<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 September 30, 1998
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File 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 Identification No.)
incorporation or organization)
5619 DTC Parkway
Englewood, Colorado 80111
- ------------------------------- ------------------------------------
(Address of principal (Zip Code)
executive offices)
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)
September 30, December 31,
1998 1997
------------- ------------
Assets amounts in thousands
- ------
Cash and cash equivalents (note 4) $6,639 17,711
Trade and other receivables, net of allowance for
doubtful accounts 253 409
Amounts due from related parties (note 5) 7,927 --
Property and equipment:
Cable distribution systems 18,307 17,693
Support equipment and buildings 1,583 1,436
------------- ------------
19,890 19,129
Less accumulated depreciation 11,917 10,868
------------- ------------
7,973 8,261
------------- ------------
Franchise costs and other intangibles 24,649 24,649
Less accumulated amortization 18,509 16,686
------------- ------------
6,140 7,963
------------- ------------
Funds held in escrow (note 2) 494 2,337
Other assets, net of accumulated amortization 5 208
------------- ------------
$29,431 36,889
============= ============
(continued)
I-1
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Balance Sheets (continued)
September 30, December 31,
1998 1997
------------- ------------
amounts in thousands
Liabilities and Partners' Equity
- --------------------------------
Accounts payable $ 9 14
Subscriber advance payments and converter
deposits 44 107
Other liabilities 803 2,908
Amounts due to related parties (note 5) -- 4,919
------------- ------------
Total liabilities 856 7,948
------------- ------------
Partners' equity (deficit):
General partner (3,016) (3,012)
Limited partners 31,591 31,953
------------- ------------
Total partners' equity 28,575 28,941
------------- ------------
Commitments and contingencies (notes 2,
5, 6 and 7)
$ 29,431 36,889
============= ============
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 Nine months ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
--------------- ------------ -------------- -------------
amounts in thousands,
except unit amounts
<S> <C> <C> <C> <C>
Revenue $ 2,399 2,163 6,937 14,030
Operating costs and expenses:
Programming (primarily from
related parties - note 5) 542 500 1,652 3,047
Operating (including allocations
from related parties - note 5) 238 170 734 1,549
Selling, general and administrative
(including charges from related
parties - note 5) 890 807 2,406 5,150
Depreciation and amortization 925 948 2,894 6,107
--------------- ------------ -------------- -------------
Total operating expenses 2,595 2,425 7,686 15,853
--------------- ------------ -------------- -------------
Operating loss (196) (262) (749) (1,823)
Other income (expense):
Interest expense -- -- -- (135)
Interest income (notes 2 and 5) 246 1,140 585 1,719
Write-off of deferred loan costs -- -- (202) --
Gain (adjustment to gain) on sale
of cable television systems
(note 2) -- (463) -- 44,375
--------------- ------------ -------------- -------------
Net earnings (loss) $ 50 415 (366) 44,136
=============== ============ ============== =============
Net earnings (loss) per limited
partnership unit ("Unit") (note 3) $ 0.25 2.05 (1.81) 218.47
=============== ============ ============== =============
Limited partnership units
outstanding 200,005 200,005 200,005 200,005
=============== ============ ============== =============
</TABLE>
See accompanying notes to financial statements.
I-3
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Statement of Partners' Equity
Nine months ended September 30, 1998
(unaudited)
(see note 2)
General Limited
partner partners Total
--------- ---------- -------
amounts in thousands
Balance at January 1, 1998 $ (3,012) 31,953 28,941
Net loss (4) (362) (366)
--------- ---------- -------
Balance at September 30, 1998 $ (3,016) 31,591 28,575
========= ========== =======
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 notes 2 and 4)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------
1998 1997
----------- ----------
amounts in thousands
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (366) 44,136
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,894 6,107
Write-off of deferred loan costs 202 --
Gain on sale of cable television systems -- (44,375)
Changes in operating assets and liabilities:
Net change in receivables and other assets 156 57
Net change in accounts payable, subscriber
advance payments and converter deposits,
other liabilities and amounts due to/from
related parties (15,019) 832
----------- ----------
Net cash provided by (used in) operating
activities (12,133) 6,757
----------- ----------
Cash flows from investing activities:
Capital expended for property and equipment (709) (1,031)
Proceeds from sale of cable television systems, net of
disposition fees 1,843 87,270
Other investing activities (73) 21
----------- ----------
Net cash provided by investing activities 1,061 86,260
----------- ----------
Cash flows from financing activities:
Repayments of debt -- (8,500)
Borrowings of debt -- 1,000
Change in cash overdraft -- 13,722
Distributions to partners -- (74,749)
----------- ----------
Net cash used in financing activities -- (68,527)
----------- ----------
Net change in cash and cash
equivalents (11,072) 24,490
Cash and cash equivalents:
Beginning of period 17,711 4,729
----------- ----------
End of period $ 6,639 29,219
=========== ==========
</TABLE>
See accompanying notes to financial statements.
I-5
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
September 30, 1998
(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 September 30, 1998 and the results of its
operations for the nine months ended September 30, 1998 and 1997. 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, 1997 Annual Report on Form 10-K.
The Partnership's general partner is IR-TCI Partners V, L.P. ("IR-TCI" or
the "General Partner"), a Colorado limited partnership. Since January 1997,
the general partner of IR-TCI has been TCI Ventures Five, Inc., a
subsidiary of TCI Cablevision Associates, Inc. ("Cablevision"). 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 is an indirect subsidiary of
Tele-Communications, Inc. ("TCI") and is the managing agent of the
Partnership.
