<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 June 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 executive (Zip Code)
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)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------------- -------------------
Assets amounts in thousands
- ------
<S> <C> <C>
Cash and cash equivalents (note 4) $ 10,115 17,711
Trade and other receivables, net of allowance for doubtful
accounts 219 409
Amounts due from related parties (note 5) 5,116 --
Property and equipment:
Cable distribution systems 17,901 17,693
Support equipment and buildings 1,436 1,436
-------------- --------------
19,337 19,129
Less accumulated depreciation 11,643 10,868
-------------- --------------
7,694 8,261
-------------- --------------
Franchise costs and other intangibles 24,649 24,649
Less accumulated amortization 17,859 16,686
-------------- --------------
6,790 7,963
-------------- --------------
Funds held in escrow (note 2) 1,571 2,337
Other assets, net of accumulated amortization 5 208
-------------- --------------
$ 31,510 36,889
============== ==============
</TABLE>
(continued)
I-1
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Balance Sheets (continued)
June 30, December 31,
1998 1997
-------- ------------
amounts in thousands
Liabilities and Partners' Equity
- --------------------------------
Cash overdraft $ 310 --
Accounts payable 2 14
Subscriber advance payments and converter deposits 46 107
Other liabilities 2,627 2,908
Amounts due to related parties (note 5) -- 4,919
-------- --------
Total liabilities 2,985 7,948
-------- --------
Partners' equity (deficit):
General partner (3,016) (3,012)
Limited partners 31,541 31,953
-------- --------
Total partners' equity 28,525 28,941
-------- --------
Commitments and contingencies (notes 2, 5 and 6)
$ 31,510 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 Six months ended
June 30, June 30,
----------------------------------- ----------------------------------
1998 1997 1998 1997
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
amounts in thousands,
except unit amounts
Revenue $ 2,311 4,744 4,538 11,867
Operating costs and expenses:
Programming (primarily from related parties
- note 5) 552 993 1,110 2,547
Operating (including allocations from
related parties - note 5) 259 651 496 1,379
Selling, general and administrative
(including charges from related parties -
note 5) 787 2,306 1,516 4,777
Depreciation and amortization 943 1,864 1,969 5,159
------------- ------------- ------------- -------------
Total operating expenses 2,541 5,814 5,091 13,862
------------- ------------- ------------- -------------
Operating loss (230) (1,070) (553) (1,995)
Other income (expense):
Interest expense -- -- -- (135)
Interest income (notes 2 and 5) 219 567 339 579
Write-off of deferred loan costs -- -- (202) --
Gain on sale of cable television systems
(note 2) -- 45,272 -- 45,272
------------- ------------- ------------- -------------
Net earnings (loss) $ (11) 44,769 (416) 43,721
============= ============= ============= =============
Net earnings (loss) per limited partnership
unit ("Unit") (note 3) $ (.05) 221.60 (2.06) 216.41
============= ============= ============= =============
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
Six months ended June 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) (412) (416)
-------- -------- -------
Balance at June 30, 1998 $ (3,016) 31,541 28,525
======== ======== =======
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>
Six months ended
June 30,
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
amounts in thousands
(see note 4)
Cash flows from operating activities:
Net earnings (loss) $ (416) 43,721
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,969 5,159
Write-off of deferred loan costs 202 --
Gain on sale of cable television systems -- (45,272)
Changes in operating assets and liabilities:
Net change in receivables and other assets 190 (361)
Net change in accounts payable, subscriber advance payments
and converter deposits, other liabilities and amounts due to
related parties (10,389) (16)
------------- -------------
Net cash provided by (used in) operating activities (8,444) 3,231
------------- -------------
Cash flows from investing activities:
Capital expended for property and equipment (237) (825)
Proceeds from sale of cable television systems, net of disposition
fees 766 87,491
Other investing activities 9 (3)
------------- -------------
Net cash provided by investing activities 538 86,663
------------- -------------
Cash flows from financing activities:
Repayments of debt -- 1,000
Borrowings of debt -- (8,500)
Change in cash overdraft 310 (978)
------------- -------------
Net cash provided by (used in) financing activities 310 (8,478)
------------- -------------
Net change in cash and cash
equivalents (7,596) 81,416
Cash and cash equivalents:
Beginning of period 17,711 4,729
------------- -------------
End of period $ 10,115 86,145
============= =============
</TABLE>
See accompanying notes to financial statements.
I-5
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
June 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 June 30, 1998 and the results of its operations
for the six months ended June 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 has been 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 six months ended June 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 six months ended June 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 subsequent to June 30, 1998.
During the six months ended June 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.
The Partnership owns and operates the cable television system located in
and around Riverside, California ("Riverside" or the "Riverside System").
