<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
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 No. 0-16784
AMERICAN CABLE TV INVESTORS 5, LTD.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
State of Colorado 84-1048934
------------------------------------ -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5619 DTC Parkway
Englewood, Colorado 80111
---------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 267-5500
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
<PAGE> 2
PART I - FINANCIAL INFORMATION
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------------- --------------
amounts in thousands
<S> <C> <C>
Assets
- - ------
Cash and cash equivalents (note 4) $ 2,006 1,338
Trade and other receivables, net of allowance
for doubtful receivables 396 451
Prepaid expenses 88 124
Investment in Newport News
Cablevision, Ltd. ("Newport News")
(notes 2 and 5) 2,013 --
Property and equipment:
Land 39 39
Cable distribution systems 59,035 57,340
Support equipment 4,640 4,418
--------- --------
63,714 61,797
Less accumulated depreciation 25,004 22,003
--------- --------
38,710 39,794
--------- --------
Franchise costs and other intangibles 75,688 75,688
Less accumulated amortization 42,812 38,638
--------- --------
32,876 37,050
--------- --------
Other assets, net of accumulated amortization 339 385
--------- --------
$ 76,428 79,142
========= ========
</TABLE>
(continued)
I-1
<PAGE> 3
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Balance Sheets (continued)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------------- ---------------
amounts in thousands
<S> <C> <C>
Liabilities and Partners' Equity
- - --------------------------------
Accounts payable $ 22 127
Accrued expenses:
Franchise fees 385 523
Other 1,255 1,159
-------- ---------
1,640 1,682
-------- ---------
Subscriber advance payments and converter
deposits 1,053 1,323
Amounts due to related parties (note 7) 9,334 5,264
Debt (note 6) 2,000 8,700
Negative investment in Newport News
(notes 2 and 5) -- 4,206
-------- ---------
Total liabilities 14,049 21,302
-------- ---------
Partners' equity (deficit):
General partner (2,678) (2,724)
Limited partners 65,057 60,564
-------- ---------
Total partners' equity 62,379 57,840
-------- ---------
Commitments (note 7)
$ 76,428 79,142
======== =========
</TABLE>
See accompanying notes to financial statements.
I-2
<PAGE> 4
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------ ----------------------------
1996 1995 1996 1995
----------- ------------ ----------- -----------
amounts in thousands,
except unit amounts
<S> <C> <C> <C> <C>
Revenue $ 7,019 6,446 13,744 12,563
Operating costs and expenses:
Programming (primarily from
related parties - note 7) 1,415 1,254 2,784 2,371
Operating (including allocations
from related parties - note 7) 772 705 1,459 1,316
Selling, general and administrative
(including charges from related
parties - note 7) 2,355 2,202 4,580 4,052
Depreciation and amortization 3,586 3,634 7,221 7,252
------- ------- -------- -------
Total operating expenses 8,128 7,795 16,044 14,991
------- ------- ------- -------
Operating loss (1,109) (1,349) (2,300) (2,428)
Other income (expense):
Interest expense (77) (245) (197) (501)
Interest income 26 15 455 15
Other income -- -- -- 199
Share of earnings (losses)
of Newport News (notes 2 and 5) 8 (129) 39,915 (210)
------- ------- ------- -------
Net earnings (loss) $ (1,152) (1,708) 37,873 (2,925)
========= ======= ======= =======
Net earnings (loss) per limited
partnership unit (note 3) $ (5.70) (8.45) 187.47 (14.48)
========= ======= ======= =======
Limited partnership units outstanding 200,005 200,005 200,005 200,005
========= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
I-3
<PAGE> 5
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Statement of Partners' Equity
Six months ended June 30, 1996
(unaudited)
<TABLE>
<CAPTION>
General Limited
partner partners Total
--------- -------- ------
amounts in thousands
<S> <C> <C> <C>
Balance at January 1, 1996 $ (2,724) 60,564 57,840
Distribution (333) (33,001) (33,334)
Net earnings 379 37,494 37,873
--------- ---------- --------
Balance at June 30, 1996 $ (2,678) 65,057 62,379
========= ========== ========
</TABLE>
See accompanying notes to financial statements.
