<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended March 31, 1997
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>
PART I - FINANCIAL INFORMATION
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Balance Sheets
(unaudited)
(see note 2)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
Assets amounts in thousands
- ------
<S> <C> <C>
Cash and cash equivalents (note 4) $ 5,262 4,729
Trade and other receivables, net of
allowance for doubtful receivables 784 480
Prepaid expenses 149 93
Property and equipment:
Land 39 39
Cable distribution systems 62,377 62,216
Support equipment 4,929 4,876
------- ------
67,345 67,131
Less accumulated depreciation 29,716 28,399
------- ------
37,629 38,732
------- ------
Franchise costs and other intangibles 75,688 75,688
Less accumulated amortization 48,769 46,811
------- ------
26,919 28,877
------- ------
Other assets, net of accumulated 277 298
amortization ------- ------
$71,020 73,209
======= ======
(continued)
</TABLE>
I-1
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Balance Sheets (continued)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
amounts in thousands
Liabilities and Partners' Equity
- --------------------------------
Cash overdraft $ 955 1,710
Accounts payable 70 162
Accrued expenses:
Franchise fees 291 618
Other 375 616
------- ------
666 1,234
------- ------
Subscriber advance payments and
converter deposits 1,113 1,015
Amounts due to related parties (note 6) 1,127 1,451
Debt (note 5) 8,000 7,500
------- ------
Total liabilities 11,931 13,072
------- ------
Partners' equity (deficit):
General partner (2,711) (2,701)
Limited partners 61,800 62,838
------- ------
Total partners' equity 59,089 60,137
------- ------
Commitments (note 6)
$71,020 73,209
======= ======
</TABLE>
See accompanying notes to financial statements.
I-2
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Statements of Operations
(unaudited)
(see note 2)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1997 1996
------------ ---------
amounts in thousands,
except unit amounts
<S> <C> <C>
Revenue $ 7,123 6,725
Operating costs and expenses:
Programming (primarily from
related parties - note 6) 1,554 1,369
Operating (including allocations
from related parties - note 6) 728 687
Selling, general and administrative
(including charges from related
parties - note 6) 2,471 2,225
Depreciation and amortization 3,295 3,635
-------- -------
Total operating expenses 8,048 7,916
-------- -------
Operating loss (925) (1,191)
Other income (expense):
Interest expense (135) (120)
Interest income 12 429
Share of earnings of Newport News
(note 2) -- 39,907
-------- -------
Net earnings (loss) $ (1,048) 39,025
======== =======
Earnings (loss) per limited partnership
unit (note 3) $ (5.19) 193.17
======== =======
Limited partnership units outstanding 200,005 200,005
======== =======
</TABLE>
See accompanying notes to financial statements.
I-3
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Statement of Partners' Equity
Three months ended March 31, 1997
(unaudited)
(see note 2)
<TABLE>
<CAPTION>
General Limited
partner partners Total
--------- --------- -------
amounts in thousands
<S> <C> <C> <C>
Balance at January 1, 1997 $(2,701) 62,838 60,137
Net loss (10) (1,038) (1,048)
------- ------ ------
Balance at March 31, 1997 $(2,711) 61,800 59,089
======= ====== ======
</TABLE>
See accompanying notes to financial statements.
I-4
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Statements of Cash Flows
(unaudited)
(see note 2)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1997 1996
----------- ---------
amounts in thousands
(see note 4)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(1,048) 39,025
Adjustments to reconcile net earnings
(loss) to net cash provided
by operating activities:
Depreciation and amortization 3,295 3,635
Share of earnings of Newport News -- (39,907)
Net change in receivables, prepaid
expenses and other assets (360) 187
Net change in accounts payable,
accrued expenses, subscriber
advance payments and converter
deposits, and amounts due
to related parties (886) 2,480
------- -------
Net cash provided by operating
activities 1,001 5,420
------- -------
Cash flows from investing activities:
Capital expended for property and
equipment (213) (726)
Distribution from Newport News -- 33,696
Other investing activities -- 6
------- -------
Net cash provided by (used in)
investing activities (213) 32,976
------- -------
Cash flows from financing activities:
Borrowings of debt 1,000 --
Repayments of debt (500) (6,400)
Change in cash overdraft (755) --
Distributions to partners -- (33,334)
------- -------
Net cash used in financing
activities (255) (39,734)
------- -------
Net increase (decrease) in cash
and cash equivalents 533 (1,338)
Cash and cash equivalents:
Beginning of period 4,729 1,338
------- -------
End of period $ 5,262 --
======= =======
</TABLE>
See accompanying notes to financial statements.
