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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended
MARCH 31, 2004
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______ to _____
Commission File Number: 0-16784
American Cable TV Investors 5, Ltd.
Exact name of registrant as specified in charter
Colorado 84-1048934
------------------------------ ----------------------------
State of organization I.R.S. employer I.D. #
c/o Comcast Corporation
1500 Market Street, Philadelphia, PA 19102-2148
- --------------------------------------------------------------------------------
Address of principal executive office
(215) 665-1700
- --------------------------------------------------------------------------------
Registrant's telephone number
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
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-b2 of the Exchange Act).
Yes No X
----- -----
AMERICAN CABLE TV INVESTORS 5, LTD.
FORM 10-Q
QUARTER ENDED MARCH 31, 2004
TABLE OF CONTENTS
Page Number
PART I. FINANCIAL INFORMATION -----------
ITEM 1. Financial Statements
Balance Sheet as of March 31, 2004 and December 31, 2003 (Unaudited)...................1
Statement of Operations for the Three Months Ended
March 31, 2004 and 2003 (Unaudited)....................................................2
Statement of Cash Flows for the Three Months Ended
March 31, 2004 and 2003 (Unaudited)....................................................3
Notes to Financial Statements (Unaudited)..............................................4
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................................7
ITEM 4. Controls and Procedures................................................................7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings......................................................................8
ITEM 6. Exhibits and Reports on Form 8-K.......................................................8
SIGNATURES .......................................................................................9
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AMERICAN CABLE TV INVESTORS 5, LTD.
-----------------------------------
(A Colorado Limited Partnership)
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET
(Unaudited)
March 31, December 31,
2004 2003
-------- --------
(Amounts in thousands)
Assets
Cash and cash equivalents ................... $ 9,205 $ 9,184
Funds held in escrow ........................ 494 494
-------- --------
$ 9,699 $ 9,678
======== ========
Liabilities and Partners' equity
Unclaimed limited partner distribution checks 440 440
Amounts due to related parties .............. 1,847 1,772
-------- --------
Total liabilities .................. 2,287 2,212
-------- --------
Contingencies (Note 3)
Partners' equity (deficit):
General partner ........................ (3,227) (3,227)
Limited partners ....................... 10,639 10,693
-------- --------
Total partners' equity ............. 7,412 7,466
-------- --------
$ 9,699 $ 9,678
======== ========
See accompanying notes to financial statements.
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AMERICAN CABLE TV INVESTORS 5, LTD.
-----------------------------------
(A Colorado Limited Partnership)
STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2004 2003
--------- ---------
(Amounts in thousands,
except per unit amounts)
General and administrative expenses . ($ 75) ($ 57)
Interest income ..................... 21 29
--------- ---------
Net loss ....................... ($ 54) ($ 28)
========= =========
Net loss per limited partnership unit ($ .27) ($ .14)
========= =========
Limited partnership units outstanding 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 CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
2004 2003
------- -------
(amounts in thousands)
Cash flows from operating activities:
Net loss ............................................................... ($ 54) ($ 28)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Changes in operating assets and liabilities:
Net change in unclaimed limited partner distribution checks and
amounts due to related parties ............................ 75 56
------- -------
Net cash provided by operating activities ..................... 21 28
Cash and cash equivalents:
Beginning of period ........................................... 9,184 9,792
------- -------
End of period ................................................. $ 9,205 $ 9,820
======= =======
See accompanying notes to financial statements.
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AMERICAN CABLE TV INVESTORS 5, LTD.
-----------------------------------
(A Colorado Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(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
March 31, 2004 and its results of operations for the three months ended March
31, 2004 and 2003. The results of operations for the interim periods are not
necessarily indicative of the results for the full year.
These financial statements should be read in conjunction with the financial
statements and related notes thereto included in the Partnership's December 31,
2003 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. ("Ventures Five"), a subsidiary of TCI
Cablevision Associates, Inc. ("Cablevision"). Cablevision is an indirect
subsidiary of Comcast Cable Holdings, LLC ("Comcast Cable Holdings") and is the
managing agent of the Partnership. Comcast Cable Holdings is an indirect
subsidiary of Comcast Corporation ("Comcast").
2. TRANSACTIONS WITH RELATED PARTIES
The Partnership has a management agreement with an affiliate of Comcast Cable
Holdings whereby this affiliate is responsible for performing all services
necessary for the management of the Partnership. The Partnership is charged a
management fee related to these services. During the three months ended March
31, 2004 and 2003, general and administrative expenses in the Partnership's
statement of operations include $9,000 related to this agreement.
