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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarter ended September 30, 1999
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)
9197 South Peoria Street
Englewood, Colorado 80112
- ---------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (720) 875-4000
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
----- -----
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PART I - FINANCIAL INFORMATION
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Balance Sheet
(unaudited)
(see note 2)
September 30, December 31,
1999 1998
------------- ------------
Assets amounts in thousands
Cash and cash equivalents (note 4) $ 17,553 16,134
Trade and other receivables, net of allowance for doubtful accounts
563 381
Property and equipment:
Distribution systems 19,433 18,610
Support equipment and buildings 1,521 1,473
------------- ------------
20,954 20,083
Less accumulated depreciation 13,442 12,269
------------- ------------
7,512 7,814
------------- ------------
Franchise costs and other intangibles 24,649 24,649
Less accumulated amortization 20,685 19,052
------------- ------------
3,964 5,597
------------- ------------
Funds held in escrow (note 6) 494 494
Other assets 98 81
------------- ------------
$ 30,184 30,501
============= ============
Liabilities and Partners' Equity
Accounts payable and accrued liabilities $ 244 275
Other liabilities 613 639
Amounts due to related parties (note 5) 981 1,140
------------- ------------
Total liabilities 1,838 2,054
------------- ------------
Partners' equity (deficit):
General partner (3,018) (3,017)
Limited partners 31,364 31,464
------------- ------------
Total partners' equity 28,346 28,447
------------- ------------
Commitments and contingencies (notes 2, 6 and 7)
$ 30,184 30,501
============= ============
See accompanying notes to financial statements.
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AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Statements of Operations
(unaudited)
(see note 2)
Three months ended Nine months ended
September 30, September 30,
---------------------- ---------------------
1999 1998 1999 1998
---------- --------- --------- ---------
amounts in thousands, except unit amounts
Revenue $ 2,683 2,399 7,692 6,937
Operating costs and expenses:
Programming (from related parties - note 5) 656 537 1,883 1,639
Operating (including allocations from related
parties - note 5) 350 291 963 861
Selling, general and administrative (including
charges from related parties - note 5)
830 842 2,623 2,292
Year 2000 costs (allocated from related parties -
note 5) 30 -- 107 --
Depreciation and amortization 915 925 2,806 2,894
---------- --------- --------- ---------
Total operating expenses 2,781 2,595 8,382 7,686
---------- --------- --------- ---------
Operating loss (98) (196) (690) (749)
Other income (expense):
Interest income 209 246 589 585
Write-off of deferred loan costs -- -- -- (202)
---------- --------- --------- ---------
Net earnings (loss) $ 111 50 (101) (366)
========== ========= ========= =========
Net earnings (loss) per limited partnership unit
("Unit") (note 3) $ 0.55 0.25 (0.50) (1.81)
========== ========= ========= =========
Limited partnership units outstanding 200,005 200,005 200,005 200,005
========== ========= ========= =========
See accompanying notes to financial statements.
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AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Statement of Partners' Equity
Nine months ended September 30, 1999
(unaudited)
(see note 2)
General Limited
partner partners Total
--------- ---------- -------
amounts in thousands
Balance at January 1, 1999 $ (3,017) 31,464 28,447
Net loss (1) (100) (101)
--------- ---------- -------
Balance at September 30, 1999 $ (3,018) 31,364 28,346
========= ========== =======
See accompanying notes to financial statements.
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AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Statements of Cash Flows
(unaudited)
(see note 2)
Nine months ended
September 30,
----------------------
1999 1998
-------- ---------
amounts in thousands
(see note 4)
Cash flows from operating activities:
Net loss $ (101) (366)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,806 2,894
Write-off of deferred loan costs -- 202
Changes in operating assets and liabilities:
Net change in receivables and other assets (199) 156
Net change in accounts payable and accrued liabilities, other
liabilities and amounts due to related parties (216) (15,019)
-------- ---------
Net cash provided by (used in) operating activities 2,290 (12,133)
Cash flows from investing activities:
Capital expended for property and equipment (871) (709)
Proceeds from sale of cable television systems, net of disposition fees -- 1,843
Other investing activities -- (73)
-------- ---------
Net cash provided by (used in) investing activities (871) 1,061
-------- ---------
Cash flows from financing activities -- --
-------- ---------
Net change in cash and cash
equivalents 1,419 (11,072)
Cash and cash equivalents:
Beginning of period 16,134 17,711
-------- ---------
End of period $ 17,553 6,639
======== =========
See accompanying notes to financial statements.
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AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
September 30, 1999
(unaudited)
(1) Basis of Financial Statement Preparation
The accompanying financial statements of American Cable TV Investors 5,
Ltd. ("ACT 5" or the "Partnership") are unaudited. In the opinion of
management, all adjustments (consisting only of normal recurring
accruals) have been made which are necessary to present fairly the
financial position of the Partnership as of September 30, 1999 and its
results of operations for the nine months ended September 30, 1999 and
1998. 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, 1998 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. The general
partner of IR-TCI is 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.
On March 9, 1999, AT&T Corp. ("AT&T") acquired TCI in a merger (the
"AT&T Merger"). In the AT&T Merger, TCI became a subsidiary of AT&T.
Immediately prior to the AT&T Merger, TCI restructured its ownership of
certain of its subsidiaries, including the merger of its subsidiary,
TCI Communications, Inc. ("TCIC") into TCI. The AT&T Merger has not had
and is not expected to have a material effect on the Partnership's
results of operations or financial condition.
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 prior period amounts have been reclassified for comparability
with the 1999 presentation.
