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, 1996
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. 2-78751
AMERICAN CABLE TV INVESTORS 2
(Exact name of Registrant as specified in its charter)
State of California 84-0904982
-------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5619 DTC Parkway
Englewood, Colorado 80111
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303)267-5500
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ---
PART I - FINANCIAL INFORMATION
AMERICAN CABLE TV INVESTORS 2
(A Limited Partnership)
Balance Sheets
(unaudited)
September 30 December 31,
1996 1995
------------ -----------
Assets amounts in thousands
Cash and cash equivalents $ 2,207 3,045
Receivables 9 --
------- -------
$ 2,216 3,045
======= =======
Liabilities and Partners' Equity
Accounts payable and accrued expenses $ 72 91
Amounts due to related parties
(note 4) 56 444
------- -------
Total liabilities 128 535
------- -------
Minority interest in American Cable TV
of Redlands Joint Venture ("Redlands")
(note 1) -- 204
Partners' equity (deficit):
General partners 2,014 2,069
Initial limited partner (270) (266)
Limited partners 344 503
------- -------
Total partners' equity 2,088 2,306
------- -------
Commitments and contingencies
(notes 4 and 5)
$ 2,216 3,045
======= =======
See accompanying notes to financial statements.
I-1
AMERICAN CABLE TV INVESTORS 2
(A Limited Partnership)
Statements of Operations
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
amounts in thousands,
except unit amounts
Selling, general and
administrative expenses
(note 5) $ (98) (251) (369) (284)
Interest income 36 41 151 149
Minority interest's share of
earnings of Redlands -- (2) -- (13)
----- ----- ----- -----
Net loss $ (62) (212) (218) (148)
===== ===== ===== =====
Loss per limited partnership
unit (note 2) $(1.47) (5.03) (5.17) (3.51)
====== ====== ====== ======
Limited partnership units
outstanding 30,772 30,772 30,772 30,772
====== ====== ====== ======
See accompanying notes to financial statements.
I-2
AMERICAN CABLE TV INVESTORS 2
(A Limited Partnership)
Statement of Partners' Equity
Nine months ended September 30, 1996
(unaudited)
Initial
General limited Limited
partners partner partners Total
-------- ------- -------- -----
amounts in thousands
Balance at January 1, 1996 $2,069 (266) 503 2,306
Net loss (55) (4) (159) (218)
------ ----- ----- -----
Balance at September 30,
1996 $2,014 (270) 344 2,088
====== ====== ====== ======
See accompanying notes to financial statements.
I-3
AMERICAN CABLE TV INVESTORS 2
(A Limited Partnership)
Statements of Cash Flows
(unaudited)
Nine months ended
September 30,
------------------
1996 1995
------ -------
amounts in thousands
(see note 3)
Cash flows from operating activities:
Net loss $(218) (148)
Adjustments to reconcile net loss to
net cash used in operating activities:
Minority interest's share of earnings
of Redlands -- 13
Change in receivables (9) --
Change in accounts payable, accrued
expenses and amounts due to related
parties (401) (339)
------ ------
Net cash used in operating
activities (628) (474)
------ ------
Cash flows from investing activities -
Distribution to minority owner of Redlands (210) --
------ ------
Cash flows from financing activities --
------ ------
Net decrease in cash and
cash equivalents (838) (474)
Cash and cash equivalents:
Beginning of period 3,045 3,544
------ ------
End of period $2,207 3,070
====== ======
See accompanying notes to financial statements.
I-4
AMERICAN CABLE TV INVESTORS 2
(A Limited Partnership)
Notes to Financial Statements
September 30, 1996
(unaudited)
(1) Basis of Financial Statement Preparation
----------------------------------------
The accompanying unaudited financial statements include the
accounts of American Cable TV Investors 2 ("ACT 2") and,
through December 31, 1995, Redlands, a joint venture in
which ACT 2 had a 65% ownership interest. ACT 2 and
Redlands are collectively referred to herein as the
"Partnership". All significant intercompany transactions
and accounts have been eliminated. American Cable TV
Investors 3 ("ACT 3"), an affiliate owned the 35% minority
interest in Redlands. In connection with a dissolution,
indemnification and contribution agreement (the "Dissolution
Agreement"), Redlands was dissolved as of January 1, 1996.
In accordance with the terms of the Dissolution Agreement,
Redlands' net assets were distributed to ACT 2 and ACT 3
based on their respective ownership interests.
TCI Cablevision Associates, Inc. ("Cablevision"), an
indirect subsidiary of Tele-Communications, Inc. ("TCI"), is
the managing agent of ACT 2.
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.
The accompanying financial statements of 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, 1996 and the
results of its operations for the nine months ended
September 30, 1996 and 1995. 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, 1995 Annual
Report on Form 10-K.
