service basis, such as premium
         movie and pay-per-view services.


                                                                     (continued)





                                      I-34
<PAGE>   36


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         The Company believes that it has complied in all material respects with
         the provisions of the 1992 Cable Act, including its rate setting
         provisions. However, the Company's rates for Regulated Services are
         subject to review by the FCC, if a complaint has been filed by a
         customer, or the appropriate franchise authority, if such authority has
         been certified by the FCC to regulate rates. If, as a result of the
         review process, a system cannot substantiate its rates, it could be
         required to retroactively reduce its rates to the appropriate benchmark
         and refund the excess portion of rates received. Any refunds of the
         excess portion of tier service rates would be retroactive to the date
         of complaint. Any refunds of the excess portion of all other Regulated
         Service rates would be retroactive to one year prior to the
         implementation of the rate reductions.

         The Company is obligated to pay fees for the rights to exhibit certain
         films that are released by various producers through 2017 (the "Film
         Licensing Obligations"). Based on customer levels at March 31, 1998,
         these agreements require minimum payments aggregating approximately
         $678 million. The aggregate amount of the Film Licensing Obligations
         under other 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, the Company anticipates that its aggregate
         payments under the Film Licensing Obligations will be significant.

         As described in notes 4 and 6, the Company has significant commitments
         and contingent obligations with respect to certain of its affiliates.

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

         During the third quarter of 1997, the Company committed to purchase
         billing services from an unaffiliated third party pursuant to three
         successive five year agreements. Pursuant to this arrangement the
         Company is obligated to make minimum payments aggregating approximately
         $1.6 billion through 2012. Such minimum payments are subject to
         inflation and other adjustments pursuant to the terms of the underlying
         agreements.

         The Company has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $490 million at March 31, 1998. With respect to the
         Company's guarantees of $166 million of such obligations, TCI has been
         indemnified for any loss, claim or liability that TCI may incur, by
         reason of such guarantees. The Company also has guaranteed the
         performance of certain affiliates and other parties with respect to
         such parties' contractual and other obligations. Although there can be
         no assurance, management of the Company believes that it will not be
         required to meet its obligations under such guarantees, or if it is
         required to meet any of such obligations, that they will not be
         material to the Company.


                                                                     (continued)





                                      I-35
<PAGE>   37


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         TINTA has guaranteed the obligation of an affiliate ("The Premium Movie
         Partnership") to pay fees for the license to exhibit certain films
         through 2000. Although the aggregate amount of The Premium Movie
         Partnership's license fee obligations is not currently estimable, TINTA
         believes that the aggregate payments pursuant to such obligations could
         be significant. If TINTA were to fail to fulfill its obligations under
         the guarantee, the beneficiaries have the right to demand an aggregate
         payment from TINTA of approximately $42 million. Although TINTA has not
         had to perform under such guarantee to date, TINTA cannot be certain
         that it will not be required to perform under such guarantee in the
         future.

         On July 11, 1997, TCI Music, Inc. ("TCI Music") merged with DMX, Inc.
         (the "DMX Merger"). Assuming the conversion of TCI Music convertible
         preferred stock, TCI, at March 31, 1998, owned TCI Music securities
         representing 80.7% of TCI Music's common stock and 97.4% of the voting
         power attributable to such TCI Music common stock. In connection with
         the DMX Merger, the Company assumed a contingent obligation to purchase
         14,896,648 shares (6,812,393 of which are owned by subsidiaries of the
         Company) of TCI Music common stock at a price of $8.00 per share. Such
         obligation may be settled, at the Company's option, with shares of TCI
         Group Series A Stock or with cash. The Company has recorded its
         contingent obligation to purchase such shares as a component of
         minority interest in equity of consolidated subsidiaries in the
         accompanying consolidated financial statements.

         Effective as of December 16, 1997, National Digital Television Center,
         Inc. ("NDTC"), a subsidiary of TCI which is attributed to of the TCI
         Ventures Group, on behalf of TCIC and other cable operators that may be
         designated from time to time by NDTC ("Approved Purchasers"), entered
         into an agreement (the "Digital Terminal Purchase Agreement") with
         General Instrument Corporation (formerly NextLevel Systems, Inc., "GI")
         to purchase advanced digital set-top devices. The hardware and software
         incorporated into these devices will be designed and manufactured to be
         compatible and interoperable with the OpenCable(TM) architecture
         specifications adopted by CableLabs, the cable television industry's
         research and development consortium, in November 1997. NDTC has agreed
         that Approved Purchasers will purchase, in the aggregate, a minimum of
         6.5 million set-top devices during calendar years 1998, 1999 and 2000
         at an average price of $318 per set-top device. GI agreed to provide
         NDTC and its Approved Purchasers the most favorable prices, terms and
         conditions made available by GI to any customer purchasing advanced
         digital set-top devices. In connection with NDTC's purchase commitment,
         GI agreed to grant warrants to purchase its common stock proportional
         to the number of devices ordered by each organization, which as of the
         effective date of the Digital Terminal Purchase Agreement, would have
         represented at least a 10% equity interest in GI (on a fully diluted
         basis). It is anticipated that the value associated with such equity
         interest would be attributed to TCI Group upon purchase and deployment
         of the digital set-top devices.


                                                                     (continued)





                                      I-36
<PAGE>   38


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Also in December 1997, NDTC entered into a memorandum of understanding
         with GI which contemplates the sale to GI of certain of the assets of
         NDTC's set-top authorization business, the license of certain related
         technology to GI, and an additional cash payment in exchange for
         approximately 21.4 million shares of stock of GI. In connection
         therewith, NDTC would also enter into a services agreement pursuant to
         which it will provide certain services to GI's set-top authorization
         business. The transaction is subject to the signing of definitive
         agreements; accordingly, there can be no assurance that it will be
         consummated.

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

         During the three months ended March 31, 1998, the Company continued its
         enterprise-wide comprehensive review of its computer systems and
         related software to ensure systems properly recognize the year 2000 and
         continue to process business information. The systems being evaluated
         include all internal use software and devices and those systems and
         devices that manage the distribution of the Company's products. The
         Company is utilizing both internal and external resources to identify,
         correct or reprogram, and test systems for year 2000 readiness.

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

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


                                                                     (continued)





                                      I-37
<PAGE>   39


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

         The Company's assessment of the impact of the year 2000 date change
         should be complete by the end of 1998. The Company continues to
         evaluate the level of validation it will require of third parties
         to ensure their year 2000 readiness. Management of the Company has not
         yet determined the cost associated with its year 2000 readiness efforts
         and the related potential impact on the Company's results of operations
         but has identified certain cost elements that, in the aggregate, are
         not expected to be less than $20 million. Amounts expended to date have
         not been material, although there can be no assurance that costs
         ultimately required to be paid to ensure the Company's year 2000
         readiness will not have an adverse effect on the Company's financial
         position. Additionally, 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 an adverse effect on its
         financial position.

         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)     Information about the Company's Segments

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

                                                                     (continued)





                                      I-38
<PAGE>   40


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         The accounting policies of the segments are the same as those described
         in the summary of significant accounting policies. The Company
         evaluates performance based on a measure of operating cash flow
         (defined as operating income before depreciation, amortization, stock
         compensation and cost of distribution agreement). The Company generally
         accounts for intersegment sales and transfers as if the sales or
         transfers were to third parties, that is, at current market prices.

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

<TABLE>
<CAPTION>
                                                 Domestic cable           Domestic
                                                & communications         programming          All
                                                     services              services           other           Total  
                                                ----------------         -----------        --------         -------
                                                                              amounts in millions
<S>                                             <C>                      <C>                <C>              <C>
   Three months ended March 31, 1998:

   Revenue from external
      customers including
      intersegment revenue                         $      1,577               157              211            1,945
   Intersegment revenue                                      (5)               72                6               73
   Segment operating cash flow                              656                28               22              706

   Three months ended March 31, 1997:

   Revenue from external
      customers including
      intersegment revenue                         $      1,555                59              247            1,861
   Intersegment revenue                                       6                23                5               34
   Segment operating cash flow                              664                25               49              738
 </TABLE>


                                                                     (continued)





                                      I-39
<PAGE>   41


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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


<TABLE>
<CAPTION>

                                                                  Three months ended March 31,
                                                                  --------------------------
                                                                     1998            1997 
                                                                  ----------      ----------
                                                                      amounts in millions
<S>                                                               <C>                    <C>
 Total operating cash flow for reportable segments                $      684             689
 Other operating cash flow                                                22              49
 Other items excluded from operating cash flow:
         Depreciation and amortization                                  (423)           (374)
         Stock compensation                                             (229)            (15)
         Cost of distribution agreements                                 (83)           --
         Interest expense                                               (285)           (289)
         Interest and dividend income                                     21              21
         Share of losses of affiliates, net                             (238)           (156)
         Loss on early extinguishment of debt                            (16)           --
         Minority interest in losses (earnings) of
            consolidated subsidiaries, net                                14             (38)
         Gain on issuance of equity interest by subsidiary                38            --
         Gain on disposition of assets                                 1,063              19
         Other, net                                                      (10)             (2)
                                                                  ----------      ----------
            Earnings (loss) before income taxes                   $      558             (96)
                                                                  ==========      ==========

</TABLE>





                                      I-40
<PAGE>   42
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)


                             Combined Balance Sheets
                                   (unaudited)


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

 Cash and cash equivalents                                                          $     --               56

 Trade and other receivables, net                                                          408            394

 Investment in Cablevision Systems Corporation ("CSC"), accounted for under the
    equity method (note 4)                                                               1,130           --

 Investments in other affiliates, accounted for under the equity method, and
    related receivables (note 5)                                                           246            414

 Property and equipment, at cost:
    Land                                                                                    74             77
    Distribution systems                                                                 9,643          9,933
    Support equipment and buildings                                                      1,353          1,411
                                                                                    ----------     ----------
                                                                                        11,070         11,421
    Less accumulated depreciation                                                        4,469          4,479
                                                                                    ----------     ----------
                                                                                         6,601          6,942
                                                                                    ----------     ----------

 Franchise costs                                                                        16,903         17,802
    Less accumulated amortization                                                        2,666          2,725
                                                                                    ----------     ----------
                                                                                        14,237         15,077
                                                                                    ----------     ----------

 Other assets, net of amortization                                                         665            695
                                                                                    ----------     ----------

                                                                                    $   23,287         23,578
                                                                                    ==========     ==========
</TABLE>


                                                                     (continued)




                                      I-41
<PAGE>   43

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


                       Combined Balance Sheets, continued
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                 March 31,       December 31,
                                                                                    1998            1997
                                                                                 ----------      ----------
 Liabilities and Combined Deficit                                                   amounts in millions
<S>                                                                              <C>                    <C>
 Accounts payable                                                                $      163             137

 Accrued interest                                                                       169             250

 Accrued programming expenses                                                           261             243

 Other accrued expenses                                                                 660             726

 Debt (note 7)                                                                       13,426          14,106

 Deferred income taxes                                                                5,462           5,147

 Other liabilities                                                                      638             563
                                                                                 ----------      ----------

       Total liabilities                                                             20,779          21,172
                                                                                 ----------      ----------

 Minority interests in equity of attributed subsidiaries                                910           1,048

 Redeemable securities:
    Preferred stock (note 8)                                                            312             655
    Common stock                                                                         21               5

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

 Combined deficit (note 10):
    Combined equity (deficit), including preferred stocks of
       Tele-Communications, Inc. ("TCI")                                                225            (276)
    Accumulated other comprehensive earnings, net of taxes (note 1)                       5               4
                                                                                 ----------      ----------
                                                                                        230            (272)

    Due from related parties (note 11)                                                 (465)           (530)
                                                                                 ----------      ----------

       Total combined deficit                                                          (235)           (802)
                                                                                 ----------      ----------

 Commitments and contingencies (note 14)

                                                                                 $   23,287          23,578
                                                                                 ==========      ==========
</TABLE>

See accompanying notes to combined financial statements.



                                      I-42
<PAGE>   44





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

                        Combined Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                               Three months ended
                                                                                   March 31,
                                                                          -----------------------------
                                                                             1998              1997*
                                                                          -----------       -----------
                                                                           amounts in millions, except
                                                                                per share amounts

<S>                                                                       <C>                     <C>  
 Revenue (note 11)                                                        $     1,577             1,555

 Operating costs and expenses:
     Operating:
       Related party (note 11)                                                     60                29
       Other                                                                      527               546
     Selling, general and administrative (note 11)                                334               316
     Stock compensation (note 10)                                                  70                 2
     Depreciation and amortization                                                376               332
                                                                          -----------       -----------
                                                                                1,367             1,225
                                                                          -----------       -----------

         Operating income                                                         210               330

 Other income (expense):
     Interest expense                                                            (273)             (273)
     Interest income                                                                5                 7
     Intercompany interest, net                                                     5                (2)
     Share of losses of CSC (note 4)                                              (32)             --
     Share of earnings (losses) of other affiliates, net (note 5)                  52               (17)
     Loss on early extinguishment of debt (note 7)                                (16)             --
     Minority interests in earnings of attributed subsidiaries, net
       (note 9)                                                                   (46)              (34)
     Gain (loss) on disposition of assets (note 6)                                511               (10)
     Other, net                                                                   (14)               (4)
                                                                          -----------       -----------
                                                                                  192              (333)
                                                                          -----------       -----------

         Earnings (loss) before income taxes                                      402                (3)

 Income tax (expense) benefit                                                    (164)                6
                                                                          -----------       -----------

         Earnings before loss of TCI Ventures Group (note 1)                      238                 3

 Loss of TCI Ventures Group through the date of the TCI Ventures
     Exchange (note 1)                                                           --                 (77)
                                                                          -----------       -----------

         Net earnings (loss)                                                      238               (74)

 Dividend requirements on preferred stocks                                        (11)              (10)
                                                                          -----------       -----------

         Net earnings (loss) attributable to common stockholders          $       227               (84)
                                                                          ===========       ===========

 Basic earnings (loss) attributable to common stockholders per common
     share (note 2)                                                       $       .44              (.12)
                                                                          ===========       ===========

 Diluted earnings (loss) attributable to common stockholders per
     common share (note 2)                                                $       .38              (.12)
                                                                          ===========       ===========

 Comprehensive earnings (loss) (note 1)                                   $       239               (70)
                                                                          ===========       ===========
</TABLE>

*Restated - see note 1.

See accompanying notes to combined financial statements.



                                      I-43
<PAGE>   45





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


                          Statement of Combined Deficit

                        Three months ended March 31, 1998
                                   (unaudited)



<TABLE>
<CAPTION>
                                                                     Combined
                                                                      equity
                                                                    (deficit),       Accumulated
                                                                     including          other            Due
                                                                     preferred       comprehensive      from             Total
                                                                     stocks of        earnings,        related         combined
                                                                        TCI         net of taxes       parties          deficit
                                                                    -----------      -----------     -----------      -----------
                                                                                        amounts in millions
<S>                                                                 <C>              <C>             <C>              <C>  
 Balance at January 1, 1998                                         $      (276)               4            (530)            (802)
    Net earnings                                                            238             --              --                238
    Change in due from related parties                                     --               --                65               65
    Reclassification to redeemable securities of redemption
       amount of TCI Group Stock subject to put obligations                 (16)            --              --                (16)
    Premium received in connection with put obligation                        2             --              --                  2
    Transfer of net liabilities from related party                          (50)            --              --                (50)
    Change in unrealized gains for available-for-sale
       securities, net of taxes                                            --                  1            --                  1
    Accreted dividends on all classes of TCI preferred stock                (11)            --              --                (11)
    Accreted dividends on all classes of TCI preferred stock
       not subject to mandatory redemption requirements                       2             --              --                  2
    Payment of TCI preferred stock dividends                                (10)            --              --                (10)
    Payment of call premiums (note 12)                                     (134)            --              --               (134)
    Reimbursement of fees related to Exchange (note 12)                      11             --              --                 11
    Repurchase of TCI Group Stock                                            (2)            --              --                 (2)
    Gain from contribution of cable television systems to joint
       ventures, net of taxes (note 6)                                       58             --              --                 58
    Issuance of TCI Group Stock in connection with settlement
       of litigation                                                         50             --              --                 50
    Issuance of TCI Group Stock for acquisitions (note 3)                    24             --              --                 24
    Issuance of TCI Group Stock and Liberty Group Stock upon
       conversion of notes and preferred stock                              339             --              --                339
                                                                    -----------      -----------     -----------      -----------

 Balance at March 31, 1998                                          $       225                5            (465)            (235)
                                                                    ===========      ===========     ===========      ===========
</TABLE>


See accompanying notes to combined financial statements.



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

                        Combined Statements of Cash Flows
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                         Three months ended
                                                                                             March 31,
                                                                                   -----------------------------
                                                                                      1998              1997*
                                                                                   -----------       -----------
                                                                                        amounts in millions
 Cash flows from operating activities:                                                       (see note 3)
<S>                                                                                <C>               <C>
    Earnings before loss of TCI Ventures Group**                                   $       238                 3
    Adjustments to reconcile earnings before loss of TCI Ventures Group to net
       cash provided by operating activities:
         Depreciation and amortization                                                     376               332
         Stock compensation                                                                 70                 2
         Payments of obligation relating to stock compensation                             (28)               (1)
         Share of losses of CSC                                                             32              --
         Share of losses (earnings) of other affiliates, net                               (52)               17
         Loss on early extinguishment of debt                                               16              --
         Minority interests in earnings of attributed subsidiaries, net                     46                34
         Loss (gain) on disposition of assets                                             (511)               10
         Intergroup tax allocation                                                         (60)               32
         Deferred income tax expense (benefit)                                             189               (64)
         Payments of restructuring charges                                                  (3)              (16)
         Other noncash charges (credits)                                                    10               (21)
         Changes in operating assets and liabilities, net of the effect of
           acquisitions:
              Change in receivables                                                        (25)               (9)
              Change in accruals and payables                                             (141)             (188)
                                                                                   -----------       -----------

                 Net cash provided by operating activities                                 157               131
                                                                                   -----------       -----------

 Cash flows from investing activities:
    Cash paid for acquisitions                                                             (65)             (156)
    Capital expended for property and equipment                                           (210)              (48)
    Additional investments in and loans to affiliates and others                          (136)               (3)
    Collections of loans to affiliates                                                     444                57
    Proceeds from dispositions of assets                                                    49               140
    Cash received in exchanges                                                            --                  22
    Change in interest in TCI Ventures Group                                              --                  23
    Other investing activities                                                             128               (63)
                                                                                   -----------       -----------

                 Net cash provided (used) by investing activities                          210               (28)
                                                                                   -----------       -----------

 Cash flows from financing activities:
    Borrowings of debt                                                                     533               324
    Repayments of debt                                                                    (825)             (745)
    Payment of preferred stock dividends                                                   (22)              (21)
    Payment of dividends on subsidiary preferred stock and Trust Preferred
       Securities                                                                          (47)              (34)
    Payment of call premiums                                                              (134)             --
    Change in amounts due from related parties                                              83               (42)
    Proceeds from issuance of TCI Group Stock                                             --                   3
    Proceeds from issuance of Trust Preferred Securities                                  --                 490
    Other financing activities                                                             (11)                3
                                                                                   -----------       -----------

                 Net cash used by financing activities                                    (423)              (22)
                                                                                   -----------       -----------

                 Net increase (decrease) in cash and cash equivalents                      (56)               81

                 Cash and cash equivalents at beginning of period                           56              --
                                                                                   -----------       -----------

                 Cash and cash equivalents at end of period                        $      --                  81
                                                                                   ===========       ===========
</TABLE>

*    Restated - see note 1.

**   Loss of TCI Ventures Group does not use funds.


See accompanying notes to combined financial statements.



                                      I-45
<PAGE>   47

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

                     Notes to Combined Financial Statements

                                 March 31, 1998
                                   (unaudited)
(1)      Basis of Presentation

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

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

         The accompanying interim combined financial statements are unaudited
         but, in the opinion of management, reflect all adjustments (consisting
         of normal recurring accruals) necessary for a fair presentation of the
         results for such periods. The results of operations for any interim
         period are not necessarily indicative of results for the full year.
         These combined financial statements should be read in conjunction with
         the audited combined financial statements of TCI Group for the year
         ended December 31, 1997.

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

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

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

                                                                     (continued)



                                      I-46
<PAGE>   48
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Targeted Stock

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

         On August 28, 1997, the stockholders of TCI authorized the Board to
         issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
         Stock, par value $1.00 per share ("TCI Ventures Group Series A Stock")
         and Tele-Communications, Inc. Series B TCI Ventures Group Common Stock,
         par value $1.00 per share ("TCI Ventures Group Series B Stock," and
         together with the TCI Ventures Group Series A Stock, the "TCI Ventures
         Group Stock"). The TCI Ventures Group Stock is intended to reflect the
         separate performance of the "TCI Ventures Group," which is comprised of
         TCI's principal international assets and businesses and substantially
         all of TCI's non-cable and non-programming assets.

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

                                                                     (continued)




                                      I-47
<PAGE>   49

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

                     Notes to Combined Financial Statements


         The TCI Group Stock is intended to reflect the separate performance of
         TCI and its subsidiaries and assets not attributed to Liberty Media
         Group or TCI Ventures Group. Such subsidiaries and assets are referred
         to as "TCI Group" and are comprised primarily of TCI's domestic cable
         and communications business. Collectively, TCI Group, Liberty Media
         Group and TCI Ventures Group are referred to as the "Groups" and
         individually, may be referred to herein as a "Group." The TCI Group
         Series A Stock, TCI Ventures Group Series A Stock and Liberty Group
         Series A Stock are sometimes collectively referred to herein as "Series
         A Stock," and the TCI Group Series B Stock, TCI Ventures Group Series B
         Stock and Liberty Group Series B Stock are sometimes collectively
         referred to herein as the "Series B Stock."

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

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

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

                                                                     (continued)




                                      I-48
<PAGE>   50

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

                     Notes to Combined Financial Statements


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

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

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

                                                                     (continued)



                                      I-49
<PAGE>   51
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

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

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

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

                                                                     (continued)



                                      I-50
<PAGE>   52
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

(2)      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 earnings per share is
         similar to basic EPS, but presents the dilutive effect on a per share
         basis of potential common shares as if they had been converted at the
         beginning of the periods presented. Potential common shares that have
         an anti-dilutive effect are excluded from diluted EPS.

         The basic earnings attributable to TCI Group common stockholders per
         common share for the three months ended March 31, 1998 was computed by
         dividing net earnings attributable to TCI Group common stockholders by
         the weighted average number of common shares outstanding of TCI Group
         Stock during the period (517 million).

                                                                     (continued)



                                      I-51
<PAGE>   53
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         The diluted earnings attributable to TCI Group common stockholders per
         common share for the three months ended March 31, 1998 was computed by
         dividing net loss attributable to TCI Group common stockholders, which
         is adjusted by the addition of preferred dividends and interest expense
         accrued during the three months ended March 31, 1998 to net earnings,
         assuming conversion of TCI Group convertible securities as of the
         beginning of the period, by the weighted average number of common
         shares outstanding of TCI Group Stock during the period. Shares
         issuable upon conversion of the Convertible Preferred Stock, Series
         C-TCI Group ("Series C-TCI Group Preferred Stock"), the Redeemable
         Convertible TCI Group Preferred Stock, Series G ("Series G Preferred
         Stock"), preferred stock of subsidiaries, convertible notes payable,
         stock options and other fixed and nonvested performance awards have
         been included in the computation of weighted average shares, as
         illustrated below. Shares of TCI Group stock issuable upon conversion
         of Convertible Preferred Stock, Series D ("Series D Preferred Stock"),
         and associated dividend payments for the three months ended March 31,
         1998 have been excluded as adjustments in computing the diluted
         earnings attributable to TCI Group common stockholders per common share
         as Series D Preferred Stock is antidilutive for the three months ended
         March 31, 1998.

         The basic and diluted loss attributable to TCI Group common
         stockholders per common share for the three months ended March 31, 1997
         was computed by dividing net loss attributable to TCI Group common
         stockholders by the weighted average number of common shares
         outstanding of TCI Group Stock during the period. Potential common
         shares were not included in the computation of weighted average shares
         outstanding because their inclusion would be anti-dilutive.

         No material changes in the weighted average outstanding shares or
         potential common shares occurred after March 31, 1998.

                                                                     (continued)



                                      I-52
<PAGE>   54
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

<TABLE>
<CAPTION>
                                                            Three months ended March 31,
                                                            ----------------------------
                                                                1998             1997
                                                            -----------      -----------
                                                             amounts in millions, except
                                                                   per share amounts
<S>                                                         <C>              <C> 
 Basic EPS:
    Earnings (loss) attributable to common stockholders     $       227              (84)
                                                            ===========      ===========
    Weighted average common shares                                  517              678
                                                            ===========      ===========
    Basic earnings (loss) per share attributable to
         common stockholders                                $       .44             (.12)
                                                            ===========      ===========

 Diluted EPS:
    Earnings (loss) attributable to common stockholders     $       227              (84)
    Add preferred dividend requirements                               4             --
    Add interest expense                                              1             --
                                                            -----------      -----------
    Adjusted earnings (loss) attributable to common
         stockholders assuming conversion of preferred      
         shares                                             $       232              (84)
                                                            ===========      ===========

    Weighted average common shares                                  517              678
                                                            -----------      -----------
    Add dilutive potential common shares:
         Employee and director options                                8             --
         Convertible notes payable                                   24             --
         Series C-TCI Group Preferred Stock                           7             --
         Series D Preferred Stock                                  --               --
         Series G Preferred Stock                                     8             --
         Preferred stock of subsidiaries                             45             --
                                                            -----------      -----------
            Dilutive potential common shares                         92             --
                                                            -----------      -----------

    Diluted weighted average common shares                          609              678
                                                            ===========      ===========
    Diluted earnings (loss) per share attributable to
         common stockholders                                $       .38             (.12)
                                                            ===========      ===========
</TABLE>

                                                                     (continued)



                                      I-53
<PAGE>   55
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(3)      Supplemental Disclosures to Combined Statements of Cash Flows

         Cash paid for interest was $354 million and $386 million for the three
         months ended March 31, 1998 and 1997, respectively. Cash paid for
         income taxes was not material for the three months ended March 31, 1998
         and 1997.

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

<TABLE>
<CAPTION>
                                                                                         Three months ended
                                                                                            March 31,
                                                                                   ----------------------------
                                                                                      1998             1997
                                                                                   -----------      -----------
                                                                                        amounts in millions
<S>                                                                                <C>                   <C>    
                    Cash paid for acquisitions:
                       Aggregate cost basis of assets acquired                     $      (401)          (1,065)
                       Liabilities assumed, net of current assets                            2              616
                       Deferred tax liability recorded in acquisitions                      89               34
                       Minority interests in equity of acquired entities                  (130)               1
                       Elimination of notes receivable from affiliates                     351             --
                       Common stock and preferred stock issued in acquisitions              24              258
                                                                                   -----------      -----------

                            Cash paid for acquisitions                             $       (65)            (156)
                                                                                   ===========      ===========

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

                            Cash received in exchanges                             $      --                 22
                                                                                   ===========      ===========
 </TABLE>

         For a description of certain non-cash transactions, see notes 5, 6 and
         11.

(4)      Investment in Cablevision Systems Corporation

         As further described in note 6, TCI Group acquired an approximate 32.7%
         interest in CSC on March 4, 1998. At March 31, 1998, TCI Group owned
         24,471,086 shares of CSC Class A common stock, which had a closing
         market price of $65.75 per share on March 31, 1998.

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

<TABLE>
<S>                                                                                 <C>            
           Revenue                                                                  $           236
           Operating, selling, general and administrative expense                              (202)
           Depreciation and amortization                                                        (56)
                                                                                    --------------- 
                    Operating loss                                                              (22)
           Interest expense                                                                     (35)
           Other, net                                                                           (18)
                                                                                    --------------- 
                    Net loss                                                        $           (75)
                                                                                    ===============
</TABLE>

                                                                     (continued)



                                      I-54
<PAGE>   56
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(5)      Investments in Other Affiliates

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

<TABLE>
<CAPTION>
                                                              Three months ended
                    Combined Operations                           March 31,
                                                         --------------------------
                                                            1998            1997
                                                         ----------      ----------
                                                             amounts in millions
<S>                                                      <C>                    <C>
                       Revenue                           $      250             280
                       Operating, selling, general
                        and administrative expenses             (138)           (161)
                       Depreciation and amortization            (80)            (80)
                                                         ----------      ----------

                           Operating income                      32              39

                       Interest expense                         (55)            (61)
                       Other, net                                 7             (12)
                                                         ----------      ----------

                           Net loss                      $      (16)            (34)
                                                         ==========      ==========
 </TABLE>

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

         Certain of TCI Group's affiliates are general partnerships and any
         subsidiary of TCI Group that is a general partner in a general
         partnership is, as such, liable as a matter of applicable partnership
         law for all debts of that partnership in the event liabilities of that
         partnership were to exceed its assets.

                                                                     (continued)



                                      I-55
<PAGE>   57
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(6)      Acquisitions and Dispositions

         On March 4, 1998, TCI Group contributed to CSC certain of its cable
         television systems serving approximately 830,000 customers in exchange
         for approximately 24.5 million newly issued CSC Class A common shares
         (as adjusted for a stock dividend). Such shares represent an
         approximate 32.7% equity interest in CSC's total outstanding shares and
         an approximate 9% voting interest in CSC in all matters except for the
         election of directors, in which case TCI Group has an approximate 47%
         voting interest in the election of one-fourth of CSC's directors. CSC
         also assumed and repaid approximately $574 million of debt owed by TCI
         Group to external parties and $95 million of debt owed to TCI Group. As
         a result of this transaction, TCI Group recognized a $511 million gain
         in the accompanying combined statement of operations for the three
         months ended March 31, 1998. Such gain represents the excess of the
         $1,161 million fair value of the CSC Class A common shares received
         over the historical cost of the net assets transferred by TCI Group to
         CSC. TCI Group has also entered into letters of intent with CSC which
         provide for TCI Group to acquire a cable system in Michigan and an
         additional 3% of CSC's Class A common shares and for CSC to (i) acquire
         cable systems serving approximately 250,000 customers in Connecticut
         and (ii) assume $110 million of TCI Group's debt. The ability of TCI
         Group to sell or increase its investment in CSC is subject to certain
         restrictions and limitations set forth in a stockholders agreement with
         CSC.

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

                                                                     (continued)



                                      I-56
<PAGE>   58
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

         Including the Q1 1998 Contribution Transactions and the above described
         April 30, 1998 transaction, TCI Group, as of April 30, 1998, has, since
         January 1, 1997, contributed, or signed agreements or letters of intent
         to contribute within the next twelve months, certain cable television
         systems (the "Contributed Cable Systems") serving approximately 3.9
         million basic customers to joint ventures in which TCI Group will
         retain non-controlling ownership interests (the "Contribution
         Transactions"). Following the completion of the Contribution
         Transactions, TCI Group will no longer consolidate the Contributed
         Cable Systems. Accordingly it is anticipated that the completion of the
         Contribution Transactions, as currently contemplated, will result in an
         aggregate estimated reduction (based on actual amounts with respect to
         the Q1 1998 Contribution Transactions and currently contemplated
         amounts with respect to the pending Contribution Transactions) to TCI
         Group's debt of $4.8 billion and aggregate estimated reductions (based
         on 1997 amounts) to TCI Group's annual revenue and annual operating
         income before depreciation, amortization and stock compensation of $1.8
         billion and $815 million, respectively. No assurance can be given that
         any of the pending Contribution Transactions will be consummated.

(7)      Debt

         Debt is summarized as follows:


<TABLE>
<CAPTION>
                                            March 31,       December 31,
                                              1998             1997
                                           -----------     -----------
                                               amounts in millions
<S>                                        <C>                   <C>  
            Notes payable (a)              $     8,939           8,672
            Bank credit facilities (b)           3,718           4,842
            Commercial paper                       528             533
            Convertible notes (c)                   40              40
            Other debt                             201              19
                                           -----------     -----------

                                           $    13,426          14,106
                                           ===========     ===========
 </TABLE>


                                                                     (continued)



                                      I-57
<PAGE>   59
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

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

                  Certain subsidiaries attributed to TCI Group are required to
                  maintain unused availability under bank credit facilities to
                  the extent of outstanding commercial paper. Also, certain
                  subsidiaries attributed to TCI Group pay fees ranging from
                  1/4% to 1/2% per annum on the average unborrowed portion of
                  the total amount available for borrowings under bank credit
                  facilities.

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

         The bank credit facilities and various other debt instruments
         attributable to TCI Group generally contain restrictive covenants which
         require, among other things, the maintenance of certain earnings,
         specified cash flow and financial ratios (primarily the ratios of cash
         flow to total debt and cash flow to debt service, as defined), and
         include certain limitations on indebtedness, investments, guarantees,
         dispositions, stock repurchases and/or dividend payments.

         The fair value of the debt attributable to TCI Group is estimated based
         on the quoted market prices for the same or similar issues or on the
         current rates offered to TCI Group for debt of the same remaining
         maturities. At March 31, 1998, the fair value of TCI Group's debt was
         $14,212 million, as compared to a carrying value of $13,426 million on
         such date.

                                                                     (continued)



                                      I-58
<PAGE>   60
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

         Information concerning TCI Group's Variable Rate Agreements at March
         31, 1998 is as follows (dollar amounts in millions):

<TABLE>
<CAPTION>
                                                                                                       Amount to
                                                                                                        be paid
                               Expiration                 Interest rate           Notional          (received) upon
                                   date                   to be received           amount           termination (a)
                                   ----                   --------------           ------           ---------------
<S>                                                        <C>                  <C>                   <C>       
                    September 1998                         4.8%-5.4%            $      450            $        1
                    April 1999                                7.4%                      50                    (1)
                    September 1999                            6.4%                     350                    (2)
                    February 2000                          5.8%-6.6%                   300                    (2)
                    March 2000                             5.8%-6.0%                   675                    --
                    September 2000                            5.1%                      75                     2
                    March 2027                                9.7%                     300                   (18)
                    December 2036                             9.7%                     200                    (7)
                                                                                ----------            ---------- 

                                                                                $    2,400            $      (27)
                                                                                ==========            ==========
</TABLE>

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

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

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

                                                                     (continued)


                                      I-59
<PAGE>   61
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

         TCI Group is exposed to credit losses for the periodic settlements of
         amounts due under the Interest Rate Swaps in the event of
         nonperformance by the other parties to the agreements. However, TCI
         Group does not anticipate that it will incur any material credit losses
         because it does not anticipate nonperformance by the counterparties.
         Further, TCI Group does not anticipate material near-term losses in
         future earnings, fair values or cash flows resulting from derivative
         financial instruments as of March 31, 1998.

(8)      Redeemable Preferred Stock

         On February 20, 1998, TCI issued a Notice of Redemption which called
         for the redemption, on April 1, 1998 of all of its outstanding Series D
         Preferred Stock for a redemption price of $304.0233 per share. During
         the first quarter of 1998, 988,776 shares of Series D Preferred Stock
         were converted into 9,887,760 shares of TCI Group Series A Stock and
         5,561,741 shares of Liberty Group Series A Stock.

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

         The Trust Preferred Securities are presented together in a separate
         line item in the accompanying combined balance sheet captioned
         "Company-obligated mandatorily redeemable preferred securities of
         subsidiary trusts holding solely subordinated debt securities of TCI
         Communications, Inc." Dividends accrued on the Trust Preferred
         Securities aggregated $35 million and $25 million for the three months
         ended March 31, 1998 and 1997, respectively, and are included in
         minority interests in earnings of attributed subsidiaries in the
         accompanying combined financial statements.