(continued)
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AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
(2) Pending Asset Sale
On August 12, 1998, the Partnership entered into an agreement that
provides for the sale of its remaining cable television system located
in and around Riverside, California ("Riverside" or the "Riverside
System") to Century Communications Corp. ("Century"), an unaffiliated
third party, for a cash sales price of $33,000,000, subject to certain
adjustments (the "Riverside Sale"). Pursuant to the asset purchase
agreement, $1,500,000 of such sales price will be subject to
indemnifiable claims for 180 days following consummation of the
Riverside Sale. On January 1, 1999, Century assigned its interest in
the Riverside Sale to Century Valley Cable Corp. ("Century Sub"), a
wholly-owned subsidiary of Century.
In August 1998, TCI and Century signed a definitive agreement 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 TCI is the cable
television system serving customers in Redlands, California (the
"Redlands System"). The Riverside System currently utilizes office
facilities, personnel and certain cable distribution assets (including
the headend) of the Redlands System. In the event the Riverside Sale is
consummated, the Riverside System is among those systems to be
contributed to the Joint Venture by Century. TCI will have an
approximate 25% interest in the Joint Venture, which will be managed by
Century. In the event that the Joint Venture is consummated prior to
the Riverside Sale, or the Joint Venture is consummated and the
Riverside Sale is not consummated, Cablevision will continue to manage
the Riverside System. The Partnership has agreed that in the event the
Joint Venture is consummated prior to the Riverside Sale, Cablevision
may engage the Joint Venture to perform all or some portion of the
day-to-day management of the Riverside System.
The Riverside Sale was approved by the Partnership's limited partners
("Limited Partners") at a special meeting that occurred on December 11,
1998.
(continued)
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AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
In connection with the Riverside Sale, the Partnership and Century
filed certain forms with the City of Moreno Valley, California ("Moreno
Valley") and the County of Riverside ("Riverside County") requesting
that each such franchising authority approve the transfer of the
franchise for their respective area to Century. Century and the Joint
Venture also filed forms with Moreno Valley and Riverside County
relating to the transfer of the franchises to the Joint Venture.
Riverside County has approved the transfer of the Riverside franchise
from the Partnership to the Joint Venture. On June 22, 1999, Moreno
Valley adopted a resolution rejecting the proposed transfer of the
Moreno Valley franchise. Representatives of the Partnership and Century
have requested that Moreno Valley rescind this resolution and agree to
a reasonable extension in order to reach an agreement on the terms of
the franchise transfer. Although Moreno Valley has not granted such
rescision, it has indicated an interest in continuing negotiations on
such matter. On October 1, 1999, a merger was consummated in which
Century merged with and into Adelphia Communications Corporation
("Adelphia"). As a result of such merger, Adelphia assumed all of
Century's rights and obligations relating to the Riverside Sale and the
Joint Venture. The Partnership and Adelphia are diligently pursuing all
available means to receive approval from Moreno Valley. However, there
can be no assurance as to (i) whether such approvals will be received,
(ii) the time frame in which any approvals might be obtained, and (iii)
whether any conditions that might be imposed on the transfer will be
acceptable to Adelphia and/or the Joint Venture. Subject to approval of
the franchise transfers and satisfaction or waiver of customary
conditions to closing, consummation of the Riverside Sale is expected
to occur during the fourth quarter of 1999 or the first quarter of
2000.
In the event that the Riverside Sale is consummated, of which there can
be no assurance, the Partnership will have sold all of its assets
(other than cash and funds held in escrow) and, pursuant to the
Partnership's limited partnership agreement, will ultimately be
dissolved and terminated. Assuming the Riverside Sale and the
dissolution and liquidation of the Partnership had occurred on
September 30, 1999, the Partnership estimates that the pro forma
distribution to Limited Partners would have been $236 per $500 Unit.
The Partnership anticipates that an initial distribution will be made
to its partners as soon as practicable after the date of the closing of
the Riverside Sale. It is expected that a final liquidating
distribution will be made as soon as practicable after all funds held
in escrow have been released to the Partnership, subject to the receipt
of any indemnifiable claims. No assurance can be given as to the timing
or amount of such distributions.
In the event that the Riverside Sale is not consummated, it is
currently the General Partner's intention to seek a substitute buyer
for the Riverside System. There is no assurance that the General
Partner could arrange for a substitute sale transaction for the
Riverside System at an appropriate price or on terms acceptable to the
Partnership. If the General Partner's efforts in arranging a substitute
sale transaction prove to be unsuccessful, the General Partner would
continue to operate the Riverside System.
(continued)
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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
distributions have been made which 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 original maturities of three
months or less to be cash equivalents. At September 30, 1999,
$16,574,000 of the Partnership's cash and cash equivalents was invested
in money market funds.
(5) Transactions with Related Parties
The Partnership purchases programming services from affiliates of TCI.
The charges generally approximate such TCI affiliates' cost and are
based upon the number of customers served by the Partnership.
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 $462,000 and $416,000 for the nine months ended
September 30, 1999 and 1998, respectively.
(continued)
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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
$186,000 and $161,000 for the nine months ended September 30, 1999 and
1998, respectively.
Riverside shares office facilities, personnel and certain distribution
assets with the Redlands System. As a result, the majority of
Riverside's operating and administrative salaries and expenses are
charged to Riverside based upon Riverside's estimated utilization of
such office facilities and personnel. During the nine months ended
September 30, 1999 and 1998, Riverside's operating and administrative
salaries and expenses amounted to $2,078,000 and $1,721,000,
respectively.
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.
Costs incurred by TCI and allocated to ACT 5 with respect to the
remediation of ACT 5's year 2000 issues aggregated $107,000 through
September 30, 1999. See note 7.