The Partnership is in negotiations with an unaffiliated third party (the
"Potential Buyer") for the sale of the Riverside System (the "Proposed
Riverside Sale"). The Proposed Riverside Sale is subject to the execution
of a definitive purchase agreement, the satisfaction of various conditions
and approvals, including approval of various governmental authorities and
approval by the Limited Partners. There is no assurance that a definitive
purchase agreement will be entered into or that the Proposed Riverside Sale
will be consummated.
In the event that the Proposed 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.
TCI Communications, Inc. ("TCIC"), a subsidiary of TCI, and the Potential
Buyer 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. If the
Riverside System were to be sold to the Potential Buyer, it is anticipated
that the Potential Buyer would contribute the Riverside System to the Joint
Venture. In the event that the Joint Venture is consummated prior to the
Proposed Riverside Sale, or the Joint Venture is consummated and the
Proposed 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 Proposed Riverside Sale,
Cablevision may engage the Joint Venture to perform all or any portion of
the day to day management of the Riverside System.
(continued)
I-8
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
(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 June 30, 1998, $7,746,000 of the
Partnership's cash and cash equivalents was invested in money market funds.
Cash paid by the Partnership for interest was immaterial for the six months
ended June 30, 1998 and $152,000 for the six months ended June 30, 1997.
(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
$1,102,000 and $2,547,000 during the six months ended June 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 $272,000 and $766,000 for the six months ended June 30, 1998 and 1997,
respectively.
(continued)
I-9
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
The Partnership also reimburses Cablevision for direct out-of-pocket and
indirect expenses allocable to the Partnership and for certain personnel
employed on a full or part-time basis to perform accounting, marketing,
technical or other services. Such reimbursements amounted to $99,000 and
$205,000 for the six months ended June 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 six months ended June 30, 1998 and 1997, Riverside's
operating and administrative salaries and expenses amounted to $1,123,000
and $1,065,000, 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 (5.6% at
June 30, 1998). Interest earned on amounts due from TCI and its affiliates
was $54,000 during the six months ended June 30, 1998 and was not
significant during the six months ended June 30, 1997.
(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.
(continued)
I-10
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
At June 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.
During the six months ended June 30, 1998, TCI continued its enterprise-
wide comprehensive efforts to review and correct computer systems,
equipment and related software to ensure they properly recognize, process
and store business information. The computer systems, equipment and
software being evaluated include systems which are integral to the
distribution of the Partnership's products and services, systems that
support operations of the Partnership and protect its assets, and all
internal use software. TCI is utilizing both internal and external
resources, including the establishment of a year 2000 enterprise program
management office accountable to TCI's executive management, to identify
and remediate or replace systems for year 2000 readiness.
During the six months ended June 30, 1998, TCI, in its capacity as the
ultimate parent of the managing agent of the Partnership, began the process
of testing and replacing or remediating critical components of the
Partnership's cable systems' headend equipment. Although no assurance can
be given, TCI expects to conclude such testing by December 1998 with
replacement or remediation completed by the end of the first quarter of
1999. Also, TCI began the process of remediating systems that control the
commercial advertising in the Partnership's cable operations. Although no
assurance can be given, those remediation efforts should be complete by
mid-1999. The Partnership's business and financial systems and software
which will continue to be utilized by the Partnership beyond the year 1999
will be capable of recognizing the year 2000 and therefore should not
require material remediation or replacement.
Significant third party vendors whose systems are critical to the
Partnership's cable operations have been identified and surveyed and
confirmations from such parties have been received indicating that they are
either year 2000 ready or have plans in place to become ready. During the
six months ended June 30, 1998, TCI completed an independent assessment of
a key financial application externally managed by a third party vendor and
determined that such vendor's systems and software should be compliant by
the end of 1998. Also, TCI has developed and initiated a plan with key
suppliers who provide systems which are integral to the distribution of the
Partnership's products to upgrade or replace non-year 2000 compliant
systems on a product-by-product and site-by-site basis by mid-1999.
(continued)
I-11
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
Management of TCI intends to have further communication with primary
vendors identified as having systems that are not year 2000 compliant to
assess those vendors' plans for remediating their own year 2000 issues and
to assess the impact on the Partnership if such vendors fail to remediate
their year 2000 issues. TCI continues to evaluate the level of validation
it will require of third parties to ensure their year 2000 readiness.
Management of TCI has not yet determined the full cost associated with its
year 2000 readiness efforts and the related potential impact on TCI's
financial position, results of operations or cash flows but has identified
certain cost elements that, in the aggregate, are not expected to be less
than $63 million, which includes $3 million of program management expenses
incurred during the six months ended June 30, 1998. As of June 30, 1998,
the Partnership's share of such cost elements has not been determined.