                                                                     (continued)



                                      I-60
<PAGE>   62
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(10)     Combined Deficit

         General

         During the fourth quarter of 1997, TCI Group entered into a Total
         Return Equity Swap Facility (the "Equity Swap Facility"). Pursuant to
         the Equity Swap Facility, TCI Group has the right to direct the
         counterparty (the "Counterparty") to use the Equity Swap Facility to
         purchase shares ("Equity Swap Shares") of TCI Group Series A Stock and
         TCI Ventures Group Series A Stock with an aggregate purchase price of
         up to $300 million. TCI Group has the right, but not the obligation, to
         purchase Equity Swap Shares through the September 30, 2000 termination
         date of the Equity Swap Facility. During such period, TCI Group is to
         settle periodically any increase or decrease in the market value of the
         Equity Swap Shares. If the market value of the Equity Swap Shares
         exceeds the Counterparty's cost, Equity Swap Shares with a fair value
         equal to the difference between the market value and cost will be
         segregated from the other Equity Swap Shares. If the market value of
         Equity Swap Shares is less than the Counterparty's cost, TCI Group, at
         its option, will settle such difference with shares of TCI Group Series
         A Stock or TCI Ventures Group Series A Stock or, subject to certain
         conditions, with cash or letters of credit. In addition, TCI Group is
         required to periodically pay the Counterparty a fee equal to a
         LIBOR-based rate on the Counterparty's cost to acquire the Equity Swap
         Shares. Due to TCI Group's ability to issue shares to settle periodic
         price fluctuations and fees under the Equity Swap Facility, TCI Group
         records all amounts received or paid under this arrangement as
         increases or decreases, respectively, to equity. As of March 31, 1998,
         the Equity Swap Facility had acquired 2,089,480 shares of TCI Group
         Series A Stock and 513,500 shares of TCI Ventures Group Series A Stock
         at an aggregate cost that was approximately $10 million less than the
         fair value of such Equity Swap Shares at March 31, 1998.

         Stock Repurchases

         During the three months ended March 31, 1998, pursuant to a stock
         repurchase program approved by the Board, TCI Group repurchased 66,041
         shares of TCI Group Series A Stock at an aggregate cost of $2 million.
         Such stock repurchases are reflected as a increase of combined deficit
         in the accompanying combined financial statements.

         Stock Options and Stock Appreciation Rights

         TCI Group records stock compensation expense relating to restricted
         stock awards, options and/or stock appreciation rights (collectively,
         "Awards") granted by TCI to certain TCI employees and/or directors who
         are involved with the TCI Group. Stock compensation with respect to
         Awards granted by TCI includes amounts related to TCI common stock and
         is allocated to TCI Group based on the Awards held by TCI employees
         and/or directors who are involved with TCI Group. Estimated
         compensation relating to stock appreciation rights ("SARs") has been
         recorded through March 31, 1998, and is subject to future adjustment
         based upon vesting and market value, and ultimately, on the final
         determination of market value when such rights are exercised. The
         payable arising from the compensation related to the options and/or
         stock appreciation rights is included in the amount due from related
         parties.

                                                                     (continued)



                                      I-61
<PAGE>   63
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

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

<TABLE>
<CAPTION>
                                                                             March 31,          December 31,
                                                                               1998                  1997
                                                                         ----------------      ---------------
                                                                                  amounts in millions
<S>                                                                      <C>                              <C>  
         Notes receivable from Liberty Media Group, including
              accrued interest (a)                                       $            (87)                (378)
         TINTA Note Payable (b)                                                        63                   89
         Intercompany account (c)                                                    (441)                (241)
                                                                         ----------------      ---------------

                                                                         $           (465)                (530)
                                                                         ================      ===============
</TABLE>

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

         (a)    Amounts outstanding under the notes receivable from the Liberty
                Media Group bear interest at 6.5%. Collections of principal and
                interest on notes receivable from Liberty Media Group during the
                first quarter of 1998 aggregated approximately $296 million.

         (b)    Amounts outstanding under TCI's note payable to TINA (the "TINTA
                Note Payable") bear interest at variable rates based on TCI's
                weighted average cost of bank borrowings of similar maturities
                (6.2% at March 31, 1998). Principal and interest is due and
                payable as mutually agreed from time to time by TCI and TINTA.
                During the three months ended March 31, 1998 and 1997, interest
                expense related to the TINTA Note Payable aggregated $1 million
                and $2 million, respectively.

         (c)    The non-interest bearing intercompany account includes certain
                income tax and stock compensation allocations that are to be
                settled at some future date. All other amounts included in the
                intercompany account are to be settled within thirty days
                following notification. In connection with the TCI Ventures
                Exchange, the September 10, 1997 balance of the intercompany
                account between the TCI Group and TCI Ventures Group was
                reclassified to "Combined Deficit."

                                                                     (continued)



                                      I-62
<PAGE>   64
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         On July 11, 1997, TCI Music, Inc. ("TCI Music") merged with DMX, Inc.
         (the "DMX Merger"). Simultaneously with the DMX Merger, substantially
         all of TCI's controlling ownership interest in TCI Music was
         transferred from TCI Group to Liberty Media Group in exchange for an
         $80 million promissory note (the "Music Note") and an agreement to
         reimburse TCI for any amounts TCI pays pursuant to its contingent
         obligation to purchase 14,896,648 shares (6,812,393 of which are owned
         by subsidiaries of TCI) of TCI Music common stock at a price of $8.00
         per share. The Music Note may be reduced by the payment of cash or the
         issuance by TCI of shares of Liberty Group Stock for the benefit of
         entities included within TCI Group. Additionally, Liberty Media Group
         may elect to pay $50 million of the Music Note by delivery of a Stock
         Appreciation Rights Agreement that will give TCI Group the right to
         receive 20% of the appreciation in value of Liberty Media Group's
         investment in TCI Music, to be determined at July 11, 2002.

         TCI Group has provided a revolving loan facility (the "Ventures
         Intergroup Credit Facility") to TCI Ventures Group for a five-year
         period commencing on September 10, 1997. Such facility permits
         aggregate borrowings at any one time outstanding of up to $500 million
         (subject to reduction as provided below), which borrowings bear
         interest at a rate per annum equal to The Bank of New York's prime rate
         (as in effect from time to time) plus 1% per annum, payable quarterly.
         A commitment fee equal to 3/8% per annum of the average unborrowed
         availability under the Ventures Intergroup Credit Facility is payable
         by TCI Ventures Group to TCI Group on a quarterly basis. Such
         commitment fee was not significant during the three months ended March
         31, 1998. The maximum amount of borrowings permitted under the Ventures
         Intergroup Credit Facility will be reduced on a dollar-for-dollar basis
         by up to $300 million if and to the extent that the aggregate amount of
         any additional capital that TCI Ventures Group is required to
         contribute to certain specified partnerships subsequent to the
         September 10, 1997 consummation of the Exchange Offers is less than
         $300 million. No borrowings were outstanding pursuant to the Ventures
         Intergroup Credit Facility at March 31, 1998.

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


                                                                     (continued)



                                      I-63
<PAGE>   65
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

         Through June 30, 1997, TCI Group had a 50.1% partnership interest in
         QE+Ltd. ("QE+"), a limited partnership interest which distributes
         "STARZ!," a first-run movie premium programming service. Entities
         attributed to Liberty Media Group held the remaining 49.9% partnership
         interest. Also prior to July 1, 1997, Encore Media Corporation ("EMC")
         (at the time a 90%-owned subsidiary of TCI and a member of Liberty
         Media Group) earned management fees from QE+ equal to 20% of managed
         costs, as defined. In addition, Liberty Media Group earned a fee for
         certain services provided to QE+ equal to 4% of the gross revenue of
         QE+ ("STARZ Content Fees"). Such management fees and STARZ Content Fees
         aggregated $6 million for the three months ended March 31, 1997 and are
         included in operating costs and expenses in the accompanying combined
         financial statements. In addition, during the three months ended March
         31, 1997, QE+ provided $6 million of programming services to an entity
         attributed to TCI Ventures Group. Such amount is included in revenue in
         the accompanying combined financial statement.

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

         TCI Group's fixed annual commitments pursuant to the EMG Affiliation
         Agreement increase annually from $220 million in 1998 to $315 million
         in 2003, and will increase with inflation through 2022.


                                                                     (continued)


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

                     Notes to Combined Financial Statements


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

         Pursuant to an agreement between TCI Music and TCI Group, certain
         entities within TCI Group are required to deliver to TCI Music monthly
         revenue payments aggregating $18 million annually (adjusted annually
         for inflation) through 2017. During the three months ended March 31,
         1998, the aggregate amount paid by the TCI Group to TCI Music pursuant
         to such arrangement was $5 million. Such amount is included as a
         reduction of revenue in the accompanying combined statements of
         operations.

         Encore Media Group, TCI Music and certain other subsidiaries attributed
         to Liberty Media Group produce and/or distribute programming to cable
         television operators (including TCI Group) and others. Charges to TCI
         Group, which are based upon customary rates charged to others,
         aggregated $56 million and $11 million for the three months ended March
         31, 1998 and 1997, respectively. Such amounts are included in operating
         costs and expenses in the accompanying combined statements of
         operations.

         Entities included in TCI Group lease satellite transponder facilities
         and receive video transport services from entities included in TCI
         Ventures Group. Charges by TCI Ventures Group for such arrangements and
         other related operating expenses for the three months ended March 31,
         1998 and 1997, aggregated $3 million and $10 million, respectively.
         Such amounts are included in operating costs and expenses in the
         accompanying combined statements of operations.

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

                                                                     (continued)



                                      I-65
<PAGE>   67
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(12)     Transactions with Officers and Directors

         On June 16, 1997, TCI Group exchanged (the "Exchange") 30,545,864
         shares of TCI Group Series A Stock for the same number of shares of TCI
         Group Series B Stock owned by the Estate of Bob Magness (the "Magness
         Estate"), the late founder and former Chairman of the Board of TCI.
         Subsequent to the Exchange, the Magness Estate sold (the "Sale") the
         shares of TCI Group Series A Stock received in the Exchange, together
         with approximately 1.5 million shares of TCI Group Series A Stock that
         the Magness Estate previously owned (collectively, the "Option
         Shares"), to two investment banking firms (the "Investment Bankers")
         for approximately $530 million (the "Sale Price"). Subsequent to the
         Sale, TCI entered into an agreement with the Investment Bankers whereby
         TCI has the option, but not the obligation, to purchase the Option
         Shares at any time within two years (the "Option Period") from the date
         of the Sale. During the Option Period, TCI Group and the Investment
         Bankers are to settle quarterly any increase or decrease in the market
         value of the Option Shares. If the market value of the Option Shares
         exceeds the Investment Bankers' cost, Option Shares with a fair value
         equal to the difference between the market value and cost will be
         segregated from the other Option Shares in an account at the Investment
         Bankers. If the market value of the Option Shares is less than the
         Investment Bankers' cost, TCI Group, at its option, will settle such
         difference with shares of TCI Group Series A Stock or TCI Ventures
         Group Series A Stock or, subject to certain conditions, with cash or
         letters of credit. In addition, TCI Group is required to pay the
         Investment Bankers a quarterly fee equal to LIBOR plus 1% on the Sale
         Price, as adjusted for payments made by TCI Group pursuant to any
         quarterly settlement with the Investment Bankers. Due to TCI Group's
         ability to settle quarterly price fluctuations and fees with shares of
         TCI Group Series A Stock or TCI Ventures Group Series A Stock TCI Group
         records all amounts received or paid under this arrangement as
         increases or decreases, respectively, to equity. During the fourth
         quarter of 1997, TCI Group repurchased 4,000,000 shares of TCI Group
         Series A Stock from one of the Investment Bankers for an aggregate cash
         purchase price of $66 million. Additionally, as a result of the
         Exchange Offers and certain open market transactions, the Investment
         Bankers disposed of 4,210,308 shares of TCI Group Series A Stock and
         acquired 23,407,118 shares of TCI Ventures Group Series A Stock during
         the last half of 1997. As a result of the foregoing transactions and
         certain transactions related to the January 5, 1998 settlement of
         litigation involving the Magness Estate, as described below, the Option
         Shares were comprised of 6,201,042 shares of TCI Group Series A Stock
         and 11,740,610 shares of TCI Ventures Group Series A Stock at March 31,
         1998. At March 31, 1998, the market value of the Option Shares exceeded
         the Investment Bankers' cost by $201 million.

                                                                     (continued)



                                      I-66
<PAGE>   68
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

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

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

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

                                                                     (continued)



                                      I-67
<PAGE>   69
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Also, on February 9, 1998, in connection with the Magness Settlement,
         certain members of the Magness family, individually and in certain
         cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
         Magness) and the Magness Estate (collectively, the "Magness Family")
         also entered into a call agreement with TCI (with substantially the
         same terms as the one entered into by the Malones, including a call on
         the shares owned by the Magness Family upon Dr. Malone's death) (the
         "Magness Call Agreement") on the Magness Family's aggregate of
         approximately 49 million High-Voting Shares (as adjusted for stock
         dividends). The Magness Family was paid $124 million by TCI Group for
         entering into the Magness Call Agreement. Additionally, on February 9,
         1998, the Magness Family entered into a shareholders' agreement (the
         "Shareholders' Agreement") with the Malones and TCI under which (i) the
         Magness Family and the Malones agree to consult with each other in
         connection with matters to be brought to the vote of TCI's
         shareholders, subject to the proviso that if they cannot mutually agree
         on how to vote the shares, Dr. Malone has an irrevocable proxy to vote
         the High-Voting Shares owned by the Magness Family, (ii) the Magness
         Family may designate a nominee for TCI's Board of Directors and Dr.
         Malone has agreed to vote his High Voting Shares for such nominee and
         (iii) certain "tag along rights" have been created in favor of the
         Magness Family and certain "drag along rights" have been created in
         favor of the Malones. In addition, the Malone Right granted by TCI
         Group to Dr. Malone to acquire 30,545,864 shares of TCI Group Series B
         Stock has been reduced to an option to acquire 14,511,570 shares of TCI
         Group Series B Stock. Pursuant to the terms of the Shareholders'
         Agreement, the Magness Family has the right to participate in the
         reduced Malone Right on a proportionate basis with respect to
         12,406,238 shares of the 14,511,570 shares subject to the Malone Right.

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

(13)     Income Taxes

         TCI files a consolidated federal income tax return with all of its 80%
         or more owned subsidiaries. Consolidated subsidiaries in which TCI owns
         less than 80% each file a separate income tax return. TCI and such
         subsidiaries calculate their respective tax liabilities on a separate
         return basis which are combined in the accompanying combined financial
         statements.

                                                                     (continued)



                                      I-68
<PAGE>   70
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

         Effective October 1, 1997 (the "Effective Date"), the Old Tax Sharing
         Agreement was replaced by a new tax sharing agreement, as amended by
         the First Amendment thereto (the "New Tax Sharing Agreement"), which
         governs the allocation and sharing of income taxes by TCI Group,
         Liberty Media Group and TCI Ventures Group. Effective for periods on
         and after the Effective Date, federal income taxes will be computed
         based upon the type of tax paid by TCI (on a regular tax or alternative
         minimum tax basis) on a separate basis for each Group. Based upon these
         separate calculations, an allocation of tax liabilities and benefits
         will be made such that each Group will be required to make cash
         payments to TCI based on its allocable share of TCI's consolidated
         federal income tax liabilities (on a regular tax or alternative minimum
         tax basis, as applicable) attributable to such Group and actually used
         by TCI in reducing its consolidated federal income tax liability. Tax
         attributes and tax basis in assets would be inventoried and tracked for
         ultimate credit to or charge against each Group. Similarly, in each
         taxable period that TCI pays alternative minimum tax, the federal
         income tax benefits of each Group, computed as if such Group were
         subject to regular tax, would be inventoried and tracked for payment to
         or payment by each Group in years that TCI utilizes the alternative
         minimum tax credit associated with such taxable period. The Group
         generating the utilized tax benefits would receive a cash payment only
         if, and when, the unutilized taxable losses of the other Group are
         actually utilized. If the unutilized taxable losses expire without ever
         being utilized, the Group generating the unutilized tax benefits will
         never receive payment for such benefits. Pursuant to the New Tax
         Sharing Agreement, state and local income taxes are calculated on a
         separate return basis for each Group (applying provisions of state and
         local tax law and related regulations as if the Group were a separate
         unitary or combined group for tax purposes), and TCI's combined or
         unitary tax liability is allocated among the Groups based upon such
         separate calculation.

                                                                     (continued)



                                      I-69
<PAGE>   71
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Notwithstanding the foregoing, items of income, gain, loss, deduction
         or credit resulting from certain specified transactions that are
         consummated after the Effective Date pursuant to a letter of intent or
         agreement that was entered into prior to the Effective Date will be
         shared and allocated pursuant to the terms of the Old Tax Sharing
         Agreement, as amended.

         In connection with the creation of TCI Ventures Group, it was
         determined that the net amount of the balance of each TCI Group
         intercompany account under the Old Tax Sharing Agreement that is
         attributable to entities included in TCI Ventures Group for the period
         beginning July 1, 1995 and ending on September 10, 1997 (the
         consummation date of the TCI Ventures Exchange) will be reflected as an
         adjustment of TCI Group's combined deficit. Tax liabilities and
         benefits, as determined under the Old Tax Sharing Agreement, that are
         generated by the entities comprising TCI Ventures Group for the period
         beginning on September 10, 1997 and ending on September 30, 1997 will
         be credited or debited to an intercompany account between TCI Group and
         TCI Ventures Group in accordance with the Old Tax Sharing Agreement.

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

(14)     Commitments and Contingencies

         On October 5, 1992, the United States Congress enacted the Cable
         Television Consumer Protection and Competition Act of 1992 (the "1992
         Cable Act"). In 1993 and 1994, the Federal Communications Commission
         (the "FCC") adopted certain rate regulations required by the 1992 Cable
         Act and imposed a moratorium on certain rate increases. As a result of
         such actions, TCI Group's basic and tier service rates and its
         equipment and installation charges (the "Regulated Services") are
         subject to the jurisdiction of local franchising authorities and the
         FCC. Basic and tier service rates are evaluated against competitive
         benchmark rates as published by the FCC, and equipment and installation
         charges are based on actual costs. Any rates for Regulated Services
         that exceeded the benchmarks were reduced as required by the 1993 and
         1994 rate regulations. The rate regulations do not apply to the
         relatively few systems which are subject to "effective competition" or
         to services offered on an individual service basis, such as premium
         movie and pay-per-view services.

                                                                     (continued)



                                      I-70
<PAGE>   72
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         TCI Group believes that it has complied in all material respects with
         the provisions of the 1992 Cable Act, including its rate setting
         provisions. However, TCI Group's rates for Regulated Services are
         subject to review by the FCC, if a complaint is filed by a customer, or
         the appropriate franchise authority, if such authority has been
         certified by the FCC to regulate rates. If, as a result of the review
         process, a system cannot substantiate its rates, it could be required
         to retroactively reduce its rates to the appropriate benchmark and
         refund the excess portion of rates received. Any refunds of the excess
         portion of tier service rates would be retroactive to the date of
         complaint. Any refunds of the excess portion of all other Regulated
         Service rates would be retroactive to one year prior to the
         implementation of the rate reductions.

         TCI Group has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $178 million at March 31, 1998. With respect to TCI
         Group's guarantees of $166 million of such obligations, TCI Group has
         been indemnified for any loss, claim or liability that TCI Group may
         incur, by reason of such guarantees. TCI Group also has guaranteed the
         performance of certain affiliates and other parties with respect to
         such parties' contractual and other obligations. Although there can be
         no assurance, management of TCI Group believes that it will not be
         required to meet its obligations under such guarantees, or if it is
         required to meet any of such obligations, that they will not be
         material to TCI Group.

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

         As described in note 11, TCI Group has agreed to make fixed monthly
         payments through 2022 to Liberty Media Group pursuant to the EMG
         Affiliation Agreement.

         As described in note 6, TCI Group has significant contingent
         obligations with respect to certain of its affiliates.

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

                                                                     (continued)



                                      I-71
<PAGE>   73
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         During the third quarter of 1997, TCI Group committed to purchase
         billing services pursuant to three successive five year agreements.
         Pursuant to such arrangement, TCI Group is obligated at March 31, 1998
         to make minimum payments aggregating approximately $1.6 billion through
         2012. Such minimum payments are subject to inflation and other
         adjustments pursuant to the terms of the underlying agreements.

         Pursuant to certain agreements between TCI and TCI Music, TCI Group is
         obligated at March 31, 1998 to make minimum revenue payments through
         2017 and minimum license fee payments through 2007 aggregating
         approximately $425 million to TCI Music. Such minimum payments are
         subject to inflation and other adjustments pursuant to the terms of the
         underlying agreements.

         TCI Group has contingent liabilities related to legal proceedings and
         other matters arising in the ordinary course of business. Although it
         is reasonably possible TCI Group may incur losses upon conclusion of
         such matters, an estimate of any loss or range of loss cannot be made.
         In the opinion of management, it is expected that amounts, if any,
         which may be required to satisfy such contingencies will not be
         material in relation to the accompanying combined financial statements.

         Effective as of December 16, 1997, the National Digital Television
         Center, Inc. ("NDTC"), a subsidiary of TCI which is attributed to TCI
         Ventures Group, on behalf of TCI Group and other cable operators that
         may be designated from time to time by NDTC ("Approved Purchasers"),
         entered into an agreement (the "Digital Terminal Purchase Agreement")
         with General Instrument Corporation (formerly NextLevel Systems, Inc.,
         "GI") to purchase advanced digital set-top devices. The hardware and
         software incorporated into these devices will be designed and
         manufactured to be compatible and interoperable with the OpenCable(TM)
         architecture specifications adopted by CableLabs, the cable television
         industry's research and development consortium, in November 1997. NDTC
         has agreed that Approved Purchasers will purchase, in the aggregate, a
         minimum of 6.5 million set-top devices during calendar years 1998, 1999
         and 2000 at an average price of $318 per basic set-top device
         (including a required royalty payment). GI agreed to provide NDTC and
         its Approved Purchasers the most favorable prices, terms and conditions
         made available by GI to any customer purchasing advanced digital
         set-top devices. In connection with NDTC's purchase commitment, GI
         agreed to grant warrants to purchase its common stock proportional to
         the number of devices ordered by each organization, which as of the
         effective date of the Digital Terminal Purchase Agreement, would have
         represented at least a 10% equity interest in GI (on a fully diluted
         basis). It is anticipated that the value associated with such equity
         interest would be attributed to TCI Group upon purchase and deployment
         of the digital set-top devices.

                                                                     (continued)



                                      I-72
<PAGE>   74
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements



         During the three months ended March 31, 1998, TCI Group continued its
         enterprise-wide comprehensive review of its computer systems and
         related software to ensure systems properly recognize the year 2000 and
         continue to process business information. The systems being evaluated
         include all internal use software and devices and those systems and
         devices that manage the distribution of TCI Group's products. TCI Group
         is utilizing both internal and external resources to identify, correct
         or reprogram, and test systems for year 2000 readiness.

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

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

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

                                                                     (continued)



                                      I-73
<PAGE>   75
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         TCI Group's assessment of the impact of the year 2000 date change
         should be complete by the end of 1998. TCI Group continues to evaluate
         the level of validation it will require of third parties to ensure
         their year 2000 readiness. Management of TCI Group has not yet
         determined the cost associated with its year 2000 readiness efforts and
         the related potential impact on TCI Group's results of operations but
         has identified certain cost elements that, in the aggregate, are not
         expected to be less than $20 million. Amounts expended to date have not
         been material, although there can be no assurance that costs ultimately
         required to be paid to ensure TCI Group's year 2000 readiness will not
         have an adverse effect on TCI Group's financial position. Additionally,
         there can be no assurance that TCI Group's systems or the systems of
         other companies on which TCI Group relies will be converted in time or
         that any such failure to convert by TCI Group or other companies will
         not have an adverse effect on the its financial position.





                                      I-74
<PAGE>   76
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                             Combined Balance Sheets
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                        March 31,     December 31,
                                                                          1998            1997
                                                                       -----------     -----------
Assets                                                                     amounts in thousands
<S>                                                                    <C>                  <C>   
 Cash and cash equivalents                                             $    70,234          45,398

 Trade and other receivables, net                                           39,532          39,963

 Prepaid program rights                                                    111,485         104,219

 Committed film inventory                                                  128,364         114,658

 Investments in affiliates, accounted for under the equity method,
     and related receivables (note 4)                                      812,235         523,590

 Investment in Time Warner, Inc. ("Time Warner") (note 5)                4,108,460       3,537,841

 Other investments, at cost, and related receivables (note 6)              401,866         426,715

 Property and equipment, at cost:
     Land                                                                     --                39
     Support equipment and buildings                                        40,633          41,478
                                                                       -----------     -----------
                                                                            40,633          41,517
     Less accumulated depreciation                                          12,829          13,954
                                                                       -----------     -----------
                                                                            27,804          27,563
                                                                       -----------     -----------

 Excess cost over acquired net assets                                      212,119         203,300
     Less accumulated amortization                                          12,985           9,057
                                                                       -----------     -----------
                                                                           199,134         194,243
                                                                       -----------     -----------

 Other assets, at cost, net of amortization                                 27,132          24,371
                                                                       -----------     -----------

                                                                       $ 5,926,246       5,038,561
                                                                       ===========     ===========
</TABLE>



                                                                    (continued)


                                     I-75
<PAGE>   77
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)


                       Combined Balance Sheets, continued
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                 March 31,      December 31,
                                                                   1998            1997
                                                                -----------     -----------
Liabilities and Combined Equity                                     amounts in thousands
<S>                                                             <C>                  <C>   

 Accounts payable and accrued liabilities                       $    75,417          69,367

 Accrued stock compensation (note 9)                                 76,636          68,846

 Program rights payable                                             170,117         156,351

 Deferred option premium (note 5)                                      --           305,742

 Debt (note 7)                                                      551,709         348,590

 Deferred income taxes                                            1,281,156       1,046,854

 Other liabilities                                                    2,064           2,060
                                                                -----------     -----------

     Total liabilities                                            2,157,099       1,997,810
                                                                -----------     -----------

 Minority interests in equity of attributed subsidiaries            101,030         101,000

 Combined equity (note 8):
     Combined equity                                              2,132,150       1,690,256
     Accumulated other comprehensive earnings, net of
      taxes (note 1)                                              1,079,588         740,903
                                                                -----------     -----------
                                                                  3,211,738       2,431,159

     Due to related parties                                         456,379         508,592
                                                                -----------     -----------

         Total combined equity                                    3,668,117       2,939,751
                                                                -----------     -----------

 Commitments and contingencies (note 9)

                                                                $ 5,926,246       5,038,561
                                                                ===========     ===========
</TABLE>


See accompanying notes to combined financial statements.




                                      I-76
<PAGE>   78
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                        Combined Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                 Three months ended
                                                                                    March 31,
                                                                           ----------------------------
                                                                              1998              1997
                                                                           -----------      -----------
                                                                               amounts in thousands,
                                                                               except per share amounts
<S>                                                                        <C>                   <C>   
 Revenue:
    Related parties (note 8)                                               $    71,708           22,511
    Others                                                                      84,962           36,848
                                                                           -----------      -----------
                                                                               156,670           59,359
                                                                           -----------      -----------

 Operating costs and expenses:
    Operating                                                                   79,739           19,526
    Selling, general and administrative                                         42,074           12,464
    Charges from related parties (note 8)                                        7,350            2,079
    Stock compensation (notes 8 and 9)                                          76,130            5,574
    Depreciation and amortization                                                7,788              779
                                                                           -----------      -----------
                                                                               213,081           40,422
                                                                           -----------      -----------

         Operating income (loss)                                               (56,411)          18,937

 Other income (expense):
    Interest expense to related party (note 8)                                  (5,731)            --
    Other interest expense                                                      (3,542)            (305)
    Dividend and interest income, primarily from affiliates                     13,362           11,035
    Share of earnings (losses) of affiliates, net (note 4)                     (21,999)           7,236
    Minority interests in losses (earnings) of attributed subsidiaries             839           (9,614)
    Gain on disposition of assets (note 5)                                     514,518             --
    Gain on issuance of equity interests by affiliate
       (note 4)                                                                 23,460             --
    Other, net                                                                    (107)             109
                                                                           -----------      -----------
                                                                               520,800            8,461
                                                                           -----------      -----------

         Earnings before income taxes                                          464,389           27,398

 Income tax expense                                                           (161,248)         (11,786)
                                                                           -----------      -----------

         Net earnings                                                      $   303,141           15,612
                                                                           ===========      ===========

 Basic earnings attributable to common stockholders per common
    share (note 2)                                                         $       .85              .04
                                                                           ===========      ===========

 Diluted earnings attributable to common stockholders per common share
    (note 2)                                                               $       .78              .04
                                                                           ===========      ===========

 Comprehensive earnings (note 1)                                           $   641,826           15,612
                                                                           ===========      ===========
</TABLE>


See accompanying notes to combined financial statements.



                                      I-77
<PAGE>   79

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

                         Combined Statement of Equity
                       Three months ended March 31, 1998
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                         Accumulated other
                                                                           comprehensive           Due to           Total
                                                         Combined           earnings,              related        combined
                                                          equity           net of taxes            parties         equity
                                                     ----------------   -------------------      -----------   --------------
                                                                                  amounts in thousands
<S>                                                  <C>                 <C>                      <C>          <C>      
Balance at January 1, 1998                           $      1,690,256               740,903          508,592        2,939,751

   Net earnings                                               303,141                    --               --          303,141
   Payments for call agreements (note 8)                      (63,521)                   --               --          (63,521)
   Purchase of Liberty Group Stock                             (1,121)                   --               --           (1,121)
   Issuance of Liberty Group Stock for investment
     in affiliate (note 4)                                    168,090                    --               --          168,090
   Gain, net of taxes, in connection with the
     issuance of common shares by USA Networks,
     Inc. ("USAI"), formerly HSN, Inc. ("HSNI")
     (note 4)                                                  32,797                    --               --           32,797
   Gain in connection with the issuance of common
     shares by TCI Music, Inc. ("TCI Music")                    2,508                    --               --            2,508
   Change in due to related parties                                --                    --          (52,213)         (52,213)
   Change in unrealized holding gains on
     available-for-sale securities                                 --               338,685               --          338,685
                                                     ----------------   -------------------      -----------   --------------

Balance at March 31, 1998                            $      2,132,150             1,079,588          456,379        3,668,117
                                                     ================   ===================      ===========    ==============
</TABLE>


See accompanying notes to combined financial statements.




                                      I-78
<PAGE>   80
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                    
                        Combined Statements of Cash Flows
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                    Three months ended
                                                                                          March 31,
                                                                                ----------------------------
                                                                                   1998              1997
                                                                                -----------      -----------
                                                                                   amounts in thousands
                                                                                       (see note 3)
<S>                                                                             <C>                   <C>   
 Cash flows from operating activities:
    Net earnings                                                                $   303,141           15,612
    Adjustments to reconcile net earnings to net cash provided by operating
       activities:
         Depreciation and amortization                                                7,788              779
         Stock compensation                                                          76,130            5,574
         Payments of stock compensation                                              (1,106)            --
         Share of losses (earnings) of affiliates, net                               21,999           (7,236)
         Deferred income tax expense                                                 (8,544)          (2,744)
         Intergroup tax allocation                                                  169,780           14,128
         Minority interests in earnings (losses)                                       (839)           9,614
         Gain on disposition of assets                                             (514,518)            --
         Gain on issuance of equity interests by affiliates                         (23,460)            --
         Noncash interest expense                                                     1,337             --
         Changes in operating assets and liabilities, net of acquisitions:
              Change in receivables                                                    (392)            (907)
              Change in inventories                                                    (630)            --
              Change in prepaid expenses                                            (22,212)          (5,749)
              Change in payables and accruals                                        22,507            3,148
                                                                                -----------      -----------

                   Net cash provided by operating activities                         30,981           32,219
                                                                                -----------      -----------

 Cash flows from investing activities:
    Cash proceeds from dispositions                                                 213,334             --
    Cash paid for acquisitions                                                      (10,112)            --
    Capital expended for property and equipment                                      (3,314)            (434)
    Additional investments in and loans to affiliates and others                    (62,626)          (6,994)
    Return of capital from affiliates                                                 4,622            7,443
    Collections on loans to affiliates and others                                     7,668              350
    Other investing activities                                                         (624)             (79)
                                                                                -----------      -----------

                   Net cash provided by investing activities                        148,948              286
                                                                                -----------      -----------

 Cash flows from financing activities:
    Borrowings of debt                                                              439,857            2,020
    Repayments of debt                                                             (238,977)          (3,640)
    Contribution for issuance of Liberty Group Stock                                   --              2,054
    Purchase of Liberty Group Stock                                                  (1,121)            --
    Change in cash transfers to related parties                                    (291,298)           2,016
    Payments for call agreements                                                    (63,521)            --
    Distributions to minority shareholders of subsidiaries                              (33)            --
                                                                                -----------      -----------

                   Net cash provided (used) by financing activities                (155,093)           2,450
                                                                                -----------      -----------

                   Net increase in cash and cash equivalents                         24,836           34,955

                   Cash and cash equivalents at beginning of period                  45,398          317,359
                                                                                -----------      -----------
                   Cash and cash equivalents at end of period                   $    70,234          352,314
                                                                                ===========      ===========
</TABLE>


See accompanying notes to combined financial statements.



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

                     Notes to Combined Financial Statements


                                 March 31, 1998
                                   (unaudited)


(1)      Basis of Presentation

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

         The accompanying interim combined financial statements are unaudited
         but, in the opinion of management, reflect all adjustments (consisting
         of normal recurring accruals) necessary for a fair presentation of the
         results for such periods. The results of operations for any interim
         period are not necessarily indicative of results for the full year.
         These combined financial statements should be read in conjunction with
         the audited combined financial statements of Liberty Media Group for
         the year ended December 31, 1997. Certain amounts have been
         reclassified for comparability with the 1998 presentation.

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

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

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


                                                                     (continued)


                                      I-80
<PAGE>   82
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Targeted Stock

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

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

         The Liberty Distribution represented one hundred percent of the equity
         value attributable to Liberty Media Group. The issuance of Liberty
         Group Stock did not result in any transfer of assets or liabilities of
         TCI or any of its subsidiaries or affect the rights of holders of TCI's
         or any of its subsidiaries' debt.

         On August 28, 1997, the stockholders of TCI authorized the Board to
         issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
         Stock, par value $1.00 per share (the "TCI Ventures Group Series A
         Stock") and Tele-Communications, Inc. Series B TCI Ventures Group
         Common Stock, par value $1.00 per share (the "TCI Ventures Group Series
         B Stock," and together with TCI Ventures Group Series A Stock, the "TCI
         Ventures Group Stock"). The TCI Ventures Group Stock is intended to
         reflect the separate performance of the "TCI Ventures Group," which is
         comprised of TCI's principal international assets and businesses and
         substantially all of TCI's non-cable and non-programming assets.


                                                                     (continued)



                                      I-81
<PAGE>   83
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         The TCI Group Stock is intended to reflect the separate performance of
         TCI and its subsidiaries and assets not attributed to Liberty Media
         Group or TCI Ventures Group. Such subsidiaries and assets, which are
         comprised primarily of TCI's domestic cable and communications
         businesses, are collectively referred to as "TCI Group". Collectively,
         Liberty Media Group, TCI Ventures Group and TCI Group are referred to
         as the "Groups" and individually are referred to as a "Group". The TCI
         Group Series A Stock, TCI Ventures Group Series A Stock and the Liberty
         Group Series A Stock are sometimes collectively referred to herein as
         the "Series A Stock," and the TCI Group Series B Stock, TCI Ventures
         Group Series B Stock and Liberty Group Series B Stock are sometimes
         collectively referred to herein as the "Series B Stock."

