UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended March 31, 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 offices) (Zip Code)
Registrant's telephone number, including area code: (303) 267-5500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
PART I - FINANCIAL INFORMATION
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Balance Sheets
(unaudited)
(see note 2)
March 31, December 31,
1998 1997
-------------------- -------------------
Assets amounts in thousands
- ------
Cash and cash equivalents (note 4) $10,162 17,711
Trade and other receivables, net of allowance for doubtful
accounts 272 409
Amounts due from related parties (note 5) 3,320 --
Property and equipment:
Cable distribution systems 17,758 17,693
Support equipment and buildings 1,436 1,436
------- -------
19,194 19,129
Less accumulated depreciation 11,262 10,868
------- -------
7,932 8,261
------- -------
Franchise costs and other intangibles 24,649 24,649
Less accumulated amortization 17,318 16,686
------- -------
7,331 7,963
------- -------
Funds held in escrow (note 2) 2,337 2,337
Other assets, net of accumulated amortization 5 208
------- -------
$31,359 36,889
======= =======
(continued)
I-1
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Balance Sheets (continued)
March 31, December 31,
1998 1997
--------------- ----------------
amounts in thousands
Liabilities and Partners' Equity
- --------------------------------
Accounts payable
$ 6 14
Subscriber advance payments and converter deposits
49 107
Other liabilities
2,768 2,908
Amounts due to related parties (note 5)
-- 4,919
------- ------
Total liabilities
2,823 7,948
------- ------
Partners' equity (deficit):
General partner
Limited partners (3,016) (3,012)
31,552 31,953
------- ------
Total partners' equity
28,536 28,941
Commitments and contingencies (notes 5 and 6) ------- ------
$31,359 36,889
======= ======
See accompanying notes to financial statements.
I-2
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Statements of Operations
(unaudited)
(see note 2)
Three months ended
March 31,
-------------------------------------------
1998 1997
------------------- ---------------------
amounts in thousands,
except unit amounts
Revenue $ 2,227 7,123
Operating costs and expenses:
Programming (primarily from
related parties - note 5) 558 1,554
Operating (including allocations
from related parties - note 5) 237 728
Selling, general and administrative (including charges and
allocations from related parties - note 5) 729 2,471
Depreciation and amortization 1,026 3,295
-------- -------
Total operating expenses 2,550 8,048
-------- -------
Operating loss (323) (925)
Other income (expense):
Interest expense -- (135)
Interest income 120 12
Write-off of deferred loan costs (202) --
-------- -------
Net loss $ (405) (1,048)
======== =======
Net loss per limited partnership unit ("Unit") (note 3) $ (2.00) (5.19)
======== =======
Limited partnership units outstanding 200,005 200,005
======== =======
See accompanying notes to financial statements.
I-3
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Statement of Partners' Equity
Three months ended March 31, 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) (401) (405)
------- ------ ------
Balance at March 31, 1998 $(3,016) 31,552 28,536
======= ====== ======
See accompanying notes to financial statements.
I-4
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Statements of Cash Flows
(unaudited)
(see note 2)
Three months ended
March 31,
---------------------------------
1998 1997
--------------- ---------------
amounts in thousands
(see note 4)
Cash flows from operating activities:
Net loss $ (405) (1,048)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,026 3,295
Write-off of deferred loan costs 202 --
Changes in operating assets and liabilities:
Net change in receivables and other assets 137 (360)
Net change in accounts payable, subscriber advance payments,
converter deposits, other liabilities and amounts due to/from
related parties (8,445) (886)
------- -------
Net cash provided by (used in) operating activities (7,485) 1,001
------- -------
Cash flows from investing activities:
Capital expended for property and equipment (53) (213)
Other investing activities (11) --
------- -------
Net cash used in investing activities (64) (213)
------- -------
Cash flows from financing activities:
Borrowings of debt -- 1,000
Repayments of debt -- (500)
Change in cash overdraft -- (755)
------- -------
Net cash used in financing activities -- (255)
------- -------
Net change in cash and cash
equivalents (7,549) 533
Cash and cash equivalents:
Beginning of period 17,711 4,729
------- -------
End of period $10,162 5,262
======= =======
See accompanying notes to financial statements.