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>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
(2) Asset Sales
-----------
On April 1, 1997, the Partnership sold the cable television system located
in and around Shelbyville and Manchester, Tennessee (the "Southern
Tennessee System") to Rifkin Acquisition Partners, L.L.L.P. ("Rifkin"), an
unaffiliated third party, for an adjusted sales price of $19,647,000 (the
"Southern Tennessee Sale"). Pursuant to the asset purchase agreement for
the Southern Tennessee Sale, $494,000 of such sales price was placed in
escrow (the "Southern Tennessee Escrow") and was subject to indemnifiable
claims by Rifkin through March 31, 1998. Prior to March 31, 1998, Rifkin
filed a claim against the Southern Tennessee Escrow relating to a class
action lawsuit filed by a customer challenging late fee charges with
respect to the Southern Tennessee System. Such claim has had and will
continue to have the effect of delaying the release of the Southern
Tennessee Escrow. In addition, any judgment against the Southern Tennessee
System may have the effect of reducing the amount of the Southern Tennessee
Escrow ultimately released to ACT 5. During the nine months ended September
30, 1997, the Partnership's financial statements included revenue from the
Southern Tennessee System of $995,000.
On April 16, 1997, the Partnership sold the cable television system located
in and around St. Mary's County, Maryland (the "St. Mary's System") to Gans
Multimedia Partnership ("Gans"), an unaffiliated third party, for an
adjusted sales price of $30,547,000 (the "St. Mary's Sale"). Pursuant to
the asset purchase agreement for the St. Mary's Sale, $766,000 of such
sales price was placed in escrow (the "St. Mary's Escrow") and was subject
to indemnifiable claims by Gans through April 15, 1998. The St. Mary's
Escrow was released to ACT 5 during the second quarter of 1998. ACT 5
received interest of $39,000 in conjunction with the release of the St.
Mary's Escrow. During the nine months ended September 30, 1997, the
Partnership's financial statements included revenue from the St. Mary's
System of $2,166,000.
On June 24, 1997, the Partnership sold the cable television system located
in and around lower Delaware (the "Lower Delaware System") to Mediacom
Delaware LLC ("Mediacom"), an unaffiliated third party, for an adjusted
sales price of $42,191,000 (the "Lower Delaware Sale"). Pursuant to the
asset purchase agreement for the Lower Delaware Sale, $1,077,000 of such
sales price was placed in escrow (the "Lower Delaware Escrow") and was
subject to indemnifiable claims by Mediacom through June 23, 1998. The
Lower Delaware Escrow was released to ACT 5 during the third quarter of
1998. ACT 5 received interest of $57,000 in conjunction with the release of
the Lower Delaware Escrow. During the nine months ended September 30, 1997,
the Partnership's financial statements included revenue from the Lower
Delaware System of $4,462,000.
The Southern Tennessee Sale, St. Mary's Sale and the Lower Delaware Sale
are collectively referred to herein as the "1997 Sales Transactions." The
1997 Sales Transactions were approved by ACT 5's limited partners (the
"Limited Partners") at a special meeting that occurred on March 26, 1997.
(continued)
I-7
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
The Partnership used proceeds from the 1997 Sales Transactions to pay
disposition fees of $2,778,000 to Cablevision, repay debt and related
accrued interest of $8,652,000, and make distributions to its General and
Limited Partners during the third quarter of 1997 of $747,000 and
$74,002,000 ($370 per Unit for Limited Partners of record as of July 1,
1997), respectively. See notes 3 and 5.
On August 12, 1998, the Partnership entered into an agreement that provides
for the sale of its cable television system located in and around
Riverside, California ("Riverside" or the "Riverside System") to Century
Communications Corp. ("Century"), an unaffiliated third party, for a cash
sales price of $33,000,000, subject to certain adjustments (the "Riverside
Sale"). Pursuant to the Asset Purchase Agreement, $1,500,000 of such sales
price will be subject to indemnifiable claims for 180 days following
consummation of the Riverside Sale.
Subject to the approval of the Limited Partners, the receipt of regulatory
approvals and satisfaction or waiver of customary conditions to closing,
consummation of the Riverside Sale is expected to occur during the fourth
quarter of 1998 or the first quarter of 1999.
In the event that the Riverside Sale is approved and consummated, of which
there can be no assurance, the Partnership will have sold all of its assets
(other than cash and funds held in escrow) and, pursuant to the
Partnership's limited partnership agreement, will ultimately be dissolved
and terminated. Assuming the Riverside Sale and the dissolution and
liquidation of the Partnership had occurred on September 30, 1998, the
Partnership estimates that the pro forma distribution to Limited Partners
would have been $225 per $500 Unit. The Partnership anticipates that an
initial distribution will be made to its partners as soon as practicable
after the date of the closing of the Riverside Sale. It is expected that a
final liquidating distribution will be made as soon as practicable after
all funds held in escrow have been released to the Partnership, subject to
the receipt of any indemnifiable claims. No assurance can be given as to
the timing or amount of such distributions.
In the event that the Riverside Sale is not consummated, it is currently
the General Partner's intention to seek a substitute buyer for the
Riverside System. There is no assurance that the General Partner could
arrange for a substitute sale transaction for the Riverside System at an
appropriate price or on terms acceptable to the Partnership. If the General
Partner's efforts in arranging a substitute sale transaction prove to be
unsuccessful, the General Partner would continue to operate the Riverside
System.
(continued)
I-8
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
TCI Communications, Inc. ("TCIC"), a subsidiary of TCI, and Century have
signed a letter of intent to establish a joint venture that will combine
multiple cable television systems in Southern California (the "Joint
Venture"). Among those systems to be contributed to the Joint Venture by
TCIC is the cable television system serving customers in Redlands,
California (the "Redlands System"). The Riverside System currently utilizes
office facilities, personnel and certain cable distribution assets
(including the headend) of the Redlands System. In the event the Riverside
Sale is consummated, the Riverside System is among those systems to be
contributed to the Joint Venture by Century. TCIC will have a 25% interest
in the Joint Venture, which will be managed by Century. In the event that
the Joint Venture is consummated prior to the Riverside Sale, or the Joint
Venture is consummated and the Riverside Sale is not consummated,
Cablevision will continue to manage the Riverside System. The Partnership
has agreed that in the event the Joint Venture is consummated prior to the
Riverside Sale, Cablevision may engage the Joint Venture to perform all or
any portion of the day-to-day management of the Riverside System.