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

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

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

                                                                     (continued)



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

                     Notes to Combined Financial Statements


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

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

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

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


                                                                     (continued)



                                      I-83
<PAGE>   85
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

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

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

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


                                                                     (continued)



                                      I-84
<PAGE>   86
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

(2)      Earnings Per Common and Potential Common Share

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

         The basic earnings attributable to Liberty Media Group common
         stockholders per common share for the three months ended March 31, 1998
         and 1997 was computed by dividing net earnings attributable to Liberty
         Media Group common stockholders by the weighted average number of
         common shares outstanding of Liberty Group Stock during the period (355
         million and 375 million, respectively).


                                                                     (continued)



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

                     Notes to Combined Financial Statements


         The diluted earnings attributable to Liberty Media Group common
         stockholders per common and potential common share for the three months
         ended March 31, 1998 and 1997 was computed by dividing earnings
         attributable to Liberty Media Group common stockholders by the weighted
         average number of common and potential common shares outstanding of
         Liberty Group Stock during the period. Shares issuable upon conversion
         of the Convertible Preferred Stock, Series C-Liberty Media Group (the
         "Series C-Liberty Media Group Preferred Stock"), the Convertible
         Preferred Stock, Series D (the "Series D Preferred Stock"), the
         Redeemable Convertible Liberty Media Group Preferred Stock, Series H
         (the "Series H Preferred Stock"), convertible notes payable, stock
         options and other fixed and nonvested performance awards have been
         included in the computation of weighted average shares, as illustrated
         below. Numerator adjustments for dividends and interest associated with
         the convertible preferred shares and convertible notes payable,
         respectively, were not made to the computation of diluted earnings per
         share as such dividends and interest are paid or payable by TCI Group.
         No material changes in the weighted average outstanding shares or
         potential common shares occurred after March 31, 1998.

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

<TABLE>
<CAPTION>
                                                                       Three months ended March 31,
                                                                       ---------------------------
                                                                           1998           1997
                                                                       -----------     -----------
                                                                       amounts in thousands, except 
                                                                            per share amounts
<S>                                                                    <C>                  <C>   
           Basic EPS:
                 Earnings attributable to common shareholders          $   303,141          15,612
                                                                       ===========     ===========

                 Weighted average common shares                            355,207         374,484
                                                                       ===========     ===========
                 Basic earnings per share attributable to common
                    stockholders                                       $       .85             .04
                                                                       ===========     ===========

            Diluted EPS:
                 Earnings attributable to common stockholders          $   303,141          15,612
                                                                       ===========     ===========

                 Weighted average common shares                            355,207         374,484
                                                                       -----------     -----------
                 Add dilutive potential common shares:
                    Employee and director options                            7,856           3,704
                    Convertible notes payable                               19,417          19,650
                    Series C-Liberty Media Group Preferred Stock             3,969           3,969
                    Series D Preferred Stock                                  --             5,609
                    Series H Preferred Stock                                 3,879           3,953
                                                                       -----------     -----------
                    Dilutive potential common shares                        35,121          36,885
                                                                       -----------     -----------
                 Diluted weighted average common shares                    390,328         411,369
                                                                       ===========     ===========
                 Diluted earnings per share attributable to common
                    stockholders                                       $       .78             .04
                                                                       ===========     ===========
 </TABLE>


                                                                     (continued)



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

                     Notes to Combined Financial Statements


(3)      Supplemental Disclosures to Combined Statements of Cash Flows

         Cash paid for interest was $8,303,000 and $306,000 for the three months
         ended March 31, 1998 and 1997, respectively. Cash paid for income taxes
         during the three months ended March 31, 1998 and 1997 was not material.

<TABLE>
<CAPTION>
                                                                                 Three months ended
                                                                                     March 31,
                                                                           ------------------------------
                                                                               1998              1997
                                                                           ------------      ------------
                                                                                   amounts in thousands
<S>                                                                        <C>                <C>      
          Cash paid for acquisitions is as follows:

                     Fair value of assets acquired                         $     15,138              --
                     Net liabilities assumed                                     (2,454)             --
                     Minority interests in equity of acquired entities              (64)             --
                     Gain in connection with the issuance of common
                         shares by TCI Music                                     (2,508)             --
                                                                           ------------      ------------

                     Cash paid for acquisitions                            $     10,112              --
                                                                           ============      ============
 </TABLE>


         Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
                                                                                     Three months ended
                                                                                          March 31,
                                                                            -----------------------------------
                                                                                  1998                1997
                                                                            ----------------   ----------------
                                                                                   amounts in thousands
<S>                                                                         <C>                <C>
          Issuance of Liberty Group Stock in exchange for common stock
               of affiliate (note 4)                                        $        168,090                 --
                                                                            ================   ================

          Noncash accretion of contingent obligation to purchase shares
               of attributed subsidiary from minority holders               $          1,213                 --
                                                                            ================   ================
</TABLE>

(4)      Investments in Affiliates

         Summarized unaudited results of operations for the periods in which
         Liberty Media Group used the equity method to account for such
         affiliates are as follows:

<TABLE>
<CAPTION>
                                                     Three months ended
                                                         March 31,
                                                ----------------------------
                                                   1998              1997
                                                -----------      -----------
                                                    amounts in thousands
<S>                                             <C>                <C>      
          Combined Operations

              Revenue                           $ 1,771,898        1,246,152
              Operating, selling, general
                and administrative expenses      (1,490,410)      (1,119,487)
              Depreciation and amortization        (115,420)         (62,668)
                                                -----------      -----------

                 Operating income                   166,068           63,997

              Interest expense                      (81,461)         (32,770)
              Other, net                            (18,209)         (45,856)
                                                -----------      -----------

                 Net earnings (loss)            $    66,398          (14,629)
                                                ===========      ===========
 </TABLE>

                                                                     (continued)



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

                     Notes to Combined Financial Statements


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

<TABLE>
<CAPTION>
                                                                               March 31,              December 31,
                                                                                 1998                    1997
                                                                             -------------            ---------
                                                                                    amounts in thousands
<S>                                                                          <C>                         <C>   
                Discovery Communications, Inc. ("Discovery")                 $      79,100               88,251
                QVC, Inc. ("QVC")                                                  144,446              133,920
                Bet Holdings, Inc. ("BET")                                          28,237               26,466
                Courtroom Television Network ("Court")                              (3,088)              (3,286)
                Fox/Liberty Networks LLC ("Fox Sports")                             (8,781)             (21,608)
                Liberty/TINTA LLC ("Liberty/TINTA")                                (16,547)             (14,532)
                Superstar/Netlink Group LLC ("Superstar/Netlink")                  (16,567)             (40,161)
                Home Shopping Network, Inc. ("HSN")                                147,120              118,653
                BDTV INC., BDTV II INC., BDTV III INC. and BDTV IV
                    INC.(collectively "BDTV")                                      260,217              228,522
                Your Choice TV, LLC ("YCTV")                                         7,736                9,316
                United Video Satellite Group, Inc. ("UVSG")                        168,305                   --
                Other                                                               22,057               (1,951)
                                                                             -------------            ---------
                                                                             $     812,235              523,590
                                                                             =============            =========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                     Three months ended
                                                                                         March 31,
                                                                               -------------------------------
                                                                                    1998              1997
                                                                               -------------     -------------
                                                                                     amounts in thousands
<S>                                                                            <C>               <C>
                   Discovery                                                   $     (9,151)                 4
                   QVC                                                                10,526             6,594
                   BET                                                                 1,771             1,499
                   Court                                                                 198            (1,740)
                   Fox Sports (a)                                                    (36,024)               --
                   Liberty/TINTA                                                      (2,015)               --
                   Superstar/Netlink (b)                                               3,442             3,464
                   HSN                                                                 2,382             1,457
                   BDTV (c)                                                            8,758               801
                   YCTV                                                               (1,580)               --
                   UVSG (d)                                                              215                --
                   Other                                                                (521)           (4,843)
                                                                               -------------     -------------
                                                                                $    (21,999)            7,236
                                                                                ============     =============
</TABLE>


                                                                     (continued)



                                      I-88
<PAGE>   90
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         (a)      Prior to the first quarter of 1998, Liberty Media Group had no
                  obligation, nor intention, to fund Fox Sports. During the
                  first quarter of 1998, Liberty Media Group made the
                  determination to provide funding to Fox Sports based on a
                  specific transaction consummated by Fox Sports. Consequently,
                  Liberty Media Group's share of losses of Fox Sports for the
                  quarter ended March 31, 1998 includes previously unrecognized
                  losses of Fox Sports of approximately $36 million. Losses for
                  Fox Sports were not recognized in prior periods due to the
                  fact that Liberty Media Group's investment in Fox Sports had
                  been reduced to zero.

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

         (c)      In February 1998, pursuant to an Investment Agreement among
                  Universal Studios, Inc. ("Universal"), HSNI, HSN and Liberty
                  Media Group, dated as of October 1997 and amended and restated
                  as of December 1997 (the "Investment Agreement"), HSNI
                  consummated a transaction (the "Universal Transaction")
                  through which USA Networks Partners, Inc., a subsidiary of
                  Universal, sold its 50% interest in USAI, a New York general
                  partnership to HSNI and Universal contributed the remaining
                  50% interest in USAI and its domestic television production
                  and distribution operations to HSNI. Subsequent to these
                  transactions, HSNI was renamed USAI. In connection with the
                  Universal Transaction, Universal, USAI, HSN and Liberty Media
                  Group became parties to a number of other agreements relating
                  to, among other things, (i) the management of USAI, (ii) the
                  purchase and sale or other transfer of voting securities of
                  USAI, including securities convertible or exchangeable for
                  voting securities of USAI, and (iii) the voting of such
                  securities. As a result of the foregoing transactions, Liberty
                  Media Group's ownership interest in USAI, which is held
                  through BDTV, was reduced to 18.6%.

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

                                                                     (continued)



                                      I-89
<PAGE>   91
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


                  At the closing of the Universal Transaction, Liberty Media
                  Group was issued approximately 1.2 million shares of USAI's
                  Class B Common Stock, representing all of the remaining shares
                  of USAI's Class B Common Stock issuable pursuant to Liberty
                  Media Group's contractual right to receive shares of Class B
                  common stock of USAI upon the occurrence of certain events
                  (the "Contingent Right"). Of such shares, 800,000 shares of
                  Class B Common Stock were contributed to BDTV IV Inc.
                  ("BDTV-IV"), a newly-formed entity having substantially the
                  same terms as BDTV INC., BDTV-II INC. and BDTV III INC. (with
                  the exception of certain transfer restrictions) in which
                  Liberty Media Group owns over 99% of the equity and none of
                  the voting power (except for protective rights with respect to
                  certain fundamental corporate actions) and Barry Diller owns
                  less than 1% of the equity and all of the voting power. In
                  addition, Liberty Media Group purchased 10 LLC Shares at the
                  closing of the Universal Transaction for an aggregate purchase
                  price of $200. Liberty Media Group has also agreed to
                  contribute $300 million in cash to USANi LLC by June 30, 1998
                  in exchange for an aggregate of 15 million LLC Shares and/or
                  shares of USAI's Common Stock. Liberty Media Group's cash
                  purchase price will increase at an annual interest rate of
                  7.5% beginning from the date of the closing of the Universal
                  Transaction through the date of Liberty Media Group's purchase
                  of such securities (the "Liberty Closing"). Pursuant to the
                  LLC Exchange Agreement, each LLC Share issued or to be issued
                  to Liberty Media Group is exchangeable for one share of USAI's
                  Common Stock.

                  In connection with the dilution of Liberty Media Group's
                  ownership interest that resulted from the issuance of common
                  stock by USAI, Liberty Media Group recorded a $33 million
                  increase to combined equity (net of a deferred tax liability
                  of $21 million) and an increase to investments in affiliates
                  of $54 million. No gain was recognized due primarily to
                  Liberty Media Group's commitment to purchase additional equity
                  interests in USAI.

                                                                     (continued)



                                      I-90
<PAGE>   92
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


                  In connection with the Universal Transaction, each of
                  Universal and Liberty Media Group has been granted a
                  preemptive right with respect to future issuances of USAI's
                  capital stock, subject to certain limitations, to maintain
                  their respective percentage ownership interests in USAI that
                  they had immediately prior to such issuances. In addition,
                  with respect to issuances of USAI's capital stock in certain
                  specified circumstances, Universal will be obligated to
                  maintain the percentage ownership interest in USAI that it had
                  immediately prior to such issuances. During the first quarter
                  of 1998, Liberty Media Group exercised its right to purchase
                  approximately 4.7 million additional LLC shares or USAI shares
                  of common stock pursuant to a preemptive right of $20 per
                  share in cash, subject to receipt of regulatory approvals.
                  This transaction is expected to close during the second
                  quarter of 1998.

                  USAI, Universal and Liberty Media Group have agreed that if
                  the parties agree prior to June 30, 1998 (the date of
                  mandatory cash contributions) on the identity of assets owned
                  by Liberty Media Group that are to be contributed to the LLC
                  and the form and terms of such contributions, Liberty Media
                  Group will contribute those assets in exchange for LLC Shares
                  valued at $20 per share. If Liberty Media Group contributes
                  such additional assets, Liberty Media Group has the right to
                  elect to reduce the number of LLC Shares it is obligated to
                  purchase for cash by an amount equal to 45% of the value of
                  the assets contributed by Liberty Media Group. If Liberty
                  Media Group exercises the option to contribute assets and
                  thereby reduces its cash contribution amount, Universal will
                  be required to purchase a number of additional LLC shares
                  (valued at $20 per share) equal to the value of Liberty Media
                  Group's asset contribution, less the amount by which Liberty
                  Media Group's asset contribution is applied towards reducing
                  Liberty Media Group's cash contribution. In addition,
                  Universal may purchase an additional number of LLC shares
                  (valued at $20 per share), equal to the value of Liberty Media
                  Group's asset contribution which is not applied towards
                  reducing Liberty Media Group's cash contribution.

         (d)      On January 12, 1998, TCI acquired from a minority stockholder
                  of UVSG 12.4 million shares of UVSG Class A common stock in
                  exchange for 12.7 million shares of TCI Ventures Group Series
                  A Stock and 7.3 million shares of Liberty Group Series A
                  Stock. The aggregate value assigned to the shares issued by
                  TCI was based upon the market value of such shares at the time
                  the transaction was announced. As a result of such
                  transactions, TCI increased its ownership in the equity of
                  UVSG to approximately 73%, of which 17% is attributed to
                  Liberty Media Group.

         Certain of Liberty Media Group's affiliates are general partnerships
         and any subsidiary of Liberty Media Group that is a general partner in
         a general partnership is, as such, liable as a matter of partnership
         law for all debts (other than non-recourse debts) of that partnership
         in the event liabilities of that partnership were to exceed its assets.

                                                                     (continued)



                                      I-91
<PAGE>   93
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(5)      Investment in Time Warner

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

         As security for borrowings under one of its credit facilities, Liberty
         Media Group has pledged a portion of its TW Exchange Stock. At March
         31, 1998, such pledged portion had an aggregate fair value of
         approximately $1.6 billion based upon the market value of the
         marketable common stock into which it is convertible. See note 7.

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

(6)      Other Investments

         Other investments and related receivables are summarized as follows:

<TABLE>
<CAPTION>
                                                                               March 31,           December 31,
                                                                                 1998                 1997
                                                                           ----------------       --------------
                                                                                    amounts in thousands
<S>                                                                        <C>                     <C>    
           Investment in preferred stock, at cost, including premium       $        370,740              370,791

           Marketable equity securities, at fair value                                   --               24,905

           Other investments, at cost, and related receivables                       31,126               31,019
                                                                           ----------------       --------------

                                                                           $        401,866              426,715
                                                                           ================       ==============
</TABLE>


                                                                     (continued)




                                      I-92
<PAGE>   94

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

                     Notes to Combined Financial Statements


         Management of Liberty Media Group estimates that the market value,
         calculated utilizing a variety of approaches including multiple of cash
         flow, per subscriber value, a value of comparable public or private
         businesses or publicly quoted market prices, of all of Liberty Media
         Group's other investments aggregated $450 million and $483 million at
         March 31, 1998 and December 31, 1997, respectively. No independent
         external appraisals were conducted for those assets.

(7)      Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                   March 31,          December 31,
                                                                     1998                 1997
                                                                 -------------        -------------
                                                                        amounts in thousands
<S>                                                              <C>                        <C>    
           Bank credit facility (a)                              $     185,000              292,000
           Note payable to bank (b)                                     71,986               53,200
           Note payable to bank (c)                                    292,400                   --
           Other                                                         2,323                3,390
                                                                 -------------        -------------

                                                                 $     551,709              348,590
                                                                 =============        =============
</TABLE>

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

                  This revolving credit agreement, as amended, provides for
                  borrowings up to $500 million through August of 2000. Interest
                  on borrowings under the agreement is tied to, at CCC's option,
                  the bank's prime rate or the London Interbank Offered Rate
                  ("LIBOR") plus an applicable margin. The revolving credit
                  agreement provides as security for this indebtedness a portion
                  of Liberty Media Group's TW Exchange Stock. CCC must pay an
                  annual commitment fee of .2% of the unfunded portion of the
                  commitment.

         (b)      Payable by TCI Music

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

                                                                     (continued)



                                      I-93
<PAGE>   95
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

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

         The fair market value of Liberty Media Group's debt approximated its
         carrying value at March 31, 1998.

(8)      Combined Equity

         Stock Options and Stock Appreciation Rights

         Liberty Media Group records stock compensation expense relating to
         restricted stock awards, options and/or stock appreciation rights
         (collectively, "Awards") granted by TCI to certain TCI employees and/or
         directors who are involved with the Liberty Media Group. Stock
         compensation with respect to Awards granted by TCI includes amounts
         related to TCI common stock and is allocated to Liberty Media Group
         based on the Awards held by TCI employees and/or directors who are
         involved with Liberty Media Group. Estimated compensation relating to
         stock appreciation rights ("SARs") has been recorded through March 31,
         1998, and is subject to future adjustment based upon vesting and market
         value, and ultimately, on the final determination of market value when
         such rights are exercised. The estimated compensation adjustment with
         respect to TCI SARs resulted in increases to Liberty Media Group's
         share of TCI's stock compensation liability of $68 million and $1
         million for the three months ended March 31, 1998 and 1997,
         respectively. In addition, for the three months ended March 31, 1998,
         Liberty Media Group made cash payments relating to its share of TCI's
         stock compensation obligations of $1 million. The payable or receivable
         arising from the compensation related to the options and/or stock
         appreciation rights is included in the amount due to related parties.

         Transactions with TCI and Other Related Parties

         Certain TCI corporate general and administrative costs are charged to
         Liberty Media Group at rates set at the beginning of the year based on
         projected utilization for that year. The utilization-based charges are
         set at levels that management believes to be reasonable and that
         approximate the costs Liberty Media Group would incur for comparable
         services on a stand-alone basis. During the three months ended March
         31, 1998 and 1997, Liberty Media Group was allocated $1,109,000 and
         $263,000, respectively, in corporate general and administrative costs
         by TCI.

                                                                     (continued)



                                      I-94
<PAGE>   96
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Entities included in Liberty Media Group lease satellite transponder
         facilities from TCI Ventures Group. Charges by TCI Ventures Group for
         such arrangements and other related operating expenses for the three
         months ended March 31, 1998 and 1997, aggregated $6,196,000 and
         $1,816,000, respectively.

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

         On July 11, 1997, TCI Music merged with DMX, Inc. (the "DMX Merger").
         In connection with the DMX Merger, TCI assumed a contingent obligation
         to purchase 14,896,648 shares (6,812,393 of which are owned by
         subsidiaries of TCI) of TCI Music common stock at a price of $8.00 per
         share (the "Rights Agreement"). Such obligation may be settled, at
         TCI's option, with shares of TCI Group Series A Stock or with cash.
         Simultaneously with the DMX Merger, Liberty Media Group acquired the
         TCI Music Series B Common Stock and 2.6 million of the TCI-owned TCI
         Music Series A Common Stock by assuming the obligation of the Rights
         Agreement and issuing an $80 million promissory note to TCI. Liberty
         Media Group has recorded its contingent obligation to purchase such
         shares as a component of minority interest in equity of attributed
         subsidiaries in the accompanying combined financial statements.

         During the first quarter of 1998, TCI Music issued approximately
         382,050 shares of its Series A Common Stock in connection with certain
         acquisitions. In connection with the issuance of such shares, Liberty
         Media Group's ownership interest was diluted to 77.6% (TCI's ownership
         interest was diluted to 80.7%) and Liberty Media Group recorded a $2.5
         million increase to combined equity. No gain was recognized due
         primarily to Liberty Media Group's contingent obligation under the
         Rights Agreement.

         Due to Related Parties

<TABLE>
<CAPTION>
                                                                             March 31,           December 31,
                                                                               1998                  1997
                                                                         ----------------       --------------
                                                                                 amounts in thousands
<S>                                                                      <C>                           <C>    
         Notes payable to TCI Group, including accrued interest          $         87,327              378,348
         Intercompany account                                                     369,052              130,244
                                                                         ----------------       --------------

                                                                         $        456,379              508,592
                                                                         ================       ==============
</TABLE>

                                                                     (continued)




                                      I-95
<PAGE>   97

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

                     Notes to Combined Financial Statements


         Amounts outstanding under the notes payable to TCI Group bear interest
         at 6.5%. Payments of principal and interest on notes payable to TCI
         Group during the first quarter of 1998 aggregated approximately $296
         million.

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

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

                                                                     (continued)



                                      I-96
<PAGE>   98
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Effective October 1, 1997, (the "Effective Date"), the Old Tax Sharing
         Agreement was replaced by a new tax sharing agreement, as amended by
         the First Amendment thereto (the "New Tax Sharing Agreement"), which
         governs the allocation and sharing of income taxes by TCI Group,
         Liberty Media Group and TCI Ventures Group. Effective for periods on
         and after the Effective Date, federal income taxes will be computed
         based upon the type of tax paid by TCI (on a regular tax or alternative
         minimum tax basis) on a separate basis for each Group. Based upon these
         separate calculations, an allocation of tax liabilities and benefits
         will be made such that each Group will be required to make cash
         payments to TCI based on its allocable share of TCI's consolidated
         federal income tax liabilities (on a regular tax or alternative minimum
         tax basis, as applicable) attributable to such Group and actually used
         by TCI in reducing its consolidated federal income tax liability. Tax
         attributes and tax basis in assets would be inventoried and tracked for
         ultimate credit to or charge against each Group. Similarly, in each
         taxable period that TCI pays alternative minimum tax, the federal
         income tax benefits of each Group, computed as if such Group were
         subject to regular tax, would be inventoried and tracked for payment to
         or payment by each Group in years that TCI utilizes the alternative
         minimum tax credit associated with such taxable period. The Group
         generating the utilized tax benefits would receive a cash payment only
         if, and when, the unutilized taxable losses of the other Group are
         actually utilized. If the unutilized taxable losses expire without ever
         being utilized, the Group generating the utilized tax benefits will
         never receive payment for such benefits. Pursuant to the New Tax
         Sharing Agreement, state and local income taxes are calculated on a
         separate return basis for each Group (applying provisions of state and
         local tax law and related regulations as if the Group were a separate
         unitary or combined group for tax purposes), and TCI's combined or
         unitary tax liability is allocated among the Groups based upon such
         separate calculation.

         Notwithstanding the foregoing, items of income, gain, loss, deduction
         or credit resulting from certain specified transactions that are
         consummated after the Effective Date pursuant to a letter of intent or
         agreement that was entered into prior to the Effective Date will be
         shared and allocated pursuant to the terms of the Old Tax Sharing
         Agreement as amended.

         Transactions with Officers and Directors

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

                                                                     (continued)



                                      I-97
<PAGE>   99
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

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

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

                                                                     (continued)



                                      I-98
<PAGE>   100
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(9)      Commitments and Contingencies

         Encore Media Group is obligated to pay fees for the rights to exhibit
         certain films that are released by various producers through 2017 (the
         "Film Licensing Obligations"). Based on customer levels at March 31,
         1998, these agreements require minimum payments aggregating
         approximately $678 million. The aggregate amount of the Film Licensing
         Obligations under these license agreements is not currently estimable
         because such amount is dependent upon the number of qualifying films
         released theatrically by certain motion picture studios as well as the
         domestic theatrical exhibition receipts upon the release of such
         qualifying films. Nevertheless, it is anticipated that the required
         aggregate payments under the Film Licensing Obligations will be
         significant.

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

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

         During the three months ended March 31, 1998, TCI continued its
         enterprise-wide comprehensive review of its computer systems and
         related software to ensure systems properly recognize the year 2000 and
         continue to process business information. The systems being evaluated
         include all internal use software and devices and those systems and
         devices that manage the distribution of Liberty Media Group's products.
         Liberty Media Group is utilizing both internal and external resources
         to identify, correct or reprogram, and test systems for year 2000
         readiness.

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


                                                                     (continued)



                                      I-99
<PAGE>   101
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

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

         Liberty Media Group's assessment of the impact of the year 2000 date
         change should be complete by the end of 1998. Liberty Media Group
         continues to evaluate the level of validation it will require of third
         parties to ensure their year 2000 readiness. Management of
         Liberty Media Group has not yet determined the cost associated with its
         year 2000 readiness efforts and the related potential impact on Liberty
         Media Group's results of operations. Amounts expended to date have not
         been material, although there can be no assurance that costs ultimately
         required to be paid to ensure Liberty Media Group's year 2000 readiness
         will not have an adverse effect on Liberty Media Group's financial
         position. Additionally, there can be no assurance that Liberty Media
         Group's systems or the systems of other companies on which Liberty
         Media Group relies will be converted in time or that any such failure
         to convert by Liberty Media Group or other companies will not have an
         adverse effect on its financial position.






                                     I-100
<PAGE>   102

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

                           Combined Balance Sheets
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                      March 31,      December 31,
                                                                                        1998             1997
                                                                                     -----------     -----------
                                                                                         amounts in thousands
<S>                                                                                  <C>                 <C>    
 Assets
 Cash and cash equivalents                                                           $   154,839         161,495

 Trade and other receivables, net                                                         91,074          86,856

 Investments in Sprint Spectrum Holding Company, L.P., MinorCo, L.P. and
     PhillieCo, L.P. (collectively, the "PCS Ventures"), accounted for
     under the equity method (note 8)                                                    477,611         607,333
                                                                                         

 Investment in Telewest Communications plc ("Telewest"), accounted for under the
     equity method (note 9)                                                              297,839         324,417

 Investment in Teleport Communications Group, Inc. ("TCG"), accounted for
     under the equity method (note 10)                                                   277,146         294,851

 Investment in Cablevision S.A. ("Cablevision"), accounted for under the
     equity method (note 4)                                                              235,984         239,379

 Investments in other affiliates, accounted for under the equity method,
     and related receivables (note 11)                                                   617,378         631,918

 Deferred tax asset (note 14)                                                             56,569          85,737

 Property and equipment, at cost:
       Land                                                                                7,893           7,893
       Distribution systems                                                              690,872         851,145
       Support equipment and buildings                                                   114,707         116,088
                                                                                     -----------     -----------
                                                                                         813,472         975,126
       Less accumulated depreciation                                                     269,700         265,945
                                                                                     -----------     -----------
                                                                                         543,772         709,181
                                                                                     -----------     -----------

 Franchise costs and other intangible assets                                             549,268         333,516
       Less accumulated amortization                                                      88,356          76,507
                                                                                     -----------     -----------
                                                                                         460,912         257,009
                                                                                     -----------     -----------

 Other assets, net of amortization                                                       374,956         381,726
                                                                                     -----------     -----------

                                                                                     $ 3,588,080       3,779,902
                                                                                     ===========     ===========
</TABLE>

                                                                     (continued)



                                     I-101
<PAGE>   103
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)


                       Combined Balance Sheets, continued
                                   (unaudited)

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

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

 Accounts payable                                                       $     31,923           31,825

 Accrued liabilities                                                          89,624          109,549

 Customer prepayments                                                        140,701          133,479

 Capital lease obligations                                                   205,076          386,808

 Debt (note 12)                                                              460,000          408,532

 Other liabilities                                                            22,479           18,683
                                                                        ------------     ------------

         Total liabilities                                                   949,803        1,088,876
                                                                        ------------     ------------

 Minority interests in equity of attributed subsidiaries                     418,558          420,177

 Combined equity (notes 5 and 13):
    Combined equity                                                        2,165,965        2,215,683
    Accumulated other comprehensive earnings, net of taxes (note 1)           43,577           33,661
                                                                        ------------     ------------
                                                                           2,209,542        2,249,344

    Due to related parties (note 13)                                          10,177           21,505
                                                                        ------------     ------------

         Total combined equity                                             2,219,719        2,270,849
                                                                        ------------     ------------

 Commitments and contingencies  (notes 6, 7, 8, 11, 13 and 15)
                                                                        $  3,588,080        3,779,902
                                                                        ============     ============
</TABLE>

See accompanying notes to combined financial statements.



                                     I-102
<PAGE>   104
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)


                        Combined Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                      Three months ended
                                                                                           March 31,
                                                                                 ------------------------------
                                                                                    1998               1997
                                                                                 ------------      ------------
                                                                                      amounts in thousands,
                                                                                    except per share amounts
<S>                                                                              <C>                     <C>   
 Revenue:
     Related parties (note 13)                                                   $     10,783            14,400
     Other                                                                            200,215           232,620
                                                                                 ------------      ------------
                                                                                      210,998           247,020
                                                                                 ------------      ------------
 Operating costs and expenses:
     Operating:
        Related parties (note 13)                                                      12,244            15,850
        Other                                                                         125,721           117,234
     General and administrative:
        Related parties (note 13)                                                       2,194             2,212
        Other                                                                          49,067            62,433
     Cost of distribution agreements (note 7)                                          83,320              --
     Stock compensation (note 13)                                                      82,090             8,262
     Depreciation and amortization                                                     35,545            41,144
                                                                                 ------------      ------------
                                                                                      390,181           247,135
                                                                                 ------------      ------------

           Operating loss                                                            (179,183)             (115)

 Other income (expense):
     Share of losses of the PCS Ventures (note 8)                                    (155,202)          (63,536)
     Share of losses of Telewest (note 9)                                             (30,219)          (41,708)
     Share of losses of TCG (note 10)                                                 (17,706)          (13,768)
     Share of losses of Cablevision (note 4)                                           (3,205)             --
     Share of losses of other affiliates (note 11)                                    (24,640)          (23,108)
     Interest expense                                                                  (9,104)          (14,196)
     Interest income:
        Related parties (note 13)                                                       1,042             2,008
        Other                                                                           2,268             1,026
     Gain on disposition of assets, net                                                37,788            28,893
     Gain on issuance of equity interest by attributed entity                          14,700              --
     Minority interests in losses of attributed subsidiaries, net                      52,805               616
     Other, net                                                                         2,079             2,266
                                                                                 ------------      ------------
                                                                                     (129,394)         (121,507)
                                                                                 ------------      ------------

           Loss before income taxes                                                  (308,577)         (121,622)

 Income tax benefit                                                                    85,194            44,370
                                                                                 ------------      ------------

           Net loss                                                              $   (223,383)          (77,252)
                                                                                 ============      ============

 Basic and diluted loss attributable to common stockholders per common share
     subsequent to TCI Ventures Exchange (note 2)                                $      (0.53)
                                                                                 ============ 
     Comprehensive loss (note 1)                                                 $   (213,467)         (106,630)
                                                                                 ============      ============
</TABLE>

See accompanying notes to combined financial statements.



                                     I-103
<PAGE>   105
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)


                         Statement of Combined Equity

                        Three months ended March 31, 1998
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                        Accumulated
                                                                          other
                                                                       comprehensive              Due to          Total
                                                     Combined           earnings,                 related        combined
                                                      equity            net of taxes              parties         equity
                                                   ----------------    ---------------         ------------   -------------
                                                                              amounts in thousands
<S>                                                <C>                 <C>                      <C>            <C>      
Balance at January 1, 1997                         $      2,215,683             33,661               21,505       2,270,849
   Net loss                                                (223,383)                --                   --        (223,383)
   Foreign currency translation adjustment                       --              1,155                   --           1,155
   Change in unrealized holding gains for
     available-for-sale securities                               --              8,761                   --           8,761
   Repurchases of TCI Ventures Group Stock                   (2,358)                --                   --          (2,358)
   Issuance of TCI Ventures Group Stock for
     acquisition of minority interest (note 5)              177,661                 --                   --         177,661
   Payment of call premiums (note 13)                       (75,836)                --                   --         (75,836)
   Transfer of net liabilities to related party
     (note 13)                                               49,528                 --                   --          49,528
   Adjustment to minority interest deficit in
     joint venture (note 6)                                  24,524                 --                   --          24,524
   Excess of earnings over distributions to
     minority interest in joint venture                         146                 --                   --             146
   Change in due to related parties                              --                 --              (11,328)        (11,328)
                                                   ----------------    ---------------         ------------   -------------

Balance at March 31, 1998                          $      2,165,965             43,577               10,177       2,219,719
                                                   ================    ===============         ============   =============
</TABLE>



                                     I-104
<PAGE>   106
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)


                        Combined Statements of Cash Flows
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                    Three months ended
                                                                                        March 31,
                                                                                 1998               1997
                                                                               -----------      -----------
                                                                                       amounts in thousands
                                                                                           (see note 3)
<S>                                                                            <C>               <C>     
 Cash flows from operating activities:
    Net loss                                                                   $  (223,383)         (77,252)
    Adjustments to reconcile net loss to net cash provided by (used
      in) operating activities:
         Depreciation and amortization                                              35,545           41,144
         Cost of distribution agreements                                            83,320             --
         Stock compensation                                                         82,090            8,262
         Payment of obligation relating to stock compensation                      (43,251)             (57)
         Share of losses of affiliates, net                                        230,972          142,120
         Gain on disposition of assets, net                                        (37,788)         (28,893)
         Gain on issuance of equity interest by attributed entity                  (14,700)            --
         Minority interests' share of losses, net                                  (52,805)            (616)
         Unrealized foreign currency transaction gains                                (284)          (2,653)
         Other noncash charges                                                        --              1,734
         Deferred income tax expense                                                23,435            1,417
         Intergroup tax allocation                                                (112,156)         (46,074)
         Changes in operating assets and liabilities, net of the effect of
            acquisitions and the deconsolidation of Flextech p.l.c.:
              Change in receivables                                                 (3,303)          (6,260)
              Change in payables, accruals, customer prepayments and
                 other liabilities                                                  (2,312)          (3,542)
                                                                               -----------      -----------

                  Net cash provided by (used in) operating activities          $   (34,620)          29,330
                                                                               -----------      -----------
</TABLE>


                                                                     (continued)



                                     I-105
<PAGE>   107
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)


                  Combined Statements of Cash Flows, continued
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                Three months ended
                                                                                    March 31,
                                                                             1998             1997
                                                                          -----------      -----------
                                                                              amounts in thousands
                                                                                  (see note 3)
<S>                                                                       <C>              <C>     
 Cash flows from investing activities:
    Investments in and loans to affiliates                                $   (55,229)         (44,359)
    Capital expended for property and equipment                               (32,646)         (42,249)
    Effect of the deconsolidation of Flextech p.l.c. on cash and cash
       equivalents                                                               --            (38,142)
    Proceeds from dispositions of assets                                       78,132             --
    Proceeds from repayment of loans by affiliates                              8,686           63,495
    Other, net                                                                    621           10,834
                                                                          -----------      -----------

                  Net cash used in investing activities                          (436)         (50,421)
                                                                          -----------      -----------

 Cash flows from financing activities:
    Borrowings of debt                                                         70,000           36,857
    Repayments of debt and capital lease obligations                          (18,196)         (75,199)
    Payment of call premiums                                                  (75,836)            --
    Repurchase of common stock by attributed entities                          (6,947)          (6,798)
    Repurchase of TCI Ventures Group Stock                                     (2,358)            --
    Repayments received on loan to TCI                                         25,456           42,010
    Change in amounts due to related parties                                   39,985             --
    Change in combined equity                                                    --            (23,215)
    Distribution to minority interest owners                                   (3,704)          (7,000)
                                                                          -----------      -----------

                  Net cash provided by (used in) financing activities          28,400          (33,345)
                                                                          -----------      -----------

                  Net decrease in cash and cash equivalents                    (6,656)         (54,436)

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

                      End of period                                       $   154,839           51,091
                                                                          ===========      ===========
</TABLE>

See accompanying notes to combined financial statements.