I-5
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
March 31, 1997
(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 March 31, 1997 and the results of its operations
for the three months ended March 31, 1997 and 1996. The results of
operations for any interim period are not necessarily indicative of the
results for the entire year.
These financial statements should be read in conjunction with the financial
statements and related notes thereto included in the Partnership's December
31, 1996 Annual Report on Form 10-K.
The Partnership and American Cable TV Investors 4, Ltd. ("ACT 4"), an
affiliated partnership, had 40% and 60% ownership interests in Newport
News, respectively. As a result of the sale of its cable television system
on January 1, 1996, Newport News was liquidated during the fourth quarter
of 1996.
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. (together with its
consolidated subsidiaries, "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 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.
(continued)
I-6
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to 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.
(2) Asset Sales
-----------
On January 1, 1996, Newport News sold 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"). The Partnership had a 40% ownership interest in
Newport News. Accordingly, during 1996 the Partnership received
$35,789,000 of the net cash proceeds (after satisfaction of Newport News'
transaction costs and liabilities) from the Newport News Sale. On March
29, 1996, the Partnership's share of the cash proceeds from the sale of the
Newport News System was used to fund a distribution to ACT 5's limited
partners (the "Limited Partners") of $165 per Unit.
In connection with the 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 to Cablevision and
(iii) make distributions to the Partnership and ACT 4 of $35,789,000 and
$53,684,000, respectively. The Partnership used most of its share of the
net proceeds from the Newport News Sale to make distributions in 1996 to
Presidio, TCIV 5 and the Limited Partners of $67,000, $266,000 and
$33,001,000 ($165 per Unit for Limited Partners of record as of January 1,
1996), respectively.
At March 31, 1997, the Partnership owned four cable television systems that
were located in and around (i) Shelbyville and Manchester, Tennessee
("Southern Tennessee" or the "Southern Tennessee System"), (ii) Riverside,
California ("Riverside" or the "Riverside System"), (iii) St. Mary's
County, Maryland ("St. Mary's" or the "St. Mary's System") and (iv) Lower
Delaware ("Lower Delaware" or the "Lower Delaware System").
(continued)
I-7
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
The following table sets forth the assets and revenue for each of the
Partnership's cable television systems:
<TABLE>
<CAPTION>
March 31, December 31,
------------ --------------
Total Assets 1997 1996
- ------------ ------------ --------------
<S> <C> <C>
Southern Tennessee $ 5,431 6,014
Riverside 18,675 19,490
St. Mary's 24,177 24,498
Lower Delaware 21,964 22,426
------- ------
70,247 72,428
======= ======
Three months ended March 31,
----------------------------
Revenue 1997 1996
- ------- ------- ------
Southern Tennessee $ 990 950
Riverside 2,056 2,038
St. Mary's 1,858 1,599
Lower Delaware 2,219 2,138
------- ------
$ 7,123 6,725
======= ======
</TABLE>
On April 1, 1997, the Partnership sold the Southern Tennessee System to an
unaffiliated third party for a preliminary adjusted sales price of $19,507,000
(the "Southern Tennessee Sale"). Pursuant to the asset purchase agreement for
the Southern Tennessee Sale, $494,000 of such sales price has been placed in
escrow and will be subject to indemnifiable claims through March 31, 1998.
On April 16, 1997, the Partnership sold the St. Mary's System to an unaffiliated
third party for a preliminary adjusted sales price of $30,907,000 (the "St.