I-4
<PAGE> 6
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------
1996 1995
--------- --------
amounts in thousands
(see note 4)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 37,873 (2,925)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 7,221 7,252
Share of (earnings) losses of Newport News (39,915) 210
Net change in receivables, prepaid
expenses and other assets 91 (227)
Net change in accounts payable,
accrued expenses, subscriber
advance payments and converter
deposits, and amounts due
to related parties 3,653 1,793
--------- --------
Net cash provided by operating activities 8,923 6,103
--------- --------
Cash flows from investing activities:
Capital expended for property and equipment (1,925) (2,179)
Distribution from Newport News 33,696 --
Other investing activities 8 44
--------- --------
Net cash provided by (used in) investing activities 31,779 (2,135)
--------- --------
Cash flows from financing activities:
Repayments of debt (6,700) (2,500)
Distributions to partners (33,334) --
--------- --------
Net cash used in financing activities (40,034) (2,500)
--------- --------
Net increase in cash and cash
equivalents 668 1,468
Cash and cash equivalents:
Beginning of period 1,338 599
--------- --------
End of period $ 2,006 2,067
========= ========
</TABLE>
See accompanying notes to financial statements.
I-5
<PAGE> 7
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
June 30, 1996
(unaudited)
(1) Basis of Financial Statement Preparation
The accompanying financial statements of American Cable TV Investors
5, Ltd. (the "Partnership" or "ACT 5") are unaudited. In the opinion
of management, all adjustments (consisting only of normal recurring
accruals) have been made which are necessary to present fairly the
financial position of the Partnership as of June 30, 1996 and the
results of its operations for the six months ended June 30, 1996 and
1995. The results of operations for any interim period are not
necessarily indicative of the results for the entire year.
The Partnership and American Cable TV Investors 4, Ltd. ("ACT 4"), an
affiliated partnership, have 40% and 60% ownership interests in
Newport News, respectively.
The Partnership's general partner is IR-TCI Partners V, L.P.
("IR-TCI"), a Colorado limited partnership. At December 31, 1995, the
two general partners of IR-TCI were TCI Ventures Five, Inc. ("TCIV
5"), a subsidiary of TCI Cablevision Associates, Inc. ("Cablevision"),
and Integrated Cable Corp. V. ("ICC"), an indirect subsidiary of
Presidio Capital Corp. ("Presidio"). The limited partner of IR-TCI is
Cablevision Equities VI, a limited partnership whose partners are
certain former officers and key employees of the predecessor of
Cablevision. Cablevision, an indirect majority-owned subsidiary of
Tele-Communications, Inc. ("TCI"), is the managing agent of the
Partnership. By letter dated January 17, 1996, ICC advised TCIV 5 of
its withdrawal as a general partner of IR-TCI, the general partner of
ACT 5. In accordance with the terms of the IR-TCI Limited Partnership
Agreement, TCIV 5 has elected to continue the business of IR-TCI. The
withdrawal of ICC is not expected to have a material effect on the
Partnership's results of operations or financial condition.
These financial statements should be read in conjunction with the
financial statements and related notes thereto included in the
Partnership's December 31, 1995 Annual Report on Form 10-K.
In March of 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for
The Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of ("Statement No. 121"), effective for fiscal years
beginning after December 15, 1995. Statement No. 121 requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of.
(continued)
I-6
<PAGE> 8
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
The Partnership adopted Statement No. 121 effective January 1, 1996.
Such adoption did not have a significant effect on the financial
position or results of operations of the Partnership. The Partnership
periodically reviews the carrying amount of its long-lived assets to
determine whether current events or circumstances warrant adjustments
to such carrying amounts. The Partnership considers historical and
expected future net operating losses to be its primary indicators of
potential impairment. Assets are grouped and evaluated for impairment
at the lowest level for which there are identifiable cash flows that
are largely independent of the cash flows of other groups of assets
("Assets"). The Partnership deems Assets to be impaired if the
Partnership is unable to recover the carrying value of its Assets over
their expected remaining useful life through a forecast of undiscounted
future operating cash flows directly related to the Assets. If Assets
are deemed to be impaired, the loss is measured as the amount by which
the carrying amount of the Assets exceeds their fair values. The
Partnership generally measures fair value by considering sales prices
for similar assets or by discounting estimated future cash flows.
Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly
from such estimates.
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 revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(2) Asset Sales
On January 1, 1996, Newport News sold its cable television system (the
"Newport News System") to Cox Communications Rhode Island, Inc.
(formerly Cox Cable Hampton Roads, Inc. ("Cox")), an unaffiliated third
party, for cash proceeds of $121,886,000 (the "Newport News Sale").
Pursuant to the terms of the sale agreement, $5,000,000 of the sales
price is being held in escrow and is subject to any indemnifiable
claims made by Cox through September 27, 1996. The Partnership has a
40% ownership interest in Newport News. In connection with the
January 1996 Newport News Sale, Newport News used most of the cash
proceeds to (i) repay bank debt and related accrued interest of
$24,306,000, (ii) pay disposition fees of $3,668,000 ($2,751,000 to
Cablevision and $917,000 to Presidio) and (iii) make distributions to
the Partnership and ACT 4 of $33,696,000 and $50,544,000,
respectively. The Partnership used most of its share of the net
proceeds from the Newport News Sale to make distributions on March 29,
1996 to its general and limited partners of $333,000 ($266,000 to
Cablevision and $67,000 to Presidio) and $33,001,000 ($165 per Unit
for limited partners of record as of January 1, 1996), respectively.
(continued)
I-7
<PAGE> 9
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
The Partnership has selected a broker to solicit offers for the
purchase of its cable television systems located in and around (i)
Shelbyville and Manchester, Tennessee ("Southern Tennessee"), (ii)
Riverside, California ("Riverside"), (iii) St. Mary's County, Maryland
("St. Mary's") and (iv) Lower Delaware ("Lower Delaware"). No
prediction can be made as to whether this action will result in the
sale of the Partnership's cable television systems or as to the timing
or terms of any such sales. The following table sets forth the assets
(exclusive of certain assets not directly allocable to the
Partnership's cable television systems) and revenue for each of the
Partnership's cable television systems:
<TABLE>
<CAPTION>
June 30, December 31,
Total Assets 1996 1995
------------ ----------- ------------
<S> <C> <C>
Southern Tennessee $ 5,313 6,689
Riverside 20,271 23,281
St. Mary's 23,420 23,386
Lower Delaware 25,411 25,786
-------- -------
$ 74,415 79,142
======== =======
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30,
-----------------------------
Revenue 1996 1995
------- ---------- ---------
<S> <C> <C>
Southern Tennessee $ 1,936 1,839
Riverside 4,079 3,974
St. Mary's 3,321 3,010
Lower Delaware 4,408 3,740
--------- ------
$ 13,744 12,563
========= ======
</TABLE>
(3) Allocation of Net Earnings and Net Losses
Net earnings and net losses shall be allocated 99% to the limited
partners and 1% to the general partner and distributions of Cash from
Operations, Sales or Refinancings (all as defined in the Partnership's
limited partnership agreement) shall be distributed 99% to the limited
partners and 1% to the general partner until cumulative distributions
to the limited partners equal the limited partners' aggregate
contributions, plus 6% per annum ("Payback"). After the limited
partners have received distributions equal to Payback, the allocations
of net earnings, net losses and credits, and distributions of Cash
from Operations, Sales or Refinancings shall be 25% to the general
partners and 75% to the limited partners.
Net (earnings) loss per limited partnership unit is calculated by
dividing net earnings (loss) attributable to the limited partners by
the number of limited partnership units outstanding during each
period.
(4) Supplemental Disclosure of Cash Flow Information
The Partnership considers investments with initial maturities of six
months or less to be cash equivalents. At June 30, 1996, $801,000 of
the Partnership's cash and cash equivalents was invested in money
market funds.
(continued)
I-8
<PAGE> 10
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
Cash paid by the Partnership for interest was $208,000 and $588,000
during the six months ended June 30, 1996 and 1995, respectively.
(5) Investment in Newport News
Net earnings and net losses of Newport News are allocated and
distributions are made to the Partnership and to ACT 4 in the ratio of
their respective ownership interests. See note 2.
