10-Q 1 d89800e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File No. 0-16784 AMERICAN CABLE TV INVESTORS 5, LTD. -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) State of Colorado 84-1048934 ------------------------------------- ----------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 188 Inverness Drive West Englewood, Colorado 80112 ---------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (720) 267-7000 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 ----- ----- 2 PART I - FINANCIAL INFORMATION AMERICAN CABLE TV INVESTORS 5, LTD. (A Colorado Limited Partnership) Balance Sheets (unaudited) (see note 2)

See accompanying notes to financial statements. I-1 3 AMERICAN CABLE TV INVESTORS 5, LTD. (A Colorado Limited Partnership) Statements of Earnings (unaudited) (see note 2)

See accompanying notes to financial statements. I-2 4 AMERICAN CABLE TV INVESTORS 5, LTD. (A Colorado Limited Partnership) Statement of Partners' Equity Six months ended June 30, 2001 (unaudited) (see note 2)

See accompanying notes to financial statements. I-3 5 AMERICAN CABLE TV INVESTORS 5, LTD. (A Colorado Limited Partnership) Statements of Cash Flows (unaudited) (see note 2)

See accompanying notes to financial statements. I-4 6 AMERICAN CABLE TV INVESTORS 5, LTD. (A Colorado Limited Partnership) Notes to Financial Statements June 30, 2001 (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 June 30, 2001 and its net earnings for the six months ended June 30, 2001 and 2000. The net earnings for any interim period are not necessarily indicative of net earnings 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, 2000 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 AT&T Broadband, LLC ("AT&T Broadband") and is the managing agent of the Partnership. As further described in note 2, the Partnership has sold substantially all of its cable television assets. 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. (continued) I-5 7 AMERICAN CABLE TV INVESTORS 5, LTD. (A Colorado Limited Partnership) Notes to Financial Statements (2) Riverside Sale On December 7, 1999, the Partnership consummated the sale of its remaining cable television system serving subscribers located in and around Riverside, California (the "Riverside System") to Century Exchange LLC ("Century"), a subsidiary of Adelphia Communications Corporation, for an adjusted sales price of $33,399,000 (the "Riverside Sale"). The Riverside Sale was approved by the Limited Partners at a special meeting that occurred on December 11, 1998. In accordance with the terms of the asset purchase agreement relating to the Riverside Sale, $1.5 million of the sales price was placed in escrow for 180 days in order to satisfy any indemnifiable claims which could be made by Century. On June 5, 2000, the funds held in escrow were released to ACT 5. ACT 5 received interest of $39,000 in conjunction with the release of the funds held in escrow. In connection with the Riverside Sale, Century and the Partnership waived the condition to closing that all required consents be obtained prior to closing the Riverside Sale, as such condition related to the transfer to Century of the franchise agreement between the Partnership and the City of Moreno Valley that authorizes the Partnership to provide cable television service to subscribers located in and around Moreno Valley, California (the "Moreno Franchise Agreement"). Accordingly, all of the Riverside System's cable television assets other than the Moreno Franchise Agreement were transferred to Century on December 7, 1999. In connection with the Riverside Sale, the Partnership entered into a management agreement with Century pursuant to which Century will be entitled to all net cash flows generated by the portion of the Riverside System that is subject to the Moreno Franchise Agreement until such time as the City of Moreno Valley approves the transfer of the Moreno Franchise Agreement from the Partnership to Century. On February 13, 2001, the City of Moreno Valley passed a resolution indicating that the Partnership, by entering into the management agreement, in effect, transferred the franchise without city approval, thereby causing a material default under the franchise agreement. The Partnership has responded by providing the City of Moreno Valley a supplemental agreement with Century by which the partners reaffirm that they did not intend to transfer control of the franchise. In July 2001, the City of Moreno Valley preliminarily approved the transfer of the Moreno Valley Franchise Agreement to Century. The proposed settlement and transfer approval is subject to final documentation. Such settlement and transfer requires an aggregate payment of $500,000 from the Partnership and Century. The Partnership's portion of such payment has not yet been determined. On December 7, 1999, AT&T Broadband and Century contributed cable television systems to a joint venture (the "Joint Venture") that combined multiple cable television systems in Southern California. Among those systems to be contributed to the Joint Venture by AT&T Broadband was the cable television system serving customers in Redlands, California (the "Redlands System"). The Riverside System was among those systems to be contributed to the Joint Venture by Century. AT&T Broadband has an approximate 25% interest in the Joint Venture, which is managed by Century. AT&T Broadband, through certain of its subsidiaries, owns a 100% ownership interest in IR-TCI. (continued) I-6 8 AMERICAN CABLE TV INVESTORS 5, LTD. (A Colorado Limited Partnership) Notes to Financial Statements In connection with the Riverside Sale, the Partnership made a distribution to its General Partner and Limited Partners of $410,000 and $40,601,000 ($203 per Unit for Limited Partners of record as of April 1, 2000), respectively, in April 2000. As a result of the Riverside Sale, the Partnership is no longer actively engaged in the cable television business. A final determination of the Partnership's liabilities and any liquidating distributions cannot be made in connection with the Partnership's dissolution until the settlement of the Moreno Valley Franchise Agreement is finalized and the contingencies described in note 6 are resolved. (3) Allocation of Net Earnings and Net Losses Net earnings and net losses shall be allocated 99% to ACT 5's limited partners ("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 distributions of proceeds from the sales of its cable television systems allowed Limited Partners to achieve Payback, distributions did not allow Limited Partners to achieve a 6% return on their aggregate contributions; therefore, amounts will continue to be allocated 99% to the Limited Partners and 1% to the General Partner. See note 2. 