Mary's Sale"). Pursuant to the asset purchase agreement for the St. Mary's
System, $766,000 has been placed in escrow and will be subject to indemnifiable
claims through April 15, 1998. The St. Mary's Sale and the Southern Tennessee
Sale are collectively referred to herein as the "Consummated Sales."
(continued)
I-8
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
In addition, the Partnership has entered into an agreement dated December 24,
1996 that provides for the sale of the Lower Delaware System to an unaffiliated
third party for a cash sales price of $43,100,000 subject to certain adjustments
(the "Proposed Lower Delaware Sale"). Pursuant to the asset purchase agreement
for the Proposed Lower Delaware Sale, $1,078,000 of such sales price has been
placed in escrow as a deposit and will be subject to indemnifiable claims for
one year following consummation of the Proposed Lower Delaware Sale. Although no
assurance can be given, the Partnership currently anticipates that the Proposed
Lower Delaware Sale will be consummated during the second or third quarter of
1997.
The Consummated Sales and the Proposed Lower Delaware Sale were approved by the
Partnership's limited partners (the "Limited Partners") at a special meeting
that occurred on March 26, 1997.
Assuming the Consummated Sales and the Proposed Lower Delaware Sale had occurred
on December 31, 1996 and that no amounts were used to fund capital expenditures
or the liquidity requirements of the Riverside System, it is estimated that the
pro forma distribution per Unit (the "Pro Forma Distribution Per Unit") would
have been $388. There is no assurance that any of the Proposed Asset Sales will
be consummated. The Pro Forma Distribution Per Unit, which is based upon the
Partnership's historical financial position at December 31, 1996, does not
reflect any contingent liabilities that might arise subsequent to the date of
this Quarterly Report on Form 10-Q, and is based on various assumptions with
respect to transaction related costs (including the payment of estimated
disposition fees to Cablevision of $2,805,000), sales price adjustments and
other matters. As such, the actual amounts distributed to Limited Partners may
vary from the Pro Forma Distribution Per Unit. As described below, the amount by
which the Pro Forma Distribution Per Unit would be reduced if the Proposed Lower
Delaware Sale does not close is dependent upon future events and circumstances.
In the event that the Proposed Lower Delaware Sale is not consummated, it is
currently the Partnership's intention to seek a substitute buyer for such system
("Substitute Sales Transaction"). There is no assurance that the Partnership
could arrange for a Substitute Sales Transaction at an appropriate price or on
terms acceptable to the Partnership. If the Partnership's efforts in arranging a
Substitute Sales Transaction prove to be unsuccessful, the Partnership would
evaluate market, competitive, regulatory, financial and other conditions
(relating to the cable television industry generally and to the Lower Delaware
System specifically) in order to determine whether it would be in the best
interest of the Partnership to use all or a portion of the available net cash
proceeds (after repaying debt as required by the terms of the Partnership's bank
credit facility and repaying any amounts due to TCI and its affiliates) from any
of the Consummated Sales to fund all or a portion of the Lower Delaware System's
liquidity requirements, including non-discretionary capital expenditures and
necessary maintenance costs as well as the cost of implementing technological
advancements or improvements. Accordingly, the failure to consummate the
Proposed Lower Delaware Sale could delay and would reduce the Pro Forma
Distribution Per Unit. The Partnership anticipates that any distributions to
partners would be made as soon as practicable after the date of the closing of
the Proposed Lower Delaware Sale. However, there is no assurance as to the
timing or amount of any such distributions.
(continued)
I-9
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
The Partnership has been marketing and continues to market for sale the
Riverside System. There is no assurance that the Partnership can arrange
for a sale of the Riverside System at an appropriate price or on terms
acceptable to the Partnership. If the Partnership is unable to arrange for
a sale of the Riverside System at an appropriate price or on terms
acceptable to the Partnership, the Partnership will continue to operate the
Riverside System. Although no assurance can be given, the Partnership
currently anticipates that any cash proceeds from the Consummated Sales and
the Proposed Lower Delaware Sale will not be used to fund the Riverside
System's capital expenditures or liquidity requirements. Any sale of the
Riverside System would be subject to Limited Partner approval.