(6) Commitments and Contingencies
On November 2, 1999 a limited partner of ACT 5 filed suit in United
States District Court for the District of Colorado against the General
Partner of ACT 5. The lawsuit also names certain affiliates of the
General Partner as defendants. The lawsuit alleges that the defendants
violated disclosure requirements under the Securities Exchange Act of
1934 in connection with soliciting limited partner approval of the
Riverside Sale and that certain defendants breached their fiduciary
duty in connection with the Reiverside Sale. The above described
lawsuit has not been served upon the General Partner or its affiliates,
and outside counsel has not been retained. Based upon the limited facts
available, management believes that, although no assurance can be given
as to the outcome of this action, the ultimate disposition should not
have a material adverse effect upon the financial condition of the
Partnership.
Section 21 of the Partnership Agreement provides that the General
Partner and its affiliates, subject to certain conditions set forth in
more detail in the Partnership Agreement, are entitled to be
indemnified for any liability or loss incurred by them by reason of any
act performed or omitted to be performed by them in connection with the
business of ACT 5, provided that the General Partner determines, in
good faith, that such course of conduct was in the best interests of
ACT 5 and did not constitute proven fraud, negligence, breach of
fiduciary duty or misconduct. In this regard, it is anticipated that
legal fees incurred by the defendants with respect to the above lawsuit
will be paid by ACT 5.
On April 1, 1997, the Partnership sold its 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. Pursuant to the asset purchase agreement, $494,000 of such
sales price was placed in escrow (the "Southern Tennessee Escrow") and
was subject to indemnifiable claims by Rifkin through March 31, 1998.
Prior to March 31, 1998, Rifkin filed a claim against the Southern
Tennessee Escrow relating to a class action lawsuit filed by a customer
challenging late fee charges with respect to the Southern Tennessee
System. On September 14, 1999, Rifkin sold the Southern Tennessee
System to an affiliate of Charter Communications, Inc. ("Charter"). In
connection with such sale, Charter was assigned the rights to the
indemnification claim. 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.
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.
(continued)
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AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
(7) Year 2000 Costs
In addition to the property and equipment owned by the Riverside
System, certain office facilities, personnel, and cable distribution
assets of the Redlands System, and certain software and equipment of
TCI are utilized by the Riverside System (collectively, the
"Riverside/Redlands Systems"). Accordingly, the assessment and
remediation of ACT 5's year 2000 issues are dependent upon the
assessment and remediation by TCI of certain of its own year 2000
issues and the year 2000 issues of the Riverside/Redlands Systems.
During the nine months ended September 30, 1999, TCI, in its capacity
as the indirect parent of the managing agent of ACT 5, continued its
enterprise-wide, comprehensive efforts to assess and remediate the
Riverside/Redlands Systems' computer systems and related software and
equipment to ensure that such systems and software and equipment
recognize, process and store information in the year 2000 and
thereafter. TCI's year 2000 remediation efforts include an assessment
of the Riverside/Redlands Systems' most critical systems, such as
customer service and billing systems, headends and other cable plant
systems that support the Riverside/Redlands Systems' programming
services, business support operations, and other equipment and
facilities. TCI also continued its efforts to verify the year 2000
readiness of ACT 5's significant suppliers and vendors and continued to
communicate with significant business partners and affiliates to assess
such partners' and affiliates' year 2000 status.
ACT 5's year 2000 efforts are being managed by the year 2000 Program
Management Office ("PMO") of TCI. The PMO is responsible for overseeing
the process and standards of ACT 5's year 2000 efforts, controlling
data, and reporting on ACT 5's year 2000 efforts. At September 30,
1999, the PMO was comprised of a 133-member, full-time staff,
accountable to executive management of TCI.
During the nine months ended September 30, 1999, TCI continued its
survey of third-party vendors and suppliers whose systems, services or
products are important to ACT 5's operations, and whose year 2000
readiness is critical to continued provision of the Riverside/Redlands
Systems' cable service. TCI has examined the public disclosures
regarding the year 2000 readiness status made by vendors of critical
systems products utilized by ACT 5 (such as addressable controllers,
accounting systems and other critical hardware and software), and the
public disclosures regarding the year 2000 readiness status made by
critical suppliers (such as utilities, banking, and similar critical
operational services). Verification of the survey results may include,
as deemed necessary, conducting functionality tests, reviewing vendors'
and suppliers' test data, scripts and certifications, engaging in
regular conferences with vendors' and suppliers' year 2000 teams, or
re-examining public disclosures for changes in status. ACT 5 generally
has required any new vendors to provide assurances that their products
and services are year 2000 ready. For those critical vendors that may
not be year 2000 ready by year end, contingency plans will be
implemented.
(continued)
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AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Notes to Financial Statements
During the nine months ended September 30, 1999, TCI allocated year
2000 expenses to ACT 5 totaling $107,000. Management of TCI currently
estimates ACT 5's remaining costs to be not less than $107,000,
bringing the total estimated cost associated with ACT 5's year 2000
remediation efforts to be not less than $214,000.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There
can be no assurance that ACT 5's systems, the Riverside/Redlands
Systems, or the systems of other companies on which ACT 5 relies will
be converted in time or that any such failure to convert by ACT 5, the
Riverside/Redlands Systems, or other companies will not have a material
adverse effect on ACT 5's financial position, results of operations, or
cash flows.
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AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion and analysis should be read in conjunction
with the Partnership's Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Partnership's Annual Report
on Form 10-K for the year ended December 31, 1998. The following discussion
focuses on material changes in the trends, risks and uncertainties affecting the
Partnership's results of operations and financial condition. Reference should
also be made to the Partnership's financial statements included herein.
Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Partnership or industry
results, to differ materially from future results, performance or achievements
expressed or implied by such forward-looking statements. Such risks,
uncertainties and other factors include, among others: general economic and
business conditions and industry trends; the regulatory and competitive
environment of the industries in which the Partnership operates; uncertainties
inherent in new business strategies; uncertainties inherent in the changeover to
the year 2000, including the Partnership's projected state of readiness, the
projected cost of remediation, the expected date of completion of each program
or phase, the projected worst case scenarios, and the expected contingency plans
associated with such worst case scenarios; new product launches and development
plans; rapid technological changes, the acquisition, development and/or
financing of telecommunications networks and services; the development and
provision of programming for new television and telecommunications technologies;
future financial performance, including availability, terms and deployment of
capital; the ability of vendors to deliver required equipment, software and
services; availability of qualified personnel; changes in, or failure or
inability to comply with, government regulations, including, without limitation,
regulations of the Federal Communications Commission ("FCC"), and adverse
outcomes from regulatory proceedings; changes in the nature of key strategic
relationships with partners and joint venturers; competitor responses to the
Partnership's products and services and the overall market acceptance of such
products and services; and other factors. These forward-looking statements (and
such risks, uncertainties and other factors) speak only as of the date of this
Report, and the Partnership expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein to reflect any change in the Partnership's expectations with regard
thereto or any other change in events, conditions or circumstances on which any
such statement is based. Any statement contained within Management's Discussion
and Analysis of Financial Condition and Results of Operations in this Form 10-Q
related to year 2000 are hereby denominated as "Year 2000 Statements" within the
meaning of the Year 2000 Information and Readiness Disclosure Act.
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AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
AT&T Merger. On March 9, 1999, AT&T acquired TCI in a merger. In the
AT&T Merger, TCI became a subsidiary of AT&T. Immediately prior to the AT&T
Merger, TCI restructured its ownership of certain of its subsidiaries, including
the merger of its subsidiary, TCIC into TCI. The AT&T Merger has not had and is
not expected to have a material effect on the Partnership's results of
operations or financial condition.
Pending Asset Sale. On August 12, 1998, the Partnership entered into an
agreement that provides for the sale of the Riverside System to Century, an
unaffiliated third party, for a cash sales price of $33,000,000, subject to
certain adjustments. Pursuant to the asset purchase agreement for the Riverside
Sale, $1,500,000 of such sales price will be subject to indemnifiable claims for
180 days following consummation of the Riverside Sale. On January 1, 1999,
Century assigned its interest in the Riverside Sale to Century Sub.
In August 1998, TCI and Century signed a definitive agreement to
establish the Joint Venture. Among those systems to be contributed to the Joint
Venture by TCI is the Redlands System. The Riverside System currently utilizes
office facilities, personnel and certain cable distribution assets (including
the headend) of the Redlands System. In the event the Riverside Sale is
consummated, the Riverside System is among those systems to be contributed to
the Joint Venture by Century. TCI will have an approximate 25% interest in the
Joint Venture, which will be managed by Century. In the event that the Joint
Venture is consummated prior to the Riverside Sale, or the Joint Venture is
consummated and the Riverside Sale is not consummated, Cablevision will continue
to manage the Riverside System. The Partnership has agreed that in the event the
Joint Venture is consummated prior to the Riverside Sale, Cablevision may engage
the Joint Venture to perform all or some portion of the day-to-day management of
the Riverside System.
The Riverside Sale was approved by the Limited Partners at a special
meeting that occurred on December 11, 1998.
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AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
In connection with the Riverside Sale, the Partnership and Century
filed certain forms with Moreno Valley and Riverside County requesting that each
such franchising authority approve the transfer of the franchise for their
respective area to Century. Century and the Joint Venture also filed forms with
Moreno Valley and Riverside County relating to the transfer of the franchises to
the Joint Venture. Riverside County has approved the transfer of the Riverside
franchise from the Partnership to the Joint Venture. On June 22, 1999, Moreno
Valley adopted a resolution rejecting the proposed transfer of the Moreno Valley
franchise. Representatives of the Partnership and Century have requested that
Moreno Valley rescind this resolution and agree to a reasonable extension in
order to reach an agreement on the terms of the franchise transfer. Although
Moreno Valley has not granted such rescision, it has indicated an interest in
continuing negotiations on such matter. On October 1, 1999, a merger was
consummated in which Century merged with and into Adelphia. As a result of such
merger, Adelphia assumed all of Century's rights and obligations relating to the
Riverside Sale and the Joint Venture. The Partnership and Adelphia are
diligently pursuing all available means to receive approval from Moreno Valley.
However, there can be no assurance as to (i) whether such approvals will be
received, (ii) the time frame in which any approvals might be obtained, and
(iii) whether any conditions that might be imposed on the transfer will be
acceptable to Adelphia and/or the Joint Venture. Subject to approval of the
franchise transfers and satisfaction or waiver of customary conditions to
closing, consummation of the Riverside Sale is expected to occur during the
fourth quarter of 1999 and the first quarter of 2000.
In the event that the Riverside Sale is consummated, of which there can
be no assurance, the Partnership will have sold all of its assets (other than
cash and funds held in escrow) and, pursuant to the Partnership's limited
partnership agreement, will ultimately be dissolved and terminated. Assuming the
Riverside Sale and the dissolution and liquidation of the Partnership had
occurred on September 30, 1999, the Partnership estimates that the pro forma
distribution to Limited Partners would have been $236 per $500 Unit. The
Partnership anticipates that an initial distribution will be made to its
partners as soon as practicable after the date of the closing of the Riverside
Sale. It is expected that a final liquidating distribution will be made as soon
as practicable after all funds held in escrow have been released to the
Partnership, subject to the receipt of any indemnifiable claims. No assurance
can be given as to the timing or amount of such distributions.