Although there can be no assurance, TCI anticipates that the costs
ultimately required to be paid to ensure the Partnership's year 2000
readiness will not have a material adverse effect on the Partnership's
financial position, results of operations or cash flows. However, there can
be no assurance that the Partnership's systems or the systems of other
companies on which the Partnership relies will be converted in time or that
any such failure to convert by the Partnership or other companies will not
have a material adverse effect on its financial position, results of
operations or cash flows.
I-12
<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 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 Partnership's year 2000 remediation
efforts, 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.
I-13
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General
-------
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 has been placed in the Southern
Tennessee 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 subsequent to June 30, 1998.
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.
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 six months ended June 30, 1997 (amounts in
thousands):
Revenue $ 7,623
Operating costs and expenses (4,620)
Depreciation and amortization (3,104)
-------
Operating loss $ (101)
=======
I-14
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
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 June 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 six months ended June 30, 1998, approximately 71% 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 June 30, 1998, and therefore the
capital costs incurred with the introduction of digital video services were not
significant to the Riverside System for the six months ended June 30, 1998.
However, the Riverside System plans to increase the number of customers who
subscribe to digital video services.
I-15
<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):
June 30, June 30,
1998 1997
---------------- ----------------
Basic Customers (1) 19.1 18.9
Premium Subscriptions (1)(2) 21.0 18.3
Six months ended
June 30,
-----------------------------
1998 1997
-------- --------
Revenue (3) $ 4,538 4,241
======== ========
Operating Cash Flow (4) $ 1,787 1,722
======== ========
(1) From June 30, 1997 to June 30, 1998, Riverside experienced an increase
of 2,700 premium subscriptions and 200 basic customers. Such increase
in premium subscriptions is comprised of a 600 subscription increase
in traditional premium subscriptions, an 1,100 subscription increase
in "STARZ!" subscriptions, an 800 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-16
<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 June 30, 1998, the Riverside System passed approximately 31,500 homes.
The Partnership is in negotiations with the Potential Buyer for the
Proposed Riverside Sale. The Proposed Riverside Sale is subject to the
execution of a definitive purchase agreement, the satisfaction of various
conditions and approvals, including approval of various governmental authorities
and approval by the Limited Partners. There is no assurance that a definitive
purchase agreement will be entered into or that the Proposed Riverside Sale will
be consummated.
In the event that the Proposed 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.
TCI Communications, Inc., a subsidiary of TCI, and the Potential Buyer 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. If
the Riverside System were to be sold to the Potential Buyer, it is anticipated
that the Potential Buyer would contribute the Riverside System to the Joint
Venture. In the event that the Joint Venture is consummated prior to the
Proposed Riverside Sale, or the Joint Venture is consummated and the Proposed
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 Proposed Riverside Sale, Cablevision may
engage the Joint Venture to perform all or any portion of the day to day
management of the Riverside System.
I-17
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
During the six months ended June 30, 1998, TCI continued its enterprise-
wide comprehensive efforts to review and correct computer systems and related
software to ensure they properly recognize, process and store business
information. The computer systems and software being evaluated include systems
that manage the distribution of the Partnership's products, systems that support
operations of the Partnership and protect its assets, and all internal use
software. TCI is utilizing both internal and external resources, including the
establishment of a year 2000 enterprise program management office accountable to
TCI's executive management, to identify, remediate, and replace systems for year
2000 readiness.
During the six months ended June 30, 1998, TCI, in its capacity as the
ultimate parent of the managing agent of the Partnership, began the process of
testing and replacing or remediating critical components of the Partnership's
cable systems' headend equipment. Although no assurance can be given, TCI
expects to conclude such testing by December 1998 with replacement or
remediation completed by the end of the first quarter of 1999. Also, TCI began
the process of remediating systems that control the commercial advertising of
the Partnership's cable operations. Although no assurance can be given, those
remediation efforts should be complete by mid-1999. The Partnership's business
and financial systems and software which will continue to be utilized by the
Partnership beyond the year 1999 are capable of recognizing the year 2000 and
therefore should not require material remediation or replacement.
Significant third party vendors whose systems are critical to the
Partnership's cable operations have been identified and surveyed and
confirmations from such parties have been received indicating that they are
either year 2000 ready or have plans in place to ensure readiness. During the
six months ended June 30, 1998, TCI completed an independent audit of a key
financial application externally managed by a third party vendor and determined
that such vendor's systems and software will be compliant by the end of 1998.
Also, TCI has developed and initiated a plan with key suppliers who provide
systems that manage the distribution of the Partnership's products to upgrade or
replace non-year 2000 compliant systems on a product-by-product and site-by-site
basis by mid-1999.