(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 Partner and 75% to the Limited
Partners. Although ACT 5's September 1997 distributions of proceeds from
the sales of certain of its cable television systems allowed Limited
Partners to achieve Payback, Limited Partners have not yet received a 6%
return on their aggregate contributions. Accordingly, amounts will continue
to be allocated 99% to the Limited Partners and 1% to the General Partner
until such 6% return has been achieved.
Net earnings (loss) per Unit is calculated by dividing net earnings (loss)
attributable to the Limited Partners by the number of 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 September 30, 1998, $6,448,000 of
the Partnership's cash and cash equivalents was invested in money market
funds.
Cash paid by the Partnership for interest was not significant for the nine
months ended September 30, 1998 and $152,000 for the nine months ended
September 30, 1997.
(continued)
I-9
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
(5) 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 customers served by the Partnership, aggregated
$1,638,000 and $3,047,000 during the nine months ended September 30, 1998
and 1997, 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 $416,000 and $842,000 for the nine months ended September 30, 1998 and
1997, 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 amounted to $161,000 and
$271,000 for the nine months ended September 30, 1998 and 1997,
respectively.
Riverside shares office facilities, personnel and certain distribution
assets with the Redlands System. As a result, the majority of Riverside's
operating and administrative salaries and expenses are charged to Riverside
based upon Riverside's estimated utilization of such office facilities and
personnel. During the nine months ended September 30, 1998 and 1997,
Riverside's operating and administrative salaries and expenses amounted to
$1,721,000 and $1,592,000, 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. In connection with the
1997 Sales Transactions, disposition fees of $2,778,000 were paid to
Cablevision.
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 charges.
Amounts due from related parties bear interest at variable rates (5.45% at
September 30, 1998). Interest earned on amounts due from TCI and its
affiliates was $120,000 during the nine months ended September 30, 1998 and
was not significant during the nine months ended September 30, 1997.
(continued)
I-10
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
(6) 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, basic
and tier service rates and equipment and installation charges (the
"Regulated Services") are subject to the jurisdiction of local franchising
authorities and the FCC, if a complaint is filed or if the appropriate
franchise authority is certified. 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. If 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. 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.
At September 30, 1998, none of the Riverside System's franchise areas were
subject to the above described rate regulation. However, future events
could occur that could cause one or more of the Riverside System's
franchise areas to be subject to rate regulation.
ACT 5 has contingent liabilities related to legal proceedings and other
matters arising in the ordinary course of business. Although it is
reasonably possible that ACT 5 may be required to make payments 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 have a
material effect upon the Partnership's financial condition.
(7) Year 2000 Costs
---------------
In addition to the property and equipment owned by the Riverside System,
certain office facilities, personnel, and cable distribution assets of the
Redlands System, and certain software and equipment of TCI are utilized by
the Riverside System (collectively, the "Riverside/Redlands Systems").
Accordingly, the assessment and remediation of ACT 5's year 2000 issues are
dependent upon the assessment and remediation by TCI of certain of its own
year 2000 issues and the year 2000 issues of the Riverside/Redlands
Systems.
During the three months ended September 30, 1998, TCI, in its capacity as
the ultimate parent of the managing agent of ACT 5, continued its
comprehensive effort to assess and remediate the Riverside/Redlands
Systems' computer and other systems and related software and equipment to
ensure such systems, software and equipment recognize, process and store
information in the year 2000 and beyond. TCI's year 2000 remediation
efforts include an assessment of the Riverside/Redlands Systems' most
critical systems, such as customer service and billing systems, headends
and other cable plant, business support operations, and other equipment and
facilities. TCI also continued its efforts to verify the year 2000
readiness of ACT 5's important suppliers and vendors.
(continued)
I-11
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
ACT 5's year 2000 remediation efforts are being managed by the year 2000
Program Management Office (the "PMO") of TCI. The PMO is responsible for
overseeing, coordinating and reporting on ACT 5's year 2000 remediation
efforts. It is comprised of a 90 member full-time staff and is accountable
to executive management of TCI.
The PMO has defined a four-phase approach to determining the year 2000
readiness of the Riverside/Redlands Systems' computer and other systems,
software and equipment. Such approach is intended to provide a detailed
method for tracking the evaluation, repair and testing of such systems,
software and equipment. Phase 1, Assessment, involves the inventory of all
systems, software and equipment and the identification of any year 2000
issues. Phase 1 also includes the preparation of the workplans needed for
remediation. Phase 2, Remediation, involves repairing, upgrading and/or
replacing any non-compliant equipment and systems. Phase 3, Testing,
involves testing such systems, software, and equipment for year 2000
readiness, or in certain cases, relying on test results provided to TCI.
Phase 4, Implementation, involves placing compliant systems, software and
equipment into production or service.
Management believes that the progress of remediation of the
Riverside/Redlands Systems closely follows that of TCI as a whole, and that
the phase completion data set forth below for TCI may be considered to be a
useful guide for estimating the Riverside/Redlands Systems' phase
completion and ultimately the progress of remediating potential year 2000
issues impacting ACT 5's operations.
At September 30, 1998, TCI's overall progress by phase was as follows:
Percentage of all
Equipment/
Phase Systems in Phase*
----- -----------------
Phase 1-Assessment 89%
Phase 2-Remediation 37%
Phase 3-Testing 9%
Phase 4-Implementation 14%
_____________________
*The percentages set forth above do not total 100% because many projects
have elements in more than one phase. For purposes of this table, such
projects have been attributed to each applicable phase. In addition, the
percentages set forth above are based on the number of projects in each
phase compared to the total number of Year 2000 projects.