                                     I-106
<PAGE>   108

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

                     Notes to Combined Financial Statements

                                 March 31, 1998
                                   (unaudited)

(1)      Basis of Presentation

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

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

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

         The accompanying interim combined financial statements are unaudited
         but, in the opinion of management, reflect all adjustments (consisting
         of normal recurring accruals) necessary for a fair presentation of the
         results of such periods. The results of operations for any interim
         period are not necessarily indicative of results for the full year.
         These unaudited interim combined financial statements should be read in
         conjunction with the TCI Ventures Group's December 31, 1997 audited
         financial statements and notes thereto.

         As further described in notes 4 and 11, TINTA ceased to consolidate
         Flextech p.l.c. ("Flextech") and Cablevision and began to account for
         Flextech and Cablevision using the equity method of accounting,
         effective January 1, 1997 and October 1, 1997, respectively.

         Unless otherwise indicated, convenience translations of foreign
         currencies into U.S. dollars are calculated using the applicable spot
         rate at March 31, 1998, as published in The Wall Street Journal.


                                                                     (continued)


                                     I-107
<PAGE>   109
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

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

         Targeted Stock

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

         As of March 31, 1998, the TCI Ventures Group consisted principally of
         the following assets and their related liabilities: (i) TCI's 85%
         equity interest (representing a 92% voting interest) in
         Tele-Communications International, Inc. ("TINTA"), which is TCI's
         primary vehicle for the conduct of its international cable, telephony
         and programming businesses (other than those international programming
         businesses attributed to the Liberty Media Group), (ii) TCI's principal
         interests in the telephony business ("TCI Telephony") consisting
         primarily of TCI's investment in a series of partnerships formed to
         engage in the business of providing wireless communications services,
         using the radio spectrum for broadband personal communications services
         ("PCS"), to residential and business customers nationwide under the
         Sprint(R) brand (a registered trademark of Sprint Communications
         Company, L.P.), TCI's 28% equity interest (representing a 41% voting
         interest) in TCG, a competitive local exchange carrier, and Western
         Tele-Communications, Inc. ("WTCI"), a wholly-owned subsidiary of TCI
         that provides long distance transport of video, voice and data traffic
         and other telecommunications services to interexchange carriers on a
         wholesale basis using primarily a digital broadband microwave network
         located throughout a 12 state region, (iii) a 56% equity interest
         (representing a 89% voting interest) in United Video Satellite Group,
         Inc. ("UVSG"), which provides satellite-delivered video, audio, data
         and program promotion services to cable television systems, satellite
         dish owners, radio stations and private network users, primarily
         throughout North America, (iv) TCI's 39% equity interest (representing
         a 72% voting interest) in At Home Corporation ("@Home"), a provider of
         high speed multimedia Internet services, and TCI's interest in other
         Internet-related assets and (v) other assets, including ETC w/tci, Inc.
         ("ETC"), a wholly-owned subsidiary of TCI which is a developer and
         distributor of for-profit education, training and communications
         services and products, and National Digital Television Center, Inc.
         ("NDTC"), which provides digital compression and authorization services
         to programming suppliers and to video distribution outlets. The
         foregoing subsidiaries and assets are collectively referred to as "TCI
         Ventures Group." The stocks of TINTA, TCG, @Home and UVSG are traded on
         the National Market tier of The Nasdaq Stock Market.


                                                                     (continued)


                                     I-108
<PAGE>   110
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         The TCI Ventures Group does not include any business that uses TCI's
         domestic cable network to distribute services to customers (e.g.,
         cable, telephony and Internet services). Such domestic "distribution"
         businesses will continue to be attributed to the TCI Group.

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

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

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

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


                                                                     (continued)



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

                     Notes to Combined Financial Statements


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

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

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

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


                                                                     (continued)



                                     I-110
<PAGE>   112
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

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

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

                                                                     (continued)



                                     I-111
<PAGE>   113
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

         Except as described in note 13 with respect to the Revolving Credit
         Facility, as defined therein, loans from one Group to another Group
         would bear interest at such rates and have such repayment schedules and
         other terms as are established from time to time by, or pursuant to
         procedures established by, the Board. The Board expects to make such
         determinations, either in specific instances or by setting generally
         applicable polices from time to time, after consideration of such
         factors as it deems relevant, including, without limitation, the needs
         of TCI, the use of proceeds by and creditworthiness of the recipient
         Group, the capital expenditure plans and investment opportunities
         available to each Group and the availability, cost and time associated
         with alternative financing sources.

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

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

                                                                     (continued)



                                     I-112
<PAGE>   114
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(2)      Loss Per Common Share

         Basic earnings or loss 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 earnings per
         share is similar to basic EPS but presents the dilutive effect on a per
         share basis of potential common shares (e.g., convertible securities,
         options, etc.) as if they had been converted at the beginning of the
         periods presented. Potential common shares that have an anti-dilutive
         effect (i.e., those that increase income per share or decrease loss per
         share) are excluded from diluted EPS.

         The basic and diluted loss attributable to TCI Ventures Group
         stockholders per common share for the three months ended March 31, 1998
         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 Stock for the period (421 million).
         Potential common shares were not included in the computation of
         weighted average shares outstanding because their inclusion would be
         anti-dilutive.

         At March 31, 1998, there were 34 million potential common shares
         consisting of fixed and nonvested performance awards, stock options and
         convertible securities that could potentially dilute future earnings
         per share calculations in periods of net earnings. Such potential
         common share amount does not take into account the assumed number of
         shares that would be repurchased by the Company upon the exercise of
         the fixed and nonvested performance awards and the conversion of the
         convertible securities. No material changes in the weighted average
         outstanding shares or potential common shares occurred after March 31,
         1998.

(3)      Supplemental Disclosures to Statements of Cash Flows

         Cash paid for interest was $13.0 million and $15.4 million for the
         three months ended March 31, 1998 and 1997, respectively. Cash paid for
         income taxes was $225,000 and $3.3 million during the three months
         ended March 31, 1998 and 1997, respectively.

         The effects of changing the method of accounting for the TCI Ventures
         Group's ownership interest in Flextech from the consolidation method to
         the equity method (see note 11) are summarized below (amounts in
         thousands):

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

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

         For information concerning additional non-cash transactions see notes
         5, 6 and 13.

                                                                     (continued)



                                     I-113
<PAGE>   115
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(4)      Cablevision

         On October 9, 1997, TINTA sold a portion of its 51% interest in
         Cablevision to unaffiliated third parties (the "Buyers") for cash
         proceeds of $120 million. In addition, on October 9, 1997, Cablevision
         issued 3,541,829 shares of stock in the aggregate to the Buyers for $80
         million in cash and notes receivable with an aggregate principal amount
         of $240 million, plus accrued interest at LIBOR, due within the earlier
         of two years or at the request of Cablevision's board of directors. The
         1997 transactions, (collectively, the "Cablevision Sale") reduced
         TINTA's interest in Cablevision to 26.2%. TINTA recognized a gain of
         $49 million on the Cablevision Sale. TINTA continues to manage
         Cablevision pursuant to a renewable five-year management contract that
         was entered into in connection with the Cablevision Sale, and certain
         material corporate transactions of Cablevision will require TINTA's
         approval, so long as TINTA maintains at least a 16% interest in
         Cablevision. As a result of the Cablevision Sale, effective October 1,
         1997, TINTA ceased to consolidate Cablevision and began to account for
         Cablevision using the equity method of accounting.

         Prior to 1997, none of Cablevision's operating results had been
         allocated to Cablevision's 49% minority interest because (i) the
         minority interest had no obligation to provide any funding to
         Cablevision and (ii) Cablevision's liabilities exceeded the minority
         interest's historical cost basis in Cablevision's assets. During the
         second quarter of 1997, Cablevision's net earnings caused the minority
         interest's historical cost basis in Cablevision's net assets to become
         positive. Accordingly, TINTA began allocating 49% of such net earnings
         to the minority interest during the second quarter of 1997. If the
         minority interest's historical cost basis had been positive since
         January 1, 1997, TINTA would have allocated an additional $3.5 million
         during the three months ended March 31, 1997 of Cablevision's net
         earnings to the minority interest.

         Summarized unaudited results of operations for Cablevision are as
         follows:

<TABLE>
<CAPTION>
                                                                            Three months ended
                                                                              March 31, 1998
                                                                           --------------------
         Consolidated Operations                                           amounts in thousands

<S>                                                                         <C>              
                  Revenue                                                   $          62,341
                  Operating, selling, general and
                     administrative expenses                                          (38,772)
                  Depreciation and amortization                                       (13,077)
                                                                            ----------------- 

                     Operating income                                                  10,492

                  Interest expense, net                                               (17,893)
                  Other, net                                                            2,752
                                                                            ----------------- 

                     Net loss                                               $          (4,649)
                                                                            =================
</TABLE>


                                                                     (continued)



                                     I-114
<PAGE>   116
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(5)      Acquisitions

         On January 12, 1998, TCI acquired from a minority shareholder of UVSG
         12.4 million shares of UVSG Class A common stock in exchange for 12.7
         million shares of TCI Ventures Group Series A Stock and 7.3 million
         shares of Liberty Group Series A Stock. The aggregate value assigned to
         the shares issued by TCI was based upon the market value of such shares
         at the time the transaction was announced. As a result of such
         transaction TCI increased its ownership in the equity of UVSG to
         approximately 73%, of which 56% is attributed to the TCI Ventures Group
         and 17% is attributed to Liberty Media Group. In addition, TCI's
         collective voting power increased to 93%. In connection with such
         transaction, during the first quarter of 1998, TCI Ventures Group
         recorded a $154.2 million increase to intangible assets, a $23.5
         million decrease to minority interests in equity of attributed
         subsidiaries and a $177.7 million increase to combined equity.

(6)      Dispositions

         On January 16, 1998, TINTA sold its interest in TeleCable Nacional, CXA
         for cash proceeds of $10.0 million. TINTA recognized a gain on such
         sale of $9.2 million.

         On February 12, 1998, TCI Ventures Group sold its (i) 79% interest in
         New Jersey Fiber Technologies, L.P., (ii) 40% interest in NHT
         Partnership and (iii) 50% interest in Louisville Lightwave for
         aggregate cash proceeds of $44.1 million.
         TCI Ventures Group recognized a gain of $28.6 million on such
         transactions.

         TCI Ventures Group sold its interest in Acclaim Entertainment, Inc.
         ("Acclaim") in February 1998 for cash proceeds of $17.0 million. The
         loss on such sale was not significant as the sales price approximated
         TCI Ventures Group's carrying value in Acclaim.

         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 such transaction, each of UVSG's and Liberty Media Group's
         ownership interest in Superstar/Netlink decreased from 50% to
         approximately 40%. Turner Vision's contribution to Superstar/Netlink
         was accounted for as a purchase and the $61.2 million excess of the
         purchase price over the fair value of the assets acquired was recorded
         as goodwill and is being amortized over five years.

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


                                                                     (continued)



                                     I-115
<PAGE>   117
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         In April 1998, UVSG, Liberty Media Group and Turner Vision (the
         "Superstar/Netlink Owners") announced an agreement in principal with
         PRIMESTAR, Inc. ("PRIMESTAR") for the sale of Superstar/Netlink (the
         "PRIMESTAR Transaction"). The Superstar/Netlink Owners have agreed to
         an aggregate sales price of approximately $480 million based on the
         delivery of 1.2 million C-band subscribers at the close of the
         transaction. The consideration paid will be in the form of
         approximately $430 million in new convertible preferred stock of
         PRIMESTAR and approximately $50 million in assumed programming
         liabilities. The preferred stock will be convertible into approximately
         44.8 million shares of PRIMESTAR Class A common stock. Such preferred
         stock will also bear a 6% cumulative dividend, payable in cash, shares
         of PRIMESTAR Class A common stock or, under certain circumstances,
         shares of TCI Satellite Entertainment, Inc. Series A common stock, as
         PRIMESTAR shall elect. Consummation of the agreement is subject to
         certain conditions including receipt of applicable regulatory
         approvals. No assurance can be given that such transaction will be
         consummated or consummated on the terms contemplated by the parties.

         In February 1998, TCI, Liberty Media Group and UVSG announced an
         agreement in principal for UVSG to acquire Liberty Media Group's 40%
         interest in Superstar/Netlink and its 100% interest in certain
         businesses conducted under the name Netlink International in exchange
         for 6.4 million shares of UVSG's common stock. Liberty Media Group and
         UVSG have agreed in principal to restructure their transaction to
         provide for UVSG to acquire any shares of PRIMESTAR preferred stock
         received by Liberty Media Group in the PRIMESTAR Transaction and
         Liberty Media Group's Netlink International businesses for 6.4 million
         shares of UVSG Class B common stock. The Netlink International
         businesses are being operated by Liberty Media Group for the benefit of
         UVSG from April 1, 1998 to the closing of the sale thereof.
         Consummation of the transaction between Liberty Media Group and UVSG is
         subject to the signing of a definitive agreement following receipt by 
         UVSG of a satisfactory fairness opinion, UVSG stockholder approval and
         certain regulatory approvals. No assurance can be given that such
         transaction will be consummated.
        
         TCI and the other partner of Kansas City Fiber Network, L.P. ("KC
         Fiber") have signed an agreement to sell the assets of KC Fiber to TCG
         for cash proceeds of approximately $55 million. The TCI Ventures Group
         holds a 50% interest in KC Fiber and the remaining 50% is held by
         Kansas City Cable Partners, a partnership in which the TCI Group holds
         a 50% interest. The sale of KC Fiber is subject to certain regulatory
         and other conditions, and there can be no assurance that it will be
         consummated. If consummated, TCI Ventures Group's share of such
         proceeds would be approximately $20 million.

         On September 23, 1997, TCI announced that it and ETC entered into a
         letter of intent with Knowledge Universe, L.L.C. ("Knowledge
         Universe"). The letter of intent contemplates that TCI, through ETC,
         will become a partner of Knowledge Universe in a new venture into which
         Knowledge Universe would make a substantial investment and ETC would
         contribute a significant portion of its assets. As a result, Knowledge
         Universe would be the majority owner of the new venture, with ETC
         retaining a significant minority interest. There can be no assurance
         that the proposed transaction with Knowledge Universe will ultimately
         be consummated or that the terms of the proposed transaction will not
         be substantially modified.


                                                                     (continued)



                                     I-116
<PAGE>   118
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(7)      @Home

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

         @Home has entered into exclusive distribution agreements with certain
         cable operators. In connection with the distribution agreements, @Home
         has issued warrants to such cable operators to purchase 17,946,956
         shares of @Home's Series A common stock. Of these warrants, warrants to
         purchase 10,581,298 shares were exercisable as of March 31, 1998.
         During the first quarter of 1998, @Home recorded a non-cash,
         non-recurring charge of $83.3 million to operations based on the fair
         value of 2,705,514 shares which were underlying warrants which became
         exercisable during the period. Such charges are included in "cost of
         distribution agreements" in the accompanying combined statements of
         operations. @Home may issue additional stock, or warrants in connection
         with its efforts to expand its distribution of the @Home service to
         other cable operators. The exercise of warrants or stock issued by
         @Home will reduce TCI Ventures Group's equity interest and voting power
         in @Home.

(8)      Investments in the PCS Ventures

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

         From inception through March 1998, the four partners have contributed
         approximately $4.2 billion to Sprint PCS (of which TCI Telephony
         contributed an aggregate of approximately $1.3 billion). The remaining
         capital that Sprint PCS will require to fund the operation of the PCS
         systems and the commitments made to its affiliates will be substantial.
         The partners had agreed in forming Sprint PCS to contribute up to an
         aggregate of approximately $4.2 billion of equity thereto, from
         inception through fiscal 1999, subject to certain requirements. The TCI
         Ventures Group expects that the remaining approximately $150 million of
         such amount (of which TCI Telephony's share is approximately $45
         million) will be contributed by the end of the second quarter of 1998
         (although there can be no assurance that any additional capital will be
         contributed). The TCI Ventures Group expects that Sprint PCS will
         require additional equity thereafter.


                                                                     (continued)



                                     I-117
<PAGE>   119
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Sprint PCS's business plan will require additional capital financing
         prior to the end of 1998. Sources of funding for Sprint PCS's capital
         requirements may include vendor financing, public offerings or private
         placements of equity and/or debt securities, commercial bank loans
         and/or capital contributions from the Sprint PCS partners. However,
         there can be no assurance that any additional financing can be obtained
         on a timely basis, on terms acceptable to Sprint PCS or the Sprint PCS
         partners and within the limitations contained in the agreements
         governing Sprint PCS's existing debt.

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

         Furthermore, the fact that the proposed budget for Sprint PCS for
         fiscal 1998 has not yet been approved by the Sprint PCS partnership
         board has resulted in the occurrence of a "Deadlock Event" under the
         Sprint PCS partnership agreement as of January 1, 1998. Under the
         Sprint PCS partnership agreement, if one of the Sprint PCS partners
         refers the budget issue to the chief executive officers of the
         corporate parents of the Sprint PCS partners for resolution pursuant to
         specified procedures and the issue remains unresolved, buy/sell
         provisions would be triggered, which may result in the purchase by one
         or more of the Sprint PCS partners of the interests of the other Sprint
         PCS partners, or, in certain circumstances, liquidation of Sprint PCS.
         Discussions among the Sprint PCS partners about restructuring their
         interests in Sprint PCS in lieu of triggering such buy/sell procedures
         are ongoing. However, there is no certainty the discussions will result
         in a change to the partnership structure or will avert the triggering
         of the resolution and buy/sell procedures referred to above or a
         liquidation of Sprint PCS.



                                                                     (continued)



                                     I-118
<PAGE>   120
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

<TABLE>
<CAPTION>
                                                               Three months ended
                                                                   March 31,
                                                          ----------------------------
                 Combined Operations                         1998              1997
                                                          -----------      -----------
                                                             amounts in thousands
<S>                                                       <C>                    <C>  
                      Revenue                             $   149,842            9,487
                      Operating, selling, general and
                          administrative  expenses           (409,093)        (167,582)
                      Depreciation and amortization          (119,592)         (34,429)
                                                          -----------      -----------

                        Operating loss                       (378,843)        (192,524)

                      Interest expense                        (80,408)          (1,590)
                      Other, net                              (55,174)         (22,955)
                                                          -----------      -----------

                        Net loss                          $  (514,425)        (217,069)
                                                          ===========      ===========
 </TABLE>
             
(9)      Investment in Telewest

         At March 31, 1998, TINTA indirectly owned through its 50% ownership
         interest in TW Holdings, L.L.C., 132,638,250 or 26.7% of the issued and
         outstanding non-voting Telewest convertible preference shares and
         246,111,750 or 26.5% (assuming no conversion of the Telewest
         convertible preference shares) of the issued and outstanding Telewest
         ordinary shares. The reported closing price on the London Stock
         Exchange of Telewest ordinary shares was (pound)0.91 ($1.52) per share
         at March 31, 1998.

         On April 15, 1998, it was announced that Telewest and General Cable PLC
         ("General Cable") had agreed to the terms of a proposed merger (the
         "Merger Offer") in which holders of General Cable will be offered 1.243
         new Telewest shares and (pound)0.65 ($1.09) in cash for each share of
         General Cable. In addition, holders of American Depository shares of
         General Cable ("General Cable ADSs") (each representing five General
         Cable shares) will be offered 6.215 new Telewest shares and (pound)3.25
         ($5.43) in cash for each share of General Cable ADSs. Based upon
         Telewest's closing share price of (pound)0.89 ($1.49) on April 14,
         1998, the Merger Offer is valued at approximately (pound)649 million
         ($1.1 billion).

         The cash portion of the Merger Offer will be financed through an offer
         to qualifying Telewest shareholders for the purchase of approximately
         261 million new Telewest shares at a price of (pound)0.925 ($1.55) per
         share. U S WEST, Inc. ("U S WEST"), TINTA and Cox Communications, Inc.
         ("Cox") have agreed to subscribe for their full allocation of new
         Telewest shares (approximately 69 million shares in the case of TINTA)
         and to subscribe on a pro rata basis for any new Telewest shares not
         subscribed for by other Telewest shareholders. Together, U S WEST,
         TINTA and Cox held 67.9% of the issued and outstanding Telewest
         ordinary shares at March 31, 1998. In addition, it is anticipated that
         U S WEST, TINTA, Cox and SBC Communications, Inc. ("SBC") will convert
         their entire respective holdings of Telewest convertible preference
         shares into new Telewest shares. Following the issuance of new Telewest
         shares with respect to the above transactions, and assuming the
         exercise of all options under General Cable's share option schemes, it
         is anticipated that existing Telewest shareholders would hold 79% and
         existing General Cable shareholders would hold 21% of the then issued
         ordinary share capital of the combined group.

                                                                     (continued)



                                     I-119
<PAGE>   121
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Consummation of the merger is subject to (i) approval by the boards of
         directors of Telewest and General Cable, (ii) regulatory approval and
         (iii) other conditions. There can be no assurance that such merger will
         be consummated or consummated on the terms contemplated by the parties.

         As a result of Telewest's issuance of U.S. dollar denominated
         debentures (the "Telewest Debentures"), changes in the exchange rate
         used to translate the U.S. dollar into the UK pound sterling will cause
         Telewest to experience realized and unrealized foreign currency
         transaction gains and losses throughout the term of the Telewest
         Debentures, which mature in 2006 and 2007, if not redeemed earlier.
         During the three months ended March 31, 1998 and 1997, Telewest
         experienced unrealized foreign currency transaction gains (losses) of
         $10.9 million and $(40.5 million) respectively, with respect to the
         Telewest Debentures.

         The functional currency of Telewest is the UK pound sterling. The
         average exchange rate used to translate the TCI Ventures Group's share
         of Telewest's operating results from UK pounds to U.S. dollars was
         1.6500 to 1 and 1.6459 to 1 during the three months ended March 31,
         1998 and 1997, respectively. The spot rate used to translate the TCI
         Ventures Group's share of Telewest's net assets from UK pounds to U.S.
         dollars was 1.6713 to 1 and 1.6508 to 1 at March 31, 1998 and December
         31, 1997, respectively.

         Summarized unaudited results of operations for Telewest are as follows:

<TABLE>
<CAPTION>
                                                                                Three months ended
                                                                                    March 31,
                                                                           ----------------------------
                                                                              1998              1997
                                                                           -----------      -----------
          Consolidated Operations                                              amounts in thousands
<S>                                                                        <C>                  <C>    
               Revenue                                                     $   182,200          147,876
               Operating, selling, general and administrative expenses        (139,697)        (135,983)
               Depreciation and amortization                                   (87,983)         (72,014)
                                                                           -----------      -----------

                    Operating loss                                             (45,480)         (60,121)

               Interest expense, net                                           (68,690)         (45,656)
               Share of losses of affiliates                                   (11,062)          (8,144)
               Foreign exchange gain (loss)                                     10,940          (40,525)
               Other, net                                                          891             (126)
                                                                           -----------      -----------

                    Net loss                                               $  (113,401)        (154,572)
                                                                           ===========      ===========
 </TABLE>

(10)     Investment in TCG

         On March 31, 1998, TCI Ventures Group owned 1,011,528 shares of TCG's
         Class A common stock and 48,779,000 shares of TCG's Class B common
         stock. TCG's Class A common stock had a closing price on the Nasdaq
         financial market of $58.75 per share on March 31, 1998.



                                                                     (continued)



                                     I-120
<PAGE>   122
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         On April 22, 1998, TCG completed a merger transaction with ACC Corp.
         ("ACC") in which ACC shares were exchanged with shares of TCG in the
         ratio of .90909 share of TCG stock for each share of ACC stock. The
         transaction was valued at approximately $1.1 billion. As a result of
         such merger transaction, TCI Ventures Group's interest in TCG was
         reduced to approximately 26%.

         In January 1998, TCG entered into certain agreements pursuant to which
         it agreed to be acquired by AT&T Corporation ("AT&T"). Upon
         consummation of such merger, TCI would receive in exchange for all of
         its interest in TCG, approximately 46.95 million shares of AT&T common
         stock, which shares would be attributed to the TCI Ventures Group. The
         transaction is subject to a number of regulatory and other conditions,
         accordingly, there can be no assurance that such transaction will be
         consummated on the terms contemplated by the parties, or at all.

         Summarized unaudited results of operations for TCG are as follows:

<TABLE>
<CAPTION>
                                                                 Three months ended
                                                                    March 31,
                                                          ----------------------------
                 Operations                                  1998              1997
                                                          -----------      -----------
                                                               amounts in thousands
<S>                                                       <C>                   <C>   
                      Revenue                             $   160,077           96,844
                      Operating, selling, general and
                          administrative expenses            (147,234)         (90,708)
                      Depreciation and amortization           (49,102)         (29,756)
                                                          -----------      -----------

                          Operating loss                      (36,259)         (23,620)

                      Interest expense                        (31,524)         (29,508)
                      Other, net                                5,589            8,100
                                                          -----------      -----------

                          Net loss                        $   (62,194)         (45,028)
                                                          ===========      ===========
 </TABLE>

(11)     Investments in Other Affiliates

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

         The TCI Ventures Group has guaranteed notes payable and other
         obligations of certain of the Other Affiliates (the "Guaranteed
         Obligations"). At March 31, 1998, the U.S. dollar equivalent of the
         amounts borrowed pursuant to the Guaranteed Obligations aggregated
         approximately $98 million.

         Certain of the Other Affiliates are general partnerships and any
         subsidiary of the TCI Ventures Group that is a general partner in a
         general partnership is, as such, liable, as a matter of partnership law
         for all debts (other than non-recourse debts) of that partnership to
         the extent liabilities of that partnership were to exceed its assets.



                                                                     (continued)



                                     I-121
<PAGE>   123
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

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

<TABLE>
<CAPTION>
                                                                      March 31,        December 31,
                                                                        1998            1997
                                                                     -----------     -----------
                                                                        amounts in thousands
<S>                                                                  <C>                 <C>    
                    Flextech (a)                                     $   259,091         261,453
                    Liberty/TINTA LLC ("Liberty/TINTA") (b)              133,541         127,574
                    MultiThematiques S.A. ("MultiThematiques")            69,419          68,335
                    Jupiter Telecommunications 
                        Co., Ltd. ("Jupiter")                             48,337          49,197
                    Bresnan International Partners
                        (Poland), L.P.                                    25,196          26,110
                    United International Investments                      23,744          26,966
                    Bresnan International Partners (Chile), L.P.          18,626          22,863
                    Jupiter Programming Co., Ltd. ("JPC")                 16,162          15,582
                    Other                                                 23,262          33,838
                                                                     -----------     -----------
                                                                     $   617,378         631,918
                                                                     ===========     ===========
 </TABLE>

         (a)      Flextech

                  TINTA owned, at March 31, 1998, 57,889,032 Flextech ordinary
                  shares ("Flextech Ordinary Shares") representing 36.8% of the
                  issued and outstanding Flextech share capital and, when
                  combined with a special voting share owned by TINTA, 50% of
                  the aggregate voting interests attributable to such Flextech
                  share capital. Based upon the (pound)5.40 ($9.03) per share
                  closing price of the Flextech Ordinary Shares on the London
                  Stock Exchange, the Flextech Ordinary Shares owned by TINTA
                  had an aggregate market value of (pound)313 million ($523
                  million) at March 31, 1998.



                                                                     (continued)



                                     I-122
<PAGE>   124
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


                  In January 1997, TINTA reduced its voting interest in Flextech
                  to 50% by issuing to a nominee an irrevocable proxy (the
                  "Proxy") to vote 960,850 Flextech Ordinary Shares at any
                  shareholder meeting to be held through December 31, 1997. In
                  April 1997, Flextech and BBC Worldwide Limited ("BBC
                  Worldwide") formed two separate joint ventures (the "Principal
                  Joint Venture" and the "Second Joint Venture", collectively
                  the "BBC Joint Ventures") and entered into certain related
                  transactions. The consummation of the BBC Joint Ventures and
                  related transactions resulted in, among other things, a
                  reduction of TINTA's ownership interest in Flextech to 35.9%
                  and the issuance to TINTA by Flextech of a special voting
                  share (the "Special Voting Share"). The Special Voting Share
                  when combined with TINTA's other share capital in Flextech,
                  allows TINTA to cast 50% of the votes on most matters brought
                  to the shareholders of Flextech for vote. The Special Voting
                  Share will terminate upon the occurrence of the earlier of (i)
                  the third anniversary of issuance or (ii) any transfer of
                  Flextech shares by TINTA outside a specified affiliated group.
                  In light of TINTA's decreased voting interest in Flextech,
                  TINTA, effective January 1, 1997, ceased to consolidate
                  Flextech and began to account for Flextech using the equity
                  method of accounting.

                  Flextech has undertaken to finance the working capital
                  requirements of the Principal Joint Venture and is obligated
                  to provide the Principal Joint Venture with a primary credit
                  facility of (pound)88 million ($147 million) and subject to
                  certain restrictions, a standby credit facility of (pound)30
                  million ($50 million). Flextech has also agreed to make
                  available to the Second Joint Venture, if required, funding of
                  up to (pound)10 million ($17 million). If Flextech defaults in
                  its funding obligation to the Principal Joint Venture and
                  fails to cure within 42 days after receipt of notice from BBC
                  Worldwide, BBC Worldwide is entitled, within the following 90
                  days, to require that TINTA assume all of Flextech's funding
                  obligations to the Principal Joint Venture (the "Standby
                  Commitment").

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


                                                                     (continued)



                                     I-123
<PAGE>   125
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

         (b)      Liberty/TINTA LLC

                  Subsidiaries of TINTA and Liberty Media Group own equal parts
                  of Liberty/TINTA. During 1996, Liberty/TINTA and News
                  Corporation Limited ("News Corp.") formed a joint venture
                  including a number of partnerships or other entities under
                  common ownership, ("Fox Sports International"), to operate
                  currently existing sports services in Latin America and
                  Australia and a variety of new sports services throughout the
                  world, excluding the United States, Canada and certain other
                  defined geographic areas.

                  During the third quarter of 1997, Fox Sports International
                  distributed (i) its 35% interest in Torneos y Competencias
                  S.A. ("Torneos") to Liberty/TINTA and (ii) certain Australian
                  sports rights to News Corp. On October 2, 1997, TINTA
                  purchased a 5% direct interest in Torneos from an unaffiliated
                  third party for $12 million. As of March 31, 1998, TINTA had
                  made cash contributions to Torneos on the behalf of
                  Liberty/TINTA of $48 million. It is anticipated that Liberty
                  Media Group's portion of such cash contributions to Torneos
                  will be repaid to TINTA in cash or other economic
                  consideration to be determined at some future date.

         Asia Business News (Singapore) PTE Ltd.

         On December 31, 1997, TINTA surrendered all of its shares of Asia
         Business News (Singapore) PTE Ltd. ("ABN") in exchange for a $25
         million unsecured note receivable from ABN (the "ABN Note"). The ABN
         Note is due on December 31, 2012. Interest accrues on the ABN Note
         beginning December 31, 1999 at the rate of 7% per annum. Due to
         uncertainty regarding collection of the ABN Note, TINTA recorded the
         ABN Note at an amount equal to its investment in ABN as of the date of
         conversion. No gain was recognized on the above transaction.

                                                                     (continued)



                                     I-124
<PAGE>   126
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

<TABLE>
<CAPTION>
                                                                           Three months ended
                                                                             March 31,
                                                                  ---------------------------------
                                                                       1998               1997
                                                                  -------------     ---------------
                                                                         amounts in thousands
<S>                                                               <C>                         <C>  
                            Jupiter                               $       5,626               4,098
                            MultiThematiques                              5,112               2,225
                            JPC                                           3,262               3,081
                            Liberty/TINTA                                 2,943               3,218
                            ABN                                              --               3,457
                            Other                                         7,697               7,029
                                                                  -------------     ---------------

                                                                  $      24,640              23,108
                                                                  =============     ===============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                     Three months ended March 31, 1998
                                                 ----------------------------------------------------------------------------
                                                                                  Latin
                                                                                  America
                                                                  Asia and        and The           United
                                                  Europe        Australia(a)     Caribbean(b)        States          Total
                                                 -----------    -----------      -----------       ----------     -----------
      Combined Operations                                                    amounts in thousands
<S>                                              <C>            <C>               <C>              <C>            <C>
      Revenue                                    $    84,934         45,911               --            2,891         133,736
      Operating expenses                             (95,197)       (59,957)            (196)          (2,292)       (157,642)
      Depreciation and amortization                   (5,945)          (763)             (85)          (1,679)         (8,472)
                                                 -----------    -----------      -----------       ----------     -----------

              Operating loss                         (16,208)       (14,809)            (281)          (1,080)        (32,378)

      Interest income (expense), net                   1,474           (635)          (1,361)            (879)         (1,401)
      Other, net                                     (12,318)         1,245           (4,749)             (84)        (15,906)
                                                 -----------    -----------      -----------       ----------     -----------

              Net loss                           $   (27,052)       (14,199)          (6,391)          (2,043)        (49,685)
                                                 ===========    ===========      ===========       ==========     ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                     Three months ended March 31, 1997
                                               -----------------------------------------------------------------------------
                                                                                      Latin
                                                                                     America
                                                                   Asia and          and The          United
                                                  Europe         Australia (a)    Caribbean (b)       States         Total
                                               -----------    -------------    -------------      ------------  ------------
      Combined Operations                                                   amounts in thousands
<S>                                            <C>            <C>               <C>               <C>         <C>    
      Revenue                                  $    60,499           50,837            3,484             2,345       117,165
      Operating expenses                           (77,551)         (56,652)          (2,086)           (2,035)     (138,324)
      Depreciation and amortization                 (6,457)         (10,186)            (856)           (1,285)      (18,784)
                                               -----------    -------------    -------------      ------------  ------------

              Operating income (loss)              (23,509)         (16,001)             542              (975)      (39,943)

      Interest expense, net                           (558)          (2,883)          (1,918)             (497)       (5,856)
      Other, net                                       276             (966)          (6,797)              (44)       (7,531)
                                               -----------    -------------    -------------      ------------  ------------

              Net loss                         $   (23,791)         (19,850)          (8,173)           (1,516)      (53,330)
                                               ===========    =============    =============      ============  ============
</TABLE>

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

                                                                     (continued)

                                     I-125

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

                     Notes to Combined Financial Statements


         (a)      The summarized operating results of ABN are included in the
                  combined operations through December 31, 1997, the date TINTA
                  surrendered all of its shares of ABN in exchange for the ABN
                  Note. See related discussion above. The summarized operating
                  results of Sky Network Television New Zealand, Ltd. ("Sky")
                  are included in the combined operations through September 26,
                  1997, the date that TINTA sold its interest in Sky.

         (b)      The summarized operating results of Caguas/Humacao Cable
                  Systems ("Caguas") are included in the combined operations
                  through May 1, 1997, the date TINTA acquired the 50% ownership
                  in Caguas which TINTA did not already own.