In the event that the Riverside Sale is not consummated, it is
currently the General Partner's intention to seek a substitute buyer for the
Riverside System. There is no assurance that the General Partner could arrange
for a substitute sale transaction for the Riverside System at an appropriate
price or on terms acceptable to the Partnership. If the General Partner's
efforts in arranging a substitute sale transaction prove to be unsuccessful, the
General Partner would continue to operate the Riverside System.
I-14
16
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
Regulation. The operation of the Riverside System is regulated at the
federal, state and local levels. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") and the Telecommunications Act of
1996 (the "1996 Telecom Act", and together with the 1992 Cable Act, the "Cable
Acts") established rules under which the Riverside System's regulated basic and
tier service rates and its equipment and installation charges (the "Regulated
Services") are regulated if a complaint is filed or if the appropriate franchise
authority is certified. The FCC's authority to regulate any cable programming
service tier ("CPST") expired on March 31, 1999. At September 30, 1999, none of
the Riverside System's franchise areas were subject to such rate regulation.
However, if a local franchise authority becomes certified to regulate rates,
basic service and associated equipment rates would be subject to rate
regulation.
During the nine months ended September 30, 1999, approximately 34% of
the Riverside System's revenue was derived from Regulated Services (exclusive of
CPST). 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"). Although the California MMDS
Operator has generated increased competition in Riverside's service area, the
Partnership is currently unable to predict the extent of the competitive effect
at this time on the Partnership's financial condition or results of operations.
For additional information concerning the revenue and customer bases of
Riverside, see "General - The Riverside System" below.
In addition to MMDS, Riverside competes with other distributors of the
same or similar video programming as that offered by its cable system. Direct
broadcast satellite ("DBS") has emerged as significant competition to cable
television systems. DBS service is available within the franchise areas serviced
by the Riverside System. However, the Partnership is unable to predict the
extent of the competitive effect at this time on Riverside's financial condition
or results of operations.
I-15
17
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
The 1996 Telecom Act eliminated the statutory and regulatory
restrictions that prevented telephone companies from competing with cable
operators for the provision of video services by any means. The 1996 Telecom Act
allows local telephone companies, including the regional bell operating
companies, to compete with cable television operators both inside and outside
their telephone service areas. The Partnership expects that the Riverside System
will face competition from telephone companies for the provision of video
services, whether it is through wireless cable, or through upgraded telephone
networks. The Partnership assumes that all major telephone companies have
already entered or may enter the business of providing video services. Major
telephone companies have greater financial resources than the Partnership, and
the 1992 Cable Act ensures that telephone company providers of video services
will have access to acquiring all of the significant cable television
programming services. Additionally, the 1996 Telecom Act eliminates certain
federal restrictions on utility holding companies and thus frees all utility
companies to provide cable television services. The Partnership expects this
could result in another source of competition in the delivery of video services.
Based on the foregoing, the Partnership continues to believe that the Riverside
System will experience competition from alternative providers of video
programming services. The Partnership presently cannot predict the effect that
such competition might have on its financial condition or results of operations.
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 is providing digital video services. The primary capital
cost of digital video services is the purchase and installation of digital
set-top devices. Accordingly, the capital costs incurred are dependent upon the
number of digital set-top devices required. The Riverside System had
approximately 2,500 subscribers to digital video services at September 30, 1999.
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.
I-16
18
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
The Riverside System. The following table sets forth information for
the Riverside System for the periods indicated (amounts in thousands):
September 30, September 30,
1999 1998
------------- -------------
Basic Customers (1) 20.7 19.2
Premium Subscriptions (1)(2) 19.2 20.4
Nine months ended
September 30,
-----------------
1999 1998
------ ------
Revenue (3) $7,692 6,937
====== ======
Operating Cash Flow (4) $3,166 2,999
====== ======
(1) From September 30, 1998 to September 30, 1999, Riverside
experienced an increase of 1,500 basic customers and a
decrease of 1,200 premium subscriptions. Such decrease in
premium subscriptions is comprised of a 500 subscription
decrease in traditional premium subscriptions, a 400
subscription decrease in "STARZ!" subscriptions and a 300
subscription decrease in "ENCORE" subscriptions during this
period. 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 $10.00 for other premium
services. As described under "General - Competition" above,
Riverside is subject to competition from the California MMDS
Operator and DBS providers. 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.
(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.
I-17
19
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
The Riverside System passed approximately 31,500 homes at both
September 30, 1999 and 1998.
On August 12, 1998, the Partnership entered into an agreement that
provides for the sale of the Riverside System. The Riverside Sale was approved
by the Limited Partners at a special meeting that occurred on December 11, 1998.
Subject to the receipt of regulatory approvals and satisfaction or waiver of
customary conditions to closing, consummation of the Riverside Sale is expected
to occur during the first half of 2000. There is no assurance that the Riverside
Sale will be consummated. See "General - Pending Asset Sale" above for
additional information regarding the Riverside Sale.
Year 2000. In addition to the property and equipment owned by the
Riverside System, certain office facilities, personnel, and cable distribution
assets of the Redlands System, and certain software and equipment of TCI are
utilized by the Riverside/Redlands Systems. Accordingly, the assessment and
remediation of ACT 5's year 2000 issues are dependent upon the assessment and
remediation by TCI of certain of its own year 2000 issues and the year 2000
issues of the Riverside/Redlands Systems.