(continued)
I-12
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
TCI is completing an inventory of systems with embedded technologies that
impact ACT 5's operations and is currently determining the correct
remediation approach. During the three months ended September 30, 1998,
TCI continued its survey of significant third-party vendors and suppliers
whose systems, services or products are important to ACT 5's (e.g., the
suppliers of set-top boxes and the provider of ACT 5's billing services.)
The year 2000 readiness of these providers is critical to continued
provision of cable services by ACT 5. TCI has received information that
the most critical systems, services or products supplied to ACT 5 by third
parties are either year 2000 ready or are expected to be year 2000 ready by
mid-1999. TCI is currently developing contingency plans for systems
provided by vendors who have not responded to TCI's surveys.
In addition to the survey process described above, TCI has identified ACT
5's most critical supplier/vendor relationships and has instituted a
verification process to determine such vendor's year 2000 readiness. Such
verification may include reviewing the vendor's test and other data and
engaging in regular conferences with the vendor's year 2000 team. TCI is
also requiring testing to validate the year 2000 compliance of certain
critical products and services and is contracting with independent
consultants to conduct such testing.
Year 2000 expenses and capital expenditures incurred during the three and
nine months ended September 30, 1998 were not material. Although no
assurance can be given, management of ACT 5 currently expects total
estimated costs associated with year 2000 remediation efforts to be not
less than $25,000. Such amount is exclusive of replacement costs
associated with noncompliant information technology ("IT") systems incurred
by TCI on behalf of ACT 5. Additionally, ACT 5 is not deferring any
planned IT projects due to year 2000 remediation costs.
The failure to correct a material year 2000 problem in the Redlands System
could result in an interruption of ACT 5's provision of cable service
through the Riverside System. There can be no assurance that ACT 5's
systems, the Riverside/Redlands System, or the systems of other companies
on which ACT 5 relies will be converted in time or that any such failure to
convert by ACT 5 or other companies will not have a material adverse effect
on its financial position, results of operations, or cash flows.
I-13
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Management's Discussion and Analysis of
- ---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
General
-------
The following discussion and analysis should be read in conjunction with
the Partnership's Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the Partnership's Annual Report on Form
10-K for the year ended December 31, 1997. The following discussion focuses on
material changes in the trends, risks and uncertainties affecting the
Partnership's results of operations and financial condition. Reference should
also be made to the Partnership's financial statements included herein.
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. 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 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 Partnership operates; uncertainties
inherent in new business strategies; uncertainties inherent in the changeover to
the year 2000, including the Partnership's projected state of readiness, the
projected cost of remediation, the expected date of completion of each program
or phase, the projected worst case scenarios, and the expected contingency plans
associated with such worst case scenarios; new product launches and development
plans; rapid technological changes, the acquisition, development and/or
financing of telecommunications networks and services; the development and
provision of programming for new television and telecommunications technologies;
future financial performance, including availability, terms and deployment of
capital; the ability of vendors to deliver required equipment, software and
services; availability of qualified personnel; changes in, or failure or
inability to comply with, government regulations, including, without limitation,
regulations of the FCC, and adverse outcomes from regulatory proceedings;
changes in the nature of key strategic relationships with partners and joint
venturers; competitor responses to the Partnership's products and services 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 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 other change in events,
conditions or circumstances on which any such statement is based. Any statement
contained within Management's Discussion and Analysis of Financial Condition and
Results of Operations in this Form 10-Q related to year 2000 are hereby
denominated as "Year 2000 Statements" within the meaning of the Year 2000
Information and Readiness Disclosure Act.
I-14
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General
-------
Year 2000. In addition to the property and equipment owned by the Riverside
System, certain office facilities, personnel, and cable distribution assets of
the Redlands System, and certain software and equipment of TCI are utilized by
the Riverside System. Accordingly, the assessment and remediation of ACT 5's
year 2000 issues are dependent upon the assessment and remediation by TCI of
certain of its own year 2000 issues and the year 2000 issues of the
Riverside/Redlands Systems.
During the three months ended September 30, 1998, TCI, in its capacity as
the ultimate parent of the managing agent of ACT 5, continued its comprehensive
effort to assess and remediate the Riverside/Redlands Systems' computer and
other systems and related software and equipment to ensure such systems,
software and equipment recognize, process and store information in the year 2000
and beyond. TCI's year 2000 remediation efforts include an assessment of the
Riverside/Redlands Systems' most critical systems, such as customer service and
billing systems, headends and other cable plant, business support operations,
and other equipment and facilities. TCI also continued its efforts to verify the
year 2000 readiness of ACT 5's important suppliers and vendors.
ACT 5's year 2000 remediation efforts are being managed by the year 2000
Program Management Office of TCI. The PMO is responsible for overseeing,
coordinating and reporting on ACT 5's year 2000 remediation efforts. It is
comprised of a 90 member full-time staff and is accountable to executive
management of TCI.
The PMO has defined a four-phase approach to determining the year 2000
readiness of the Riverside/Redlands Systems' computer and other systems,
software and equipment. Such approach is intended to provide a detailed method
for tracking the evaluation, repair and testing of such systems, software and
equipment. Phase 1, Assessment, involves the inventory of all systems, software
and equipment and the identification of any year 2000 issues. Phase 1 also
includes the preparation of the workplans needed for remediation. Phase 2,
Remediation, involves repairing, upgrading and/or replacing any non-compliant
equipment and systems. Phase 3, Testing, involves testing such systems,
software, and equipment for year 2000 readiness, or in certain cases, relying on
test results provided to TCI. Phase 4, Implementation, involves placing
compliant systems, software and equipment into production or service.
Management believes that the progress of remediation of the
Riverside/Redlands Systems closely follows that of TCI as a whole, and that the
phase completion data set forth below for TCI may be considered to be a useful
guide for estimating the Riverside/Redlands Systems' phase completion and
ultimately the progress of remediating potential year 2000 issues impacting ACT
5's operations.