(12)     Debt

         The components of debt are as follows:

<TABLE>
<CAPTION>
                                                          March 31,           December 31,
                                                            1998                 1997
                                                        -------------         -------------
                                                                amounts in thousands
<S>                                                     <C>                   <C>    
           Debentures (a)                               $     345,000               345,000
           Puerto Rico Bank Facility (b)                       45,000                45,000
           Ventures Group Bank Facility (c)                    70,000                    --
           Other                                                   --                18,532
                                                        -------------         -------------

                                                        $     460,000               408,532
                                                        =============         =============
</TABLE>

         (a)      On February 8, 1996, TINTA received net cash proceeds of
                  approximately $336 million from the issuance of 4-1/2%
                  Convertible Subordinated Debentures (the "Debentures") due
                  2006 having an aggregate principal amount of $345 million. The
                  Debentures are convertible into shares of TINTA Series A
                  common stock at a price of $27.30 per share of TINTA Series A
                  common stock, subject to anti-dilution adjustments. Interest
                  on the Debentures is payable on February 15 and August 15 of
                  each year. The Debentures may be redeemed by TINTA in whole or
                  in part, at any time on or after February 15, 1999. Pending
                  its use by TINTA, the net proceeds from the sale of the
                  Debentures were initially loaned to TCI pursuant to an
                  unsecured promissory note. See note 13.


                                                                     (continued)




                                     I-126
<PAGE>   128
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         (b)      TINTA's Puerto Rico subsidiary (the "Puerto Rico Subsidiary")
                  has a reducing revolving bank facility which is unsecured and
                  provides for maximum borrowing commitments of $100 million
                  (the "Puerto Rico Bank Facility"). The availability of such
                  commitments for borrowing is subject to the Puerto Rico
                  Subsidiary's compliance with applicable financial covenants
                  and other customary conditions. Commencing March 31, 2000, the
                  maximum commitments will be reduced quarterly through March
                  31, 2006. Borrowings under the Puerto Rico Bank Facility bear
                  interest at variable rates (6.75% at March 31, 1998). In
                  addition, the Puerto Rico Subsidiary is required to pay a
                  commitment fee equal to 0.375% on the average daily unused
                  portion of the maximum borrowing commitments, payable
                  quarterly in arrears and at maturity. The Puerto Rico Bank
                  Facility contains restrictive covenants which require, among
                  other things, the maintenance of certain financial ratios
                  (primarily the ratios of cash flow to total debt and cash flow
                  to debt service, as defined), and includes certain limitations
                  on indebtedness, investments, guarantees, acquisitions,
                  dispositions, dividends, liens and encumbrances, and
                  transactions with affiliates. If TCI's ownership interest in
                  TINTA were to fall below 50.1%, borrowings under the Puerto
                  Rico Bank Facility would be secured by the assets of the
                  Puerto Rico Subsidiary and the variable interest rates on such
                  borrowings would be increased.

         (c)      On March 10, 1998, TCI Ventures Group entered into a bank
                  credit facility with a term of one year which provides for
                  aggregate borrowings of up to $400 million (the "Ventures
                  Group Bank Facility"). At March 31, 1998 borrowings under the
                  Ventures Group Bank Facility totaled $70.0 million. Borrowings
                  under the Ventures Group Bank Facility bear interest at
                  variable rates (6.05% at March 31, 1998). TCI Ventures Group
                  is required to pay a commitment fee equal to 0.15% on the
                  average daily unused portion of the maximum borrowing
                  commitments. The Ventures Group Bank Facility contains
                  restrictive covenants which require, among other things, the
                  maintenance of certain financial ratios, and includes
                  limitations on indebtedness, liens and encumbrances,
                  acquisitions, dispositions and dividends.

         With the exception of the Debentures, which had a fair value of $310.5
         million at March 31, 1998, the TCI Ventures Group believes that the
         fair value and the carrying value of the TCI Ventures Group's debt were
         approximately equal at March 31, 1998.



                                                                     (continued)



                                     I-127
<PAGE>   129
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(13)     Combined Equity

         General

         During the fourth quarter of 1997, TCI entered into a Total Return
         Equity Swap Facility (the "Equity Swap Facility"). Pursuant to the
         Equity Swap Facility, TCI has the right to direct the counterparty (the
         "Counterparty") to use the Equity Swap Facility to purchase shares
         ("Equity Swap Shares") of TCI Group Series A Stock and TCI Ventures
         Group Series A Stock with an aggregate purchase price of up to $300
         million. TCI has the right, but not the obligation, to purchase Equity
         Swap Shares through the September 30, 2000 termination date of the
         Equity Swap Facility. During such period, TCI is to settle periodically
         any increase or decrease in the market value of the Equity Swap Shares.
         If the market value of the Equity Swap Shares exceeds the
         Counterparty's cost, Equity Swap Shares with a fair value equal to the
         difference between the market value and cost will be segregated from
         the other Equity Swap Shares. If the market value of Equity Swap Shares
         is less than the Counterparty's cost, TCI, at its option, will settle
         such difference with shares of TCI Group Series A Stock or TCI Ventures
         Group Series A Stock or, subject to certain conditions, with cash or
         letters of credit. In addition, the Company is required to periodically
         pay the Counterparty a fee equal to a LIBOR-based rate on the
         Counterparty's cost to acquire the Equity Swap Shares. Due to TCI's
         ability to issue shares to settle periodic price fluctuation and fees
         under the Equity Swap Facility, TCI records all amounts received or
         paid under this arrangement as increases or decreases, respectively, to
         equity. As of March 31, 1998, the Equity Swap Facility had acquired
         2,089,480 shares of TCI Group Series A Stock and 513,500 shares of TCI
         Ventures Group Series A Stock at an aggregate cost that was
         approximately $10 million less than the fair value of such Equity Swap
         Shares at March 31, 1998.

                                                                     (continued)



                                     I-128
<PAGE>   130
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         On June 16, 1997, TCI exchanged (the "Exchange") 30,545,864 shares of
         TCI Group Series A Stock for the same number of shares of TCI Group
         Series B Stock owned by the Estate of Bob Magness (the "Magness
         Estate"), the late founder and former Chairman of the Board of TCI.
         Subsequent to the Exchange, the Magness Estate sold (the "Sale") the
         shares of TCI Group Series A Stock received in the Exchange, together
         with approximately 1.5 million shares of TCI Group Series A Stock that
         the Magness Estate previously owned (collectively, the "Option
         Shares"), to two investment banking firms (the "Investment Bankers")
         for approximately $530 million (the "Sale Price"). Subsequent to the
         Sale, TCI entered into an agreement with the Investment Bankers whereby
         TCI has the option, but not the obligation, to purchase the Option
         Shares at any time within two years (the "Option Period") from the date
         of the Sale. During the Option Period, TCI and the Investment Bankers
         are to settle quarterly any increase or decrease in the market value of
         the Option Shares. If the market value of the Option Shares exceeds the
         Investment Bankers' cost, Option Shares with a fair value equal to the
         difference between the market value and cost will be segregated from
         the other Option Shares in an account at the Investment Bankers. If the
         market value of the Option Shares is less than the Investment Bankers'
         cost, TCI, at its option, will settle such difference with shares of
         TCI Group Series A Stock or TCI Ventures Group Series A Stock or,
         subject to certain conditions, with cash or letters of credit. In
         addition, TCI is required to pay the Investment Bankers a quarterly fee
         equal to the LIBOR plus 1% on the Sale Price, as adjusted for payments
         made by TCI pursuant to any quarterly settlement with the Investment
         Bankers. Due to TCI's ability to settle quarterly price fluctuations
         and fees with shares of TCI Group Series A Stock or TCI Ventures Group
         Series A Stock, TCI records all amounts received or paid under this
         arrangement as increases or decreases, respectively, to equity. During
         the fourth quarter of 1997, TCI repurchased 4,000,000 shares of TCI
         Group Series A Stock from one of the Investment Bankers for an
         aggregate cash purchase price of $66 million. Additionally, as a result
         of the Exchange Offers and certain open market transactions, the
         Investment Bankers disposed of 4,210,308 shares of TCI Group Series A
         Stock and acquired 23,407,118 shares of TCI Ventures Group Series A
         Stock during the last half of 1997. As a result of the foregoing
         transactions and certain transactions related to the January 5, 1998
         settlement of litigation involving the Magness Estate, as described
         below, the Option Shares were comprised of 6,201,042 shares of TCI
         Group Series A Stock and 11,740,610 shares of TCI Ventures Series A
         Stock at March 31, 1998. At March 31, 1998, the market value of the
         Option Shares exceeded the Investment Bankers' cost by $201 million.

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

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


                                                                     (continued)



                                     I-129
<PAGE>   131
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

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

         Also on February 9, 1998, in connection with the Magness Settlement,
         certain members of the Magness family, individually and in certain
         cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
         Magness) and the Magness Estate (collectively, the "Magness Family")
         also entered into a call agreement with TCI (with substantially the
         same terms as the one entered into by the Malones, including a call on
         the shares owned by the Magness Family upon Dr. Malone's death) (the
         "Magness Call Agreement") on the Magness Family's aggregate of
         approximately 49 million High-Voting Shares. The Magness Family was
         paid $124 million by TCI for entering into the Magness Call Agreement.
         Additionally, on February 9, 1998, the Magness Family entered into a
         shareholders' agreement (the "Shareholders' Agreement") with the
         Malones and TCI under which (i) the Magness Family and the Malones
         agree to consult with each other in connection with matters to be
         brought to the vote of TCI's shareholders, subject to the proviso that
         if they cannot mutually agree on how to vote the shares, Dr. Malone has
         an irrevocable proxy to vote the High-Voting Shares owned by the
         Magness Family, (ii) the Magness Family may designate a nominee for
         TCI's Board of Directors and Dr. Malone has agreed to vote his High
         Voting Shares for such nominee and (iii) certain "tag along rights"
         have been created in favor of the Magness Family and certain "drag
         along rights" have been created in favor of the Malones. In addition,
         the Malone Right granted by TCI to Dr. Malone to acquire 30,545,864
         shares of TCI Group Series B Stock has been reduced to an option to
         acquire 14,511,570 shares of TCI Group Series B Stock. Pursuant to the
         terms of the Shareholders' Agreement, the Magness Family has the right
         to participate in the reduced Malone Right on a proportionate basis
         with respect to 12,406,238 shares of the 14,511,570 shares subject to
         the Malone Right.


                                                                     (continued)



                                     I-130
<PAGE>   132
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         The aggregate amount paid by TCI pursuant to the Malone Call Agreement
         and Magness Call Agreement (collectively, the "Call Payments") was
         allocated to each of the Groups based upon the number of shares of each
         Group (before giving effect to stock dividends) that are subject to the
         Malone Call Agreement and the Magness Call Agreement. TCI Ventures
         Group's share of the Call Payments of $76 million was paid during the
         first quarter of 1998 and is reflected as a decrease to combined
         equity.

         Stock Repurchases

         During the three months ended March 31, 1998, pursuant to the stock
         repurchase program, 61,450 shares of TCI Ventures Group Series A Stock
         and 94,000 shares of TCI Ventures Group Series B Stock were repurchased
         at an aggregate cost of $2.4 million. Such amount is reflected as a
         decrease to combined equity in the accompanying combined financial
         statements.

         Stock Based Compensation

         TCI Ventures Group records stock compensation expense relating to
         restricted stock awards, options and/or stock appreciation rights
         (collectively, "Awards") granted (i) by TCI to certain TCI employees
         and/or directors who are involved with the TCI Ventures Group and (ii)
         by TINTA, UVSG, and @Home to employees and/or directors of such
         entities. Stock compensation with respect to Awards granted by TCI
         includes amounts related to TCI common stock and to common stock of
         certain non-public subsidiaries of TCI and is allocated to TCI Ventures
         Group based on the Awards held by TCI employees and/or directors who
         are involved with TCI Ventures Group. Estimated compensation relating
         to the Awards has been recorded in the accompanying combined financial
         statements through March 31, 1998. Such estimate is subject to future
         adjustment based upon vesting and market value, and ultimately, on the
         final determination of market value when such rights are exercised. The
         estimated compensation adjustment with respect to TCI Awards resulted
         in increases to TCI Ventures Group's share of TCI's stock compensation
         liability of $78.5 million and $8.3 million for the three months ended
         March 31, 1998 and 1997, respectively. In addition, for the three
         months ended March 31, 1998, TCI Ventures Group made cash payments
         relating to its share of TCI's stock compensation obligations of $43.1
         million. The payable arising from the compensation related to the
         Awards is included in the amount due to related parties.

         Transactions with Related Parties

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

<TABLE>
<CAPTION>
                                                      March 31,          December 31,
                                                        1998                 1997
                                                  ----------------     ----------------
                                                          amounts in thousands
<S>                                               <C>                  <C>     
         TCI Note Receivable (a)                  $        (63,251)             (88,707)
         Intercompany account (b)                           73,428              110,212
                                                  ----------------     ----------------

                                                  $         10,177               21,505
                                                  ================     ================
</TABLE>



                                                                     (continued)



                                     I-131
<PAGE>   133
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         --------

         (a)      Amounts outstanding under a note agreement between the TCI
                  Ventures Group and TCI (the "TCI Note Receivable")bear
                  interest at variable rates based on TCI's weighted average
                  cost of bank borrowings of similar maturities (6.2% at March
                  31, 1998). Principal and interest is due and payable as
                  mutually agreed from time to time by TCI and the TCI Ventures
                  Group. During the three months ended March 31, 1998 and 1997,
                  interest income related to the TCI Note Receivable aggregated
                  $1.2 million and $2.4 million, respectively.

         (b)      The non-interest bearing intercompany account includes certain
                  income tax and stock compensation allocations that are to be
                  settled at some future date. All other amounts included in the
                  intercompany account are to be settled within thirty days
                  following notification. In connection with the Exchange
                  Offers, the September 10, 1997 balance of the intercompany
                  account between the TCI Group and the TCI Ventures Group was
                  reclassified to "Combined Equity."

         The TCI Group has provided a revolving loan facility (the "Ventures
         Intergroup Credit Facility") to the TCI Ventures Group for a five-year
         period commencing on September 10, 1997. Such facility permits
         aggregate borrowings at any one time outstanding of up to $500 million
         (subject to reduction as provided below), which borrowings bear
         interest at a rate per annum equal to The Bank of New York's prime rate
         (as in effect from time to time) plus 1% per annum, payable quarterly.
         A commitment fee equal to 3/8% per annum of the average unborrowed
         availability under the Ventures Intergroup Credit Facility is payable
         by the TCI Ventures Group to the TCI Group on a quarterly basis. Such
         commitment fee was not significant during the three months ended March
         31, 1998. The maximum amount of borrowings permitted under the Ventures
         Intergroup Credit Facility will be reduced on a dollar-for-dollar basis
         by up to $300 million if and to the extent that the aggregate amount of
         any additional capital that TCI Telephony is required to contribute to
         Sprint PCS Partnerships subsequent to the TCI Ventures Exchange is less
         than $300 million. No borrowings were outstanding pursuant to the
         Ventures Intergroup Credit Facility at March 31, 1998.

         During 1996, TCI Group transferred, subject to regulatory approval,
         certain distribution equipment to a subsidiary of TINTA in exchange for
         a (pound)15 million ($23 million using the applicable exchange rate)
         principal amount promissory note (the "TVG LLC Promissory Note"). The
         TVG LLC Promissory Note was contributed by TCI Group to TVG LLC in
         connection with the September 10, 1997 consummation of the Exchange
         Offers. The distribution equipment was subsequently leased back to TCI
         Group over a five year term with semi-annual payments of $2 million,
         plus expenses. Effective October 1, 1997, such distribution equipment
         was transferred back to TCI Group and the related lease and the TVG LLC
         Promissory Note were canceled. During the three months ended March 31,
         1997, (i) the U.S. dollar equivalent of interest expense with respect
         to the TVG LLC Promissory Note was $392,000, (ii) the U.S. dollar
         equivalent of the lease revenue under the above-described lease
         agreement aggregated $859,000 and (iii) TINTA experienced foreign
         currency transaction gains of $922,000, with respect to the TVG LLC
         Promissory Note.


                                                                     (continued)



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

                     Notes to Combined Financial Statements


         Certain TCI corporate general and administrative costs are charged to
         TCI Ventures Group at rates set at the beginning of the year based on
         projected utilization for that year. The utilization-based charges are
         set at levels that management believes to be reasonable and that
         approximate the costs TCI Ventures Group would incur for comparable
         services on a stand alone basis. TCI Ventures Group was allocated $2.2
         million in corporate general and administrative costs by the TCI Group
         during each of the three months ended March 31, 1998 and 1997.

         Certain of the companies with domestic operations that are attributed
         to the TCI Ventures Group provide services to companies attributed to
         one or more of the other Groups, and certain of the companies
         attributed to the other Groups provide services and the use of
         facilities to companies attributed to the TCI Ventures Group. For
         example, @Home has entered into arrangements for the distribution of
         its @Home service with TCI Group and other stockholders that are MSO's.
         The TCI Group has agreements with UVSG for, among other things, the
         carriage of UVSG's Prevue Networks and superstation programming on
         certain of the cable systems attributed to the TCI Group, and UVSG
         purchases programming from companies attributed to the Liberty Media
         Group.

         In addition to the foregoing entities, WTCI and NDTC, each of which is
         a wholly-owned subsidiary of TCI, provide or may provide services to
         the other Groups. WTCI provides video transport services to the TCI
         Group (in addition to service provided to third parties) based on
         published tariffed rates. NDTC provides digital television services
         which include digital compression of programming, satellite uplinking,
         and transponder management primarily to programming suppliers, many of
         which are affiliated with the Liberty Media Group.

         During each of the three months ended March 31, 1998 and 1997,
         programming revenue earned by UVSG from TCI Group was $2.0 million.
         UVSG purchases programming from Liberty Media Group and, during the
         first quarter of 1997, purchased from  TCI Group. These purchases
         totaled $10.7 million and $11.9 million for the three months ended
         March 31, 1998 and 1997, respectively, and are included in operating
         costs in the accompanying combined statements of operations.

         Amounts included in revenue for services provided to the other Groups
         by WTCI and NDTC are $8.8 million and $11.5 million for the three
         months ended March 31, 1998 and 1997, respectively.

         A subsidiary of TCI that is a member of TCI Ventures Group leases
         certain equipment under a capital lease. During 1997, such equipment
         was subleased to TCI Group under an operating lease. In January 1998,
         TCI Group paid $7 million to TCI Ventures Group in exchange for TCI
         Ventures Group's assignment of its ownership interest in such
         subsidiary to TCI Group. Due to the related party nature of the
         transaction, the $49.5 million total of the cash payment and the
         historical cost of the net liabilities assumed by TCI Group (including
         capital lease obligations aggregating $175.8 million) has been
         reflected as an addition to TCI Ventures Group's combined equity.


                                                                     (continued)


                                     I-133
<PAGE>   135
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         The Puerto Rico Subsidiary purchases programming services from the TCI
         Group. The charges, which approximate the TCI Group's cost and are
         based on the aggregate number of subscribers served by the Puerto Rico
         Subsidiary, aggregated $1.5 million and $1.3 million during the three
         months ended March 31, 1998 and 1997, respectively. The above-described
         programming fee charges are included in operating costs in the
         accompanying combined statements of operations.

         As further described in note 4, effective October 1, 1997, TINTA ceased
         to consolidate Cablevision and began to account for Cablevision under
         the equity method of accounting. Cablevision purchases programming
         services from certain affiliates. The related charges generally are
         based upon the number of Cablevision's subscribers that receive the
         respective services. During the three months ended March 31, 1997, such
         charges aggregated $3.3 million. Additionally, certain of Cablevision's
         general and administrative functions are provided by affiliates. The
         related charges, which generally are based upon the respective
         affiliate's cost of providing such functions, aggregated $700,000
         during the three months ended March 31, 1997. The above-described
         programming and general and administrative charges are included in
         operating costs in the accompanying combined statements of operations.

(14)     Income Taxes

         The TCI Ventures Group and its 80%-or-more-owned domestic businesses
         which have been attributed to the TCI Ventures Group (the "TCI Ventures
         Tax Group") are included in the consolidated federal and state income
         tax returns of TCI. The TCI Ventures Group's income taxes include those
         items in the consolidated calculation applicable to the TCI Ventures
         Tax Group ("intercompany tax allocation") and any income taxes of
         attributed entities that are excluded from the consolidated federal and
         state income tax returns of TCI. Intercompany tax allocation represents
         an apportionment of tax expense or benefit (other than deferred taxes)
         among subsidiaries of TCI in relation to their respective amounts of
         taxable earnings or losses.

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

                                                                     (continued)



                                     I-134
<PAGE>   136
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Effective October 1, 1997, (the "Effective Date"), the Old Tax Sharing
         Agreement was replaced by a new tax sharing agreement, as amended by
         the First Amendment thereto (the "New Tax Sharing Agreement"), which
         governs the allocation and sharing of income taxes by the TCI Group,
         the Liberty Media Group and the TCI Ventures Group. Effective for
         periods on and after the Effective Date, federal income taxes will be
         computed based upon the type of tax paid by TCI (on a regular tax or
         alternative minimum tax basis) on a separate basis for each Group.
         Based upon these separate calculations, an allocation of tax
         liabilities and benefits will be made such that each Group will be
         required to make cash payments to TCI based on its allocable share of
         TCI's consolidated federal income tax liabilities (on a regular tax or
         alternative minimum tax basis, as applicable) attributable to such
         Group and actually used by TCI in reducing its consolidated federal
         income tax liability. Tax attributes and tax basis in assets would be
         inventoried and tracked for ultimate credit to or charge against each
         Group. Similarly, in each taxable period that TCI pays alternative
         minimum tax, the federal income tax benefits of each Group, computed as
         if such Group were subject to regular tax, would be inventoried and
         tracked for payment to or payment by each Group in years that TCI
         utilizes the alternative minimum tax credit associated with such
         taxable period. The Group generating the unutilized tax benefits would
         receive a cash payment only if, and when, the unutilized taxable losses
         of the other Group are actually utilized. If the unutilized taxable
         losses expire without ever being utilized, the Group generating the
         utilized tax benefits will never receive payment for such benefits.
         Pursuant to the New Tax Sharing Agreement, state and local income taxes
         are calculated on a separate return basis for each Group (applying
         provisions of state and local tax law and related regulations as if the
         Group were a separate unitary or combined group for tax purposes), and
         TCI's combined or unitary tax liability is allocated among the Groups
         based upon such separate calculation.

         Notwithstanding the foregoing, items of income, gain, loss, deduction
         or credit resulting from certain specified transactions that are
         consummated after the Effective Date pursuant to a letter of intent or
         agreement that was entered into prior to the Effective Date will be
         shared and allocated pursuant to the terms of the Old Tax Sharing
         Agreement as amended.

         The net amount of the balance of each TCI Group intercompany account
         under the Old Tax Sharing Agreement that is attributable to entities
         included in the TCI Ventures Group for the period beginning July 1,
         1995 and ending on September 10, 1997 (the consummation date of the
         Exchange Offers) has been reflected as an adjustment of TCI Ventures
         Group's combined equity. Tax liabilities and benefits, as determined
         under the Old Tax Sharing Agreement, that are generated by the entities
         comprising the TCI Ventures Group for the period beginning on September
         10, 1997 and ending on September 30, 1997 has been credited or debited
         to an intercompany account between the TCI Group and the TCI Ventures
         Group in accordance with the Old Tax Sharing Agreement. The
         intercompany tax account existing between TCI and TINTA for the period
         beginning July 1, 1995 and ending September 30, 1997 will be required
         to be settled between the TCI Ventures Group and TINTA if and when
         TINTA ceases to be a member of TCI's consolidated group for federal
         income tax purposes. A tax sharing arrangement between the TCI Ventures
         Group and TINTA covering periods subsequent to September 30, 1997 is
         currently being negotiated. The terms of such arrangement are not
         expected to be significantly different than the terms contained in the
         New Tax Sharing Agreement.


                                                                     (continued)



                                     I-135
<PAGE>   137
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         At December 31, 1997, the TCI Ventures Group had federal net operating
         loss carryforwards for income tax purposes aggregating approximately
         $504 million which, if not utilized to reduce taxable income in future
         periods, will begin to expire at various dates beginning in the year
         2004. Pursuant to the Old and New Tax Sharing Agreements, TCI Ventures
         Group has already received benefit for approximately $37 million of
         such net operating loss carryforwards. TCI Ventures Group is
         responsible to TCI to the extent this amount of net operating loss
         carryforwards is utilized by TCI in future periods.

(15)     Commitments and Contingencies

         As previously described in notes 8, 9 and 11, TCI Ventures Group has
         significant commitments and contingent obligations with respect to
         certain of its affiliates.

         TINTA has guaranteed the obligation of an affiliate ("The Premium Movie
         Partnership") to pay fees for the license to exhibit certain films
         through 2000. Although the aggregate amount of The Premium Movie
         Partnership's license fee obligations is not currently estimable, TINTA
         believes that the aggregate payments pursuant to such obligations could
         be significant. If TINTA were to fail to fulfill its obligations under
         the guarantee, the beneficiaries have the right to demand an aggregate
         payment from TINTA of approximately $42 million. Although TINTA has not
         had to perform under such guarantee to date, TINTA cannot be certain
         that it will not be required to perform under such guarantee in the
         future.

         TINTA has formed strategic partnerships with News Corp., Organizacoes
         Globo and Group Televisa S.A. to develop and operate a direct-to-home
         satellite service for Latin America, Mexico, and various Central and
         South American countries (collectively, the "DTH Ventures"). Through
         March 31, 1998, TINTA had contributed $26.5 million to the DTH
         Ventures. It is anticipated that TINTA could be required to make
         additional cash contributions in connection with the DTH Ventures. In
         addition, as of March 31, 1998, TINTA had guaranteed $16.8 million of
         the DTH Ventures' financial obligations.

         Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
         cable operators that may be designated from time to time by NDTC
         ("Approved Purchasers"), entered into an agreement (the "Digital
         Terminal Purchase Agreement") with General Instrument Corporation
         ("GI") to purchase advanced digital set-top devices. The hardware and
         software incorporated into these devices will be designed and
         manufactured to be compatible and interoperable with the OpenCable(TM)
         architecture specifications adopted by CableLabs, the cable television
         industry's research and development consortium, in November 1997. NDTC
         has agreed that Approved Purchasers will purchase, in the aggregate, a
         minimum of 6.5 million set-top devices during calendar years 1998, 1999
         and 2000 at an average price of $318 per set-top device. GI agreed to
         provide NDTC and its Approved Purchasers the most favorable prices,
         terms and conditions made available by GI to any customer purchasing
         advanced digital set-top devices. In connection with NDTC's purchase
         commitment, GI agreed to grant warrants to purchase its common stock
         proportional to the number of devices ordered by each organization,
         which as of the effective date of the Digital Terminal Purchase
         Agreement, would have represented at least a 10% equity interest in GI
         (on a fully diluted basis). It is anticipated that the value associated
         with such equity interest would be attributed to TCI Group upon
         purchase and deployment of the digital set-top devices.

                                                                     (continued)



                                     I-136
<PAGE>   138
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Also in December 1997, NDTC entered into a memorandum of understanding
         (the "GI MOU") with GI which contemplates the sale to GI of certain of
         the assets of NDTC's set-top authorization business, the license of
         certain related technology to GI, and an additional cash payment in
         exchange for approximately 21.4 million shares of stock of GI. In
         connection therewith, NDTC would also enter into a service agreement
         pursuant to which it will provide certain services to GI's set-top
         authorization business. The transaction is subject to the signing of
         definitive agreements; accordingly, there can be no assurance that it
         will be consummated.

         NDTC has the right to terminate the Digital Terminal Purchase Agreement
         if, among other reasons, the transactions related to the GI MOU are not
         consummated or if GI fails to meet a material milestone designated in
         the Digital Terminal Purchase Agreement with respect to the
         development, testing and delivery of advanced digital set-top devices.

         During the three months ended March 31, 1998, TCI continued its
         enterprise-wide comprehensive review of its computer systems and
         related software to ensure systems properly recognize the year 2000 and
         continue to process business information. The systems being evaluated
         include all internal use software and devices and those systems and
         devices that manage the distribution of TCI Ventures Group's products.
         TCI is utilizing both internal and external resources to identify,
         correct or reprogram, and test systems for year 2000 readiness.

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

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

                                                                    (continued)


                                     I-137
<PAGE>   139
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


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

         TCI's assessment of the impact of the year 2000 date change should be
         complete by the end of 1998. TCI continues to evaluate the level of
         validation it will require of third parties to ensure their year 2000
         readiness. Management of TCI has not yet determined the cost associated
         with its year 2000 readiness efforts and the related potential impact
         on TCI Ventures Group's results of operations. Amounts expended to date
         have not been material, although there can be no assurance that costs
         ultimately required to be paid to ensure TCI Ventures Group's year 2000
         readiness will not have an adverse effect on TCI Ventures Group
         financial position. Additionally, there can be no assurance that TCI
         Ventures Group's systems or the systems of other companies on which TCI
         Ventures Group relies will be converted in time or that any such
         failure to convert by TCI Ventures Group or other companies will not
         have an adverse effect on its financial position.



                                     I-138
<PAGE>   140
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS.

        The following discussion and analysis provides information concerning
the results of operations and financial condition of the Company, TCI Group,
Liberty Media Group and TCI Ventures Group.  Such discussion should be read in
conjunction with the accompanying consolidated financial statements and notes
thereto of the Company and the accompanying combined financial statements and
notes thereto of each of the TCI Group, Liberty Media Group and TCI Ventures
Group. Additionally, the following discussion and analysis should be read in
conjunction with the Management's Discussion and Analysis of Financial Condition
and Results of Operations and financial statements included in Part II of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.  The
following discussion focuses on material trends, risks and uncertainties
affecting the results of operations and financial condition of the Company, TCI
Group, Liberty Media Group and TCI Ventures Group.

        Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.  In particular, some of the statements contained
under this caption are forward-looking.  Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of the Company (or
entities in which the Company has interests), or industry results, to differ
materially from future results, performance or achievements expressed or implied
by such forward-looking statements.  Such risks, uncertainties and other factors
include, among others:  general economic and business conditions and industry
trends; the regulatory and competitive environment of the industries in which
the Company, and the entities in which the Company has interests, operate;
uncertainties inherent in new business strategies, new product launches and
development plans; rapid technological changes; the acquisition, development
and/or financing of telecommunications networks and services; the development
and provision of programming for new television and telecommunications
technologies; future financial performance, including availability, terms and
deployment of capital; the ability of vendors to deliver required equipment,
software and services; availability of qualified personnel; changes in, or
failure or inability to comply with, government regulations, including, without
limitation, regulations of the Federal Communications Commission, and adverse
outcomes from regulatory proceedings; changes in the nature of key strategic
relationships with partners and joint venturers; competitor responses to the
Company's products and services, and the products and services of the entities
in which the Company has interests, and the overall market acceptance of such
products and services; and other factors. These forward-looking statements (and
such risks, uncertainties and other factors) speak only as of the date of this
Report, and the Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein, to reflect any change in the Company's expectations with regard thereto,
or any other change in events, conditions or circumstances on which any such
statement is based.

         Targeted Stock

        TCI common stock is comprised of six series:  TCI Group Series A Stock,
TCI Group Series B Stock, Liberty Group Series A Stock, Liberty Group Series B
Stock, TCI Ventures Group Series A Stock and TCI Ventures Group Series B Stock.


                                    I-139
<PAGE>   141
         The Liberty Group Stock is intended to reflect the separate
performance of the Liberty Media Group, which is comprised of TCI's assets
which produce and distribute programming services.  The TCI Ventures Group
Stock is intended to reflect the separate performance of the TCI Ventures
Group, which is comprised of TCI's principal international assets and
businesses and substantially all of TCI's non-cable and non-programming assets.
The TCI Group Stock is intended to reflect the separate performance of TCI and
its subsidiaries and assets not attributed to Liberty Media Group or TCI
Ventures Group.  TCI Group is comprised primarily of TCI's domestic cable and
communications business.  For additional information concerning targeted stock,
see note 1 to the accompanying consolidated financial statements of TCI.

         Magness Settlement

         On June 16, 1997, the Company exchanged (the "Exchange") 30,545,864
shares of TCI Group Series A Stock for the same number of shares of TCI Group
Series B Stock owned by the Estate of Bob Magness (the "Magness Estate"), the
late founder and former Chairman of the Board of TCI.  Subsequent to the
Exchange, the Magness Estate sold (the "Sale") the shares of TCI Group Series A
Stock received in the Exchange, together with approximately 1.5 million shares
of TCI Group Series A Stock that the Magness Estate previously owned
(collectively, the "Option Shares"), to two investment banking firms (the
"Investment Bankers") for approximately $530 million (the "Sale Price").
Subsequent to the Sale, TCI entered into an agreement with the Investment
Bankers whereby TCI has the option, but not the obligation, to purchase the
Option Shares at any time within two years (the "Option Period") from the date
of the Sale.  During the Option Period, the Company and the Investment Bankers
are to settle quarterly any increase or decrease in the market value of the
Option Shares.  If the market value of the Option Shares exceeds the Investment
Bankers' cost, Option Shares with a fair value equal to the difference between
the market value and cost will be segregated from the other Option Shares in an
account at the Investment Bankers.  If the market value of the Option Shares is
less than the Investment Bankers' cost, the Company, at its option, will settle
such difference with shares of TCI Group Series A Stock or TCI Ventures Group
Series A Stock or, subject to certain conditions, with cash or letters of
credit.  In addition, the Company is required to pay the Investment Bankers a
quarterly fee equal to the London Interbank Offered Rate ("LIBOR") plus 1% on
the Sale Price, as adjusted for payments made by the Company pursuant to any
quarterly settlement with the Investment Bankers.  Due to the Company's ability
to settle quarterly price fluctuations and fees with shares of TCI Group Series
A Stock or TCI Ventures Group Series A Stock the Company records all amounts
received or paid under this arrangement as increases or decreases,
respectively, to equity.  During the fourth quarter of 1997, the Company
repurchased 4,000,000 shares of TCI Group Series A Stock from one of the
Investment Bankers for an aggregate cash purchase price of $66 million.
Additionally, as a result of the Exchange Offers and certain open market
transactions, the Investment Bankers disposed of 4,210,308 shares of TCI Group
Series A Stock and acquired 23,407,118 shares of TCI Ventures Group Series A
Stock during the last half of 1997.  As a result of the foregoing transactions
and certain transactions related to the January 5, 1998 settlement of
litigation involving the Magness Estate, as described below, the Option Shares
were comprised of 6,201,042 shares of TCI Group Series A Stock and 11,740,610
shares of TCI Ventures Group Series A Stock at March 31, 1998.  At March 31,
1998, the market value of the Option Shares exceeded the Investment Bankers'
cost by $201 million.

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

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





                                     I-140
<PAGE>   142
         In connection with the Magness Settlement, portions of the Exchange
and Sale were unwound such that 10,201,041 shares of TCI Group Series A Stock
and 11,666,506 shares of TCI Ventures Group Series A Stock were returned to TCI
as authorized but unissued shares, and the Magness Estate paid $11 million to
TCI representing a reimbursement of the Exchange fees incurred by TCI from June
16, 1997 through February 9, 1998 with respect to such returned shares.  TCI
then issued to the Magness Estate 10,017,145 shares of TCI Group Series B Stock
and 12,034,298 shares of TCI Ventures Series B Stock.