(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 ("Payback"),
plus 6% per annum. After the Limited Partners have received distributions
equal to Payback plus 6% per annum, 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 three
months or less to be cash equivalents. At March 31, 1997, $609,000 of the
Partnership's cash and cash equivalents was invested in money market funds.
Cash paid by the Partnership for interest was $152,000 and $246,000 during
the three months ended March 31, 1997 and 1996, respectively.
(5) Debt
----
Borrowings under the Partnership's bank credit facility totaled $8,000,000
at March 31, 1997. Subsequent to March 31, 1997, the Partnership used cash
proceeds from the Southern Tennessee Sale to repay all amounts outstanding
under the bank credit facility. In connection with such repayment, the
Partnership also terminated the bank credit facility. Interest is accrued
at variable rates (8.5% at March 31, 1997) on the bank credit facility.
(continued)
I-10
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
(6) 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
$1,499,000 and $1,297,000 during the three months ended March 31, 1997 and
1996, 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 $423,000 and $387,000 for the three months ended March 31, 1997 and
1996, respectively.
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 $103,000 and
$119,000 the three months ended March 31, 1997 and 1996, 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 three months ended March 31, 1997 and
1996, Riverside's operating and administrative salaries and expenses
aggregated $454,000 and $550,000, 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. ACT 5 anticipates that Payback will be reached upon
distribution of proceeds from the Consummated Sales and, if consummated,
the Proposed Lower Delaware Sale. 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-11
<PAGE>
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, 1996 Annual Report on
Form 10-K.
Certain statements included in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. 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 Partnership, or industry
results, to differ materially from any 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 continued strength of
multi-channel video and telecommunication networks and the distribution and
production of programming for multi-channel video distribution; uncertainties
inherent in proposed business strategies and development plans, future financial
performance, including availability, terms and deployment of capital; the
ability of vendors to deliver required equipment, software and services; product
launches; availability of qualified personnel; changes in, or the failure or
inability to comply with, government regulation, and adverse outcomes from
regulatory proceedings; changes in the nature of key strategic relationships
with affiliates; competitor responses to the Partnership's products and
services, and the overall market acceptance of such products and services,
including acceptance of the pricing of such products and services; and other
factors. These forward-looking statements speak only as of the date of this
Quarterly Report on Form 10-Q. The Partnership 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
Partnership's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
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. The
Partnership had a 40% interest in Newport News. During April 1997, the
Partnership completed the separate sales of the Southern Tennessee System and
the St. Mary's System for an aggregate preliminary adjusted sales price of
$50,414,000. In addition, the Partnership has entered into an agreement dated
December 24, 1996 that provides for the sale of the Lower Delaware System to an
unaffiliated third party. There is no assurance that the Proposed Lower Delaware
Sale will be consummated. For additional information, see note 2 to the
accompanying financial statements.
Regulation. The operation of the Partnership's cable television systems
is regulated at the federal, state and local levels. The 1992 Cable Act and the
Telecommunications Act of 1996 (together with the 1992 Cable Act, the "Cable
Acts") established rules under which the Partnership's basic and tier service
rates and its equipment and installation charges (the "Regulated Services") are
regulated if a complaint is filed or if the appropriate franchise authority is
certified.
During the three months ended March 31, 1997, approximately 69% of the
Partnership's revenue was derived from Regulated Services. As noted above, any
increases in rates charged for Regulated Services are regulated by the Cable
Acts. Moreover, competitive factors may limit the Partnership's ability to
increase its service rates.