I-15
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
At September 30, 1998, TCI's overall progress by phase was as follows:
Percentage of all
Equipment/ Expected
Phase Systems in Phase* Completion Date
- ----- ----------------- ---------------
Phase 1-Assessment 89% April 1999
Phase 2-Remediation 37% July 1999
Phase 3-Testing 9% July 1999
Phase 4-Implementation 14% July 1999
_____________________
*The percentages set forth above do not total 100% because many projects have
elements in more than one phase. For purposes of this table, such projects have
been attributed to each applicable phase. In addition, the percentages set forth
above are based on the number of projects in each phase compared to the total
number of year 2000 projects.
The completion dates set forth above are based on TCI's current expectations.
However, due to the uncertainties inherent in year 2000 remediation, no
assurances can be given as to whether such projects will be completed on such
dates.
TCI is completing an inventory of systems with embedded technologies
that impact ACT 5's operations and is currently determining the correct
remediation approach. The embedded technologies assessments are expected to be
complete by December of 1998.
During the three months ended September 30, 1998, TCI continued its
survey of significant third-party vendors and suppliers whose systems, services
or products are important to ACT 5's (e.g., the suppliers of set-top boxes and
the provider of ACT 5's billing services.) The year 2000 readiness of these
providers is critical to continued provision of cable services by ACT 5. TCI has
received information that the most critical systems, services or products
supplied to ACT 5 by third parties are either year 2000 ready or are expected to
be year 2000 ready by mid-1999. TCI is currently developing contingency plans
for systems provided by vendors who have not responded to TCI's surveys.
In addition to the survey process described above, TCI has identified
ACT 5's most critical supplier/vendor relationships and has instituted a
verification process to determine such vendor's year 2000 readiness. Such
verification may include reviewing the vendor's test and other data and engaging
in regular conferences with the vendor's year 2000 team. TCI is also requiring
testing to validate the year 2000 compliance of certain critical products and
services and is contracting with independent consultants to conduct such
testing.
Year 2000 expenses and capital expenditures incurred during the three
and nine months ended September 30, 1998 were not material. Although no
assurance can be given, management of ACT 5 currently expects total estimated
costs associated with year 2000 remediation efforts to be not less than $25,000.
Such amount is exclusive of replacement costs associated with noncompliant
information technology systems incurred by TCI on behalf of ACT 5. Additionally,
ACT 5 is not deferring any planned IT projects due to year 2000 remediation
costs.
I-16
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
The failure to correct a material year 2000 problem in the Redlands System
could result in an interruption of ACT 5's provision of cable service through
the Riverside System. Management believes that TCI's year 2000 efforts in the
Riverside/Redlands System will significantly reduce ACT 5's risks associated
with the changeover to the year 2000. TCI has implemented certain enterprise-
wide contingency plans to minimize the effect of potential year 2000 related
disruptions. The risks and the uncertainties discussed below and the associated
contingency plans relate to systems, software, equipment, and services that TCI
has deemed critical in regard to customer service, business operations,
financial impact or safety.
The failure of addressable controllers contained in the Riverside/Redlands
System's headend could disrupt the delivery of premium services to customers and
could necessitate crediting customers for failure to receive such premium
services. In this unlikely event, management expects that it will identify and
transmit the lowest cost programming tier. Unless other contingency plans are
developed with the programmers, premium and adult content channels would not
likely be transmitted until the addressable controller had been repaired.
Customer service networks and/or automated voice response systems failure
could prevent access to customer account information, hamper installation
scheduling and disable the processing of pay-per-view requests. ACT 5 plans to
have its customer service representatives answer telephone calls from customers
in the event of outages and expects to retrieve needed customer information
manually from the billing service provider.
A failure of the services provided by billing systems service providers
could result in a loss of customer records which could result in a disruption in
the ability to bill customers for a protracted period. ACT 5 plans to have
electronic backup records of its customer billing information prepared prior to
the year 2000 to allow for data recovery. In addition, ACT 5 continues to
monitor the year 2000 readiness of its key customer billing suppliers.
Advertising revenue could be adversely affected by the failure of
certain equipment which could impede or prevent the insertion of advertising
spots in ACT 5's programming. ACT 5 anticipates that it can minimize the effect
of this situation by having the dates manually reset each day until the
equipment has been repaired.
Security and fire protection systems failure could leave facilities
vulnerable to intrusion and fire. ACT 5 expects to have such systems returned to
normal functioning by turning the power off and then on again ("power off/on").
ACT 5 also plans to have additional security staff on site and plans to
implement a backup plan for communicating with local fire and police
departments. Also, certain personal computers interface and control elevators,
escalators, wireless systems, public access systems and certain telephony
systems. In the event such computers cease operating, conducting a power off/on
is expected to resume normal functioning. If a power off/on does not resume
normal functioning, management expects to resolve the problem by resetting the
computer to a pre-designated date which precedes the year 2000.
I-17
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
In the event that the local public utility cannot supply power, TCI
expects to supply power for a limited time to the Riverside/Redlands Systems'
cable headends and office sites through backup generators.
The financial impact of any or all of the above worst-case scenarios on
ACT 5 has not been and cannot be estimated by ACT 5 due to the numerous
uncertainties and variables associated with such scenarios.
ACT 5 does not presently anticipate that there will be material losses
from any claims of breach of contract due to year 2000 issues.