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

         Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain cases, on
behalf of the Estate of Betsy Magness (the first wife of Bob Magness) and the
Magness Estate (collectively, the "Magness Family") also entered into a call
agreement with TCI (with substantially the same terms as the one entered into
by the Malones, including a call on the shares owned by the Magness Family upon
Dr.  Malone's death) (the "Magness Call Agreement") on the Magness Family's
aggregate of approximately 49 million High-Voting Shares (as adjusted for stock
dividends).  The Magness Family was paid $124 million by TCI for entering into
the Magness Call Agreement.  Additionally, on February 9, 1998, the Magness
Family entered into a shareholders' agreement (the "Shareholders' Agreement")
with the Malones and TCI under which (i) the Magness Family and the Malones
agree to consult with each other in connection with matters to be brought to
the vote of TCI's shareholders, subject to the proviso that if they cannot
mutually agree on how to vote the shares, Dr. Malone has an irrevocable proxy
to vote the High-Voting Shares owned by the Magness Family, (ii) the Magness
Family may designate a nominee for the Board and Dr. Malone has agreed to vote
his High Voting Shares for such nominee and (iii) certain "tag along rights"
have been created in favor of the Magness Family and certain "drag along
rights" have been created in favor of the Malones.  In addition, the Malone
Right granted by TCI to Dr. Malone to acquire 30,545,864 shares of TCI Group
Series B Stock has been reduced to an option to acquire 14,511,570 shares of
TCI Group Series B Stock.  Pursuant to the terms of the Shareholders'
Agreement, the Magness Family has the right to participate in the reduced
Malone Right on a proportionate basis with respect to 12,406,238 shares of the
14,511,570 shares subject to the Malone Right.

         The aggregate amount paid by TCI pursuant to the Malone Call Agreement
and Magness Call Agreement (collectively, the "Call Payments") was reflected as
a $274 million reduction of additional paid-in capital.  The Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to stock dividends) that were subject to the Malone Call
Agreement and the Magness Call Agreement.  Accordingly, $134 million, $64
million and $76 million of the Call Payments were allocated to TCI Group,
Liberty Media Group and TCI Ventures Group, respectively.





                                     I-141
<PAGE>   143
         Year 2000

         During the three months ended March 31, 1998, the Company continued
its enterprise-wide comprehensive review of its computer systems and related
software to ensure systems properly recognize the year 2000 and continue to
process business information. The systems being evaluated include all internal
use software and devices and those systems and devices that manage the
distribution of the Company's products.  The Company is utilizing both internal
and external resources to identify, correct or reprogram, and test systems for
year 2000 readiness.

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

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

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





                                     I-142
<PAGE>   144
         The Company's assessment of the impact of the year 2000 date change
should be complete by the end of 1998. The Company continues to evaluate the
level of validation it will require of third parties to ensure their year
2000 readiness. Management of the Company has not yet determined the cost
associated with its year 2000 readiness efforts and the related potential
impact on the Company's results of operations but has identified certain cost
elements that, in the aggregate, are not expected to be less than $20 million.
Amounts expended to date have not been material, although there can be no
assurance that costs ultimately required to be paid to ensure the Company's
year 2000 readiness will not have an adverse effect on the Company's financial
position.  Additionally, 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 an adverse effect on its financial position.

         MATERIAL CHANGES IN RESULTS OF OPERATIONS

         GENERAL

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

<TABLE>
<CAPTION>
                                                              Three months ended March 31,     
                                                           ---------------------------------
                                                             1998                    1997
                                                           ----------             ---------- 
                                                                  amounts in millions
<S>                                                        <C>                    <C>
Revenue                                                    $    1,872                  1,827

Operating, selling, general and administrative
   expenses                                                    (1,166)                (1,089)
Stock compensation                                               (229)                   (15)
Cost of distribution agreements                                   (83)                    --
Depreciation and amortization                                    (423)                  (374)
                                                           ----------             ---------- 

    Operating income (loss)                                       (29)                   349

Interest expense                                                 (285)                  (289)
Share of losses of affiliates, net                               (238)                  (156)
Minority interests in losses (earnings) of
   consolidated subsidiaries                                       14                    (38)
Gain on dispositions of assets                                  1,101                     19
Other, net                                                         (5)                    19
                                                           ----------             ----------

   Earnings (loss) before income taxes                            558                    (96)

Income tax benefit (expense)                                     (240)                    38
                                                           ----------             ----------

    Net earnings (loss)                                    $      318                    (58)
                                                           ==========             ========== 
</TABLE>

         The operating results of each of the TCI Group, Liberty Media Group
and TCI Ventures Group are separately discussed below.





                                     I-143
<PAGE>   145
         TCI GROUP

         TCI Group operates principally in the domestic cable and
communications industry.  The table below sets forth, for the periods
presented, the percentage relationship that certain items bear to revenue.
This summary provides trend data relating to the normal recurring operations of
TCI Group.  Other items of significance are discussed under separate captions
below.

<TABLE>
<CAPTION>
                                                                           Three months ended March 31,          
                                                                   ---------------------------------------------
                                                                          1998                  1997 (a)       
                                                                   ------------------      --------------------
                                                                           dollar amounts in millions
<S>                                                                <C>      <C>          <C>         <C>
Revenue                                                            100%     $  1,577        100%     $   1,555
Operating expenses                                                 (37)         (587)       (37)          (575)
Selling, general and administrative expenses                       (21)         (334)       (20)          (316)
Stock compensation                                                  (5)          (70)        (1)            (2)
Depreciation and amortization                                      (24)         (376)       (21)          (332)
                                                                  ----      --------     ------      --------- 

     Operating income                                               13%     $    210         21%     $     330
                                                                  ====      ========     ======      =========
</TABLE>

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

(a)      Restated - see note 1 to the accompanying combined financial
         statements of TCI Group.

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

         During the three months ended March 31, 1998, 75% of TCI Group's
revenue was derived from Regulated Services.  As noted above, any increases in
rates charged for Regulated Services are regulated by the Cable Acts.
Moreover, competitive factors may limit TCI Group's ability to increase its
service rates.

         During the first quarter of 1998, TCI Group consummated the Q1 1998
Contribution Transactions. Since January 1, 1997, TCI Group has also consummated
certain other acquisitions and dispositions.  Such transactions affect the
comparability of TCI Group's results of operations for the three months ended
March 31, 1998 and 1997.  For additional information see note 6 to the
accompanying combined financial statements of TCI Group.





                                     I-144
<PAGE>   146
         TCI Group's revenue increased $22 million or 1% for the three months
ended March 31, 1998, as compared to the corresponding prior year period.
Exclusive of the effects of acquisitions, the Q1 1998 Contribution
Transactions and other dispositions, revenue increased 3%.  Revenue from TCI
Group's customers accounted for 1% of such increase in revenue, primarily as a
result of a 5% increase in basic revenue that was partially offset by a 13%
decrease in premium revenue.  TCI Group experienced a 5% increase in its
average basic rate, a decrease in the number of average basic customers of less 
than 1%, a 2% decrease in its average premium rate and an 11% decrease in the 
number of average premium subscriptions.  Additionally, the December 31, 1997
termination of an agreement pursuant to which TCI Group provided fulfillment
services to a third party resulted in a 1% decrease in revenue.  Advertising
sales and other revenue accounted for the remaining 3% increase in revenue.

         Operating expenses increased $12 million or 2% for the three months
ended March 31, 1998, as compared to the corresponding prior year period.
Exclusive of the effects of acquisitions, the Q1 1998 Contribution Transactions
and other dispositions, such expenses increased 5%.  Programming expenses
accounted for the majority of such increase.  TCI Group cannot determine
whether and to what extent increases in the cost of programming will affect its
future operating costs.  However, due to TCI Group's obligations under the EMG
Affiliation Agreement with Encore Media Group, it is anticipated that TCI
Group's programming costs with respect to the "STARZ!" and "Encore" premium
services will increase in 1998 and future periods.  See note 11 to the
accompanying combined financial statements of TCI Group.

         Selling, general and administrative expenses increased $18 million or
6% for the three months ended March 31, 1998, as compared to the corresponding
prior year period.  Exclusive of the effects of acquisitions, the Q1 1998
Contribution Transactions and other dispositions, such expenses increased 15%.
Such increase is due primarily to lower launch and other incentives from
programming suppliers, increased marketing costs relating to the launch of
digital products and other initiatives, and other individually insignificant
increases in general and administrative expenses in 1998.

         TCI Group records stock compensation relating to restricted stock
awards, options and/or stock appreciation rights granted by TCI to certain TCI
Group employees and members of the Board who are involved with TCI 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 date of the accompanying combined
financial statements of TCI Group.  The expense associated with stock
appreciation rights is subject to future adjustment based upon market value
fluctuation and, ultimately, on the final determination of market value when
the rights are exercised.

         Depreciation and amortization expense increased $44 million or 13% for
the three months ended March 31, 1998, as compared to the corresponding prior
year period.  Such increase represents the net effect of decreases due to the
Q1 1998 Contribution Transactions and other dispositions that were more than
offset by increases attributable to acquisitions and capital expenditures.






                                     I-145
<PAGE>   147
         Other Income and Expenses

         TCI Group's interest expense was consistent between the three months
ended March 31, 1998, and the corresponding prior year period, as TCI Group's
weighted average interest rate on borrowings and weighted average debt balances
were comparable between the periods.

         TCI Group's share of CSC's losses, including amortization of the
difference between the recorded value of TCI Group's investment in CSC and TCI
Group's proportionate share of CSC's net deficiency, aggregated $32 million for
the period from March 4, 1998 through March 31, 1998.  As described in note 6
to the accompanying combined financial statements of TCI Group, TCI Group
acquired an approximate 32.7% ownership interest in CSC on March 4, 1998.

         TCI Group's investments in affiliates other than CSC are comprised of
limited partnerships and other entities that are primarily engaged in the
domestic cable television business.  TCI Group's share of net earnings (losses)
of other affiliates was $52 million and $(17 million) during the three months
ended March 31, 1998 and 1997, respectively.  A significant portion of the
change from the 1997 period to the 1998 period is attributable to TCI Group's
share of a 1998 gain recognized by InterMedia Partners on the sale of certain
cable television systems.  Such gain was recognized by InterMedia Partners
prior to the time that TCI Group began to consolidate InterMedia Partners.  See
note 5 to the accompanying combined financial statements.

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

         Minority interests in earnings of attributed subsidiaries aggregated
$46 million and $34 million for the three months ended March 31, 1998 and 1997,
respectively.  The majority of such amounts represent the accrual of dividends
on the Trust Preferred Securities issued in 1997 and 1996 and the accrual of
dividends on certain preferred securities issued in August 1996 by a TCI
subsidiary that is attributed to TCI Group.  See note 9 to the accompanying
combined financial statements of TCI Group.

         Gain on disposition of assets of $511 million for the three months
ended March 31, 1998 relates primarily to the March 4, 1998 contribution of
cable television systems by TCI Group to CSC.  Such gain represents the excess
of the $1,161 million fair value of CSC Class A Common shares received by TCI
Group over the historical cost of the net assets transferred by TCI Group to
CSC.  See note 6 to the accompanying combined financial statements of TCI
Group.





                                     I-146
<PAGE>   148
         Net Earnings

         As a result of the above-described fluctuations in the Company's
results of operations, (i) TCI Group's net earnings (before preferred stock
dividend requirements) of $238 million for the three months ended March 31,
1998 changed by $235 million, as compared to TCI Group's net earnings (before
loss of TCI Ventures Group and preferred stock dividend requirements) of $3
million for the three months ended March 31, 1997.

         LIBERTY MEDIA GROUP

         Liberty Media Group's assets include businesses which provide
programming services including production, acquisition and distribution through
all available formats and media of branded entertainment, educational and
informational programming and software, including multimedia products.  Liberty
Media Group's assets also include businesses engaged in electronic retailing,
direct marketing, advertising sales relating to programming services,
infomercials and transaction processing.  A significant portion of Liberty
Media Group's operations are conducted through corporations and partnerships in
which Liberty Media Group holds a 20%-50% ownership interest.  As Liberty Media
Group generally accounts for such ownership interests using the equity method
of accounting, the financial condition and results of operations of such
entities are not reflected on a combined basis within Liberty Media Group's
combined financial statements.

         On June 24, 1997 Liberty Media Group granted Time Warner the Southern
Option.  Liberty Media Group received 6.4 million shares of TW Exchange Stock
valued at $306 million in consideration for the grant.  In September 1997, Time
Warner exercised the Southern Option.  Pursuant to the Southern Option, Time
Warner acquired the Southern Business, effective January 1, 1998, for $213
million, which was paid in cash, together with the assumption of certain
liabilities on January 2, 1998.  Effective January 1, 1998, the Southern
Business is no longer included in the combined financial statements of Liberty
Media Group.

         Subsequent to June 30, 1997, Liberty Media Group and TCI Group entered
into a series of transactions pursuant to which the businesses of "Encore," a
movie premium programming service, and "STARZ!," a first-run movie premium
programming service, were contributed to Encore Media Group, a subsidiary of
TCI that is attributed to the Liberty Media Group.  Upon the July 1997
formation of Encore Media Group, the operations of STARZ! were included in the
combined financial statements of Liberty Media Group.

         Simultaneously with the July 1997 DMX Merger, substantially all of
TCI's controlling ownership interest in TCI Music was transferred to Liberty
Media Group in exchange for an $80 million promissory note (the "Music Note") to
TCI and the assumption of the obligation under the Rights Agreement.
Accordingly, TCI Music has been included in the combined financial statements of
Liberty Media Group since the date of the DMX Merger.





                                     I-147
<PAGE>   149
         Effective November 1, 1997, Liberty Media Group acquired the remaining
50% interest in ICCP for $1.75 million.  Upon consummation of such transaction
the operations of ICCP were included in the combined financial statements of
Liberty Media Group.

         Summary of Operations

         Liberty Media Group's programming services include production,
acquisition and distribution through all available formats and media of branded
entertainment, educational and informational programming and software,
including multimedia products ("Entertainment and Information Programming
Services").  The table below sets forth, for the periods indicated, certain
financial information and the percentage relationship that certain items bear
to revenue.  This summary provides trend data related to the normal recurring
operations of Liberty Media Group.  Corporate expenses have been reflected
separately in the following table.  Liberty Media Group holds significant
equity investments, the results of which are not a component of operating
income, but are discussed below under "Other Income and Expense".  Other items
of significance are discussed separately below.

<TABLE>
<CAPTION>
                                                                    Three months ended March 31,         
                                                          -----------------------------------------------
                                                                 1998                         1997        
                                                          -------------------         -------------------
                                                                    dollar amounts in thousands
<S>                                                        <C>       <C>               <C>      <C>
Entertainment and Information
Programming Services

   Revenue                                                  100%     $    156,670      100%     $     59,359
   Operating, selling, general and administrative           (81)%        (126,432)     (56)%         (33,050)
   Stock compensation                                        (5)%          (7,790)      (8)%          (4,576)
   Depreciation and amortization                             (5)%          (7,758)      (1)%            (751)
                                                          -----      ------------    -----      ------------ 

      Operating income                                        9%     $     14,690       35%     $     20,982
                                                          =====      ============    =====      ============
</TABLE>

<TABLE>
<CAPTION>
                                                                           Three months ended March 31,         
                                                                  ----------------------------------------------
                                                                         1998                       1997        
                                                                  ------------------        -------------------
                                                                           dollar amounts in thousands
<S>                                                                  <C>                        <C>
Corporate expenses

   Selling, general and administrative                               $     (2,731)              $     (1,019)
   Stock compensation                                                     (68,340)                      (998)
   Depreciation and amortization                                              (30)                       (28)
                                                                     ------------               ------------ 

      Operating loss                                                 $    (71,101)              $     (2,045)
                                                                     ============               ============ 
</TABLE>





                                     I-148
<PAGE>   150
         Entertainment and Information Programming Services

         As discussed above, certain acquisitions and dispositions have
affected the comparability of Liberty Media Group's operating results for the
three months ended March 31, 1998 and 1997.  The following table presents
adjustments to remove the effects of such acquisitions and dispositions.

<TABLE>
<CAPTION>
                                                            Three months ended March 31, 1998              
                                           -----------------------------------------------------------------
                                                                        Effect of
                                                                       acquisitions
                                               Historical           and dispositions            As adjusted    
                                           ------------------   -------------------------   -----------------
                                                                    amounts in thousands
<S>                                        <C>                     <C>                      <C>
Revenue                                    $         156,670                 (89,355)                   67,315

Operating, selling, general and
    administrative expenses                         (126,432)                 90,858                   (35,574)

Stock compensation                                    (7,790)                     42                    (7,748)

Depreciation and amortization                         (7,758)                  6,082                    (1,676)
                                           -----------------       -----------------        ------------------ 

    Operating income                       $          14,690                   7,627                    22,317
                                           =================       =================        ==================
</TABLE>

<TABLE>
<CAPTION>
                                                            Three months ended March 31, 1997              
                                           ----------------------------------------------------------------
                                                                        Effect of
                                                                       acquisitions
                                               Historical           and dispositions            As adjusted    
                                           ------------------   -------------------------   -------------------
                                                                   amounts in thousands
<S>                                        <C>                     <C>                      <C>
Revenue                                    $          59,359                 (7,669)                    51,690

Operating, selling, general and
    administrative expenses                          (33,050)                 1,756                    (31,294)

Stock compensation                                    (4,576)                    --                     (4,576)

Depreciation and amortization                           (751)                   135                       (616)
                                           -----------------       ----------------           ---------------- 

    Operating income                       $          20,982                 (5,778)                    15,204
                                           =================       ================           ================
</TABLE>





                                     I-149
<PAGE>   151
         Excluding the effect of acquisitions and dispositions, revenue from
Entertainment and Information Programming Services increased 30% or $16 million
for the quarter ended March 31, 1998, as compared to the quarter ended March 31,
1997.  The increase is primarily attributable to higher revenue from Encore,
including the thematic multiplex services ("Multiplex").  Encore's revenue from
cable operators, including TCI Group increased approximately $20 million during
the three months ended March 31, 1998 compared to the same period in 1997.  In
connection with the formation of Encore Media Group, TCI Group entered into the
EMG Affiliation Agreement pursuant to which TCI Group pays monthly fixed amounts
in exchange for unlimited access to all of the existing Encore and STARZ!
services.  During the three months ended March 31, 1998, Encore's revenue from
TCI Group increased due to the EMG Affiliation Agreement, when compared to the
three months ended March 31, 1997.  Encore subscription units from cable
operators, including TCI Group increased 7% during the first quarter of 1998
compared to the first quarter of 1997.  Encore subscription units from direct
broadcast satellite ("DBS") operators decreased 15% during the 1998 period
compared to 1997.  Such decrease in DBS subscription units was due to the
repackaging of the Encore services and resulted in a decrease in revenue from
DBS operators of approximately $4 million.  Such decrease in DBS revenue from
the Encore services excludes the acquisition effect of the STARZ! services,
which services generated DBS revenue of $21 million during the first quarter of
1998.  As discussed above, revenue from the STARZ! services was not included in
the combined financial statements of Liberty Media Group until the beginning of
the third quarter of 1997.

         Operating, selling, general and administrative expenses from
Entertainment and Information Programming Services, as adjusted for the effect
of acquisitions and dispositions, increased 14% or $4 million for the quarter
ended March 31, 1998 compared to the quarter ended March 31, 1997.  Programming
costs for Encore and Multiplex increased $2 million for the 1998 period due to
an overall upgrade of the Encore services.  Increased national advertising for
Encore was responsible for an increase of approximately $4 million during the
three months ended March 31, 1998 compared to 1997.  Decreased marketing
support payments to distributors offset increases in operating, selling,
general and administrative expenses by $2 million for the first quarter of 1998
over the same period in 1997.

         The increase in stock compensation of Entertainment and Information
Programming Services for the quarter ended March 31, 1998 as compared to 1997
is due to an increase in Encore Media Group's stock compensation of $3 million
(see note 9 to the accompanying combined financial statements of Liberty Media
Group).

         Revenue from TCI Music contributed $19 million to the revenue from
Entertainment and Information Programming Services for the three months ended
March 31, 1998.  Additionally, revenue from STARZ! contributed $68 million and
ICCP contributed $2 million to revenue for 1998.  As discussed above,
operations for TCI Music, STARZ! and ICCP were not included in the combined
financial results of Liberty Media Group for the three months ended March 31,
1997.  Operating, selling, general and administrative expenses for
Entertainment and Information Programming Services for the three months ended
March 31, 1998 included $17 million from the operations of TCI Music, $70
million from the operations of STARZ! and $3 million from the operations of
ICCP.





                                     I-150
<PAGE>   152
         Corporate Expenses

         The increase in corporate selling, general and administrative expense
from 1997 to 1998 was primarily due to increased corporate general and
administrative costs by TCI Group.  Certain TCI corporate general and
administrative costs are charged to Liberty Media Group at rates set at the
beginning of each year based on projected utilization for that year.  The
utilization-based charges are set at levels that management believes to be
reasonable and that would approximate the costs Liberty Media Group would incur
for comparable services on a stand alone basis.  During the three months ended
March 31, 1998 and 1997, Liberty Media Group was allocated approximately
$1,109,000 and $263,000, respectively, in corporate general and administrative
costs by TCI 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 date of the financial
statements.  The expense is subject to future adjustment based on market price
fluctuations and, ultimately, on the final determination of market value when
the rights are exercised.  See note 8 to the accompanying combined financial
statements of Liberty Media Group.

         Other Income and Expense

         Interest expense was $9 million and less than $1 million during the
three months ended March 31, 1998 and 1997, respectively.  Increased interest
expense is directly related to increased outstanding debt at Encore Media
Group, TCI Music and CCC as well as an increase in interest-bearing amounts due
to TCI Group during the three months ended March 31, 1998 compared to the three
months ended March 31, 1997.

         Liberty Media Group's share of losses of affiliates was $22 million
for the three months ended March 31, 1998 compared to earnings of $7 million
for the same period in 1997.

         Liberty Media Group's share of earnings of affiliates attributable to
its interest in Discovery decreased $9 million during the quarter ended March
31, 1998 compared to the quarter ended March 31, 1997.  While Discovery's
revenue increased by 23% during the first quarter of 1998, its earnings before
interest, taxes, depreciation and amortization decreased by 11%, principally
because of costs associated with launching new digital services, continuing
investments in the retail business as well as new joint ventures such as YCTV
and the joint venture with the British Broadcasting Corporation.  Interest
expense for Discovery was 195% higher in the first quarter of 1998 compared to
the same period in 1997 mainly due to increased debt caused by significant cash
payments made to distributors in support of the launch of "Animal Planet" and
its new digital services.

         Liberty Media Group's share of earnings of affiliates attributable to
its interest in QVC increased approximately $4 million during the three months
ended March 31, 1998 compared to the same period in 1997.  QVC's revenue
increased by 14% during the quarter ended March 31, 1998, contributing to a 20%
increase in earnings before interest, taxes, depreciation and amortization over
the quarter ended March 31, 1997.  In the aggregate, interest expense, taxes,
depreciation and amortization for QVC increased by 11% during 1998, resulting
in a 61% increase in net income for QVC for the three months ended March 31,
1998 compared to the three months ended March 31, 1997.





                                     I-151
<PAGE>   153
         The share of losses of Fox Sports was responsible for approximately
$36 million of the decrease in share of earnings of affiliates from 1997 to
1998.  Prior to the first quarter of 1998, Liberty Media Group had no
obligation, nor intention, to fund Fox Sports.  During the first quarter of
1998, Liberty Media Group made the determination to provide funding to Fox
Sports based on a specific transaction consummated by Fox Sports.
Consequently, Liberty Media Group's share of losses of Fox Sports for the
quarter ended March 31, 1998 includes previously unrecognized losses of Fox
Sports of approximately $36 million.  Losses for Fox Sports were not recognized
in prior periods due to the fact that Liberty Media Group's investment in Fox
Sports had been reduced to zero.

         Liberty Media Group's share of earnings of affiliates attributable to
its interest in BDTV increased approximately $8 million during the three months
ended March 31, 1998 compared to the three months ended March 31, 1997.  Such
increase is primarily attributable to a $75 million pre-tax gain recognized by
USAI, a majority-owned subsidiary of BDTV, on the sale of one of its broadcast
stations during the three months ended March 31, 1998.

         During 1997, Liberty Media Group granted Time Warner the Southern
Option and received 6.4 million shares of Time Warner Exchange Stock valued at
$306 million in consideration for the grant.  Such amount had been reflected as
a deferred option premium in the accompanying combined financial statements of
Liberty Media Group.  Pursuant to the Southern Option, Time Warner acquired the
Southern Business, effective January 1, 1998 for $213 million in cash.  Liberty
Media Group recognized a $515 million pre-tax gain in connection with these
transactions in the first quarter of 1998.  See note 5 to the accompanying
combined financial statements of Liberty Media Group.

         Effective February 1, 1998, Turner-Vision, Inc. contributed the
assets, obligations and operations of its retail C-band Satellite business to
Superstar/Netlink in exchange for an approximate 20% interest in
Superstar/Netlink.  As a result of this transaction, Liberty Media Group's
ownership interest in Superstar/Netlink decreased from 50% to approximately
40%.  In connection with such dilution, Liberty Media Group recognized a $23
million pre-tax gain.  See note 4 to the accompanying combined financial
statements of Liberty Media Group.





                                     I-152
<PAGE>   154
         TCI VENTURES GROUP

         The following table sets forth certain financial information for the
TCI Ventures Group and the businesses attributed to it during the three months
ended March 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                         Three months ended March 31,               
                                          ----------------------------------------------------------
                                                     1998                             1997         
                                          -------------------------         ------------------------
                                                           dollar amounts in thousands
<S>                                    <C>                     <C>        <C>                <C>
Revenue:
   UVSG                                $      140,317            67%      $      122,876        50%
   ETC                                         21,766            10               23,560         9
   NDTC (1)                                    21,067            10               24,013        10
   TINTA (2)                                   12,544             6               65,611        27
   WTCI                                         8,383             4                9,095         4
   @Home                                        5,773             3                  809        --
   Corporate and other                          1,148            --                1,056        --
                                       --------------       -------       --------------     -----
                                       $      210,998           100%      $      247,020       100%
                                       ==============       =======       ==============     ===== 
                                                          
Operating, selling, general,                              
   administrative:
      UVSG                             $      114,940            61%      $      100,902        51%
      ETC                                      22,391            12               25,917        13
      NDTC                                     16,861             9               12,396         6
      TINTA (2)                                 9,817             5               40,513        21
      WTCI                                      5,302             3                5,681         3
      @Home                                    15,800             8                8,326         4
      Corporate and other                       4,115             2                3,994         2
                                       --------------       -------       --------------     -----
                                       $      189,226           100%      $      197,729       100%
                                       ==============       =======       ==============     ===== 
Depreciation, amortization, stock                                    
   compensation and other non-cash
   charges
      UVSG                             $       15,062             8%      $        8,736        18%
      ETC                                         375            --                1,838         4
      NDTC                                     10,373             5                7,103        14
      TINTA (2)                                10,458             5               15,679        32
      WTCI                                      3,960             2                2,124         4
      @Home (3)                                86,082            43                1,574         3
      Corporate and other (4)                  74,645            37               12,352        25
                                       --------------       -------       --------------     -----
                                       $      200,955           100%      $       49,406       100%
                                       ==============       =======       ==============     ===== 
Operating income (loss):                                             
      UVSG                             $       10,315            (5)      $       13,238        (5)
      ETC                                      (1,000)                            (4,195)
      NDTC                                     (6,167)                             4,514
      TINTA (2)                                (7,731)                             9,419
      WTCI                                       (879)                             1,290
      @Home (3)                               (96,109)                            (9,091)
      Corporate and other                     (77,612)                           (15,290)
                                       --------------                     -------------- 
                                       $     (179,183)                    $         (115)
                                       ==============                     ============== 
</TABLE>

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

         (1)     A significant number of NDTC's major customers are affiliates
                 of TCI, and NDTC derives a substantial portion of its revenue
                 from such affiliated companies.  For the three months ended
                 March 31, 1998 and 1997 revenue from services provided to TCI
                 and its consolidated subsidiaries accounted for 40% and 48%,
                 respectively, of NDTC's total revenue.





                                     I-153
<PAGE>   155
         (2)     As described in note 3 to the accompanying combined financial
                 statements of TCI Ventures Group, effective October 1, 1997,
                 TINTA ceased to consolidate Cablevision and began to account
                 for Cablevision using the equity method of accounting.  As a
                 result, effective October 1, 1997, TINTA's results of
                 operations no longer include Cablevision's results of
                 operations on a consolidated basis.  The following table sets
                 forth summary information with respect to the operating results
                 of Cablevision that were included in TINTA's results of
                 operations for the three months ended March 31, 1997 (amounts
                 in thousands):

<TABLE>
<CAPTION>
          <S>                                                     <C>
          Revenue                                                 $      56,250
          Operating costs and expenses before
             depreciation and amortization                              (33,046)
          Depreciation and amortization                                 (12,780)
                                                                  ------------- 

          Operating income                                        $      10,424
                                                                  =============
</TABLE>

         (3)     During the first quarter of 1998, @Home recorded a non-cash
                 charge of $83.3 million to operations based on the fair value
                 of 2,705,514 shares of @Home's Series A common stock which were
                 underlying certain  warrants which became exercisable during
                 the period.  For additional information concerning such
                 warrants, see note 7 to the accompanying combined financial
                 statements of TCI Ventures Group.

         (4)     Amount includes stock compensation expense of $74.1 million
                 and $8.3 million for the three months ended March 31, 1998 and
                 1997, respectively.

         (5)     Not meaningful.

         Revenue 

         Revenue decreased by $36.0 million or 15% during the three months
ended March 31, 1998, as compared to the corresponding prior year period.
Such decrease is largely attributable to TINTA's deconsolidation of Cablevision
which was partially offset by increased revenue of UVSG and @Home.

         Revenue from UVSG increased $17.4 million or 14% during the three
months ended March 31, 1998, as compared to the corresponding prior year
period.  Such increase is due primarily to Turner Vision's retail C-band
operations ($15.2 million) which were combined with Superstar/Nelink effective
February 1, 1998.

         TINTA revenue decreased by $53.1 million or 81% during the three
months ended March 31, 1998, as compared to the corresponding prior year
period.  Such decrease is primarily attributable to the deconsolidation of
Cablevision in 1997.





                                     I-154
<PAGE>   156
         Operating Costs and Expenses

         Operating costs and expenses, excluding depreciation, amortization,
stock compensation and other non-cash charges decreased by $8.5 million or 4%
during the three months ended March 31, 1998, as compared to the corresponding
prior year period.  Such decrease is attributable to the effects of the
deconsolidation of Cablevision which was partially offset by increased costs
attributable to UVSG, @Home and NDTC.

         Operating costs and expenses, excluding depreciation, amortization,
stock compensation and other non-cash charges from UVSG increased $14.0 million
or 14% during the three months ended March 31, 1998, as compared to the
corresponding prior year.  Such increase is primarily attributable to Turner
Vision's retail C-band operations which were combined with Superstar/Netlink
effective February 1, 1998.

         TINTA operating costs and expenses, excluding depreciation,
amortization, stock compensation and other non-cash charges decreased $30.7
million or 76% for the three months ended March 31, 1998, as compared to the
corresponding prior year period.  Such decrease is primarily attributable to
the deconsolidation of Cablevision in 1997.

         Certain TCI corporate general and administrative costs are charged to
the TCI Ventures Group at rates set at the beginning of the year based on
projected utilization for that year.  The utilization-based charges are set at
levels that management believes to be reasonable and that would approximate the
costs TCI Ventures Group would incur for comparable services on a stand alone
basis. During each of the three months ended March 31, 1998 and 1997, TCI
Ventures Group was allocated $2.2 million in corporate general and
administrative costs by TCI Group.

         During the first quarter of 1998, @Home recorded a non-cash charge of
$83.3 million to operations based on the fair value of 2,705,514 shares of
@Home's Series A common stock which were underlying certain warrants which
became exercisable during the period.  For additional information concerning
such warrants, see note 7 to the accompanying combined financial statements of
TCI Ventures Group.

         Stock compensation expense increased $73.8 million during the three
months ended March 31, 1998, as compared to the corresponding prior year
period.  Such amounts represent changes in TCI Ventures Group's stock
compensation liability.  TCI Ventures Group records stock compensation expense
relating to Awards granted by (i) TCI to certain TCI employees and/or directors
who are involved with the TCI Ventures Group and (ii) TINTA, UVSG, and @Home to
employees and/or directors of such entities.  Stock compensation with respect
to Awards granted by TCI includes amounts related to TCI common stock and to
common stock of certain non-public subsidiaries of TCI and is allocated to TCI
Ventures Group based on the Awards held by TCI employees and/or directors who
are involved with TCI Ventures Group.  Estimated compensation relating to stock
appreciation rights has been recorded through March 31, 1998 pursuant to APB
Opinion No.  25.  Such estimate is subject to future adjustment based upon
vesting and market value, and ultimately, on the final determination of market
value when such rights are exercised. See note 13 to the accompanying combined
financial statements of TCI Ventures Group.

         The $5.6 million or 14% decrease in depreciation and amortization
expense during the three months ended March 31, 1998, as compared to the
corresponding prior year period, is primarily the result of the effects of the
deconsolidation of Cablevision.





                                     I-155
<PAGE>   157
         Other Income and Expense

         The TCI Ventures Group's share of losses from its investment in the PCS
Ventures was $155.2 million and $63.5 million during the three months ended
March 31, 1998 and 1997, respectively.  The increase in the share of losses is
attributed primarily to increases in (i) selling, general and administrative
costs associated with Sprint Spectrum's efforts to increase its customer base,
(ii) depreciation expense resulting from capital expenditures made to expand its
PCS network, (iii) interest expense associated with higher amounts of
outstanding debt and (iv) Sprint Spectrum's share of losses in American PCS L.P.
It is expected that Sprint PCS will continue to incur significant operating
losses and significant negative cash flow from operating activities during the
next several years while it continues to expand its PCS network and build its
customer base.  Sprint PCS's operating profitability will depend upon many
factors, including, among others, its ability to (i) market its products and
services successfully, (ii) achieve its projected market penetration, (iii)
manage customer turnover rates effectively and (iv) price its products and
services competitively.  There can be no assurance that Sprint PCS will achieve
or sustain operating profitability or positive cash flow from operating
activities in the future.  If Sprint PCS does not achieve and maintain operating
profitability and positive cash flow from operating activities on a timely
basis, it may not be able to meet its debt service requirements.

         The TCI Ventures Group's share of Telewest's net losses decreased
$11.5 million or 28% during the three months ended March 31, 1998, as compared
to the corresponding prior year period.  Such decrease is primarily
attributable to the net effects of (i) changes in foreign currency transaction
losses, (ii) an increase in operating cash flow resulting from revenue growth
and (iii) an increase in interest expense.  In connection with a previous
merger transaction, Telewest issued the Telewest Debentures.  Changes in the
exchange rate used to translate the Telewest Debentures into U.K. pounds
sterling and the adjustment of a foreign currency option contract to market
value caused Telewest to experience unrealized foreign currency transaction
gains (losses) of $10.9 million and $(40.5 million) during the three months
ended March 31, 1998 and 1997, respectively.  It is anticipated that Telewest
will continue to experience realized and unrealized foreign currency
transaction gains and losses throughout the term of the Telewest Debentures,
which mature in 2006 and 2007, if not redeemed earlier.