Management of TCI intends to have further communication with primary
vendors identified as having systems that are not year 2000 compliant to assess
those vendors' plans for remediating their own year 2000 issues and to assess
the impact on the Partnership if such vendors fail to remediate their year 2000
issues. TCI continues to evaluate the level of validation it will require of
third parties to ensure their year 2000 readiness.
I-18
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
Management of TCI has not yet determined the full cost associated with its
year 2000 readiness efforts and the related potential impact on TCI's financial
position, results of operations or cash flows but has identified certain cost
elements that, in the aggregate, are not expected to be less than $63 million,
which includes $3 million of program management expenses incurred during the six
months ended June 30, 1998. As of June 30, 1998, the Partnership's share of
such cost elements has not been determined. Although there can be no assurance,
TCI anticipates that the costs ultimately required to be paid to ensure the
Partnership's year 2000 readiness will not have a material adverse effect on the
Partnership's financial position, results of operations or cash flows.
Additionally, there can be no assurance that the Partnership's systems or the
systems of other companies on which the Partnership relies will be converted in
time or that any such failure to convert by the Partnership or other companies
will not have a material adverse effect on its financial position, results of
operations or cash flows.
Material Changes in Results of Operations
-----------------------------------------
The decreases in revenue, programming expense and other operating costs for
the six months ended June 30, 1998, as compared to the corresponding prior year
period, resulted primarily from the impact of the 1997 Sales Transactions. See
"General" above.
-------
Revenue decreased $7,329,000 or 62% for the six months ended June 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 $297,000 or 7% for the six months ended June 30, 1998, as
compared to the corresponding prior year period. The majority of such increase
in revenue resulted from a $254,000 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 a 10% increase in its average basic rate, a less than 1% change in
the number of average basic customers, a 13% decrease in its average premium
rate, and a 3% increase in the number of average premium subscriptions during
the six months ended June 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 $1,437,000 or 56% for the six months ended
June 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 during the six
month period ended June 30, 1998, as compared to the corresponding prior year
period. The Partnership cannot determine whether and to what extent increases
in the cost of programming will affect Riverside's future operating costs.
Operating expenses decreased $883,000 or 64% for the six months ended June
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 $109,000 or 28% for the six months ended June
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-19
<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 $3,261,000
or 68% for the six months ended June 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 $27,000 or 2% for
the six months ended June 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 $3,190,000 or 62% for the
six months ended June 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 $140,000 or 8% for the six months ended June 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 six months ended June
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 $240,000 or 41% for the six months ended June 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 in conjunction
with the release of the St. Mary's Escrow during the second quarter of 1998.
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 subsequent to June 30,1998.
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-20
<PAGE>
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Material Changes in Financial Condition (continued)
---------------------------------------------------
As previously described under "General - Asset Sales," the Partnership is
-------
in negotiations with the Potential Buyer for the sale of the Riverside System.
In the event that the Proposed Riverside Sale is consummated, the Partnership
anticipates that it would use the available net cash proceeds to satisfy its
liabilities, including any amounts due TCIC, and make distributions to the
Partnership's partners.
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 six months ended June 30, 1998, the Partnership used cash on
hand of $7,596,000 and cash provided by investing and financing activities of
$538,000 and $310,000, respectively, to fund operating activities of $8,444,000.
See the Partnership's statements of cash flows included in the accompanying
financial statements.
The Partnership estimates that during 1998 it will spend approximately $1.4
million for capital expenditures related to Riverside, of which $940,000 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 the estimate of capital expenditures will
fluctuate based on the actual number of new customers which subscribe to digital
video services. Additionally, such 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 any cash released from
amounts held in escrow 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-21
<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 June 30, 1998:
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: August 12, 1998 By: /s/ Ann M. Koets
-----------------------------
Ann M. Koets
Vice President
<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 JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,115
<SECURITIES> 0
<RECEIVABLES> 219
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19,337
<DEPRECIATION> 11,643
<TOTAL-ASSETS> 31,510
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 28,525
<TOTAL-LIABILITY-AND-EQUITY> 31,510
<SALES> 0
<TOTAL-REVENUES> 4,538
<CGS> 0
<TOTAL-COSTS> 1,606
<OTHER-EXPENSES> 1,969
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (416)
<INCOME-TAX> 0
<INCOME-CONTINUING> (416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (416)
<EPS-PRIMARY> (2.06)<F1>
<EPS-DILUTED> 0
<FN>
<F1>EPS-PRIMARY REPRESENTS NET LOSS PER LIMITED PARTNRRSHIP UNIT.
</FN>
</TABLE>