Asset Sales. On April 1, 1997, the Partnership sold the Southern
Tennessee System to Rifkin, an unaffiliated third party, for an adjusted sales
price of $19,647,000. Pursuant to the asset purchase agreement for the Southern
Tennessee Sale, $494,000 of such sales price was placed in escrow and was
subject to indemnifiable claims made by Rifkin through March 31, 1998. Prior to
March 31, 1998, Rifkin filed a claim against the Southern Tennessee Escrow
relating to a class action lawsuit filed by a customer challenging late fee
charges with respect to the Southern Tennessee System. Such claim has had and
will continue to have the effect of delaying the release of the Southern
Tennessee Escrow. In addition, any judgment against the Southern Tennessee
System may have the effect of reducing the amount of the Southern Tennessee
Escrow ultimately released to ACT 5. Such claim could prevent the release of
some or all of the Southern Tennessee Escrow to ACT 5.
On April 16, 1997, the Partnership sold the St. Mary's System to Gans,
an unaffiliated third party, for an adjusted sales price of $30,547,000.
Pursuant to the asset purchase agreement for the St. Mary's Sale, $766,000 of
such sales price was placed in escrow and was subject to indemnifiable claims
made by Gans through April 15, 1998. The St. Mary's Escrow was released to ACT
5 during the second quarter of 1998. ACT 5 received interest of $39,000 in
conjunction with the release of the St. Mary's Escrow.
On June 24, 1997, the Partnership sold the Lower Delaware System to
Mediacom, an unaffiliated third party, for an adjusted sales price of
$42,191,000. Pursuant to the asset purchase agreement for the Lower Delaware
Sale, $1,077,000 of such sales price was placed in escrow and was subject to
indemnifiable claims made by Mediacom through June 23, 1998. The Lower Delaware
Escrow was released to ACT 5 during the third quarter of 1998. ACT 5 received
interest of $57,000 in conjunction with the release of the Lower Delaware
Escrow.
The 1997 Sales Transactions were approved by the Limited Partners at a
special meeting that occurred on March 26, 1997. The Partnership used proceeds
from the 1997 Sales Transactions to pay disposition fees of $2,778,000 to
Cablevision, repay debt and related accrued interest of $8,652,000, and make
distributions to its General and Limited Partners of $747,000 and $74,002,000
($370 per Unit for Limited Partners of record as of July 1, 1997), respectively.
I-18
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
The following table sets forth summary information with respect to the
operating results of the cable systems which were sold pursuant to the 1997
Sales Transactions for the nine months ended September 30, 1997 (amounts in
thousands):
Revenue $ 7,623
Operating costs and expenses (4,620)
Depreciation and amortization (3,104)
--------
Operating loss $ (101)
========
For additional information on the 1997 Sales Transactions, see note 2 to
the accompanying financial statements.
Regulation. The operation of the Riverside System is regulated at the
federal, state and local levels. The 1992 Cable Act and the Telecommunications
Act of 1996 (the "Cable Acts") established rules under which the Riverside
System's Regulated Services are regulated if a complaint is filed or if the
appropriate franchise authority is certified. At September 30, 1998, none of the
Riverside System's franchise areas were subject to such rate regulation.
However, future events could occur that could cause one or more of the Riverside
System's franchise areas to be subject to rate regulation.
During the nine months ended September 30, 1998, approximately 70% of
the Riverside System's revenue was derived from Regulated Services. As noted
above, any increases in rates charged for such services are subject to
regulation by the Cable Acts. Moreover, competitive factors may limit
Riverside's ability to increase its service rates.
Competition. Since 1992, most of Riverside's service areas have been
subject to competition from a multi-channel multi-point distribution system
("MMDS") operator (the "California MMDS Operator"). Riverside is also subject to
competition from providers of medium and high power direct broadcast satellite
services. Although competition for customers in Riverside's service area has
increased, the Partnership is unable to predict the future competitive effect on
the Partnership's financial condition or results of operations. For additional
information concerning the revenue and customer bases of Riverside, see "The
Riverside System" below.
The Riverside System is 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 Riverside's financial
condition and results of operations, the Partnership does believe that the
continued evolution of such factors could place Riverside at a competitive
disadvantage if it were not to implement certain technological improvements. In
this regard, Riverside introduced digital video services during the third
quarter of 1997. The primary capital cost of digital video services is the
purchase and installation of digital set-top devices. Accordingly, the capital
costs incurred will be dependent upon the number of digital set-top devices
required. The Riverside System did not have a significant number of customers
who subscribed to digital video services at September 30, 1998, and therefore
the capital costs incurred with the introduction of digital video services were
not significant to the Riverside System for the nine months ended September 30,
1998. However, the Riverside System plans to increase the number of customers
who subscribe to digital video services.
I-19
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
The Partnership has no specific plans with respect to more extensive
advancements or improvements that would include the replacement of coaxial trunk
cable with fiber optic cable. 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 Riverside System. The following table sets forth information for
the Riverside System for the periods indicated (amounts in thousands):
September 30, September 30,
1998 1997
------------- -------------
Basic Customers (1) 19.2 18.8
Premium Subscriptions (1)(2) 20.4 18.8
Nine months ended
September 30,
-------------------------------
1998 1997
------------- -------------
Revenue (3) $6,937 6,407
====== =====
Operating Cash Flow (4) $2,999 2,698
====== =====
(1) From September 30, 1997 to September 30, 1998, Riverside experienced
an increase of 1,600 premium subscriptions and 400 basic customers.
Such increase in premium subscriptions is comprised of a 200
subscription increase in traditional premium subscriptions, a 1,000
subscription increase in "STARZ!" subscriptions, a 200 subscription
increase in "ENCORE" subscriptions and a 200 subscription increase in
"DMX" subscribers. The monthly charge for "ENCORE" and "STARZ!",
which are indirectly owned by TCI, generally ranges from $1.00 to
$7.00, as compared to $9.00 to $13.00 for other premium services. As
described under "Competition" above, Riverside is subject to
competition from the California MMDS Operator and providers of medium
power and high power direct broadcast satellite services. The
Partnership currently is unable to predict the future effect of such
competition on Riverside's financial condition and results of
operations.