(continued)
I-12
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
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 has resulted in
a loss of subscribers in Riverside's service area, the Partnership is currently
unable to predict the extent of such effect at this time on the Partnership's
financial condition or results of operations. 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. During
1996 and 1997, the Partnership has experienced a competitive impact from DBS
providers. PRIMESTAR Partners L.P. broadcasts a multi-channel programming
service via a medium power communications satellite to home satellite dishes of
approximately three feet in diameter. DirecTv, Inc., United States Satellite
Broadcasting Corporation and EchoStar transmit from high power satellites and
generally use smaller dishes to receive their signals. Alphastar, Inc. began
offering medium power service in the second quarter of 1996. DBS operators have
the right to distribute substantially all of the significant cable television
programming services currently carried by cable systems. Estimated DBS
customers nationwide increased from approximately 2.2 million at the end of 1995
to approximately 4.4 million at the end of 1996, and the Partnership expects
that competition from DBS will continue to grow. DBS Service is now available
within the service areas of all of the Partnership's cable television systems.
However, the Partnership is unable to predict what effect such competition will
have on the Partnership's financial condition or results of operations.
(continued)
I-13
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
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. The Partnership believes that, in
the near term, the most effective method to maintain the competitive position of
its cable television systems would be to deploy digital compression technology
for premium services, while retaining traditional analog service for basic
services. This could be done in those cable television systems which have
available channel bandwith or if the existing programming was digitized.
Digital compression technology would increase channel capacity and improve
picture quality. Enhanced programming could also be added to existing service
by means of DBS. Such an approach would probably be considered for those cable
television systems which do not have available channel bandwith but suffer from
competitive threats in their service area. Alternatively, the Partnership could
replace coaxial trunk cable with optical fiber and deploy digital compression
technology in its cable television systems. The cost of replacing coaxial trunk
cable with optical fiber could be significant. Due to the competitive
environment within Riverside's service area, the Partnership is currently
considering the deployment of digital compression technology in the Riverside
System but has no specific plans with respect to more extensive advancements or
improvements that would involve the replacement of coaxial trunk cable with
fiber optic cable. Riverside shares a headend with an affiliated cable
television system. Accordingly, Riverside could not proceed with the
implementation of digital compression technology unless such affiliated cable
television system also implemented digital compression technology. The
Partnership would not proceed with the implementation of any significant
technological advancements or improvements without first conducting additional
analysis of the economic feasibility of such advancements and improvements. The
Partnership has not considered any advancements or improvements for the Lower
Delaware System due to the Proposed Lower Delaware Sale. However, in the event
that the Proposed Lower Delaware Sale is not consummated, the Partnership would
evaluate the need for advancements or improvements for that system. The
Partnership believes that its evaluation of the need for advancements or
improvements would focus primarily on whether a reasonable return could be
earned on the capital invested in any such improvements and the period of time
required to achieve such a return. See "Liquidity and Capital Resources" below.
-------------------------------
(continued)
I-14
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
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. 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 will be 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.
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 by any means. 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 significant 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 could 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.
(continued)
I-15
<PAGE>
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>
March 31,
------------------
Basic Subscribers 1997 1996
----------------- --------- -------
<S> <C> <C>
Southern Tennessee (1) 11.5 11.4
Riverside (2) 18.9 19.2
St. Mary's (1) 19.1 17.8
Lower Delaware (1) (3) 28.2 27.7
------ -----
77.7 76.1
====== =====
Premium Subscriptions (4)
---------------------
Southern Tennessee (1) 8.2 8.4
Riverside (2) 19.5 22.2
St. Mary's (1) 23.2 19.5
Lower Delaware (1) (3) 22.3 20.2
------ -----
73.2 70.3
====== =====
March 31,
------------------
Revenue (5) 1997 1996
------- --------- -------
Southern Tennessee (1) $ 990 950
Riverside (2) 2,056 2,038
St. Mary's (1) 1,858 1,599
Lower Delaware (1) 2,219 2,138
------ -----
$7,123 6,725
====== =====
</TABLE>
- ------------------
(1) During April 1997, the Partnership completed the separate sales of the
Southern Tennessee System and the St. Mary's System for an aggregate
preliminary adjusted sales price of $50,414,000. In addition, the
Partnership has entered into an agreement dated December 24, 1996 that
provides for the Proposed Lower Delaware Sale. There is no assurance
that the Proposed Lower Delaware Sale will be consummated. For
additional information, see note 2 to the accompanying financial
statements.