I-5
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
March 31, 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 March 31, 1998 and the results of its operations
for the three months ended March 31, 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. At December 31,
1997, the general partner of IR-TCI was 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
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 will have the effect of reducing the amount of the Southern
Tennessee Escrow ultimately released to ACT 5. During the three months
ended March 31, 1997, the Partnership's financial statements included
revenue from the Southern Tennessee System of $990,000.
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 has been placed in escrow (the "St. Mary's Escrow") and was
subject to indemnifiable claims by Gans through April 15, 1998. ACT 5 has
submitted its request for the release of the St. Mary's Escrow and
anticipates that such escrow will be released to ACT 5 in the second
quarter of 1998. During the three months ended March 31, 1997, the
Partnership's financial statements included revenue from the St. Mary's
System of $1,858,000.
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 has been placed in escrow and will be subject to indemnifiable
claims by Mediacom through June 23, 1998. During the three months ended
March 31, 1997, the Partnership's financial statements included revenue
from the Lower Delaware System of $2,219,000.
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
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 December 1997, TCI Communications, Inc. ("TCIC"), a subsidiary of TCI,
and the Potential Buyer signed a letter of intent to establish a joint
venture that will combine multiple cable systems in southern California
(the "Joint Venture"). Among those systems to be contributed by TCIC to
the Joint Venture is the system serving customers in and around Redlands,
California (the "Redlands System"). The Riverside System utilizes office
facilities, personnel and certain cable distribution assets (including the
headend) of the Redlands System. In the event the establishment of the
Joint Venture is consummated prior to the Proposed Riverside Sale, it is
anticipated that the Riverside System would continue to use the office
facilities, personnel and certain cable distribution assets of the Redlands
System under similar terms and conditions as presently exist. In the event
such an arrangement cannot be made with the Joint Venture, TCI has
indicated that it would make such assets and resources available to the
Riverside System. However, no assurance can be given that TCI's costs to
provide facilities and personnel to the Riverside System would not be
higher than the amounts currently charged to the Riverside System for such
services. See note 5.
(continued)
I-8
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 loss per Unit is calculated by dividing net 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 March 31, 1998, $6,947,000 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 three
months ended March 31, 1998 and $152,000 for the three months ended
March 31, 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
$553,000 and $1,499,000 during the three months ended March 31, 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 $134,000 and $423,000 for the three months ended March 31, 1998 and
1997, respectively.
(continued)
I-9
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 $33,000 and
$103,000 for the three months ended March 31, 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 three months ended March 31, 1998 and 1997,
Riverside's operating and administrative salaries and expenses amounted to
$583,000 and $508,000, 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 (5.4% at
March 31, 1998). Interest earned on amounts due from TCI and its affiliates
was not significant for the three months ended March 31, 1998 and 1997,
respectively.
(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, the
Partnership's basic and tier service rates and its equipment and
installation charges (the "Regulated Services") are subject to the
jurisdiction of local franchising authorities and the FCC. Basic and tier
service rates are evaluated against competitive benchmark rates as
published by the FCC, and equipment and installation charges are based on
actual costs. Any rates for Regulated Services that exceeded the
benchmarks were reduced as required by the 1993 and 1994 rate regulations.
The rate regulations do not apply to the relatively few systems which are
subject to "effective competition" or to services offered on an individual
service basis, such as premium movie and pay-per-view services.