(2) A basic customer may subscribe to one or more premium services and the
number of premium services reflected represents the total number of
such subscriptions. In addition to competition, fluctuations in
premium subscriptions may also result from 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, Riverside
typically experiences reductions in the number of its premium
subscriptions.
(3) For additional information concerning Riverside's revenue, see
"Material Changes in Results of Operations" below.
------------------------------------------
I-20
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
(4) Operating income before depreciation, amortization, and management
fees ("Operating Cash Flow") is a measure of value and borrowing
capacity within the cable television industry. Changes in Operating
Cash Flow result from the net effect of the revenue and expense
variances discussed in "Material Changes in Results of Operations"
-----------------------------------------
below. The amounts reflected in the table 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 September 30, 1998, the Riverside System passed approximately 31,500
homes.
On August 12, 1998, the Partnership entered into an agreement that provides
for the sale of the Riverside System to Century, an unaffiliated third party,
for a cash sales price of $33,000,000, subject to certain adjustments. Pursuant
to the Asset Purchase Agreement, $1,500,000 of such sales price will be subject
to indemnifiable claims for 180 days following consummation of the Riverside
Sale.
Subject to the approval of the Limited Partners, the receipt of regulatory
approvals and satisfaction or waiver of customary conditions to closing
consummation of the Riverside Sale is expected to occur during the fourth
quarter of 1998 or the first quarter of 1999.
In the event that the Riverside Sale is approved and consummated, of which
there can be no assurance, the Partnership will have sold all of its assets
(other than cash and funds held in escrow) and, pursuant to the Partnership's
limited partnership agreement, will ultimately be dissolved and terminated.
Assuming the Riverside Sale and the dissolution and liquidation of the
Partnership had occurred on September 30, 1998, the Partnership estimates that
the pro forma distribution to Limited Partners would have been $225 per $500
Unit. The Partnership anticipates that an initial distribution will be made to
its partners as soon as practicable after the date of the closing of the
Riverside Sale. It is expected that a final liquidating distribution will be
made as soon as practicable after all funds held in escrow have been released to
the Partnership, subject to the receipt of any indemnifiable claims. No
assurance can be given as to the timing or amount of such distributions.
In the event that the Riverside Sale is not consummated, it is currently
the General Partner's intention to seek a substitute buyer for the Riverside
System. There is no assurance that the General Partner could arrange for a
substitute sale transaction for the Riverside System at an appropriate price or
on terms acceptable to the Partnership. If the General Partner's efforts in
arranging a substitute sale transaction prove to be unsuccessful, the General
Partner would continue to operate the Riverside System.
I-21
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
TCI Communications, Inc., a subsidiary of TCI, and Century have signed a
letter of intent to establish the Joint Venture. Among those systems to be
contributed to the Joint Venture by TCIC is the Redlands System. The Riverside
System currently utilizes office facilities, personnel and certain cable
distribution assets (including the headend) of the Redlands System. In the
event the Riverside Sale is consummated, the Riverside System is among those
systems to be contributed to the Joint Venture by Century. TCIC will have a 25%
interest in the Joint Venture, which will be managed by Century. In the event
that the Joint Venture is consummated prior to the Riverside Sale, or the Joint
Venture is consummated and the Riverside Sale is not consummated, Cablevision
will continue to manage the Riverside System. The Partnership has agreed that
in the event the Joint Venture is consummated prior to the Riverside Sale,
Cablevision may engage the Joint Venture to perform all or any portion of the
day-to-day management of the Riverside System.
Material Changes in Results of Operations
-----------------------------------------
The decreases in revenue, programming expense and other operating costs for
the nine months ended September 30, 1998, as compared to the corresponding prior
year period, resulted primarily from the impact of the 1997 Sales Transactions.
See "General", Asset Sales, above.
-------
Revenue decreased $7,093,000 or 51% for the nine months ended September 30,
1998, as compared to the corresponding prior year period. Such decrease is
primarily attributable to the timing of the 1997 Sales Transactions. Revenue
for Riverside increased $485,000 or 8% for the nine months ended September 30,
1998, as compared to the corresponding prior year period. The majority of such
increase in revenue resulted from a $352,000 increase in basic revenue which was
partially offset by a $82,000 decrease in premium revenue. Advertising sales
and other revenue accounted for the remaining increase in revenue. Riverside
experienced an 8% increase in its average basic rate, a 1% increase in the
number of average basic customers, a 9% decrease in its average premium rate,
and a less than 1% increase in the number of average premium subscriptions
during the nine months ended September 30, 1998, as compared to the
corresponding prior year period. For additional information, see "General - The
-------
Riverside System" and "General - Regulation" above.
-------
Programming expense decreased $1,395,000 or 46% for the nine months ended
September 30, 1998, as compared to the corresponding prior year period. Such
decrease is primarily attributable to the timing of the 1997 Sales Transactions.
Programming expense for Riverside remained relatively consistent for the nine
month period ended September 30, 1998, as compared to the corresponding prior
year period. The Partnership anticipates that its programming costs will
increase in future periods.
Operating expenses decreased $815,000 or 53% for the nine months ended
September 30, 1998, as compared to the corresponding prior year period. Such
decrease is primarily attributable to the timing of the 1997 Sales Transactions.
Operating expenses for Riverside increased $155,000 or 27% for the nine months
ended September 30, 1998, as compared to the corresponding prior year period.
Such increase is primarily due to increased labor costs related to the hiring of
additional installers in conjunction with the Partnership's efforts to increase
the number of customers who subscribe to digital video services.
I-22
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Material Changes in Results of Operations (continued)
-----------------------------------------------------
Selling, general and administrative ("SG&A") expenses decreased $2,744,000
or 53% for the nine months ended September 30, 1998, as compared to the
corresponding prior year period. Such decrease is primarily attributable to the
timing of the 1997 Sales Transactions. SG&A expense for Riverside increased
$102,000 or 5% for the nine months ended September 30, 1998, as compared to the
corresponding prior year period. Such increase is primarily due to increased
costs relating to the launch of digital products and other initiatives.