(continued)
I-16
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
(2) 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. From December 31, 1996 to
March 31, 1997, Riverside experienced a decrease of 2,500 premium
subscriptions and 200 basic subscribers. Such decrease in premium
subscriptions is comprised of a 900 decrease in traditional premium
subscriptions, a 900 decrease in STARZ! subscriptions and a 700
decrease in "ENCORE" subscriptions. The Partnership currently is
unable to predict the extent of the effect of competition from the
California MMDS Operator at this time on Riverside's financial
condition and results of operations.
(3) 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.
(4) 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 2,900 or 4% increase in the Partnership's
consolidated 1997 premium subscriptions is comprised of a 2,200
increase in STARZ! subscriptions, a 1,100 increase in "ENCORE"
subscriptions and a 400 decrease 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.
(5) 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 decreased 1%
from $2,831,000 in the three months ended March 31, 1996 to $2,793,000 in the
three months ended March 31, 1997. Such decrease is the net result of the
revenue and expense variances discussed in "Material Changes in Results of
------------------------------
Operations" below. During the three months ended March 31, 1997, Lower
- ----------
Delaware, St. Mary's, Riverside and Southern Tennessee contributed $1,094,000
(39%), $837,000 (30%), $766,000 (27%) and $507,000 (18%), respectively, to the
aggregate Operating Cash Flow of the Partnership. The foregoing amounts do not
include allocations of certain indirect expenses of the Partnership and 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 March 31, 1997, Southern Tennessee, Riverside, St. Mary's, and Lower
Delaware passed approximately 14,500, 31,300, 26,800 and 35,200 homes,
respectively.
(continued)
I-17
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Material Changes in Results of Operations
-----------------------------------------
Revenue increased $398,000 or 6% during the three months ended March 31,
1997, as compared to the corresponding prior year period. Such increase is
primarily attributable to (i) a 4% increase in the weighted average rate
received for Regulated Services and (ii) a 2% increase in the number of basic
subscribers. 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 Partnership also experienced a 4% increase in the number of premium
subscriptions in 1997 which was substantially offset by decreases in the average
monthly price received for premium subscriptions. For additional information,
see "General - Partnership's Cable Systems and Regulation" above.
-------
Programming expense increased $185,000 or 14% during the three month period
ended March 31, 1997, as compared to the corresponding prior year period. Such
increase is primarily attributable to higher programming rates and an increase
in the average number of basic subscribers and premium subscriptions 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.
Selling, general and administrative ("SG&A") expenses increased $246,000 or
11% during the three months ended March 31, 1997, as compared to the
corresponding prior year period. Such increase represents the net effect of
(i) additional legal fees incurred with respect to the Consummated Sales and the
Proposed Lower Delaware Sale of approximately $300,000 and (ii) cost-cutting
measures implemented at the end of 1996.
Depreciation and amortization decreased $340,000 or 9% during the three
months ended March 31, 1997, as compared to the corresponding prior year period.
Such decrease was primarily the result of certain of the Partnership's assets
becoming fully depreciated or amortized during the last half of 1996.
Interest income decreased $417,000 during the three months ended March 31,
1997, as compared to the corresponding prior year period. Such change is due to
changes in the weighted average balance of cash and cash equivalents.
Material Changes in Financial Condition
---------------------------------------
During the three months ended March 31, 1997, the Partnership used cash
provided by operating activities of $1,001,000 to fund investing and financing
activities of $213,000 and $255,000, respectively, and an increase in cash of
$533,000. See the Partnership's statements of cash flows included in the
accompanying financial statements.
Borrowings under the Partnership's bank credit facility totaled $8,000,000
at March 31, 1997. Subsequent to March 31, 1997, the Partnership used cash
proceeds from the Southern Tennessee Sale to repay all amounts outstanding under
its bank credit facility. In connection with such repayment, the Partnership
also terminated such bank credit facility.