During the nine months ended September 30, 1999, TCI, in its capacity
as the indirect parent of the managing agent of ACT 5, continued its
enterprise-wide, comprehensive efforts to assess and remediate the
Riverside/Redlands Systems' computer systems and related software and equipment
to ensure such systems, software and equipment recognize, process and store
information in the year 2000 and thereafter. TCI's year 2000 remediation efforts
include an assessment of the Riverside/Redlands Systems' most critical systems,
such as customer service and billing systems, headends and other cable plant
systems that support the Riverside/Redlands Systems' programming services,
business support operations, and other equipment and facilities. TCI also
continued its efforts to verify the year 2000 readiness of ACT 5's significant
suppliers and vendors and continued to communicate with significant business
partners and affiliates to assess such partners' and affiliates' year 2000
status.
ACT 5's year 2000 efforts are being managed by the year 2000 PMO of
TCI. The PMO is responsible for overseeing the processes and standards of the
year 2000 efforts, controlling data, and reporting on ACT 5's year 2000 efforts.
At September 30, 1999, the PMO was comprised of a 133-member, full-time staff,
accountable to executive management of TCI.
The PMO has defined a four-phase approach to determining the year 2000
readiness of the Riverside/Redlands Systems' systems, software and equipment.
Such approach is intended to provide a detailed method for tracking the
evaluation, repair and testing of the Riverside/Redlands Systems' critical
systems, software and equipment. Phase 1, Assessment, involved the inventory of
all critical systems, software and equipment and the identification of any year
2000 issues. Phase 1 also included the preparation of the workplans needed for
remediation. Phase 2, Remediation, involved repairing, upgrading and/or
replacing any non-compliant critical equipment and systems. Phase 3, Testing,
involved testing the Riverside/Redlands Systems' critical systems, software, and
equipment for year 2000 readiness, or in certain cases, relying on test results
provided to TCI. Phase 4, Implementation, involves placing remediated systems,
software and equipment into production or service.
I-18
20
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
Management believes that the progress of remediation of the
Riverside/Redlands Systems closely follows that of TCI as a whole, and that the
phase completion data set forth below for TCI may be considered to be a useful
guide for estimating the Riverside/Redlands Systems' phase completion and
ultimately the progress of remediating potential year 2000 issues impacting ACT
5's operations.
At September 30, 1999, TCI's overall progress by phase was as follows:
Percentage of Year 2000 Expected Completion Date
Phase Projects Completed by Phase* -All Year 2000 Projects
- ----- ---------------------------- -----------------------
Phase 1-Assessment 100% Completed
Phase 2-Remediation 100% Completed
Phase 3-Testing 100% Completed
Phase 4-Implementation 98% November 1999
- ---------------------
(*)The percentages set forth above were calculated by dividing the number of
year 2000 projects that have completed a given phase by the total number of year
2000 projects.
The completion information set forth above is based on TCI's current
expectations and information, and could be subject to change if circumstances
arise which impact the year 2000 readiness of a critical product or service. The
information could be subject to change in the event of unforeseen changes in ACT
5's inventory of products or systems, or unforeseen changes in status
information provided by ACT 5's critical vendors. The information also could
change as a result of continuing efforts to verify, validate and audit the
program processes and procedures. Further, due to the uncertainties inherent in
any year 2000 program, no assurances can be given as to whether Phase 4 will be
completed by the date indicated above. TCI has attempted to plan for unforeseen
circumstances by implementing (i) contingency plans as described below, (ii)
audit and other controls and, (iii) processes to monitor the year 2000 readiness
status of critical outside parties.
TCI has completed the inventory, assessment, testing and implementation
of critical systems with embedded technologies that impact ACT 5's operations.
The progress by phase of year 2000 compliance work on such systems is included
in the table above.
I-19
21
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
During the nine months ended September 30, 1999, TCI continued its
survey of significant third-party vendors and suppliers whose systems, services
or products are important to ACT 5's operations, and whose year 2000 readiness
is critical to continued provision of the Riverside/Redlands Systems' cable
service. TCI has examined the public disclosures regarding the year 2000
readiness status made by vendors of critical systems products utilized by ACT 5
(such as addressable controllers, accounting systems and other critical hardware
and software), and TCI is in the process of examining the public disclosures
regarding the year 2000 readiness status made by critical suppliers (such as
utilities, banking, and similar critical operational services). Verification of
the survey results may include, as deemed necessary, conducting functionality
tests, reviewing vendors' and suppliers' test data, scripts and certifications,
engaging in regular conferences with vendors' and suppliers' year 2000 teams, or
re-examining public disclosures for changes in status. The majority of ACT 5's
current vendors are either year 2000 ready, or are expected to be year 2000
ready by year end. ACT 5 generally has required any new vendors to provide
assurances that their products and services are year 2000 ready. For those
critical vendors that may not be year 2000 ready by year end, contingency plans
will be implemented.
During the nine months ended September 30, 1999, TCI allocated year
2000 expenses to ACT 5 totaling $107,000. Management of TCI currently estimates
ACT 5's remaining costs to be not less than $107,000, bringing the total
estimated cost associated with ACT 5's year 2000 remediation efforts to be not
less than $214,000. Although no assurances can be given, TCI currently expects
that (i) cash flow from operations or advances from TCI will fund the costs
associated with year 2000 compliance and (ii) the total projected cost
associated with ACT 5's year 2000 program will not be material to ACT 5's
financial position, results of operations or cash flows.
The failure to correct a material year 2000 problem in the Redlands
System could result in an interruption or failure of ACT 5's provision of cable
service through the Riverside System. Management believes that TCI's year 2000
efforts in the Riverside/Redlands Systems will significantly reduce ACT 5's
risks associated with the changeover to the year 2000. As part of TCI's year
2000 readiness efforts, TCI has implemented certain contingency plans to
minimize the effect of any potential year 2000 related disruptions. The risks
and the uncertainties discussed below and the associated contingency plans
relate to systems, software, equipment, and services that TCI has deemed
critical in regard to customer service, business operations, financial impact or
safety.