Depreciation and amortization expense decreased $3,213,000 or 53% for the
nine months ended September 30, 1998, as compared to the corresponding prior
year period. Such decrease is primarily attributable to the timing of the 1997
Sales Transactions. Amortization expense for the 1998 period includes $92,000
attributable to the year ended December 31, 1997. Depreciation and amortization
expense for Riverside increased $164,000 or 6% for the nine months ended
September 30, 1998, as compared to the corresponding prior year period. Such
increase is primarily attributable to capital expenditures.
Other Income and Expense
------------------------
Interest expense decreased $135,000 or 100% for the nine months ended
September 30, 1998, as compared to the corresponding prior year period. Such
decrease is due to the Partnership's use of cash proceeds from the Southern
Tennessee Sale to repay all amounts outstanding under the bank credit facility
and to terminate such facility during 1997.
Interest income decreased $1,134,000 or 66% for the nine months ended
September 30, 1998, as compared to the corresponding prior year period. Such
decrease is due to a decrease in the average balance of the Partnership's cash
and cash equivalents. Additionally, ACT 5 received interest of $39,000 and
$57,000 in conjunction from the release of the St. Mary's Escrow during the
second quarter of 1998, and the release of the Lower Delaware Escrow during the
third quarter of 1998, respectively.
During the first quarter of 1998, the Partnership wrote off $202,000 of
deferred loan costs that were related to debt that was repaid in 1997.
Material Changes in Financial Condition
---------------------------------------
As previously described under "General - Asset Sales," pursuant to the 1997
-------
Sales Transactions, $2,337,000 of the combined sales price of the 1997 Sales
Transactions was placed in escrow and was subject to indemnifiable claims for up
to one year following consummation of the applicable 1997 Sales Transactions.
The St. Mary's Escrow was released to ACT 5 during the second quarter of 1998
and the Lower Delaware Escrow was released to ACT 5 during the third quarter of
1998. Prior to its release, Rifkin filed a claim against the Southern Tennessee
Escrow relating to a class action lawsuit filed by a customer challenging late
fee charges with respect to the Southern Tennessee System. Such claim has had
and will continue to have the effect of delaying the release of the Southern
Tennessee Escrow. In addition, any judgment against the Southern Tennessee
System may have the effect of reducing the amount of the Southern Tennessee
Escrow ultimately released to ACT 5.
I-23
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Material Changes in Financial Condition (continued)
---------------------------------------------------
In the event that the Riverside Sale is approved and consummated, of which
there can be no assurance, the Partnership will have sold all of its assets
(other than cash and funds held in escrow) and, pursuant to the Partnership's
limited partnership agreement, will ultimately be dissolved and terminated.
Assuming the Riverside Sale and the dissolution and liquidation of the
Partnership had occurred on September 30, 1998, the Partnership estimates that
the pro forma distribution to Limited Partners would have been $225 per $500
Unit. The Partnership anticipates that an initial distribution will be made to
its partners as soon as practicable after the date of the closing of the
Riverside Sale. It is expected that a final liquidating distribution will be
made as soon as practicable after all funds held in escrow have been released to
the Partnership, subject to the receipt of any indemnifiable claims. No
assurance can be given as to the timing or amount of such distributions.
The Partnership's other liabilities represent unclaimed distribution checks
to certain Limited Partners which were written on a bank account which was
subsequently closed. Such checks will either be reissued to such Limited
Partners or released to the respective state of such Limited Partners' last
known residence upon dissolution of the Partnership.
During the nine months ended September 30, 1998, the Partnership used cash
on hand of $17,711,000 and cash provided by investing activities of $1,061,000
to fund operating activities of $12,133,000. See the Partnership's statements
of cash flows included in the accompanying financial statements.
The Partnership estimates that during 1998 it will spend approximately $1.6
million for capital expenditures related to Riverside, of which $940,000 relates
to digital video services. As of September 30, 1998, the Riverside System had
spent $709,000 on capital expenditures, of which $425,000 relates to digital
video services. The estimated digital video services capital expenditures are
based upon the achievement of a target level of new customers to such services,
and therefore capital expenditures will fluctuate based on the actual number of
new customers which subscribe to digital video services. Additionally, the
above estimated amounts assume a full year of capital expenditures for Riverside
and that no significant technological improvements will be implemented to the
Riverside System. See related discussion under "General - Competition" and
-------
"General - The Riverside System".
- --------
The Partnership anticipates that cash on hand and amounts due from related
parties 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-24
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
PART II - OTHER INFORMATION
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 September 30, 1998:
Date of Report Items Reported Financial Statements Filed
-------------- -------------- --------------------------
August 27, 1998 Item 5 None.
<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: November 12, 1998 By: /s/ Ann M. Koets
--------------------------
Ann M. Koets
Vice President
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith or are incorporated by reference
herein (according to the number assigned to them in Item 601 of Regulation S-K)
as noted:
(27) American Cable TV Investors 5 LTD.
<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 SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,639
<SECURITIES> 0
<RECEIVABLES> 253
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19,890
<DEPRECIATION> 11,917
<TOTAL-ASSETS> 29,431
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 28,575
<TOTAL-LIABILITY-AND-EQUITY> 29,431
<SALES> 0
<TOTAL-REVENUES> 6,937
<CGS> 0
<TOTAL-COSTS> 2,386
<OTHER-EXPENSES> 2,894
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (366)
<INCOME-TAX> 0
<INCOME-CONTINUING> (366)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (366)
<EPS-PRIMARY> (1.81)<F1>
<EPS-DILUTED> 0
<FN>
<F1>EPS-PRIMARY REPRESENTS NET LOSS PER LIMITED PARTNERSHIP UNIT.
</FN>
</TABLE>