(continued)
I-10
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
The Partnership believes that it has complied in all material respects with
the provisions of the 1992 Cable Act, including its rate setting
provisions. However, the Partnership's rates for Regulated Services are
subject to review by the FCC, if a complaint is filed by a customer, or the
appropriate franchise authority, if such authority has been certified by
the FCC to regulate rates. If, as a result of the review process, a system
cannot substantiate its rates, it could be required to retroactively reduce
its rates to the appropriate benchmark and refund the excess portion of
rates received.
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 three months ended March 31, 1998, TCI continued its enterprise-
wide comprehensive review of its computer systems and related software to
ensure systems properly recognize the year 2000 and continue to process
business information. The systems being evaluated include all internal use
software and devices and those systems and devices that manage the
distribution of the Partnership's products. TCI is utilizing both internal
and external resources to identify, correct or reprogram, and test systems
for year 2000 readiness.
As of March 31, 1998, TCI, in its capacity as the ultimate parent of the
managing agent of the Partnership, had inventoried the Riverside System and
began its assessment of the systems that will require remediation or
replacement. Inventoried systems include TCI's financial systems and
related software, its business systems, data and voice networks,
engineering systems and facilities and related software supporting the
distribution of the Partnership's products and other equipment and systems
potentially impacted by the year 2000. Additionally, TCI continued to have
formal communications with the Partnership's principal vendors to determine
their year 2000 readiness.
(continued)
I-11
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
TCI completed a preliminary assessment of its systems and related software
that support its financial applications. For those financial systems and
software which will continue to be utilized by the Partnership beyond the
year 1999, TCI has tentatively concluded that such systems are capable of
recognizing the year 2000 and therefore will not require material
remediation or replacement. One of TCI's financial applications that is
utilized by the Partnership is externally managed by a third party vendor
and such financial application will be replaced with software provided by
such vendor. No assurances can be given that as TCI completes its year 2000
assessment, additional internally managed systems will not be identified as
requiring remediation or replacement. TCI has completed an initial
assessment of the Partnership's business systems, including networks,
engineering systems, facilities and related software supporting the
distribution of the Partnership's products and has tentatively concluded
that certain portions of those systems will require remediation or
replacement. Although no assurance can be given, management of TCI
anticipates that such systems will be remediated or replaced prior to the
year 2000.
Significant third party vendors whose systems are critical to the
Partnership's cable operations have been identified and/or surveyed and
confirmations from such parties have been received indicating that they are
either year 2000 ready or have plans in place to ensure readiness.
Management of TCI 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's assessment of the impact of the year 2000 date change should be
complete by the end of 1998. TCI continues to evaluate the level of
validation it will require of third party vendors to ensure their year 2000
readiness. Management of TCI has not yet determined the cost associated
with its year 2000 readiness efforts and the related potential impact on
the Partnership's results of operations. Amounts expended to date have not
been material, although there can be no assurance that costs ultimately
required to be paid to ensure the Partnership's year 2000 readiness will
not have an adverse effect on the Partnership's financial position.
Additionally, there can be no assurance that the internal and external
systems 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 an adverse effect on its financial position.
I-12
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Management's Discussion and Analysis of
- ---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
The following discussion 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, 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
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 will 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 has been placed in escrow and was subject to indemnifiable claims made by
Gans through April 15, 1998. ACT 5 has submitted its request for the release of
the St. Mary's Escrow and anticipates that such escrow will be released to ACT 5
in the second quarter of 1998.
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 has been placed in escrow and will be subject to
indemnifiable claims made by Mediacom through June 23, 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 three months ended March 31, 1997 (amounts in
thousands):
Revenue $ 5,067
Operating costs and expenses (2,629)
Depreciation and amortization (2,403)
-------
Operating income $ 35
=======
I-14
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 basic and tier service rates and its equipment and installation charges
are regulated if a complaint is filed or if the appropriate franchise authority
is certified. At March 31, 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 three months ended March 31, 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 March 31, 1998, and therefore the
capital costs incurred with the introduction of digital video services were not
significant to the Riverside System for the three months ended March 31, 1998.
However, the Riverside System plans to increase the number of customers who
subscribe to digital video services.