(6) Debt
The Partnership's bank credit facility provided for a revolving line
of credit of $15,000,000 at June 30, 1996. Such revolving line of
credit is reduced quarterly beginning March 31, 1998 through December
31, 1999. Interest is paid quarterly at variable rates (6.4% at June
30, 1996) depending on certain financial ratios. The agreement
contains several covenants whereby the Partnership agrees to the
maintenance of certain cash flow ratios and limitations on other
indebtedness and distributions. The credit agreement is secured by
substantially all of the Partnership's assets.
In addition, the Partnership is required to pay an annual commitment
fee of 3/8%, payable quarterly, of the unborrowed funds, and a
quarterly agent's fee. Such fees were not significant during the six
months ended June 30, 1996 and 1995.
(7) Transactions with Related Parties
The Partnership purchases programming services from affiliates of TCI.
The charges, which generally approximate such TCI affiliates' cost and
are based upon the number of subscribers served by the Partnership,
aggregated $2,672,000 and $2,182,000 during the six months ended June
30, 1996 and 1995, respectively.
The Partnership has a management agreement with Cablevision, whereby
Cablevision is responsible for performing all services necessary for
the management of the Partnership's cable television systems. As
compensation for these services, the Partnership pays a management fee
equal to 6% of gross revenue, as defined in the management agreement.
Such fees amounted to $800,000 and $749,000 for the six months ended
June 30, 1996 and 1995, respectively.
(continued)
I-9
<PAGE> 11
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
The Partnership also reimburses Cablevision for direct out-of-pocket
and indirect expenses allocable to the Partnership and for certain
personnel employed on a full- or part-time basis to perform
accounting, marketing, technical or other services. Such
reimbursements aggregated $238,000 and $237,000 for the six months
ended June 30, 1996 and 1995, respectively.
Riverside shares office facilities, personnel and certain distribution
assets with certain affiliated cable television systems. As a result,
the majority of Riverside's operating and administrative salaries and
expenses are allocated based upon Riverside's estimated utilization of
such office facilities and personnel. During the six months ended
June 30, 1996 and 1995, Riverside's operating and administrative
salaries and expenses aggregated $1,200,000 and $1,292,000,
respectively.
ACT 5 is also obligated to pay a disposition fee to Cablevision equal
to 3% of the gross proceeds from the sale of any cable television
system owned by ACT 5. This fee is due and payable at the time the
cable television system is sold if the consideration received is
greater than its adjusted cost, as defined in ACT 5's limited
partnership agreement. To the extent ACT 5 at its termination has not
made distributions to the limited partners equal to Payback, the net
disposition fees received by Cablevision will be returned to ACT 5 to
the extent necessary to allow ACT 5 to make distributions equal to
Payback. In the event that the disposition fees refunded by
Cablevision are insufficient to provide Payback, Cablevision will not
be obligated to make up the deficiency. See notes 2 and 3.
Amounts due to related parties, which represent non-interest-bearing
payables to TCI and its affiliates, consist of the net effect of cash
advances and certain intercompany expense allocations.
I-10
<PAGE> 12
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion should be read in conjunction with the
accompanying financial statements and the Partnership's December 31, 1995
Annual Report on Form 10-K.
General
Asset Sales. On January 1, 1996, Newport News sold the Newport
News System to Cox, an unaffiliated third party, for cash proceeds of
$121,886,000. Pursuant to the terms of the sale agreement, $5,000,000 of the
sales price is being held in escrow and is subject to any indemnifiable claims
made by Cox through September 27, 1996. The Partnership has a 40% ownership
interest in Newport News. In connection with the January 1996 Newport News
Sale, Newport News used most of the net cash proceeds to (i) repay bank debt
and related accrued interest of $24,306,000, (ii) pay disposition fees of
$3,668,000 ($2,751,000 to Cablevision and $917,000 to Presidio) and (iii) make
distributions to the Partnership and ACT 4 of $33,696,000 and $50,544,000,
respectively. The Partnership used most of its share of the net proceeds from
the Newport News Sale to make distributions on March 29, 1996 to its general
and limited partners of $333,000 ($266,000 to Cablevision and $67,000 to
Presidio) and $33,001,000 ($165 per Unit for limited partners of record as of
January 1, 1996), respectively.