Amounts due to related parties, which represent non-interest-bearing payables to
Comcast Cable Holdings and its affiliates, consist of the net effect of cash
advances and certain intercompany expense charges.
3. 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 sale of the Partnership's cable
television system located in and around Riverside, California (the "Riverside
Sale") and that certain defendants breached their fiduciary duty in connection
with the Riverside Sale. Also named as a defendant is Lehman Brothers Inc.
("Lehman"), which provided to ACT 5 a fairness opinion relative to the Riverside
Sale. On May 18, 2001, the Court denied the Defendants' motion to dismiss the
complaint. 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. The engagement agreement between ACT 5 and Lehman provides
that, subject to certain conditions set forth in more detail in the engagement
agreement, Lehman is entitled to be indemnified for any liability or loss, and
to be reimbursed by ACT 5 for legal expenses incurred as a result of its
rendering of services in connection with the fairness opinion. The General
Partner and its affiliates and Lehman each have submitted a demand for
indemnification. Consequently, legal fees incurred by the defendants with
respect to the above lawsuit have been reflected in general and administrative
expenses in the accompanying statements of operations in the period that such
legal fees were incurred by the defendants. For the three
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AMERICAN CABLE TV INVESTORS 5, LTD.
-----------------------------------
(A Colorado Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
months ended March 31, 2004 and 2003, legal fees related to the above lawsuit of
$32,000 and $25,000, respectively, have been included in general and
administrative expenses in the accompanying statements of operations.
On August 1, 2002, the plaintiff in the above lawsuit filed a motion to bar
defendants from recovering indemnification for attorneys' fees and costs during
the pendency of the lawsuit. On September 16, 2002, plaintiff and the General
Partner, Ventures Five, and Comcast (the "TCI Defendants") filed with the court
a stipulation by which the TCI Defendants agreed that ACT 5 would not reimburse
Comcast for legal fees or expenses of the TCI Defendants unless, at the
conclusion of the case, the court authorizes the indemnification payment. The
plaintiff withdrew its motion without prejudice.
On January 31, 2003, the court denied plaintiff's motion seeking to bar Lehman
from recovering indemnification of attorney's fees and costs during the pendency
of this lawsuit. As a result, Lehman is entitled to indemnification pursuant to
the terms of its engagement agreement and Comcast is entitled to reimbursement
by ACT 5 for such indemnification payments made to Lehman. In December 2003, ACT
5 made this reimbursement payment to Comcast for approximately $712,000.
On December 17, 2003, the Court denied Plantiff's and the TCI Defendants' cross
motions for summary judgment, except that the Court granted a component of the
TCI Defendants' motion when it ruled that Plaintiff cannot maintain a claim
under section 14(a) of the Securities Exchange Act of 1934 based on events
occurring after the ACT 5 limited partners' December 1998 proxy vote approving
the sale of the Riverside cable television system to Century. The Court also
denied the Plaintiff's and Defendant's respective motions in limine to preclude
certain expert testimony at trial. Additionally, the Court granted in part
Lehman's motion for summary judgement, determining that Lehman cannot be held
liable for events occurring after the December 1998 proxy vote.
On December 19, 2003, the Court granted in part Plaintiff's motion for class
certification, narrowing the time period of the class to those persons
(excluding defendants) who were limited partners of ACT 5 from November 6, 1998
(the date of the Proxy Statement) through December 11, 1998 (the date of the
special meeting of limited partners when the proxy vote occurred) relative to
Plaintiff's prosecution of its claim for violation of ss. 14(a) of the
Securities Exchange Act of 1934.
Plaintiff has agreed in principle to a settlement of all claims against the
three TCI Defendants (but not its claims against the remaining Defendant, Lehman
Brothers, Inc.) for $3.75 million, plus the TCI Defendants' waiver of their
claims against ACT 5 for reimbursement of their legal expenses in the Action.
Through February 2004, the three TCI Defendants incurred approximately $1.3
million in attorneys' fees and other costs.
On March 24, 2004, Plaintiff and the TCI Defendants filed in the Action the
proposed settlement agreement, a notice of the settlement to the ACT 5 Class
Members and Limited Partners, and a motion seeking court approval of the
settlement. Under the proposed settlement agreement, plaintiff will continue to
pursue, on behalf of the Class and Limited Partners, its claims against Lehman,
which will continue to receive reimbursement of its defense fees and costs
pursuant to Lehman's engagement letter with ACT 5 and the Court's January 31,
2003 order, unless that order is modified. If Plaintiff proceeds to trial
against Lehman, depending on the outcome of the case, ACT 5 may continue to be
liable for Lehman's future attorneys' fees and defense costs. Plaintiff will be
limited in collecting on any judgment against Lehman to an amount of not more
than: (a) $3,750,000, plus (b) the total amount previously or hereafter paid to
Lehman by ACT 5 as reimbursement for Lehman's attorneys' fees and costs pursuant
to its engagement letter, the Court's January 31, 2004 order, or otherwise.