I-15
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 involve 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):
March 31, December 31,
1998 1997
------------- -------------
Basic Customers (1) 19.0 18.9
Premium Subscriptions (1)(2) 20.6 19.9
Homes Passed 31.5 31.6
Three months ended
March 31,
----------------------------
1998 1997
------ -----
Revenue (3) $2,227 2,056
====== =====
Operating Cash Flow (4) $ 948 766
====== =====
(1) From December 31, 1997 to March 31, 1998, Riverside experienced an
increase of 700 premium subscriptions and 100 basic customers. Such
increase in premium subscriptions is comprised of a 200
subscription increase in traditional premium subscriptions, a 300
subscription increase in STARZ! subscriptions and a 200
subscription increase in "ENCORE" subscriptions. 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
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.
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 December 1997, TCIC and the Potential Buyer signed a letter of intent to
establish the Joint Venture. Among those systems to be contributed by TCIC to
the Joint Venture is the Redlands System. The Riverside System utilizes office
facilities, personnel and certain cable distribution assets (including the
headend) of the Redlands System. In the event the establishment of the Joint
Venture is consummated prior to the Proposed Riverside Sale, it is anticipated
that the Riverside System would continue to use the office facilities, personnel
and certain cable distribution assets of the Redlands System under similar terms
and conditions as presently exist. In the event such an arrangement cannot be
made with the Joint Venture, TCI has indicated that it would make such assets
and resources available to the Riverside System. However, no assurance can be
given that TCI's costs to provide facilities and personnel to the Riverside
System would not be higher than the amounts currently charged to the Riverside
System for such services.
Year 2000. During the three months ended March 31, 1998, TCI continued its
enterprise-wide comprehensive review of its computer systems and related
software to ensure systems properly recognize the year 2000 and continue to
process business information. The systems being evaluated include all internal
use software and devices and those systems and devices that manage the
distribution of the Partnership's products. TCI is utilizing both internal and
external resources to identify, correct or reprogram, and test systems for year
2000 readiness.
I-17
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
-------------------
As of March 31, 1998, TCI, in its capacity as the ultimate parent of the
managing agent of the Partnership, had inventoried the Riverside System and
began its assessment of the systems that will require remediation or
replacement. Inventoried systems include TCI's financial systems and related
software, its business systems, data and voice networks, engineering systems and
facilities and related software supporting the distribution of the Partnership's
products and other equipment and systems potentially impacted by the year 2000.
Additionally, TCI continued to have formal communications with the Partnership's
principal vendors to determine their year 2000 readiness.
TCI completed a preliminary assessment of its systems and related software
that support its financial applications. For those financial systems and
software which will continue to be utilized by the Partnership beyond the year
1999, TCI has tentatively concluded that such systems are capable of recognizing
the year 2000 and therefore will not require material remediation or
replacement. One of TCI's financial applications that is utilized by the
Partnership is externally managed by a third party vendor and such financial
application will be replaced with software provided by such vendor. No
assurances can be given that as TCI completes its year 2000 assessment,
additional internally managed systems will not be identified as requiring
remediation or replacement. TCI has completed an initial assessment of the
Partnership's business systems, including networks, engineering systems,
facilities and related software supporting the distribution of the Partnership's
products and has tentatively concluded that certain portions of those systems
will require remediation or replacement. Although no assurance can be given,
management of TCI anticipates that such systems will be remediated or replaced
prior to the year 2000.
Significant third party vendors whose systems are critical to the
Partnership's cable operations have been identified and/or surveyed and
confirmations from such parties have been received indicating that they are
either year 2000 ready or have plans in place to ensure readiness. Management
of TCI 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's assessment of the impact of the year 2000 date change should be
complete by the end of 1998. TCI continues to evaluate the level of validation
it will require of third party vendors to ensure their year 2000 readiness.