The Partnership has selected a broker to solicit offers for the
purchase of Southern Tennessee, Riverside, St. Mary's and Lower Delaware. No
prediction can be made as to whether this action will result in the sale of the
Partnership's cable television systems or as to the timing or terms of any such
sales.
Regulation. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"). In 1993 and 1994, the Federal Communications Commission ("FCC") adopted
certain rate regulations required by the 1992 Cable Act and imposed a
moratorium on certain rate increases. As a result of such actions, the
Partnership'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. The regulations established bench mark
rates in 1993, which were further reduced in 1994, to which the rates charged
by cable operators for Regulated Services were required to conform.
The Partnership reduced its rates in 1993 and 1994 and limited its
rate increase in 1995 in response to FCC regulations. The Partnership believes
that it has complied, in all material respects, with the provisions of the 1992
Cable Act, including its rate setting provisions. However, the Partnership's
rates for Regulated Services are subject to review by the FCC, if a complaint
has been filed, or by the appropriate franchise authority, if such authority
has been certified. If, as a result of the review process, a system cannot
substantiate its rates, it could be required to retroactively reduce its rates
to the appropriate benchmark and refund the excess portion of rates received.
Any refunds of the excess portion of tier service rates would be retroactive to
the date of complaint. Any refunds of the excess portion of all other
Regulated Service rates would be retroactive to one year prior to the
implementation of the rate reductions.
(continued)
I-11
<PAGE> 13
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
On February 8, 1996, the Telecommunications Act of 1996 (the "1996
Telecom Act") was signed into law. Because the 1996 Telecom Act does not
deregulate cable programming services tier rates until 1999 (and basic service
tier rates will remain regulated thereafter), the Partnership believes that the
1993 and 1994 rate regulations have had and will continue to have a material
adverse effect on its results of operations.
Competition. Since 1992, most of Riverside's service areas have been
subject to competition from an MMDS operator (the "California MMDS Operator").
The Partnership believes that the California MMDS Operator's service is
available to over 50% of the households in Riverside's service areas and that
the California MMDS Operator does not presently serve more than 15% of the
households in any given franchise area. Although the above-described
competition could have an adverse effect on the Partnership's financial
condition and results of operations, the Partnership is unable to predict the
extent of any such effect at this time. For additional information concerning
the revenue and subscriber bases of Riverside, see "Partnership's Cable
Systems" below.
In addition to MMDS, the Partnership competes with other distributors
of the same or similar video programming as that offered by its cable systems.
One such competitor is the direct broadcast satellite business ("DBS"). DBS
services are offered directly to subscribers owning home satellite dishes that
vary in size depending upon the power of the satellite. At least two DBS
operators offer nationwide video services that can be received by a satellite
dish that measures approximately eighteen inches in diameter. DBS operators can
acquire the right to distribute over satellite all of the significant cable
television programming currently available to the Partnership's cable systems.
As the cost of equipment needed to receive these transmissions declines, it is
expected that the Partnership will experience increased and substantial
competition from DBS operators. In this regard, DBS service is now available
within the service areas of all of the Partnership's cable television systems.
The Partnership cannot predict what impact, if any, such DBS services might have
in the future.
(continued)
I-12
<PAGE> 14
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
Existing law precludes rate regulation wherever a cable operator faces
"effective competition." Notwithstanding the existence of the above-described
competition, the Partnership currently believes that none of its cable
television systems are subject to "effective competition" as defined in the
1992 Cable Act. In the event that any provider of video programming were to
provide service to more than 15% (and be available to more than 50%) of the
households in a given franchise area, such franchise area would be subject to
"effective competition" and accordingly, would not be subject to rate
regulation under the 1992 Cable Act. However, the 1996 Telecom Act expands the
definition of effective competition to include any franchise area where a local
exchange carrier (or affiliate) provides video programming services to
subscribers by any means other than through direct broadcast satellite. There
is no penetration minimum for the local exchange carrier to qualify as an
effective competitor, but it must provide "comparable" programming services (12
channels including one broadcast) in the franchise area. The California MMDS
Operator was acquired by the local exchange carrier in July 1995. The FCC is
conducting a rulemaking to clarify the statutory language with respect to the
expanded definition of "effective competition." If the FCC rules were to
indicate that the California MMDS Operator provides "effective competition" to
Riverside, the Partnership would take the appropriate steps to attempt to
deregulate Riverside's service rates. Even if Riverside's rates were to be
deregulated, the Partnership believes that competitive and other factors may
limit Riverside's ability to increase its service rates.