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 June 30, 2001, $9,240,000 of the Partnership's cash and cash equivalents was invested in money market funds. (5) Transactions with Related Parties The Partnership 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 $18,000 for each of the six months ended June, 2001 and 2000. Amounts due to related parties, which represent non-interest-bearing payables to AT&T Broadband and its affiliates, consist of the net effect of cash advances and certain intercompany expense charges. (continued) I-7 9 AMERICAN CABLE TV INVESTORS 5, LTD. (A Colorado Limited Partnership) Notes to Financial Statements (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 Riverside Sale. On September 28, 2000, the Court dismissed the Plaintiff's complaint for failing to plead the Federal Securities Act claim properly. On October 13, 2000, the Plaintiff served an amended complaint to the Defendants and on November 13, 2000, Defendants filed motions to dismiss the amended complaint. On May 18, 2001, the Court denied the Defendants' motion to dismiss. A trial date has not yet been set. 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") 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 of the indemnification claim. The class action lawsuit has been settled and dismissed. The amount of the Southern Tennessee Escrow due Charter as a result of terms of the settlement agreement has not yet been determined. Upon determination of amounts due Charter, the remaining funds in the Southern Tennessee Escrow will be released to ACT 5. The claim against the Southern Tennessee Escrow, the lawsuit described above and the settlement of the Moreno Valley Franchise Agreement described in note 2 have had and will continue to have the effect of delaying any final liquidating distributions of the Partnership. I-8 10 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, 2000. General As further described in note 2 to the accompanying financial statements, the Partnership has sold substantially all of its cable television assets. Material Changes in Net Earnings As a result of the Riverside Sale, the Partnership is no longer actively engaged in the cable television business. Pending the transfer of the Moreno Valley Franchise Agreement and resolution of the contingencies described in notes 2 and 6 to the accompanying financial statements, the Partnership will seek to make a final determination of its liabilities so that liquidating distributions can be made in connection with its dissolution. The Partnership's net earnings for the three and six months ended June 30, 2001 and 2000 include general and administrative ("G&A") expenses and interest income. The Partnership's G&A expenses are primarily comprised of costs associated with the administration of the Partnership. The Partnership's G&A expenses increased $11,000 and decreased $17,000 during the three and six months ended June 30, 2001, respectively, as compared to the corresponding prior year periods, primarily due to timing of certain G&A expenses including legal fees incurred in ACT 5's efforts to resolve the lawsuit as described in note 6. The Partnership's net earnings for the three and six months ended June 30, 2000, also reflect an adjustment to the gain on the Riverside Sale. Interest income relates to interest earned on the Partnership's cash and cash equivalents. Interest income decreased $263,000 and $830,000 during the three and six months ended June 30, 2001, as compared to the corresponding prior year periods. Such decrease is due to a decrease in the average balance of the Partnership's cash and cash equivalents resulting from a distribution made in April 2000 from the net cash proceeds received in connection with the Riverside Sale and a reduction in the average interest rate. Interest income for the three and six months ended June 30, 2000 also includes interest received in conjunction with the release of escrow funds from the Riverside Sale. On April 1, 1997, the Partnership sold the Southern Tennessee System to Rifkin for an adjusted sales price of $19,647,000. Pursuant to the asset purchase agreement, $494,000 of the sales price for the Southern Tennessee System was placed in escrow and was subject to indemnifiable claims for up to one year following consummation of the sale of the Southern Tennessee System. Prior to its release, Rifkin filed a claim against the Southern Tennessee Escrow relating to a class action lawsuit filed by a customer challenging late fee charges with respect to the Southern Tennessee System. On September 14, 1999, Rifkin sold the Southern Tennessee System to an affiliate of Charter. In connection with such sale, Charter was assigned the rights to the indemnification claim. The class action lawsuit has been settled and dismissed. The amount of the Southern Tennessee Escrow due Charter as a result of terms of the settlement agreement has not yet been determined. Upon determination of amounts due Charter, the remaining funds in the Southern Tennessee Escrow will be released to ACT 5. I-9 11 AMERICAN CABLE TV INVESTORS 5, LTD. (A Colorado Limited Partnership) 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 Riverside Sale. On September 28, 2000, the Court dismissed the Plaintiff's complaint for failing to plead the Federal Securities Act claim properly. On October 13, 2000, the Plaintiff served an amended complaint to the Defendants and on November 13, 2000, Defendants filed motions to dismiss the amended complaint. On May 18, 2001, the Court denied the Defendants' motion to dismiss. A trial date has not yet been set. 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. The claim against the Southern Tennessee Escrow, the above described lawsuit and the settlement of the Moreno Valley Franchise Agreement described in note 2 have had and will continue to have the effect of delaying any final liquidating distributions of the Partnership. At June 30, 2001, the Partnership had $435,000 of unclaimed distribution checks payable 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. I-10 12 AMERICAN CABLE TV INVESTORS 5, LTD. (A Colorado Limited Partnership) PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ------ -------------------------------- (a) Exhibits: None. (b) Reports on Form 8-K filed during the quarter ended June 30, 2001: None. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN CABLE TV INVESTORS 5, LTD. (A Colorado Limited Partnership) By: IR-TCI PARTNERS V, L.P., Its General Partner By: TCI VENTURES FIVE, INC., A General Partner Date: August 13, 2001 By: /s/ Scott D. Macdonald -------------------------------- Scott D. Macdonald Vice President and Controller (Chief Accounting Officer)

AMERICAN CABLE TV INVESTORS 5 LTD 10-Q