Management of TCI has not yet determined the cost associated with its year 2000
readiness efforts and the related potential impact on the Partnership's results
of operations. Amounts expended to date have not been material, although there
can be no assurance that costs ultimately required to be paid to ensure the
Partnership's year 2000 readiness will not have an adverse effect on the
Partnership's financial position. Additionally, there can be no assurance that
internal and external systems 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 an adverse effect on its financial position.
I-18
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Material Changes in Results of Operations
-----------------------------------------
The decreases in revenue, programming expense and other operating costs for
the three months ended March 31, 1998, as compared to the corresponding prior
year period, resulted primarily from the impact of the 1997 Sales Transactions.
See "General" above.
-------
Revenue decreased $4,896,000 or 69% for the three months ended March 31,
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 $171,000 or 8% for the three months ended March 31, 1998, as
compared to the corresponding prior year period. The majority of such increase
in revenue resulted from a $120,000 increase in basic revenue which was
partially offset by a $38,000 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 10% decrease in its average premium
rate, and a 2% decrease in the number of average premium subscriptions during
the three months ended March 31, 1998, as compared to the corresponding prior
year period. For additional information, see "General - The Riverside System"
-------
and "General - Regulation" above.
-------
Programming expense decreased $996,000 or 64% for the three months ended
March 31, 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 increased $38,000 or 7% for the three months
ended March 31, 1998, as compared to the corresponding prior year period. Such
increase is due to higher programming rates. 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 $491,000 or 67% for the three months ended
March 31, 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 $37,000 or 19% for the three months
ended March 31, 1998, as compared to the corresponding prior year period. Such
increase is due to increased labor costs related to the hiring of additional
installers associated with the Partnership's efforts to increase the number of
customers who subscribe to digital video services.
I-19
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 $1,742,000
or 70% for the three months ended March 31, 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 decreased
$95,000 or 13% for the three months ended March 31, 1998, as compared to the
corresponding prior year period. Such decrease is due to cost reduction efforts
in general and administrative costs implemented during 1997.
Depreciation and amortization expense decreased $2,269,000 or 69% for the
three months ended March 31, 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 $63,000 or 7% for the three months ended March
31, 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 three months ended
March 31, 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 increased $108,000 or 900% for the three months ended March
31, 1998, as compared to the corresponding prior year period. Such increase is
primarily due to cash and cash equivalents retained from the 1997 Sales
Transactions.
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 has been placed in escrow and will be subject to indemnifiable
claims during 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 will have the effect of reducing the amount of the Southern
Tennessee Escrow ultimately released to ACT 5. It is anticipated that any
escrowed amounts not used to satisfy the aforementioned claim or any additional
claims will be released to the Partnership during 1998.
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.
I-20
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Material Changes in Financial Condition (continued)
---------------------------------------------------
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 three months ended March 31, 1998, the Partnership used cash on
hand to fund operating and investing activities of $7,485,000 and $64,000,
respectively. See the Partnership's statements of cash flows included in the
accompanying financial statements.
The Partnership estimates that during 1998 it will spend approximately $1.9
million for capital expenditures related to Riverside, of which $1.4 million
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
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
PART II - OTHER INFORMATION
Item 5. Other Information
- ------ -----------------
During 1998, the Partnership has received a high volume of requests for
the transfer of the Partnership's limited partner units ("Units"). In
order to maintain ACT 5's partnership status for federal income tax
purposes, no more than 5% of the Units can be transferred in any one
tax year. Effective February 27, 1998, the 5% threshold has been met.
Accordingly, transfer requests will not be processed for the remainder
of 1998.
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended March 31, 1998:
None.
II-1
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
By: IR-TCI PARTNERS V, L.P.,
Its General Partner
By: TCI VENTURES FIVE, INC.,
A General Partner
Date: May 11, 1998 By: /s/ Gary K. Bracken
------------------------
Gary K. Bracken
Vice President and Controller
(Principal Accounting Officer)
II-2