(continued)
I-13
<PAGE> 15
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
The 1996 Telecom Act eliminated the statutory and regulatory
restrictions that prevented telephone companies from competing with cable
operators for the provision of video services. The 1996 Telecom Act allows
local telephone companies, including the regional bell operating companies, to
compete with cable television operators both inside and outside their telephone
service areas. The Partnership expects that it will face substantial
competition from telephone companies for the provision of video services. The
Partnership assumes that all major telephone companies have already entered or
soon will enter the business of providing video services. The major telephone
companies have greater financial resources than the Partnership, and the 1992
Cable Act ensures that telephone company providers of video services will have
access to acquiring all of the significant cable television programming
services. Additionally, the 1996 Telecom Act eliminates certain federal
restrictions on utility holding companies and thus frees all utility companies
to provide cable television services. The Partnership expects this could result
in another source of competition in the delivery of video services. The
Partnership is aware that one regional bell operating company has completed
installation of a fiber optic network within Lower Delaware's franchise areas.
Based on the foregoing, the Partnership continues to believe that its cable
systems will experience competition from alternative providers of video
programming services in the future. The Partnership presently cannot predict
the effect that any such competition might have on its financial condition or
results of operations.
The Partnership's cable television systems are presently operating in
an external environment that is characterized by rapidly changing competitive,
regulatory, technological and economic factors. Although the Partnership
generally is unable to predict the effect that such changing factors might have
on its financial condition and results of operations, the Partnership does
believe that the continued evolution of such factors could place the
Partnership at a competitive disadvantage if it were not to implement certain
technological improvements to its cable television systems. This is
particularly true of the cable television systems operated by Lower Delaware
and St. Mary's, which systems (i) offer significantly fewer channels, (ii)
experience higher maintenance costs and (iii) provide a lower quality picture
than is currently attainable by state-of-the-art cable television systems and
DBS. The Partnership anticipates that any technological improvements generally
would include the replacement of coaxial trunk cable with optical fiber and the
development of digital compression technology. The Partnership's preliminary
analyses indicate that the cost of technological improvements could be
significant. The Partnership would only consider proceeding with the
implementation of technological improvements if it believed that such an
investment would be prudent based upon (i) the anticipated holding period for
the applicable cable television system, (ii) franchise requirements and (iii)
other relevant factors. As describe above under "Asset Sales," the Partnership
has selected a broker to solicit offers for the purchase of its cable
television systems. In this regard, the Partnership would only consider
proceeding with such technological improvements in the event that (i) suitable
buyers could not be located for its cable television systems or (ii)
technological improvements were to be mandated by franchise authorities. See
"Material Changes in Financial Condition" below.
(continued)
I-14
<PAGE> 16
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
Partnership's Cable Systems. The following table sets forth
information for the Partnership's cable systems for the periods indicated
(amounts in thousands):
<TABLE>
<CAPTION>
June 30,
-------------------------
Basic Subscribers 1996 1995
----------------- ------- --------
<S> <C> <C>
Southern Tennessee 11.4 11.1
Riverside (1) 19.3 19.1
St. Mary's 18.1 17.3
Lower Delaware (2) 28.7 27.6
------- -------
77.5 75.1
======= =======
Premium Subscriptions (3)
---------------------
Southern Tennessee 8.2 8.0
Riverside (1) 22.0 22.0
St. Mary's 21.6 16.2
Lower Delaware (2) 22.4 14.7
------- -------
74.2 60.9
======= =======
Six months ended
June 30,
--------------------------
Revenue (4) 1996 1995
------- --------- ---------
Southern Tennessee $ 1,936 1,839
Riverside (1) 4,079 3,974
St. Mary's 3,321 3,010
Lower Delaware 4,408 3,740
-------- --------
$13,744 12,563
======= ========
</TABLE>
- - ----------------------------
(1) As described under "Competition" above, Riverside is subject
to competition from the California MMDS Operator.