Satellite system failures could prevent the delivery of programming to
cable headends and disrupt service to customers. TCI is in the process of
securing transponder space on alternate satellites for transmitting programming
that originates from TCI in the event of such failures. In addition, TCI has
made arrangements for alternative programming that will be broadcast on channels
where signal disruption has occurred.
The failure of addressable controllers contained in the
Riverside/Redlands Systems' headend could disrupt the delivery of premium and
pay-per-view services to customers and could necessitate crediting customers for
failure to receive such services. In this unlikely event, TCI has secured the
right to broadcast alternative programming from TCI's National Digital
Television Center for 48 hours. All alternative programming will be rated "G"
for general audience viewing.
I-20
22
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
General (continued)
Customer service networks failure could prevent access to customer
account information, hamper installation and service call scheduling and disable
the processing of pay-per-view billings. In the event of such failure, ACT 5
would manually schedule service calls and correct billing omissions as soon as
the networks are restored. In the event of automated voice response systems
failure, ACT 5 plans to have its customer service representatives on hand to
answer telephone calls from customers directly.
A failure of the services provided by billing systems service providers
could disrupt the ability to provide service to and bill customers for a
protracted period. ACT 5's billing system service provider has contingency plans
in place to protect customer information and provide for continuation of service
to ACT 5. TCI has set up arrangements to have the billing system service
provider on site as part of its PMO during the rollover to the year 2000. The
billing system service provider has developed staffing and operations plans that
will provide for continuous support to ACT 5 during and subsequent to the
rollover to the year 2000.
Advertising revenue could be adversely affected by the failure of
certain equipment which could impede or prevent the insertion of advertising
spots in ACT 5's programming. ACT 5 anticipates that it can minimize such effect
by the manual operation of insertion systems for indefinite periods of time, if
necessary.
Security and fire protection systems failures could leave facilities
vulnerable to intrusion and destruction. ACT 5 expects to return such systems to
normal functioning by turning the power off and then on again ("power off/on").
ACT 5 also plans to have additional security staff on site and plans to
implement a backup plan for communicating with local fire and police
departments. Also, certain personal computers interface with and control
elevators, escalators, wireless systems, public access systems and certain
telephony systems. In the event such computers do not operate properly,
conducting a power off/on is expected to resume normal functioning. If a power
off/on does not resume normal functioning, management expects to resolve the
problem by resetting the computer to a pre-designated date which precedes the
year 2000. Because ACT 5 leases certain of its facilities, ACT 5 may need to
implement the previously mentioned contingency plans with the cooperation and
assistance of the lessor of the site.
In the event that the local public utilities cannot supply power, TCI
expects to supply power for a limited time to the Riverside/Redlands Systems'
cable headend and select office sites through backup generators.
If critical systems related to ACT 5's cable TV and programming
services experience year 2000 problems, ACT 5 could face claims of breach of
contract from parties to the Riverside Sale, from certain programming providers,
from advertisers and from other cable TV businesses that rely on ACT 5's
programming services.
The financial impact of any or all of the above worst-case scenarios
has not been and cannot be estimated by ACT 5 due to the numerous uncertainties
and variables associated with such scenarios.
Estimated costs of ACT 5's year 2000 program and projected completion
dates are based on management's best estimates of future events and are
forward-looking statements which may be updated as additional information
becomes available.
I-21
23
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Material Changes in Results of Operations
Revenue increased $284,000 or 12% for the three months ended September
30, 1999, as compared to the corresponding prior year period primarily due to
revenue from cable customers. Such increase in revenue from cable customers was
comprised of a $191,000 increase in basic revenue, a $77,000 increase in
pay-per-view revenue, and a $19,000 increase in premium revenue. During the
third quarter of 1999, ACT 5 experienced a 6% increase in its average basic
rate, an increase of 7% in the number of average basic customers, an 8% increase
in its average rate for traditional premium services and a 6% decrease in the
number of average traditional premium subscriptions.
Revenue increased $755,000 or 11% for the nine months ended September
30, 1999, as compared to the corresponding prior year period. Revenue from cable
customers accounted for a 11% increase in revenue, primarily due to a $535,000
increase in basic revenue, a $175,000 increase in pay-per-view revenue, and a
$24,000 increase in premium revenue. During the nine months ended September 30,
1999, ACT 5 experienced a 5% increase in its average basic rate, an increase of
6% in the number of average basic customers, a 5% increase in its average rate
for traditional premium services and a 2% decrease in the number of average
traditional premium subscriptions.
Programming expense increased $119,000 or 22% and $244,000 or 15% for
the three and nine months ended September 30, 1999, respectively, as compared to
the corresponding prior year periods. Programming costs for pay-per-view
increased $34,000 during the third quarter of 1999 as compared to the
corresponding prior year period primarily as a result of the airing of
additional pay-per-view events. The remaining increases are due to higher
programming rates. It is anticipated that the Partnership's programming costs
will continue to increase in future periods.
Operating expenses increased $59,000 or 20% and $102,000 or 12% for the
three and nine months ended September 30, 1999, respectively, as compared to the
corresponding prior year periods. Such increases are primarily due to higher
labor costs associated with increased levels of customer service and increased
launch and development costs related to the roll-out of digital video products
and other new service offerings. Such increases were partially offset by
reductions attributable to higher capitalized labor and overhead resulting
primarily from increased installation activities.