(continued)
I-18
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Material Changes in Financial Condition (continued)
---------------------------------------------------
The Partnership estimated that during 1997 it would spend approximately
$3.1 million for capital expenditures (of which approximately $440,000,
$240,000, $970,000 and $1,450,000 related to Riverside, Southern Tennessee,
Lower Delaware, and St. Mary's, respectively). Such estimated capital
expenditures assumed (i) a full year of capital expenditures for each of the
Partnership's cable television systems and (ii) that, other than the possible
deployment of digital compression technology at the Riverside System, no
significant technological improvements would be implemented to the Partnership's
cable television systems. See related discussion under "General - Competition".
-------
During the three months ended March 31, 1997, the Partnership expended $213,000
for capital expenditures. As a result of the closing of the Consummated Sales,
the Partnership has reduced its estimate of 1997 capital expenditures from $3.1
million to $1.5 million.
The Partnership anticipates that cash on hand and cash provided by
operating activities will be sufficient to fund estimated capital expenditures
(exclusive of any significant technological improvements, as described under
"General - Competition") and meet its other liquidity requirements.
- --------
I-19
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
At a special meeting of ACT 5's limited partners (the "Limited
Partners") held on March 26, 1997, the following matters were voted
upon and approved by the Limited Partners:
Resolution 1. Consent to the sale of the Lower Delaware System to
Mediacom LLC ("Mediacom") or one of Mediacom's affiliates by 96% of
the votes cast at such meeting (109,643 for; 1,498 against; 3,034
abstained).
Resolution 2. Consent to the sale of the St. Mary's System to Gans
Multimedia Partnership ("Gans") or one of Gans affiliates by 96% of
the votes cast at such meeting (109,586 for; 1,569 against; 3,020
abstained).
Resolution 3. Consent to the sale of the Southern Tennessee System to
Rifkin Acquisition Partners, L.L.L.P. ("Rifkin") or one of Rifkin's
affiliates by 96% of the votes cast at such meeting (109,653 for;
1,531 against; 2,991 abstained).
Resolution 4. Consent to the sale of the Partnership's cable
television systems in any substitute sales transaction (in the event
that any of the foregoing sales do not close) by 93% of the votes cast
at such meeting (105,958 for; 4,160 against; 4,057 abstained).
Item 5. Other Information
- ------- -----------------
During 1997, the Partnership has received a high volume of requests
for the transfer of the Partnership's limited partner units ("Units").
In order to maintain ACT 5's partnership status for federal income tax
purposes, no more than 5% of the Units can be transferred in any one
tax year. The general partner currently estimates that the 5%
threshold could be met during the second quarter of 1997. Once the 5%
threshold is reached, transfer requests will not be processed for the
remainder of 1997.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended March 31, 1997:
Items
Date of Report Reported Financial Statements Filed
-------------- -------- --------------------------
February 11, 1997 Item 5 None
II-1
<PAGE>
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: May 15, 1997 By: /s/ Gary K. Bracken
------------------------------
Gary K. Bracken
Vice President and Controller
(Principal Accounting Officer)
II-2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and is
qualified in is entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,262
<SECURITIES> 0
<RECEIVABLES> 784
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 67,345
<DEPRECIATION> 29,716
<TOTAL-ASSETS> 71,020
<CURRENT-LIABILITIES> 0
<BONDS> 8,000
0
0
<COMMON> 0
<OTHER-SE> 59,089
<TOTAL-LIABILITY-AND-EQUITY> 71,020
<SALES> 0
<TOTAL-REVENUES> 7,123
<CGS> 0
<TOTAL-COSTS> 2,282
<OTHER-EXPENSES> 3,295
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135
<INCOME-PRETAX> (1,048)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,048)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,048)
<EPS-PRIMARY> (5.19)<F1>
<EPS-DILUTED> 0
<FN>
<F1>EPS Primary represents net earnings per limited partnership unit.
</FN>
</TABLE>