Further, Plaintiff cannot collect on any judgment against Lehman unless the
Court specifically determines that, as to the amount to be collected: (a)
Lehman's liability to the Class and/or the Limited Partners resulted directly
from Lehman's gross negligence, bad faith, and/or willful misconduct, or (b)
Lehman otherwise is not entitled to indemnification or reimbursement from,
and/or the other protections from liability to, ACT 5 pursuant to the engagement
letter or otherwise.
On April 23, 2004, Lehman filed an objection to the proposed settlement,
contending that under its engagement letter,
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AMERICAN CABLE TV INVESTORS 5, LTD.
-----------------------------------
(A Colorado Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Plaintiff, acting in its derivative capacity, cannot settle the Litigation
without providing to Lehman a full and unconditional release of Plaintiff's
claims against it. Plaintiff and the TCI Defendants filed responses to Lehman's
opposition to the proposed settlement, contending that no basis exists for
Lehman's opposition. The motion is still pending. The finality of the settlement
is dependent on Court approval, without which the settlement will be canceled. A
hearing has been set for May 18, 2004 on the motion to approve the proposed
settlement.
Although no assurance can be given as to the outcome of the remaining
indemnification matters, based on information currently available to management,
ACT 5 believes that the TCI Defendants are entitled to indemnification pursuant
to the terms of the Partnership Agreement. Accordingly, management of ACT 5
intends to continue to reflect covered expenses in general and administrative
expenses. From the inception of the lawsuit through March 31, 2004, claims for
indemnification have been submitted to ACT 5 totaling approximately $2.2
million. Such amounts are reflected in amounts due to related parties in the
accompanying balance sheet at March 31, 2004.
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"). Pursuant to the
asset purchase agreement, $494,000 of the 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 and the lawsuit described above
have had and will continue to have the effect of delaying any final liquidating
distributions of the Partnership.
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AMERICAN CABLE TV INVESTORS 5, LTD.
-----------------------------------
(A Colorado Limited Partnership)
ITEM 2. 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, 2003.
Material Changes in Results of Operations
The Partnership has sold all of its cable television assets and, therefore, is
no longer actively engaged in the cable television business. Pending the
resolution of the contingencies described in note 3 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 results of operations for the three months
ended March 31, 2004 and 2003 include general and administrative ("G&A")
expenses and interest income. The Partnership's G&A expenses are primarily
comprised of legal fees and costs associated with the administration of the
Partnership. G&A expenses increased $19,000 during the three months ended March
31, 2004, as compared to the corresponding prior year period. Such increases are
due to legal fees associated with the litigation described in note 3 to the
accompanying financial statements and audit fees. Interest income relates to
interest earned on the Partnership's cash and cash equivalents. Interest income
decreased $8,000 during the three months ended March 31, 2004, as compared to
the corresponding prior year period. Such changes are due to fluctuations in
interest rates.
ITEM 4. CONTROLS AND PROCEDURES
Our principal executive officer and our co-chief financial officers, after
evaluating the effectiveness of our disclosure controls and procedures (as
defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as
of the end of the period covered by this report, have concluded, based on the
evaluation of these controls and procedures required by paragraph (b) of
Exchange Act Rules 13a-15 or 15d-15, that our disclosure controls and procedures
were adequate and designed to ensure that material information relating to us
would be made known to them by others within those entities.
Changes in internal control over financial reporting. There were no changes in
our internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that
occurred during our last fiscal quarter that have materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
7
AMERICAN CABLE TV INVESTORS 5, LTD.
-----------------------------------
(A Colorado Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Note 3 to our financial statements included in Item 1 for a
discussion of recent developments related to our legal proceedings.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits required to be filed by Item 601 of Regulation S-K:
31 Certifications of Principal Executive Officer and Co-Chief
Financial Officers pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32 Certifications of Principal Executive Officer and Co-Chief
Financial Officers pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
b) Reports on Form 8-K:
None.
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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
By: /s/ LAWRENCE J. SALVA
----------------------------------
Lawrence J. Salva
Senior Vice President
(Principal Accounting Officer)
Dated: May 14, 2004
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