         The share of losses from the TCI Ventures Group's investment in TCG
was $17.7 million for the three months ended March 31, 1998 which represents a
$3.9 million increase, as compared to the corresponding prior year period.  The
increase in the share of losses is largely attributed to costs incurred by TCG
in the expansion of their local telecommunications networks, increased
depreciation expense and increased interest expense partially offset by an
increase in telecommunications services revenue attributed to increased sales
of services in existing and new markets.  TCG has incurred net losses since its
inception due to the acquisition, installation, development and expansion of
its existing and new telecommunications networks and the associated initial
operating expenses of such networks.  These networks generally incur negative
cash flow from operating activities and operating losses until an adequate
customer base and revenue stream for such networks have been established.  In
January 1998, TCG entered into certain agreements pursuant to which it agreed
to be acquired by AT&T.  Upon consummation of such merger, TCI would receive in
exchange for all of its interest in TCG, approximately 46.95 million shares of
AT&T common stock, which shares would be attributed to the TCI Ventures Group.
The transaction is subject to a number of regulatory and other conditions,
accordingly, there can be no assurance that such transaction will be
consummated on the terms contemplated by the parties, or at all.  In the event
the AT&T transaction is completed, the TCI Ventures Group would account for its
investment in AT&T using the cost method.





                                     I-156
<PAGE>   158
         As described above, effective October 1, 1997, TINTA ceased to
consolidate Cablevision and began to account for Cablevision using the equity
method of accounting.  The TCI Ventures Group's share of losses from
Cablevision was $3.2 million for the three months ended March 31, 1998.

         The TCI Ventures Group's share of the losses of affiliates other than
the PCS Ventures, Telewest, TCG and Cablevision (the "Other Affiliates")
remained relatively constant during the three months ended March 31, 1998, as
compared to the corresponding prior year period.  Increased losses of Jupiter
and MultiThematiques were partially offset by the decrease in share of losses
of ABN.  As of December 31, 1997, TINTA surrendered all of its shares of ABN in
exchange for a $25 million unsecured note receivable.  Accordingly, effective
December 31, 1997, TINTA no longer accounts for ABN under the equity method of
accounting.  TCI Ventures Group expects that the Other Affiliates will continue
to incur losses as they continue to expand their operations and/or launch new
services. For additional information, see note 11 to the accompanying combined
financial statements of TCI Ventures Group.

         Interest expense decreased $5.1 million or 36% during the three months
ended March 31, 1998, as compared to the corresponding prior year period,
primarily as a result of the deconsolidation of Cablevision and the assignment
of certain capital lease obligations to TCI Group.

         During the three months ended March 31, 1998, TCI Ventures Group
recognized $37.8 million in gains from the disposition of assets.  Such gains
are attributable to TCI Ventures Group's sale of its interest in (i) NHT
Partnership, (ii) Louisville Lightwave, (iii) New Jersey Fiber Technologies,
L.P. and (iv) TeleCable Nacional, CXA.  In addition, UVSG recognized a gain of
$14.7 million from the dilution of its interest in Superstar/Netlink.  For
additional information regarding these transactions, see note 6 to the
accompanying combined financial statements of TCI Ventures Group.

         In February 1997, TSX Corporation ("TSX"), an equity affiliate of the
TCI Ventures Group, and Antec Corporation ("Antec") entered into a business
combination with Antec being the surviving entity.  In connection with this
transaction, the TCI Ventures Group recognized a $29 million gain (before
deducting deferred income taxes of $11 million) representing the difference
between the fair value of the Antec shares received and the carrying value of
its investment in TSX at the date of the transaction.  The TCI Ventures Group
accounts for its investment in Antec using the cost method.

         The minority interests' share of net losses was $52.8 million and
$616,000 during the three months ended March 31, 1998 and 1997, respectively.
Such increase is primarily attributable to increases in @Home's net losses.

         Net Losses

         The TCI Ventures Group reported net losses of $223.4 million and $77.3
million during the three months ended March 31, 1998 and 1997, respectively.
Included in such amounts was the recognition of certain non-operating gains
aggregating $52.5 million and $28.9 million during the three months ended March
31, 1998 and 1997, respectively.  With the exception of UVSG, WTCI and the
Puerto Rico Subsidiary, the entities included in the TCI Ventures Group's
combined financial statements generally have sustained losses since their
respective inception dates.  Any improvements in such entities' results of
operations are largely dependent upon the ability of such entities to increase
their respective customer bases while maintaining pricing structures and
controlling costs.  There can be no assurance that any such improvements will
occur.





                                     I-157
<PAGE>   159
         MATERIAL CHANGES IN FINANCIAL CONDITION

         TCI GROUP

         On March 4, 1998, TCI Group contributed to CSC certain of its cable
television systems serving approximately 830,000 customers in exchange for
approximately 24.5 million newly issued CSC Class A common shares (as adjusted
for a stock dividend).  Such shares represent an approximate 32.7% equity
interest in CSC's total outstanding shares and an approximate 9% voting interest
in CSC in all matters except for the election of directors, in which case TCI
Group has an approximate 47% voting interest in the election of one-fourth of
CSC's directors.  CSC also assumed and repaid approximately $574 million of debt
owed by TCI Group to external parties and $95 million of debt owed to TCI Group.
As a result of this transaction, TCI Group recognized a $511 gain in the
accompanying combined statement of operations for the three months ended March
31, 1998.  Such gain represents the excess of the $1,161 million fair value of
the CSC Class A common shares received over the historical cost of the net
assets transferred by TCI Group to CSC.  TCI Group has also entered into letters
of intent with CSC which provide for TCI Group to acquire a cable system in
Michigan and an additional 3% of CSC's Class A common shares and for CSC to (i)
acquire cable systems serving approximately 250,000 customers in Connecticut and
(ii) assume $110 million of TCI Group's debt.  The ability of TCI Group to sell
or increase its investment in CSC is subject to certain restrictions and
limitations set forth in a stockholders agreement with CSC.

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

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





                                     I-158
<PAGE>   160
         Including the Q1 1998 Contribution Transactions and the
above-described April 30, 1998 transaction, TCI Group, as of April 30, 1998,
has, since January 1, 1997, contributed, or signed agreements or letters of
intent to contribute within the next twelve months, certain cable television
systems (the "Contributed Cable Systems") serving approximately 3.9 million
customers to joint ventures in which TCI Group will retain non-controlling
ownership interests (the "Contribution Transactions").  Following the
completion of the Contribution Transactions, TCI Group will no longer
consolidate the Contributed Cable Systems. Accordingly it is anticipated that
the completion of the Contribution Transactions, as currently contemplated,
will result in an aggregate estimated reduction (based on actual amounts with
respect to the Q1 1998 Contribution Transactions and currently contemplated
amounts with respect to the pending Contribution Transactions) to TCI Group's
debt of $4.8 billion and aggregate estimated reductions (based on 1997 amounts)
to TCI Group's annual revenue and annual operating income before depreciation,
amortization and stock compensation of $1.8 billion and $815 million,
respectively.  No assurance can be given that any of the pending Contribution
Transactions will be consummated.

         During the three months ended March 31, 1998, pursuant to a stock
repurchase program approved by the Board, TCI Group repurchased 66,041 shares
of TCI Group Series A Stock at an aggregate cost of $2 million.

         In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to stock dividends) that were subject to the Malone Call
Agreement and the Magness Call Agreement.  Accordingly, TCI Group paid $134
million during the first quarter of 1998 for its allocated share of the Call
Payments.  For additional information see note 12 to the accompanying combined
financial statements of TCI Group.

         During the fourth quarter of 1997, TCI Group entered into an Equity
Swap Facility.  Pursuant to the Equity Swap Facility, TCI Group has the right
to direct the Counterparty to use the Equity Swap Facility to purchase Equity
Swap Shares of TCI Group Series A Stock and TCI Ventures Group Series A Stock
with an aggregate purchase price of up to $300 million. TCI Group has the
right, but not the obligation, to purchase Equity Swap Shares through the
September 30, 2000 termination date of the Equity Swap Facility.  During such
period, TCI Group is to settle periodically any increase or decrease in the
market value of the Equity Swap Shares.  If the market value of the Equity Swap
Shares exceeds the Counterparty's cost, Equity Swap Shares with a fair value
equal to the difference between the market value and cost will be segregated
from the other Equity Swap Shares.  If the market value of the Equity Swap
Shares is less than the Counterparty's cost, TCI Group, at its option, will
settle such difference with shares of TCI Group Series A Stock or TCI Ventures
Group Series A Stock or, subject to certain conditions, with cash or letters of
credit.  In addition, TCI Group is required to periodically pay the
Counterparty a fee equal to a LIBOR-based rate on the Counterparty's cost to
acquire the Equity Swap Shares.  Due to TCI Group's ability to issue shares to
settle periodic price fluctuations and fees under the Equity Swap Facility, TCI
Group records all amounts received or paid under this arrangement as increases
or decreases, respectively, to equity.  As of March 31, 1998, the Equity Swap
Facility has acquired 2,089,480 shares of TCI Group Series A Stock and 513,500
shares of TCI Ventures Group Series A Stock at an aggregate cost that was
approximately $10 million less than the fair value of such Equity Swap Shares
at March 31, 1998.





                                     I-159
<PAGE>   161
         Through June 30, 1997, TCI Group had a 50.1% partnership interest in
QE+, a limited partnership interest which distributed STARZ!.  Entities
attributed to Liberty Media Group held the remaining 49.9% partnership
interest.

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

         TCI Group's fixed annual commitments pursuant to the EMG Affiliation
Agreement increase annually from $220 million in 1998 to $315 million in 2003,
and will increase with inflation through 2022.

         On July 11, 1997, TCI Music merged with DMX.  Simultaneously with the
DMX Merger, substantially all of TCI's controlling ownership interest in TCI
Music was transferred from TCI Group to Liberty Media Group in exchange for an
$80 million promissory note and an agreement to reimburse TCI for any amounts
TCI pays pursuant to its contingent obligation to purchase 14,896,648 shares
(6,812,393 of which are owned by subsidiaries of TCI) of TCI Music common stock
at a price of $8.00 per share.  The Music Note may be reduced by the payment of
cash or the issuance by TCI of shares of Liberty Group Stock for the benefit of
entities included within TCI Group.  Additionally, Liberty Media Group may
elect to pay $50 million of the Music Note by delivery of a Stock Appreciation
Rights Agreement that will give TCI Group the right to receive 20% of the
appreciation in value of Liberty Media Group's investment in TCI Music, to be
determined at July 11, 2002.

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

         At March 31, 1998, TCI Group had approximately $1.8 billion of
availability in unused lines of credit, excluding amounts related to lines of
credit which provide availability to support commercial paper.  Although TCI
Group was in compliance with the restrictive covenants contained in its credit
facilities at said date, additional borrowings under the credit facilities are
subject to TCI Group's continuing compliance with the restrictive covenants
after giving effect to such additional borrowings.  Such restrictive covenants
require, among other things, the maintenance of certain earnings, specified
cash flow and financial ratios (primarily the ratios of cash flow to total debt
and cash flow to debt service, as defined), and include certain limitations on
indebtedness, investments, guarantees, dispositions, stock repurchases and/or
dividend payments.  See note 7 to the accompanying combined financial
statements of TCI Group for additional information regarding TCI Group's debt.





                                     I-160
<PAGE>   162
         One measure of liquidity is commonly referred to as "interest
coverage."  Interest coverage, which is measured by the ratio of "Operating
Cash Flow" (operating income before depreciation, amortization and stock
compensation) ($656 million and $664 million during the three months ended
March 31, 1998 and 1997, respectively) to interest expense ($273 million during
each of the three month periods ended March 31, 1998 and 1997), is determined
by reference to the combined statements of operations.  TCI Group's interest
coverage ratio was 240% and 243% during the three months ended March 31, 1998
and 1997, respectively.  Management of TCI Group believes that the foregoing
interest coverage ratio is adequate in light of the relative predictability of
its cable television operations and interest expense.  However, TCI Group's
current intent is to continue to reduce its outstanding indebtedness such that
its interest coverage ratio could be increased.  There is no assurance that TCI
Group will be able to achieve such objective.  In the event TCI Group is unable
to achieve such objective, management believes that net cash provided by
operating activities, the ability of TCI Group to obtain additional financing
(including the available lines of credit and access to public debt markets),
issuances and sales of TCI's equity or equity of its subsidiaries, attributable
to TCI Group, and proceeds from disposition of assets will provide adequate
sources of short-term and long-term liquidity in the future.  See TCI Group's
combined statements of cash flows included in the accompanying combined
financial statements.

         Operating Cash Flow is a measure of value and borrowing capacity
within the cable television industry and is not intended to be a substitute for
cash flows provided by operating activities, a measure of performance prepared
in accordance with generally accepted accounting principles, and should not be
relied upon as such.  Operating Cash Flow, as defined, does not take into
consideration substantial costs of doing business, such as interest expense,
and should not be considered in isolation to other measures of performance.

         Another measure of liquidity is net cash provided by operating
activities, as reflected in the accompanying combined statements of cash flows.
Net cash provided by operating activities ($157 million and $131 million during
the three months ended March 31, 1998 and 1997, respectively) generally
reflects net cash from the operations of TCI Group available for TCI Group's
liquidity needs after taking into consideration the aforementioned additional
substantial costs of doing business not reflected in Operating Cash Flow.

         The amount of capital expended by TCI Group for property and equipment
was $210 million, $48 million and $538 million during the three months ended
March 31, 1998 and 1997, and the year ended December 31, 1997, respectively.
In light of TCI Group's plans to upgrade the capacity of its cable distribution
systems, and its plans to increase the number of customers who subscribe to
digital video services, TCI Group anticipates that its annual capital
expenditures during the next several years will significantly exceed the amount
expended during 1997.  In this regard, TCI Group estimates that it will expend
approximately $1.7 billion to $1.9 billion over the next three years to expand
the capacity of its cable distribution systems.  TCI Group expects that the
actual amount of capital that will be required in connection with its plans to
increase the number of digital video service customers will be significant.
However, TCI Group cannot reasonably estimate such actual capital requirement
since such actual capital requirement is dependent upon the extent of any
customer increases and the average installed per-unit cost of digital set-top
devices.  As described below, TCI is obligated to purchase a significant number
of digital set-top devices over the next three years.





                                     I-161
<PAGE>   163
         TCI Group has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $178
million at March 31, 1998.  With respect to TCI Group's guarantees of $166
million of such obligations, TCI Group has been indemnified for any loss, claim
or liability that TCI Group may incur, by reason of such guarantees.  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 TCI Group believes that it
will not be required to meet its obligations under such guarantees, or if it is
required to meet any of such obligations, that they will not be material to TCI
Group.

         TCI Group has provided a revolving loan facility to TCI Ventures Group
for a five-year period commencing on September 10, 1997.  Such facility permits
aggregate borrowings at any one time outstanding of up to $500 million (subject
to reduction as provided below), which borrowings bear interest at a rate per
annum equal to The Bank of New York's prime rate (as in effect from time to
time) plus 1% per annum, payable quarterly.  A commitment fee equal to 3/8% per
annum of the average unborrowed availability under the Ventures Intergroup
Credit Facility is payable by TCI Ventures Group to TCI Group on a quarterly
basis.  Such commitment fee was not significant during the three months ended
March 31, 1998.  The maximum amount of borrowings permitted under the Ventures
Intergroup Credit Facility will be reduced on a dollar-for-dollar basis by up
to $300 million if and to the extent that the aggregate amount of any
additional capital that TCI Ventures Group is required to contribute to certain
specified partnerships subsequent to the September 10, 1997 consummation of the
Exchange Offers is less than $300 million.  No borrowings were outstanding
pursuant to the Ventures Intergroup Credit Facility at March 31, 1998.

         TCI Group is a party to affiliation agreements with several of its
programming suppliers.  Pursuant to these agreements, TCI Group is committed to
carry such suppliers programming on its cable systems.  Several of these
agreements provide for penalties and charges in the event the programming is
not carried or not delivered to a contractually specific number of customers.

         During the third quarter of 1997, TCI Group committed to purchase
billing services pursuant to three successive five year agreements.  Pursuant
to such arrangement, TCI Group is obligated at March 31, 1998 to make minimum
payments aggregating approximately $1.6 billion through 2012.  Such minimum
payments are subject to inflation and other adjustments pursuant to the terms
of the underlying agreements.

         Pursuant to certain agreements between TCI and TCI Music, TCI Group is
obligated at March 31, 1998 to make minimum revenue payments through 2017 and
minimum license fee payments through 2007 aggregating approximately $425
million to TCI Music.  Such minimum payments are subject to inflation and other
adjustments pursuant to the terms of the underlying agreements.

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


         TCI Group has significant contingent obligations with respect to
certain of its affiliates.  See note 6 to accompanying combined financial
statements of TCI Group.





                                     I-162
<PAGE>   164
         Effective as of December 16, 1997, NDTC, on behalf of TCI Group and
other cable operators that may be designated from time to time by NDTC, entered
into the Digital Terminal Purchase Agreement with GI to purchase advanced
digital set-top devices.  The hardware and software incorporated into these
devices will be designed and manufactured to be compatible and interoperable
with the OpenCable(TM) architecture specifications adopted by CableLabs, the
cable television industry's research and development consortium, in November
1997.  NDTC has agreed that Approved Purchasers will purchase, in the
aggregate, a minimum of 6.5 million set-top devices during calendar years 1998,
1999 and 2000 at an average price of $318 per basic set-top device (including a
required royalty payment).  GI agreed to provide NDTC and its Approved
Purchasers the most favorable prices, terms and conditions made available by GI
to any customer purchasing advanced digital set-top devices.  In connection
with NDTC's purchase commitment, GI agreed to grant warrants to purchase its
common stock proportional to the number of devices ordered by each
organization, which as of the effective date of the Digital Terminal Purchase
Agreement, would have represented at least a 10% equity interest in GI (on a
fully diluted basis).  It is anticipated that the value associated with such
equity interest would be attributed to TCI Group upon purchase and deployment
of the digital set-top devices.

         TCI Group's various partnerships and other affiliates accounted for by
the equity method generally fund their acquisitions, required debt repayments
and capital expenditures through borrowings under and refinancing of their own
credit facilities (which are generally not guaranteed by TCI Group), through
net cash provided by their own operating activities and in certain
circumstances through required capital contributions from their partners.

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

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

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





                                     I-163
<PAGE>   165
         TCI Group is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps in the event of nonperformance by the
other parties to the agreements.  However, TCI Group does not anticipate that
it will incur any material credit losses because it does not anticipate
nonperformance by the counterparties.  Further, TCI Group does not anticipate
material near-term losses in future earnings, fair values or cash flows
resulting from derivative financial instruments as of March 31, 1998.  See note
10 to the accompanying combined financial statements for additional information
regarding Interest Rate Swaps.

         At March 31, 1998, after considering the net effect of the
aforementioned Interest Rate Swaps, TCI Group had $6,456 million (or 48%) of
fixed rate debt and $6,970 million (or 52%) of variable-rate debt.
Accordingly, in an environment of rising interest rates, TCI Group expects that
it would experience an increase in interest expense.

         LIBERTY MEDIA GROUP

         Liberty Media Group's source of funds include its available cash
balances, net cash provided by operating activities, cash distributions from
affiliates, dividend and interest receipts, proceeds from asset sales,
availability under certain credit facilities, and loans from TCI Group.  To the
extent cash needs of Liberty Media Group exceed cash provided by Liberty Media
Group, TCI Group may transfer funds to Liberty Media Group.  Conversely, to the
extent cash provided by Liberty Media Group exceeds cash needs of Liberty Media
Group, Liberty Media Group may transfer funds to TCI Group.

         On January 12, 1998, TCI acquired from a minority stockholder of UVSG
12.4 million shares of UVSG Class A common stock in exchange for 12.7 million
shares of TCI Ventures Group Class A Stock and 7.3 million shares of Liberty
Group Series A Stock.  The aggregate value assigned to the shares issued by TCI
was based upon the market value of such shares at the time the transaction was
announced.  As a result of such transaction TCI increased its ownership in the
equity of UVSG to approximately 73%, of which 56% is attributed to the TCI
Ventures Group and 17% is attributed to Liberty Media Group.  In addition,
TCI's collective voting power increased to 93%.

         In February 1998, TCI, Liberty Media Group and UVSG announced their
agreement in principal for UVSG to acquire Liberty Media Group's 40% interest in
Superstar/Netlink and its 100% interest in certain businesses conducted under
the name Netlink International in exchange for 6,375,000 shares of UVSG's common
stock.  In April 1998, UVSG, Liberty Media Group and Turner Vision entered into
a memorandum of understanding with PRIMESTAR, Inc. ("PRIMESTAR") for the sale of
Superstar/Netlink to PRIMESTAR for shares of a new series of convertible
preferred stock of PRIMESTAR and the assumption of liabilities (the "Primestar
Transaction").  Liberty Media Group and UVSG have agreed in principal to
restructure their transaction to provide for UVSG to acquire any shares of
PRIMESTAR preferred stock received by Liberty Media Group in the Primestar
Transaction and Liberty Media Group's Netlink International businesses for
6,375,000 shares of Class B Common Stock of UVSG.  The Netlink International
businesses are being operated for the benefit of UVSG from April 1, 1998 to the
closing of the sale thereof.  Consummation of the transaction between Liberty
Media Group and UVSG is subject to the signing of a definitive agreement
following receipt by UVSG of a satisfactory fairness opinion, UVSG stockholder
approval and certain regulatory approvals. Consummation of the Primestar
Transaction is subject to a number of conditions, including negotiation of a
definitive agreement and receipt of applicable regulatory approvals.  No
assurance can be given that the foregoing transactions will be consummated.





                                     I-164
<PAGE>   166
         Encore Media Group's loan agreement contains restrictions regarding
transfers of funds to other members of Liberty Media Group in the form of
loans, advances or cash dividends.  In addition, subsequent to the exercise of
the Southern Option, cash provided by operating activities of Southern was no
longer available as a source of cash for Liberty Media Group.  Additionally,
subsequent to the sale of Netlink to UVSG, cash provided by operating
activities of Netlink will no longer be available as a source of cash for
Liberty Media Group.  Cash provided by operating activities of Southern and
Netlink has been a significant source of cash for Liberty Media Group.
Although no assurance can be given, cash generated by Liberty Media Group's
remaining operating activities, distributions from affiliates, dividend and
interest payments, availability under its credit facilities and  available cash
balances should provide adequate cash to meet its obligations.  For additional
information concerning Liberty Media Group's cash flows see the combined
statements of cash flows included in the accompanying combined financial
statements of Liberty Media Group.

         As of March 31, 1998, Liberty Media Group holds approximately 57
million shares of the TW Exchange Stock.  During the three months ended March
31, 1998, the unrealized appreciation, net of taxes, of the fair value of such
shares of TW Exchange Stock was $339 million based upon the market value of the
common stock into which the TW Exchange Stock is convertible.  Holders of TW
Exchange Stock are entitled to receive dividends ratably with Time Warner
common stock.  Liberty Media Group received approximately $5 million in cash
dividends for each of the quarters ended March 31, 1998 and 1997.  It is
anticipated that Time Warner will continue to pay dividends on its common stock
and consequently Liberty Media Group will receive dividends on the TW Exchange
Stock it holds.  However, there can be no assurance that such dividends will
continue to be paid.

         Liberty Media Group received approximately $8 million in cash
dividends on a 30 year non-convertible 9% preferred stock, with a stated value
of $345 million, during the three months ended March 31, 1998.

         Liberty Media Group has a revolving line of credit which provides for
borrowings of up to $500 million.  Borrowings of $185 million were outstanding
at March 31, 1998. As security for this indebtedness, Liberty Media Group
pledged a portion of its TW Exchange Stock.  Encore Media Group has a $625
million senior, secured facility.  The credit agreement for the EMG Senior
Facility contains certain provisions which limit Encore Media Group as to
additional indebtedness, sale of assets, liens, guarantees, and distributions.
Additionally, Encore Media Group must maintain certain specified financial
ratios.  Borrowings of $292 million were outstanding on the EMG Senior Facility
at March 31, 1998.  TCI Music has a revolving loan agreement which provides for
borrowings of up to $100 million.  Borrowings of $72 million were outstanding
at March 31, 1998.

         Various partnerships and other affiliates of Liberty Media Group
accounted for under the equity method finance a substantial portion of their
acquisitions and capital expenditures through borrowings under their own credit
facilities and net cash provided by their operating activities.

         The Music Note may be reduced by the payment of cash or the issuance
by TCI of shares of Liberty Media Group Stock for the benefit of entities
included within the TCI Group.  Additionally, Liberty Media Group may elect to
pay $50 million of the Music Note by delivery of a Stock Appreciation Rights
Agreement that will give TCI Group the right to receive 20% of the appreciation
in value of Liberty Media Group's investment in TCI Music, to be determined at
July 11, 2002.  Including rights held by subsidiaries of TCI that are not
members of the Liberty Media Group, the obligation under the Rights Agreement
could be as high as $85 million.

         As of March 31, 1998, Liberty Media Group was not exposed to material
near-term losses in future earnings, fair values, or cash flows resulting from
derivative financial instruments.





                                     I-165
<PAGE>   167
         Liberty Media Group intends to continue to develop its entertainment
and information programming services and has made certain financial commitments
related to the acquisition of programming.  As of March 31, 1998, Liberty Media
Group's future minimum obligation related to certain film licensing agreements
was $678 million.  The amount of the total obligation is not currently
estimable because such amount is dependent upon the number of qualifying films
released theatrically by certain motion picture studios as well as the domestic
theatrical exhibition receipts upon the release of such qualifying films.
Continued development may require additional financing and it cannot be
predicted whether Liberty Media Group will obtain such financing.  If
additional financing cannot be obtained, Liberty Media Group could attempt to
sell assets but there can be no assurance that asset sales, if any, can be
consummated at a price and on terms acceptable to Liberty Media Group.
Further, Liberty Media Group and/or TCI could attempt to sell equity securities
but, again, there can be no certainty that such a sale could be accomplished on
acceptable terms.

         In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to stock dividends) that were subject to the Malone Call
Agreement and the Magness Call Agreement.  Accordingly, Liberty Media Group
paid $64 million during the first quarter of 1998 for its allocated share of
the Call Payments.  See note 8 to the accompanying combined financial
statements of Liberty Media Group.

         In February 1998, at the closing of the Universal Transaction, Liberty
Media Group was issued approximately 1.2 million shares of USAI's Class B
Common Stock, representing all of the remaining shares of USAI's Class B Common
Stock issuable pursuant to Liberty Media Group's Contingent Right.  In
addition, Liberty Media Group purchased 10 LLC Shares at the closing of the
Universal Transaction for an aggregate purchase price of $200.  Liberty Media
Group has also agreed to contribute $300 million in cash to USANI LLC by June
30, 1998 in exchange for an aggregate of 15 million LLC Shares and/or shares of
USAI's Common Stock.  Liberty Media Group's cash purchase price will increase
at an annual interest rate of 7.5% beginning from the date of the closing of
the Universal Transaction through the date of Liberty Media Group's purchase of
such securities (the "Liberty Closing").  Pursuant to the LLC Exchange
Agreement, each LLC Share issued or to be issued to Liberty Media Group is
exchangeable for one share of USAI's Common Stock.





                                     I-166
<PAGE>   168
         In connection with the Universal Transaction, each of Universal and
Liberty Media Group has been granted a preemptive right with respect to future
issuances of USAI's capital stock, subject to certain limitations, to maintain
their respective percentage ownership interests in USAI that they had
immediately prior to such issuances.  In addition, with respect to issuances of
USAI's capital stock in certain specified circumstances, Universal will be
obligated to maintain the percentage ownership interest in USAI that it had
immediately prior to such issuances.  During the first quarter of 1998, Liberty
Media Group exercised its rights to purchase approximately 4.7 million
additional LLC shares or USAI shares of common stock pursuant to a preemptive
right of $20 per share in cash, subject to receipt of regulatory approvals.
This transaction is expected to close during the second quarter of 1998.  

         USAI, Universal and Liberty Media Group have agreed that if the parties
agree prior to June 30, 1998 (the date of mandatory cash contributions) on the
identity of assets owned by Liberty Media Group that are to be contributed to
the LLC and the form and terms of such contributions, Liberty Media Group will
contribute those assets in exchange for LLC Shares valued at $20 per share.  If
Liberty Media Group contributes such additional assets, Liberty Media Group has
the right to elect to reduce the number of LLC Shares it is obligated to
purchase for cash by an amount equal to 45% of the value of the assets
contributed by Liberty Media Group.  If Liberty Media Group exercises the option
to contribute assets and thereby reduces its cash contribution amount, Universal
will be required to purchase a number of additional LLC shares (valued at $20
per share) equal to the value of Liberty Media Group's asset contribution, less
the amount by which Liberty Media Group's asset contribution is applied towards
reducing Liberty Media Group's cash contribution.  In addition, Universal may
purchase an additional number of LLC shares (valued at $20 per share), equal to
the value of Liberty Media Group's asset contribution which is not applied
towards reducing Liberty Media Group's cash contribution.  See note 4 to the
accompanying combined financial statements of Liberty Media Group.

         TCI VENTURES GROUP

         The following table sets forth total assets and debt and capital lease
obligations for the TCI Ventures Group and each of the businesses attributed to
it:

<TABLE>
<CAPTION>
                                                                                March 31,
                                                                                  1998              
                                                                           ------------------
                                                                           amounts in thousands
         <S>                                                               <C>       
         Total assets
             TINTA                                                         $         1,381,743
             TCI Telephony                                                             754,757
             UVSG                                                                      656,425
             NDTC                                                                      351,172
             @Home                                                                     153,897
             ETC                                                                        86,836
             WTCI                                                                       81,338
             Other                                                                     121,912
                                                                           -------------------
                                                                           $         3,588,080
                                                                           ===================

         Debt and capital lease obligations (1)
             TINTA                                                         $           390,037
             NDTC                                                                      154,427
             UVSG                                                                       25,373
             @Home                                                                      25,239
             Other                                                                      70,000
                                                                           -------------------
                                                                           $           665,076
                                                                           ===================
</TABLE>





                                     I-167
<PAGE>   169
  --------------------

         (1)     For additional information concerning the terms of TCI
                 Ventures Group's debt, see note 12 to the accompanying
                 combined financial statements of the TCI Ventures Group.

         The TCI Ventures Group's combined operating activities provided (used)
cash of $(34.6 million) and $29.3 million during the three months ended March
31, 1998 and 1997, respectively.  As discussed above, effective October 1,
1997, Cablevision's cash flows are no longer included in the TCI Ventures
Group's combined statements of cash flows.  Cablevision's operating activities
provided cash of $5.2 million during the three months ended March 31, 1997.  At
March 31, 1998, @Home and UVSG held cash and cash equivalents of $21.0 million
and $58.5 million, respectively.  The cash balances of such entities are
generally intended to be applied towards the respective liquidity requirements
of such entities.  It is not presently anticipated that any significant portion
of such cash balances will be distributed or otherwise made available to the
TCI Ventures Group.

         During the three months ended March 31, 1998 and 1997, cash used by
TCI Ventures Group's investing activities aggregated $436,000 and $50.4
million, respectively.  The 1998 amount includes cash proceeds of $78.1 million
received upon the disposition of assets.  Additionally, the 1998 and 1997
amounts include $55.2 million and $44.4 million, respectively, that were used
by the TCI Ventures Group to fund investments in, and loans to, affiliates.
For additional information concerning the TCI Ventures Group's cash flows, see
the combined statements of cash flows included in the accompanying combined
financial statements of TCI Ventures Group.

         Substantially all of the entities the ownership of which, or the
investment in which, has been attributed to the TCI Ventures Group will require
significant additional capital in order to develop their respective businesses
and assets, to fund future operating losses and to fund future growth.  In
certain cases, principally with respect to the Sprint PCS Partnerships, the TCI
Ventures Group has contractual commitments pursuant to which (subject to
certain conditions) it may be required to make significant additional capital
contributions to the entities in which it has investments.  TINTA and its
consolidated subsidiaries also have commitments under various partnership and
other funding agreements to contribute capital or loan money to fund capital
expenditures and other capital requirements of certain affiliates.       There
can be no assurance that any of the TCI Ventures Group's entities will be
successful in generating sufficient cash flow from operating activities or
raising debt or equity capital in sufficient amounts or on terms acceptable to
them to be able to meet their respective capital requirements.  There is also
no assurance that the anticipated capital requirements of the TCI Ventures
Group's entities and/or affiliates will not significantly increase due to
changing circumstances, such as unanticipated opportunities, technological or
marketing hurdles, unanticipated expenses, and the like.  The failure to
generate sufficient cash flow from operating activities or to raise sufficient
funds may require such entity to delay or abandon some or all of its
development and expansion plans or in certain instances, could result in the
failure to meet certain regulatory requirements, any and all of which could
have a material adverse effect on such entity's growth, its ability to compete
in its industry and its ability to service its debt.





                                     I-168
<PAGE>   170
         The ability of a cash flow generating business of one of the TCI
Ventures Group Entities to fund the cash flow deficits of the businesses of one
or more of the other TCI Ventures Group entities is limited not only by the
structural separation of such businesses in separate corporations and
partnerships, but also by the presence of other investors, both debt and
equity, in many of the TCI Ventures Group entities. In addition, TINTA and
certain of the other TCI Ventures Group entities, such as Teleport and Sprint
PCS, are holding companies, the assets of which consist solely or primarily of
investments in their subsidiaries and affiliates.  As such, the ability of such
holding companies to meet their respective financial obligations and their
funding and other commitments to their respective subsidiaries and affiliates,
is  dependent upon external financing and/or of dividends, loans or other
payments from their respective subsidiaries and affiliates, or repayment of
loans and advances from such holding companies.  Accordingly, such holding
companies' ability to meet their respective liquidity requirements, including
debt service, is severely limited as a result of their dependence upon external
financing and funds received from their respective subsidiaries and affiliates.
The payment of dividends or the making of loans or advances to such holding
companies by their respective subsidiaries and affiliates may be subject, among
other things, to statutory, regulatory or contractual restrictions, are
contingent upon the earnings of those subsidiaries and affiliates, and are
subject to various business considerations.

         From inception through March 1998, the Sprint PCS partners have
contributed approximately $4.2 billion to Sprint PCS (of which TCI Telephony
contributed an aggregate of approximately $1.3 billion).  The remaining capital
that Sprint PCS will require to fund the operation of the PCS systems and the
commitments made to its affiliates will be substantial.  The partners had
agreed in forming Sprint PCS to contribute up to an aggregate of approximately
$4.2 billion of equity thereto, from inception through fiscal 1999, subject to
certain requirements.  The TCI Ventures Group expects that the remaining
approximately $150 million of such amount (of which TCI Telephony's share is
approximately $45 million) will be contributed by the end of the second quarter
of 1998 (although there can be no assurance that any additional capital will be
contributed).  The TCI Ventures Group expects that Sprint PCS will require
additional equity thereafter.

         Sprint PCS's business plan will require additional capital financing
prior to the end of 1998.  Sources of funding for Sprint PCS's capital
requirements may include vendor financing, public offerings or private
placements of equity and/or debt securities, commercial bank loans and/or
capital contributions from the Sprint PCS Partners.  However, there can be no
assurance that any additional financing can be obtained on a timely basis, on
terms acceptable to Sprint PCS or the Sprint PCS Partners and within the
limitations contained in the agreements governing Sprint PCS's existing debt.

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





                                     I-169
<PAGE>   171
         Furthermore, the fact that the proposed budget for Sprint PCS for
fiscal 1998 has not yet been approved by the Sprint PCS partnership board has
resulted in the occurrence of a "Deadlock Event" under the Sprint PCS
partnership agreement as of January 1, 1998.  Under the Sprint PCS partnership
agreement, if one of the Sprint PCS partners refers the budget issue to the
chief executive officers of the corporate parents of the Sprint PCS partners
for resolution pursuant to specified procedures and the issue remains
unresolved, buy/sell provisions would be triggered, which may result in the
purchase by one or more of the Sprint PCS partners of the interests of the
other Sprint PCS partners, or, in certain circumstances, liquidation of Sprint
PCS.  Discussions among the Sprint PCS partners about restructuring their
interests in Sprint PCS in lieu of triggering such buy/sell procedures are
ongoing.  However, there is no certainty the discussions will result in a
change to the partnership structure or will avert the triggering of the
resolution and buy/sell procedures referred to above or a liquidation of Sprint
PCS.