Additionally, the economy within Riverside's service areas has
been adversely affected by military base closures and
downsizings. Although the foregoing factors could have an
adverse effect on Riverside's financial condition and results
of operations, the Partnership is unable to predict the extent
of any such effect at this time.
(continued)
I-15
<PAGE> 17
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
(2) Lower Delaware's basic subscribers and premium subscriptions
are subject to seasonal fluctuations and generally are higher
during the vacation months of May through October as compared
to November through April.
(3) A basic subscriber may subscribe to one or more premium
services and the number of premium services reflected
represents the total number of such subscriptions. The 13,300
or 22% increase in the Partnership's consolidated 1996 premium
subscriptions is comprised of a 6,600 increase in STARZ!
subscriptions, a 5,300 increase in "ENCORE" subscriptions and
a 1,400 increase in traditional premium subscriptions.
Fluctuations in the Partnership's premium subscriptions are
generally the result of the timing of promotional campaigns
that involve the packaging of premium services at a lower
per-unit price than would otherwise be paid if such services
were purchased separately. As such packaged prices expire, the
Partnership typically experiences reductions in the number of
its traditional premium subscriptions. The monthly charge for
"ENCORE" and STARZ!, which are indirectly owned by TCI,
generally ranges from $1.00 to $5.00, as compared to $9.00 to
$13.00 for other premium services.
(4) For additional information concerning the Partnership's
revenue, see "Material Changes in Results of Operations"
below.
Operating income before depreciation, amortization and management fees
("Operating Cash Flow") is a measure of value and borrowing capacity within the
cable television industry. The Partnership's Operating Cash Flow increased 3%
from $5,573,000 in 1995 to $5,721,000 in 1996. Such increase is the net
result of the revenue and expense variances discussed in "Material Changes in
Results of Operations" below. During the six months ended June 30, 1996, Lower
Delaware, St. Mary's, Riverside and Southern Tennessee contributed $2,133,000
(37%), $1,336,000 (24%), $1,264,000 (22%) and $988,000 (17%), respectively, to
the aggregate Operating Cash Flow of the Partnership. The foregoing amounts,
which include allocations of certain Partnership expenses, are not intended to
be a substitute for a measure of performance prepared in accordance with
generally accepted accounting principles and should not be relied upon as such.
At June 30, 1996, Southern Tennessee, Riverside, St. Mary's, and Lower
Delaware passed approximately 14,500, 31,100, 26,500 and 34,700 homes,
respectively.
(continued)
I-16
<PAGE> 18
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Material Changes in Results of Operations
Revenue increased 9% during the six month period ended June 30, 1996,
as compared to the corresponding prior year amount. Such increase is due
primarily to (i) a 5% increase in the weighted average rate received for
Regulated Services (see related discussion below), (ii) a 2% increase in the
average number of basic subscribers and (iii) a 15% increase in the average
number of premium subscriptions. The increase in the weighted average rate
received for Regulated Services is attributable to the implementation during the
first half of 1996, of rate increases by three of the Partnership's four cable
television systems. The increase in the average number of premium subscriptions
was partially offset by decreases in the average monthly price received for each
premium subscription. For additional information, see "General - Partnership's
Cable Systems and Regulation" above.
Programming expense increased 17% during the six month period ended
June 30, 1996, as compared to the corresponding prior year amount. Such
increase is primarily attributable to higher basic programming rates and an
increase in the average number of subscribers as noted above. The Partnership
cannot determine whether and to what extent increases in the cost of
programming will affect its future operating costs. However, such programming
costs have increased at a greater percentage than increases in revenue from
Regulated Services. The Partnership's regulated cable television systems
increased their rates for Regulated Services in June 1996.
Operating costs increased 11% during the six month period ended June
30, 1996, as compared to the corresponding prior year amount. Such increase is
primarily attributable to increased labor costs.