I-22
24
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Material Changes in Results of Operations (continued)
Selling, general and administrative expenses decreased $12,000 or 1%
for the three months ended September 30, 1999, as compared to the corresponding
prior year period. Such decrease is primarily due to decreases attributable to
the timing of certain expenditures. Such decrease was partially offset by higher
salaries and benefits associated with increased levels of customer service,
increased launch and development costs related to the roll-out of digital video
products and other new service offerings, and higher management fees.
Selling, general and administrative expenses increased $331,000 or 14%
for the nine months ended September 30, 1999, as compared to the corresponding
prior year period. Such increase is primarily due to increased expenses
associated with Limited Partner communications, increased franchise and
management fees, increased marketing costs, and higher salaries and benefits
associated with increased levels of customer service and increased launch and
development costs related to the roll-out of digital video products and other
new service offerings.
ACT 5's year 2000 costs include fees and other expenses allocated from
TCI in connection with TCI's comprehensive efforts to review and correct
computer systems, equipment and related software to ensure readiness for the
year 2000. See detailed discussion under "General - Year 2000".
Depreciation and amortization was relatively constant during the three
month periods ended September 30, 1999 and 1998. Depreciation and amortization
expense decreased $88,000 or 3% for the nine months ended September 30, 1999, as
compared to the corresponding prior year period. Amortization expense for the
nine months ended September 30, 1998 includes $92,000 attributable to the year
ended December 31, 1997.
Other Income and Expense
The change in interest income for the three months ended September 30,
1999, as compared to the corresponding prior year period, is primarily the
result of interest income recognized in the third quarter of 1998 upon the
release of amounts held in escrow.
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 - Pending Asset Sale", the
Partnership entered into an agreement that provides for the sale of the
Riverside System. In the event that the Riverside Sale is consummated, the
Partnership anticipates that it would use all or a portion of the available net
cash proceeds to satisfy its liabilities, including any amounts due to related
parties, and make distributions to the Partnership's partners.
I-23
25
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
Material Changes in Financial Condition (continued)
In the event that the Riverside Sale is consummated, of which there can
be no assurance, the Partnership will have sold all of its assets (other than
cash and funds held in escrow) and, pursuant to the Partnership's limited
partnership agreement, will ultimately be dissolved and terminated. Assuming the
Riverside Sale and the dissolution and liquidation of the Partnership had
occurred on September 30, 1999, the Partnership estimates that the pro forma
distribution to Limited Partners would have been $236 per $500 Unit. The
Partnership anticipates that an initial distribution will be made to its
partners as soon as practicable after the date of the closing of the Riverside
Sale. It is expected that a final liquidating distribution will be made as soon
as practicable after all funds held in escrow have been released to the
Partnership, subject to the receipt of any indemnifiable claims. No assurance
can be given as to the timing or amount of such distributions.
Prior to the release of the Southern Tennessee Escrow, Rifkin filed a
claim against such escrow relating to a class action lawsuit filed by a customer
challenging late fee charges with respect to the Southern Tennessee System. On
September 14, 1999, Rifkin sold the Southern Tennessee System to an affiliate of
Charter Communications, Inc. ("Charter"). In connection with such sale, Charter
was assigned the rights to the indemnification claim. 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.
The Partnership's other liabilities represent unclaimed distribution
checks to certain Limited Partners which were written on a bank account which
was subsequently closed. Such checks will either be reissued to such Limited
Partners or released to the respective state of such Limited Partners' last
known residence upon dissolution of the Partnership.
During the nine months ended September 30, 1999, the Partnership used
cash provided by operating activities of $2,290,000 to fund investing activities
of $871,000 and an increase in cash and cash equivalents of $1,419,000. See the
Partnership's statements of cash flows included in the accompanying financial
statements.
The Partnership estimates that during 1999 it will spend approximately
$1.4 million for capital expenditures related to Riverside, of which $928,000
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 cash provided by
operating activities will be sufficient to fund estimated capital expenditures
(exclusive of any significant technological improvements, as described under
"General - Competition", and to meet its other liquidity requirements.
I-24
26
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
CITY PARTNERSHIP CO. ON BEHALF OF ITSELF AND ALL OTHERS SIMILARLY
SITUATED PERSONS AND DERIVATIVELY ON BEHALF OF AMERICAN CABLE TV
INVESTORS V, LTD., A COLORADO LIMITED PARTNERSHIP, PLAINTIFF V. IR-TCI
PARTNERS V, L.P., TCI VENTURES V, INC., TELE-COMMUNICATIONS, INC.,
LEHMAN BROTHERS, INC. AND JACK LANGER, DEFENDANTS, AND AMERICAN CABLE
TV INVESTORS V, LTD., A COLORADO LIMITED PARTNERSHIP, NOMINAL
DEFENDANTS. On November 2, 1999 this action was filed in the United
States District Court for the District of Colorado, Civil Action No.
99-N-2122. This action, which was recently brought to the General
Partner's attention, has not been served upon the General Partner and
its affiliates, and outside counsel has not been retained. This
purported class action and derivative action asserts claims against the
General Partners and its affiliates for violations of Sections 14(a)
and 20(a) of the Securities Exchange Act of 1934 and breach of
fiduciary duty in connection with the sale of the Riverside cable
system to Century Communications Corp. Based upon the limited facts
available, management believes that, although no assurance can be given
as to the outcome of this action, the ultimate disposition should not
have a material adverse effect upon the financial condition of the
Partnership.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended September
30, 1999:
None.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN CABLE TV INVESTORS 5, LTD.
(A Colorado Limited Partnership)
By: IR-TCI PARTNERS V, L.P.,
Its General Partner
By: TCI VENTURES FIVE, INC.,
A General Partner
Date: November 12, 1999 By: /s/ Ann M. Koets
-------------------------------
Ann M. Koets
Vice President
(Chief Accounting Officer)
28
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
(27) Financial Data Schedule