         Historically, the TCI Ventures Group's combined operating activities
have not provided sufficient funds to meet all of the TCI Ventures Group's
capital requirements.  The TCI Ventures Group's ability to obtain sufficient
capital resources to make its expected additional capital contributions to the
Sprint PCS Partnerships and other entities in which it has investments are
limited.  WTCI and NDTC are the only wholly-owned subsidiaries attributed to the
TCI Ventures Group that are operating companies and such entities are currently
the TCI Ventures Group's only source of cash provided by operating activities.
As a result, the TCI Ventures Group has limited ability to generate funds
internally to fund capital requirements and limited cash flow from operating
activities to support external financings.  The other operating companies
attributed to the TCI Ventures Group have other investors, public or private,
and the payment of dividends, or the making of loans or advances by any one of
such TCI Ventures Group entities to any other of such TCI Ventures Group
entities would be subject to various business considerations, as well as any
legal restrictions, including pursuant to agreements among the investors. At
March 31, 1998, TCI Ventures Group had the Ventures Intergroup Credit Facility
with TCI Group which has a five-year term commencing on September 10, 1997 and
which permits aggregate borrowings at any one time outstanding of up to $500
million (subject to reduction as provided below), which borrowings bear interest
at a rate per annum equal to The Bank of New York's prime rate (as in effect
from time to time) plus 1% per annum, payable quarterly.  A commitment fee equal
to 3/8% per annum of the average unborrowed availability under the Ventures
Intergroup Credit Facility is payable by the TCI Ventures Group to the TCI Group
on a quarterly basis.  The maximum amount of borrowings permitted under the
Ventures Intergroup Credit Facility will be reduced on a dollar-for- dollar
basis by up to $300 million if and to the extent that the aggregate amount of
any additional capital that TCI Telephony is required to contribute to Sprint
PCS subsequent to the September 10, 1997 consummation of the Exchange Offers is
less than $300 million.  No borrowings were outstanding pursuant to the Ventures
Intergroup Credit Facility at March 31, 1998.  Additionally, in March 1998, TCI
Ventures Group entered into the Ventures Group Bank Facility with a term of one
year which provides for aggregate borrowings of up to $400 million.  At March
31, 1998, borrowings of $70.0 million were outstanding under the Ventures Group
Bank Facility.  If the available borrowings under the Ventures Group Bank
Facility and the Ventures Intergroup Credit Facility are not sufficient to fund
the TCI Ventures Group's capital requirements, no assurance can be given that
the TCI Ventures Group will be able to obtain any required additional financing
on terms acceptable to it, or at all. Additional capital could be raised for the
TCI Ventures Group by, among other things, engaging in public offerings or
private placements of TCI Ventures Group common stock or through issuance of
debt securities or preferred equity securities attributed to the TCI Ventures
Group. If TCI Ventures Group is unable to obtain sufficient financing from
outside sources, the TCI Ventures Group may continue to be dependent upon
funding from the TCI Group. The TCI Ventures Group's failure to meet its
contractual and other capital requirements could have significant adverse
consequences to a particular operating company or affiliate and to the TCI
Ventures Group.





                                     I-170
<PAGE>   172
         TINTA's business strategy requires that it have the ability to access
or raise sufficient funds to allow it to take advantage of new  acquisition and
joint venture opportunities as they arise, which management of TINTA believes
may require substantial additional funds.  Although TINTA has, at March 31,
1998, (i) $63 million due from TCI Ventures Group pursuant to an unsecured
promissory note, (ii) a $200 million credit facility with the TCI Ventures
Group and (iii) the ability to access any excess cash and borrowing
availability from the Puerto Rico Subsidiary, TINTA's ability to otherwise
obtain debt financing to assist its operating companies and to meet its capital
obligations at other than the subsidiary level will be limited because TINTA
does not conduct any operations directly.  Furthermore, because TINTA's assets
consist primarily of ownership interests in foreign subsidiaries and
affiliates, the repatriation of any cash provided by such subsidiaries' and
affiliates' operating activities in the form of dividends, loans or other
payments is subject to, among other things, exchange rate fluctuations, tax
laws and other economic considerations, as well as applicable statutory and
contractual restrictions.  Moreover, the liquidity sources of TINTA's foreign
subsidiaries and affiliates are generally intended to be applied towards the
respective liquidity requirements of such foreign subsidiaries and affiliates,
and accordingly, do not represent a direct source of liquidity to TINTA.
Accordingly, with the exception of any liquidity that may be provided to TINTA
by the Puerto Rico Subsidiary, no assurance can be given that TINTA will have
access to any cash generated by its foreign operating subsidiaries and
affiliates.

         On April 15, 1998, it was announced that Telewest and General Cable
had agreed to the terms of a proposed merger in which holders of General Cable
will be offered 1.243 new Telewest shares and L.0.65 ($1.09) in cash for each
share of General Cable.  In addition, holders of General Cable ADSs (each
representing five General Cable shares) will be offered 6.215 new Telewest
shares and L.3.25 ($5.43) in cash for each share of General Cable ADSs.  Based
upon Telewest's closing share price of L.0.89 ($1.49) on April 14, 1998, the
Merger Offer is valued at approximately L.649 million ($1.1 billion).

         The cash portion of the Merger Offer will be financed through an offer
to qualifying Telewest shareholders for the purchase of 261 million new
Telewest shares at a price of L.0.925 ($1.55) per share.  U S WEST, TINTA and
Cox have agreed to subscribe for their full allocation of new Telewest shares
(approximately 69 million shares in the case of TINTA) and to subscribe on a
pro rata basis for any new Telewest shares not subscribed for by other Telewest
shareholders.  Together, U S WEST, TINTA and Cox held 67.9% of the issued and
outstanding Telewest ordinary shares at March 31, 1998.  In addition, it is
anticipated that U S WEST, TINTA, Cox and SBC will convert their entire
respective holdings of Telewest convertible preference shares into new Telewest
shares.  Following the issuance of new Telewest shares with respect to the
above transactions, and assuming the exercise of all options under General
Cable's share option schemes, it is anticipated that existing Telewest
shareholders would hold 79% and existing General Cable shareholders would hold
21% of the then issued ordinary share capital of the combined group.

         Consummation of the merger is subject to (i) approval by the boards of
directors of Telewest and General Cable, (ii) regulatory approval and (iii)
other conditions.  There can be no assurance that such merger will be
consummated or consummated on the terms contemplated by the parties.





                                     I-171
<PAGE>   173
         @Home is investing significantly in the development of its network
infrastructure and hiring new personnel rapidly in anticipation of potential
growth in its business, which is in a very early state of development.  As of
March 31, 1998 there were minimal subscribers to its @Home services.  @Home
believes that the net cash proceeds of approximately $100 million from its
initial public offering on July 11, 1997, together with existing cash, cash
equivalents and capital lease financing, will be sufficient to meet its working
capital and capital expenditure requirements for at least the next 12 months.
@Home may, however, require additional funds if its estimates of working
capital and/or capital expenditure and/or lease financing requirements change
or prove inaccurate or in order for @Home to respond to unforeseen
technological or marketing hurdles or to take advantage of unanticipated
opportunities.  Over the longer term, it is likely that @Home will require
substantial additional funds to continue to fund its infrastructure investment,
product development, marketing, sales and customer support needs.  There can be
no assurance that any such funds will be available at the time or times needed,
or available on terms acceptable to @Home.  If adequate funds are not
available, or are not available on acceptable terms, @Home may not be able to
continue its network implementation, to develop new products and services or
otherwise to respond to competitive pressures.  Such inability could have a
material adverse effect on @Home's business, operating results and financial
condition.

         @Home has entered into exclusive distribution agreements with certain
cable operators.  In connection with the distribution agreements, @Home has
issued warrants to such cable operators to purchase 17,946,956 shares of
@Home's Series A common stock.  Of these warrants, warrants to purchase
10,581,298 shares were exercisable as of March 31, 1998.  During the first
quarter of 1998, @Home recorded a non-cash, non-recurring charge of $83.3
million to operations based on the fair value of 2,705,514 shares which were
underlying warrants which became exercisable during the period.  @Home may
issue additional stock, or warrants in connection with its efforts to expand
its distribution of the @Home service to other cable operators.  The exercise
of warrants or stock issued by @Home will reduce TCI Ventures Group's equity
interest and voting power in @Home.





                                     I-172
<PAGE>   174
         During the period in which each of TCI, Cox, Comcast Corporation
("Comcast") and Cablevision Systems Corporation ("CSC") have agreed (subject to
certain exceptions and limitations) to use @Home as its exclusive provider of
high speed residential consumer Internet access services, a stockholders
agreement among such parties and @Home provides that in the event the number of
exclusive homes passed attributable to TCI decreases below 80% of the number of
homes passed of TCI and its controlled affiliates as of June 1996, then TCI
will be required to offer to sell a proportionate amount of its equity in @Home
to certain other stockholders of @Home at fair market value.  Since June 1996,
TCI has sold or transferred certain cable systems that reduce TCI's number of
base homes passed.  In addition, TCI has announced the proposed sale or
transfer of additional cable systems that would further reduce TCI's number of
base homes passed.  In the event that such cable systems continue to be
exclusive to @Home, such cable systems and their homes passed would continue to
be included in TCI's homes passed for purposes of determining whether or not
TCI is obligated to offer a portion of its equity interest in @Home to Cox,
Comcast and CSC, even though such cable systems are no longer owned or
controlled by TCI.  If TCI does not require that such cable systems remain
exclusive to @Home, the TCI Ventures Group could be required to sell shares to
Cox, Comcast, CSC and certain other stockholders of @Home, at fair market
value.  There can be no assurance that, if the TCI Ventures Group is required
to sell shares of @Home, the price paid to the TCI Ventures Group would
represent adequate consideration to the TCI Ventures Group because such fair
market value may not adequately reflect the TCI Ventures Group's expectation of
the long term value of such investments in @Home.  In addition to the
exceptions to the general exclusivity obligations, Cox and Comcast have the
right to terminate the exclusivity provisions with respect to TCI, Cox, Comcast
and CSC in the event TCI does not attain certain customer penetration levels
for the @Home service relative to the customer penetration levels of Cox and
Comcast, as of June 4, 1999, and each anniversary thereafter until 2002.  Such
termination could have a material adverse effect on @Home and the value of the
TCI Ventures Group's interest in @Home.

         In addition, although TCI, Cox, Comcast and CSC are subject to certain
exclusivity obligations to carry @Home's residential consumer Internet service
over their cable systems, such exclusivity obligations are subject to a number
of exceptions which allow them to compete with @Home in certain circumstances.

         Because TINTA generally views its foreign operating subsidiaries and
affiliates as long-term investments, TINTA generally does not attempt to hedge
existing investments in its foreign affiliates and subsidiaries.  Although
TINTA monitors foreign currency exchange rates with the objective of mitigating
its exposure to unfavorable fluctuations in such rates, TINTA believes that,
given the nature of its business, it is not possible or practical to eliminate
TINTA's exposure to unfavorable fluctuations in foreign currency exchange
rates.  As of March 31, 1998, TINTA was not exposed to material near-term
losses in future earnings, fair values or cash flows resulting from derivative
financial instruments.

         In April 1997, (i) Flextech and BBC Worldwide formed the BBC Joint
Ventures.  Flextech has undertaken to finance the working capital requirements
of the Principal Joint Venture and is obligated to provide the Principal Joint
Venture with a primary credit facility of L.88 million ($147 million) and,
subject to certain restrictions, a standby credit facility of L.30 million ($50
million).  Flextech has also agreed to make available to the Second Joint
Venture, if required, funding of up to L.10 million ($17 million).  If Flextech
defaults in its funding obligation to the Principal Joint Venture and fails to
cure within 42 days after receipt of notice from BBC Worldwide, BBC Worldwide
is entitled, within the following 90 days, to require that TINTA assume all of
Flextech's funding obligations to the Principal Joint Venture.





                                     I-173
<PAGE>   175
         If BBC Worldwide requires TINTA to perform Flextech's funding
obligations pursuant to the Standby Commitment, then TINTA will acquire
Flextech's entire equity interest in the Principal Joint Venture for L.1.00,
and will replace Flextech's directors on the board of the Principal Joint
Venture with representatives of TINTA.  Flextech will pay commitment and
standby fees to TINTA for its undertaking under the Standby Commitment.  If
Flextech repays to TINTA all loans it makes to the Principal Joint Venture
(plus interest at TINTA's marginal cost of funds plus 2% per annum) within 180
days after TINTA first becomes obligated to perform Flextech's financial
obligations, it may reacquire its interest in the Principal Joint Venture for
L.1.00.  TINTA may also, within the same period, require Flextech to reacquire
its interest on the same terms.  The Standby Commitment will terminate on the
earliest of (i) the date on which Flextech has met all of its required
financial obligations to the Principal Joint Venture under the primary and
standby credit facilities, or (ii) the date on which Flextech delivers a bank
guarantee of all of its funding obligations to the Principal Joint Venture.

         TINTA has formed strategic partnerships with News Corp., Organizacoes
Globo and Grupo Televisa S.A. to develop and operate a direct-to-home satellite
service for Brazil, Mexico, and various Central and South American countries.
Through March 31, 1998, TINTA had contributed $26.5 million to the DTH
Ventures.  It is anticipated that TINTA could be required to make additional
cash contributions in connection with the DTH Ventures.  In addition, as of
March 31, 1998, TINTA had guaranteed $16.8 million of the DTH Ventures'
financial obligations.

         As of March 31, 1998, TINTA had made cash contributions to Torneos on
the behalf of Liberty/TINTA of $48 million.  It is anticipated that Liberty
Media Group's portion of such cash contributions to Torneos will be repaid to
TINTA in cash or other economic consideration to be determined at some future
date.

         TINTA has guaranteed notes payable and other obligations of certain of
the TCI Ventures Group's affiliates. At March 31, 1998, the U.S. dollar
equivalent of the amounts borrowed pursuant to the Guaranteed Obligations was
approximately $98 million.  Certain of the Guaranteed Obligations allow for
additional borrowings in future periods.  TINTA also has guaranteed the
obligation of The Premium Movie Partnership to pay fees for the license to
exhibit certain films through the year 2000. If TINTA were to fail to fulfill
its obligations under the guarantees, the beneficiaries have the right to
demand an aggregate payment of approximately $42 million at March 31, 1998.
Although TINTA has not had to perform under such guarantee to date, TINTA
cannot be certain that it will not be required to perform under such guarantee
in the future.

         In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
that were subject to the Malone Call Agreement and the Magness Call Agreement.
Accordingly, TCI Ventures Group paid $76 million during the first quarter of
1998 for its allocated share of the Call Payments.  For additional information
see note 13 to the accompanying combined financial statements of TCI Ventures
Group.





                                     I-174
<PAGE>   176
         During the fourth quarter of 1997, TCI entered into the Equity Swap
Facility.  Pursuant to the Equity Swap Facility, TCI has the right to direct
the Counterparty to use the Equity Swap Facility to purchase Equity Swap Shares
of TCI Group Series A Stock and TCI Ventures Group Series A Stock with an
aggregate purchase price of up to $300 million.  TCI has the right, but not the
obligation, to purchase Equity Swap Shares through the September 30, 2000
termination date of the Equity Swap Facility.  During such period, TCI is to
settle periodically any increase or decrease in the market value of the Equity
Swap Shares.  If the market value of the Equity Swap Shares exceeds the
Counterparty's cost, Equity Swap Shares with a fair value equal to the
difference between the market value and cost will be segregated from the other
Equity Swap Shares.  If the market or value of Equity Swap Shares is less than
the Counterparty's cost, TCI, at its option, will settle such difference with
shares of TCI Group Series A Stock or TCI Ventures Group Series A Stock or,
subject to certain conditions, with cash or letters of credit.  In addition,
TCI is required to periodically pay the Counterparty a fee equal to a
LIBOR-based rate on the Counterparty's cost to acquire the Equity Swap Shares.
Due to TCI's ability to issue shares to settle periodic price fluctuation and
fees under the Equity Swap Facility, TCI records all amounts received or paid
under this arrangement as increases or decreases to equity.  As of March 31,
1998, the Equity Swap Facility has acquired 2,089,480 shares of TCI Group
Series A Stock and 513,500 shares of TCI Ventures Group Series A Stock at an
aggregate cost that was approximately $10 million less than the fair value of
such Equity Swap Shares at March 31, 1998.

         The board of directors of UVSG has authorized UVSG to repurchase from
time to time up to an aggregate of 1,000,000 shares of UVSG's Class A common
stock.  During the first quarter of 1998, UVSG repurchased 188,000 shares of
stock for a total of $6.7 million.

         Effective February 1, 1998, Turner-Vision contributed the assets,
obligations and operations of its retail C- band satellite business to
Superstar/Netlink in exchange for an approximate 20% interest in
Superstar/Netlink.  As a result of this transaction, both UVSG's and Liberty
Media Group's ownership interest in Superstar/Netlink decreased from 50% to
approximately 40%.  UVSG recognized a gain of $14.7 million (before deducting
deferred income tax expense of $5.9 million) in connection with such dilution.
See note 6 to the accompanying combined financial statements of TCI Ventures
Group.

         In April 1998, the Superstar/Netlink Owners announced an agreement in
principal with PRIMESTAR for the sale of Superstar/Netlink.  The
Superstar/Netlink Owners have agreed to an aggregate sales price of
approximately $480 million based on the delivery 1.2 million C-band subscribers
at the close of the transaction.  The consideration paid will be in the form of
approximately $430 million in new convertible preferred stock of PRIMESTAR and
approximately $50 million in assumed programming liabilities.  The preferred
stock will be convertible into approximately 44.8 million shares of PRIMESTAR
Class A common stock.  Such preferred stock will also bear a 6% cumulative
dividend, payable in cash, shares of PRIMESTAR Class A common stock or, under
certain circumstances, shares of TCI Satellite Entertainment, Inc. Series A
common stock, as PRIMESTAR shall elect.  Consummation of the agreement is
subject to certain conditions, including receipt of applicable regulatory
approvals.  No assurance can be given that such transaction will be consummated
or consummated on the terms contemplated by the parties.





                                     I-175
<PAGE>   177
         In February 1998, TCI, Liberty Media Group and UVSG announced an
agreement in principal for UVSG to acquire Liberty Media Group's 40% interest in
Superstar/Netlink and its 100% interest in certain businesses conducted under
the name Netlink International in exchange for 6.4 million shares of UVSG's
common stock.  Liberty Media Group and UVSG have agreed in principal to
restructure their transaction to provide for UVSG to acquire any shares of
PRIMESTAR preferred stock received by Liberty Media Group in the PRIMESTAR
Transaction and Liberty Media Group's Netlink International businesses for 6.4
million shares of UVSG Class B common stock.  The Netlink International
businesses are being operated by Liberty Media Group for the benefit of UVSG
from April 1, 1998 to the closing of the sale thereof.  Consummation of the
transaction between Liberty Media Group and UVSG is subject to the signing of a
definitive agreement following receipt by UVSG of a satisfactory fairness
opinion, UVSG stockholder approval and certain regulatory approvals. No
assurance can be given that such transaction will be consummated.

         A subsidiary of TCI that is a member of TCI Ventures Group leases
certain equipment under a capital lease.  During 1997, such equipment was
subleased to TCI Group under an operating lease.  In January 1998, TCI Group
paid $7 million to TCI Ventures Group in exchange for TCI Ventures Group's
assignment of its ownership interest in such subsidiary to TCI Group.  Due to
the related party nature of the transaction, the $49.5 million total of the
cash payment and the historical cost of the net liabilities assumed by TCI
Group (including capital lease obligations aggregating $175.8 million) has been
reflected as an addition to TCI Ventures Group's combined equity.

         On January 12, 1998, TCI acquired from a minority shareholder of UVSG
12.4 million shares of UVSG Class A common stock in exchange for 12.7 million
shares of TCI Ventures Group Series A Stock and 7.3 million shares of Liberty
Group Series A Stock.  The aggregate value assigned to the shares issued by TCI
was based upon the market value of such shares at the time the transaction was
announced.  As a result of such transaction TCI increased its ownership in the
equity of UVSG to approximately 73%, of which 56% is attributed to the TCI
Ventures Group and 17% is attributed to Liberty Media Group.  In addition, TCI's
collective voting power increased to 93%.  In connection with such transaction,
during the first quarter of 1998, TCI Ventures Group recorded a $154.2 million
increase to intangible assets, a $23.5 million decrease to minority interest in
equity of attributed subsidiaries and a $177.7 million increase to combined
equity.

         On January 16, 1998, TINTA sold its interest in TeleCable Nacional,
CXA for cash proceeds of $10 million and TCI Ventures Group sold its interest
in Acclaim Entertainment, Inc. in February 1998 for cash proceeds of
approximately $17 million.

         On February 12, 1998, the TCI Ventures Group sold its (i) 40% interest
in NHT Partnership, (ii) 50% interest in Louisville Lightwave and (iii) 79%
interest in New Jersey Fiber Technologies, L.P. for aggregate cash proceeds of
$44.1 million.

         TCI and the other partners of KC Fiber have signed an agreement to
sell the assets of KC Fiber to TCG for cash proceeds of $55 million.  The TCI
Ventures Group holds a 50% interest in KC Fiber and the remaining 50% is held
by Kansas City Cable Partners, a partnership in which the TCI Group holds a 50%
interest.  The sale of KC Fiber is subject to certain regulatory and other
conditions, and there is no assurance that it will be consummated.  If
consummated, TCI Ventures Group share of such proceeds will be approximately
$20 million.





                                     I-176
<PAGE>   178
         Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
cable operators that may be designated from time to time by NDTC, entered into
an agreement with GI to purchase advanced digital set-top devices.  The hardware
and software incorporated into these devices will be designed and manufactured
to be compatible and interoperable with the OpenCable(TM) architecture
specifications adopted by CableLabs, the cable television industry's research
and development consortium, in November 1997. NDTC has agreed that Approved
Purchasers will purchase, in the aggregate, a minimum of 6.5 million set-top
devices over the next three years at an average price of $318 per set-top
device.  GI agreed to provide NDTC and its Approved Purchasers the most
favorable prices, terms and conditions made available by GI to any customer
purchasing advanced digital set-top devices.  In connection with NDTC's purchase
commitment, GI agreed to grant warrants to purchase its common stock
proportional to the number of devices ordered by each organization, which as of
the effective date of the Digital Terminal Purchase Agreement, would have
represented at least a 10% equity interest in GI (on a fully diluted basis).  It
is anticipated that the value associated with such equity interest would be
attributed to TCI Group upon purchase and deployment of the digital set- top
devices.

         Also in December 1997, NDTC entered into the GI MOU which contemplates
the sale to GI of certain of the assets of NDTC's set-top authorization
business, the license of certain related technology to GI, and an additional
cash payment in exchange for approximately 21.4 million shares of stock of GI.
In connection therewith, NDTC would also enter into a service agreement
pursuant to which it will provide certain services to GI's set-top
authorization business.  The transaction is subject to the signing of
definitive agreements; accordingly, there can be no assurance that it will be
consummated.

         NDTC has the right to terminate the Digital Terminal Purchase
Agreement if, among other reasons, the transactions related to the GI MOU are
not consummated or if GI fails to meet a material milestone designated in the
Digital Terminal Purchase Agreement with respect to the development, testing
and delivery of advanced digital set-top devices.

         On September 23, 1997, TCI announced that it and ETC entered into a
letter of intent with Knowledge Universe.  The letter of intent contemplates
that TCI, through ETC, will become a partner of Knowledge Universe in a new
venture into which Knowledge Universe would make a substantial investment and
ETC would contribute a significant portion of its assets.  As a result,
Knowledge Universe would be the majority owner of the new venture, with ETC
retaining a significant minority interest.  There can be no assurance that the
proposed transaction with Knowledge Universe will ultimately be consummated or
that the terms of the proposed transaction will not be substantially modified.





                                     I-177
<PAGE>   179
                           TELE-COMMUNICATIONS, INC.


PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

       As previously reported, on August 12, 1997, an action captioned IMedia
       Corporation v. Western Tele-Communications, Inc. was filed in the United
       States District Court for the Northern District of California, Case No.
       C 97-2960 CAL, Plaintiff IMedia Corporation ("IMedia") filed suit
       against Western Tele-Communications, Inc. ("WTCI"), a subsidiary of TCI.
       This matter has been stayed until July 29, 1998 to permit IMedia to
       engage new legal counsel to substitute for its original attorneys, who
       have been disqualified.

       As previously reported, during August 1996, five putative class action
       complaints were filed with the Delaware Court of Chancery in C.A. Nos.
       15179, 15187, 15188, 15189 and 15195 by stockholders of Home Shopping
       Network, Inc. ("HSN"). This case was dismissed in April of 1998 without
       prejudice and will not be reported on in the future.

       As previously reported, on February 9, 1994, Les Dunnaville and Jay
       Sharrieff, former employees of United Cable Television of Baltimore
       Limited Partnership, filed an amended complaint in the Circuit Court for
       Baltimore City against United Cable Television of Baltimore Limited
       Partnership, TCI Cablevision of Maryland, Tele-Communications, Inc. and
       three company employees, Roy Harbert, Tony Peduto, and Richard Bushey.
       This case was settled in April of 1998. The settlement did not have a
       material adverse effect upon the financial condition of the Company.
       This case will not be reported on in the future.

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



                                    II-1
<PAGE>   180



                           TELE-COMMUNICATIONS, INC.


Item 1. Legal Proceedings (continued).

       As previously reported, in September 1997, five substantially similar
       purported class action complaints were filed by stockholders of BET
       Holdings, Inc. ("BET") in the Court of Chancery of the State of Delaware
       under the captions Herbert Behrens v. Robert L. Johnson, et al., C.A.
       No. 15921; Harbor Finance Partners v. Peter Barton, et al., C.A. No.
       15923; Alan Friedman v. Robert L. Johnson, et al., C.A. No. 15924; Tiger
       Options, L.L.C. v. Robert L. Johnson, et al., C.A. No. 15936 and Jerome
       Ramos v. Robert L. Johnson, et al., C.A. No. 15941. Subsequently, on
       October 14, 1997, an Order of Consolidation was entered consolidating
       these actions under the caption In re BET Holdings, Inc. Shareholders
       Litigation, C.A. No. 15921 (the "Consolidated Action"). In the
       designated complaint in the Consolidated Action, the named defendants
       are: Robert L. Johnson, John C. Malone, Peter R. Barton, Delano E.
       Lewis, Sheila Crump Johnson, Herbert P. Wilkins, Denzel Washington, TCI,
       Liberty Media Corporation, and BET. The Consolidated Action focuses on
       the announcement of an offer by TCI, Liberty and Robert L. Johnson, the
       Chief Executive Officer of BET (collectively, the "Acquisition Group")
       to purchase all outstanding shares of BET for $48 per share, alleging
       that the proposed $48 per share price was inadequate and that the
       transaction contemplated by the offer would constitute a breach of
       fiduciary duty by the directors of BET. In March 1998, BET accepted a
       $63 per share merger proposal from the Acquisition Group. At that time,
       the parties to the contractual action agreed to a settlement in
       principle which is subject to final negotiation and execution of
       settlement documents, confirmatory discovery, court approval and other
       matters. Based upon the facts available, management believes that,
       although no assurances can be given as to the outcome of this action,
       the ultimate disposition of this matter should not have a material
       adverse effect upon the financial condition of the Company.

Item 2. Change in Securities. 

       On December 31, 1997, TCI issued 70,575 shares of Convertible Preferred
       Stock, Series C-TCI Group ("Series C-TCI Group") and 70,575 shares of
       Convertible Preferred Stock, Series C-Liberty Media Group ("Series C-
       Liberty Group") in exchange for 70,575 shares of its Convertible
       Preferred Stock, Series C (which represented all of the issued and
       outstanding shares of such series of preferred stock). TCI issued the
       equity securities described in the preceding sentence in reliance on the
       exemption from the registration requirements of the Act provided by
       Section 3(a)(9) thereof. TCI believes that such exemption from
       registration is available because (i) shares of Series C-TCI Group and
       Series C-Liberty Group were issued by TCI to existing security holders
       exclusively in exchange for shares of TCI's Convertible Preferred Stock,
       Series C and (ii) no commission or other remuneration was paid or given
       directly or indirectly for soliciting such exchange. As of December 31,
       1997 (as adjusted for a stock dividend issued with respect to Liberty
       Group Series A Stock on February 6, 1998), subject to antidilution
       adjustments, (i) each share of Series C-TCI Group is convertible, at the
       option of the holder, into 132.86 shares of TCI Group Series A Stock and
       (ii) each share of Series C-Liberty Group is convertible, at the option
       of the holder, into 37.5 shares of Liberty Group Series A Stock, and,
       upon conversion of shares of Series C-Liberty Group, each holder of
       Series C-Liberty Group is entitled to receive an additional share of
       Liberty Group Series A Stock for every two such shares issued upon such
       conversion.





                                      II-2
<PAGE>   181



                           TELE-COMMUNICATIONS, INC.


Item 2. Change in Securities (continued)

       On January 6, 1998, TCI issued 1,408,636 shares of TCI Group Series A
       Stock and 668,277 shares of TCI Group Series B Stock in connection with
       the settlement (the "Liberty Settlement") of the consolidated legal
       actions entitled In re: Liberty Media Corporation Shareholder
       Litigation, Consolidated Civil Action No. 13168, in the Court of
       Chancery of the State of Delaware in and for New Castle County (the
       "Court"). Of such securities issued in connection with the Liberty
       Settlement, (i) 1,177,071 shares of TCI Group Series A Stock were issued
       on a pro rata basis to persons who were the owners of the Class A Common
       Stock of Liberty Media Corporation at the close of business on August 4,
       1994, (ii) 668,202 shares of TCI Group Series B Stock were issued on a
       pro rata basis to persons who were the owners of the Class B Common
       Stock of Liberty Media Corporation at the close of business on August 4,
       1994, and (iii) 231,565 shares of TCI Group Series A Stock and 75 shares
       of TCI Group Series B Stock were issued to counsel for the plaintiffs in
       the aforementioned action in payment of attorney's fees. TCI issued the
       equity securities described in this paragraph pursuant to the exemption
       from the registration requirements of the Act provided by Section
       3(a)(10) thereof. TCI believes that such exemption from registration is
       available because the equity securities described in this paragraph were
       issued pursuant to an order of the Court, the terms and conditions of
       which were approved by the Court after a hearing upon the fairness
       thereof at which all persons to whom such securities were proposed to be
       issued had the right to appear.

       TCI issued 1,461,460 shares of TCI Group Series A Stock on January 9,
       1998 and 857,611 shares of TCI Group Series A Stock on January 22, 1998
       to certain holders of shares of Series C-TCI Group upon the conversion,
       and pursuant to the terms, thereof. TCI issued the equity securities
       described in this paragraph in reliance on the exemption from the
       registration requirements of the Act provided by Section 3(a)(9)
       thereof. TCI believes that such exemption from registration is available
       because (i) shares of TCI Group Series A Stock were issued by TCI to
       existing security holders exclusively in exchange for shares of Series
       C-TCI Group and (ii) no commission or other remuneration was paid or
       given directly or indirectly for soliciting such exchange.

       On January 12, 1998, TCI issued 12,688,812 shares of TCI Ventures Group
       Series A Stock and 7,336,744 shares of Liberty Group Series A Stock to a
       minority shareholder of UVSG, in exchange for 12.4 million shares of
       UVSG Series A Common Stock. As a result of such transaction, TCI
       increased its ownership in the equity of UVSG to approximately 73%, of
       which 56% is attributed to the TCI Ventures Group and 17% is attributed
       to Liberty Media Group. As a result of such transaction, TCI's
       collective voting power in UVSG increased to 93%. TCI issued the equity
       securities described in this paragraph pursuant to the private placement
       exemption from the registration requirements of the Act provided by
       Section 4(2) thereof.





                                      II-3
<PAGE>   182



                           TELE-COMMUNICATIONS, INC.


Item 2. Change in Securities (continued)

       On February 9, 1998, TCI issued to the Magness Estate 10,017,145 shares
       of TCI Group Series B Stock and 12,034,298 shares of TCI Ventures Group
       Series B Stock in connection with the Magness Settlement. Such issuance
       of stock was intended to be a partial recision of earlier transactions
       involving TCI and the Magness Estate. Also on February 9, 1998 and in
       connection with the Magness Settlement, TCI issued 1,339,415 shares of
       TCI Group Series B Stock and 1,531,834 shares of TCI Ventures Group
       Series B Stock to the Estate of Betsy Magness (the first wife of Bob
       Magness) in exchange for an equivalent number of shares of TCI Group
       Series A Stock and TCI Ventures Group Series A Stock, respectively. TCI
       issued the equity securities described in this paragraph pursuant to the
       private placement exemption from the registration requirements of the
       Act provided by Section 4(2) thereof.

       On March 18, 1998, TCI contributed $12,097,963 in cash and issued
       1,242,965 shares of TCI Group Series A Stock to Knight-Ridder
       Cablevision, Inc. in exchange for a 50% partnership interest in TKR
       Cable Partners. Prior to such transaction TCI owned the other 50%
       partnership interest in TKR Cable Partners. TCI issued the equity
       securities described in this paragraph pursuant to the private placement
       exemption from the registration requirements of the Act provided by
       Section 4(2) thereof.






                                      II-4
<PAGE>   183



                           TELE-COMMUNICATIONS, INC.


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

       (a)    Exhibit -

              (27)   Tele-Communications, Inc. Financial Data Schedule

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

<TABLE>
<CAPTION>
                       Date of                  Items
                       Report                  Reported                Financial Statements Filed
                       -------                 --------                --------------------------
              <S>                           <C>                <C>
              February 25, 1998                 Item 5                           None.
              
              March 6, 1998                 Items 2 and 7        Cablevision Systems Corporation
                                                                    Three and nine months ended
                                                                    September 30, 1997 (unaudited)
                                                                    Years ended December 31, 1996, 
                                                                        1995 and 1994
</TABLE>
              
              
              
              

                                      II-5
<PAGE>   184



                                   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:     May 13, 1998               By:    /s/ Leo J. Hindery, Jr.    
                                           -------------------------------------
                                                Leo J. Hindery, Jr.
                                                  President and Chief
                                                    Operating Officer
                                     
                                     
                                     
                                     
Date:     May 13, 1998               By:    /s/ Stephen M. Brett       
                                           -------------------------------------
                                                Stephen M. Brett
                                                  Executive Vice President,
                                                   General Counsel and Secretary
                                     
                                     
                                     
Date:     May 13, 1998               By:    /s/ Bernard W. Schotters   
                                           -------------------------------------
                                                Bernard W. Schotters
                                                 Senior Vice President
                                                  (Principal Financial Officer)
                                     
                                     
                                     
                                     
Date:     May 13, 1998               By:    /s/ Gary K. Bracken 
                                           -------------------------------------
                                                Gary K. Bracken
                                                 Executive Vice President and
                                                  Controller of
                                                  TCI Communications, Inc.
                                                  (Principal Accounting
                                                    Officer)





                                      II-6
<PAGE>   185



                                 EXHIBIT INDEX


The following exhibit is filed herewith (according to the number assigned to it
in Item 601 of Regulation S-K) as noted:


           (27)    Tele-Communications, Inc. Financial Data Schedule