Selling, general and administrative ("SG&A") expenses increased 13%
during the six months ended June 30, 1996, as compared to the corresponding
prior year period. Such increase is the result of (i) increased franchise fees
(which are calculated as a percentage of revenue), (ii) higher marketing and
advertising costs and (iii) other individually insignificant increases in
certain components of SG&A expenses.
Interest income increased $440,000 during the six months ended June
30, 1996, as compared to the corresponding prior year period. Such increase is
due to a higher amount of available cash held for investment. The increase in
cash held for investment is attributable to ACT 5's share of proceeds from the
Newport News Sale. See note 2 to the accompanying financial statements.
Other income in 1995 represents a refund of a portion of the state
sales and use tax that was paid by the Partnership in connection with the 1992
acquisitions of St. Mary's and Lower Delaware.
Material Changes in Financial Condition
During the six months ended June 30, 1996, the Partnership used cash
provided by operating activities and investing activities of $8,923,000 and
$31,779,000, respectively, to fund financing activities of $40,034,000 and an
increase in cash of $668,000. See the Partnership's statements of cash flows
included in the accompanying financial statements.
(continued)
I-17
<PAGE> 19
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Material Changes in Financial Condition (continued)
The Partnership's bank credit facility provides for a revolving line
of credit of $15,000,000. At June 30, 1996, $13,000,000 of the facility was
unused. Such revolving line of credit is reduced quarterly beginning March 31,
1998 through December 31, 1999. Although the Partnership was in compliance
with the facility's restrictive covenants at June 30, 1996, additional
borrowings under the facility are subject to the Partnership's continuing
compliance with the restrictive covenants (which include the maintenance of
certain ratios of total debt to cash flow and cash flow to debt service, as
defined). See note 6 to the accompanying financial statements.
The Partnership estimates that during 1996 it will spend approximately
$8,715,000 for capital expenditures (of which approximately $1,025,000,
$540,000, $3,450,000 and $3,700,000 relate to Riverside, Southern Tennessee,
Lower Delaware, and St. Mary's, respectively). Such estimated capital
expenditures do not include any costs associated with the implementation of
significant technological improvements to the Partnership's cable television
systems, as previously discussed under "General - Competition". During the six
months ended June 30, 1996, the Partnership expended $1,925,000 for capital
expenditures.
The Partnership anticipates that its sources of liquidity will be
sufficient to fund estimated capital expenditures (exclusive of any significant
technological improvements, as described under "General - Competition"),
service outstanding debt and meet its other liquidity requirements.
I-18
<PAGE> 20
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
PART II - OTHER INFORMATION
Item 5. Effective June 25, 1996, Arthur C. Belanger and Paul F. Schonewolf
were elected to the Board of Directors of TCI Ventures Five, Inc.
Stephen M. Brett and Marvin Jones continue to serve on the Board of
Directors of TCI Ventures Five, Inc.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended June 30, 1996 -
none
</TABLE>
II-1
<PAGE> 21
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.
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
By: IR-TCI PARTNERS V, L.P.,
Its General Partner
By: TCI VENTURES FIVE, INC.,
A General Partner
Date: August 14, 1996 By: /s/ Gary K. Bracken
-----------------------------------
Gary K. Bracken
Vice President and Controller
(Principal Accounting Officer)
II-2
<PAGE> 22
EXHIBIT INDEX
Exhibit No. Description
- - ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,006
<SECURITIES> 0
<RECEIVABLES> 396
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 63,714
<DEPRECIATION> 25,004
<TOTAL-ASSETS> 76,428
<CURRENT-LIABILITIES> 0
<BONDS> 2,000
0
0
<COMMON> 0
<OTHER-SE> 62,379
<TOTAL-LIABILITY-AND-EQUITY> 76,428
<SALES> 0
<TOTAL-REVENUES> 13,744
<CGS> 0
<TOTAL-COSTS> 4,243
<OTHER-EXPENSES> 7,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 197
<INCOME-PRETAX> 37,873
<INCOME-TAX> 0
<INCOME-CONTINUING> 37,873
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,873
<EPS-PRIMARY> 187.47<F1>
<EPS-DILUTED> 0
<FN>
<F1>EPS-PRIMARY REPRESENTS NET EARNINGS PER LIMITED PARTNERSHIP UNIT.
</FN>
</TABLE>