(2) Allocation of Net Earnings and Net Losses
-----------------------------------------
Pursuant to ACT 2's limited partnership agreement, net
earnings and net losses of ACT 2 are to be allocated 1% to
the general partners, 2% to the initial limited partner and
97% to the limited partners until the limited partners have
received cumulative distributions equal to their original
capital contributions ("Payback"). After the limited
partners have received distributions equal to Payback, the
allocations of net earnings and net losses shall be 25% to
the general partners, 2% to the initial limited partner and
73% to the limited partners.
(continued)
I-5
AMERICAN CABLE TV INVESTORS 2
(A Limited Partnership)
Notes to Financial Statements
Net loss per limited partnership unit is calculated by
dividing the net loss attributable to the limited partners
by the number of limited partnership units outstanding
during the period. The limited partners achieved Payback in
1994. Accordingly, the Partnership's losses for the nine
months ended September 30, 1996 and 1995 have been allocated
using the post-Payback percentages set forth above.
(3) Supplemental Disclosure of Cash Flow Information
------------------------------------------------
ACT 2 considers investments with initial maturities of six
months or less to be cash equivalents. At September 30,
1996, $2,180,000 of commercial paper was included in cash
and cash equivalents. ACT 2 is exposed to credit loss in
the event of non-performance by the other parties to such
financial instruments. However, ACT 2 does not anticipate
non-performance by the other parties.
(4) Transactions with Related Parties
---------------------------------
ACT 2 reimburses Cablevision for direct out-of-pocket and
indirect expenses allocable to ACT 2 and for certain
personnel employed on a full- or part-time basis to perform
accounting or other services. Such reimbursements amounted
to $27,000 for both the nine month periods ended September
30, 1996 and 1995.
Amounts due to related parties represent non-interest-
bearing payables to TCI and its affiliates consisting of (i)
the net effect of cash advances and certain expense
allocations and (ii) the advancement of legal and other fees
and expenses associated with the litigation described in
note 5.
(5) Litigation
----------
On September 30, 1994, a limited partner of ACT 2 filed suit
in United States District Court for the District of Colorado
(the "District Court") against the managing general partner
of ACT 2. A similar suit was filed against the managing
general partner of ACT 3. The lawsuit, as amended, also
names certain affiliates of the managing general partner as
defendants. The lawsuit, as amended, alleges that the
defendants violated disclosure requirements under the
Securities Exchange Act of 1934 and that certain defendants
breached a fiduciary duty to the plaintiffs in connection
with the sale of the Redlands cable television system. The
defendants believe that the claims asserted are without
merit and are vigorously defending the actions. The
defendants moved to dismiss various claims asserted in the
complaint and the plaintiff opposed such motions. The
defendants' motion was denied by the District Court on March
24, 1995.
On November 3, 1995, the District Court granted the
plaintiff's motion for certification of this case as a class
action. The class has been defined to include all persons
who were limited partners of ACT 2 as of the close of
business on October 1, 1993, excluding, however, the
defendants, their parent corporations, subsidiaries, and
affiliates. A pre-trial conference was conducted on April 9,
1996 and a trial has been scheduled for the spring of 1997.
On August 5, 1996, the defendants filed a motion for summary
judgment on all of the plaintiff's claims, as well as
separate partial summary judgment motions with respect to
certain of the plaintiff's claims. The plaintiff filed a
cross-motion for partial summary judgment on one aspect of
the case. The motions have been fully briefed, however, the
District Court has not yet ruled on such motions.
(continued)
I-6
AMERICAN CABLE TV INVESTORS 2
(A Limited Partnership)
Notes to Financial Statements
Section 21 of ACT 2's limited partnership agreement (the
"Partnership Agreement") provides that the General Partners
and their 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 2, provided that the General Partners determine, in good
faith, that such course of conduct was in the best interests
of ACT 2 and did not constitute proven fraud, negligence,
breach of fiduciary duty or misconduct.
Through September 30, 1996, ACT 2 and ACT 3 have received
requests from the General Partners and certain of their
affiliates for the advancement of legal and other fees and
expenses associated with the above-described lawsuit
totaling $1,677,000. Consistent with the terms of the
Partnership Agreement, this amount has been advanced by ACT
2 and ACT 3. ACT 2's 50% share of such fees and expenses for
the nine months ended September 30, 1996 and 1995, which
totals approximately $313,000 and $221,000, respectively,
has been included in selling, general, and administrative
expenses in the accompanying financial statements. Fees and
expenses incurred by the defendants will continue to be paid
in equal shares by ACT 2 and ACT 3 as they are incurred and
approved.
The litigation will have the effect of delaying ACT 2's
final cash distributions. In addition, any successful
indemnification claims by the defendants would have the
effect of reducing the amount of such final cash
distributions.
I-7
AMERICAN CABLE TV INVESTORS 2
(A Limited Partnership)
Management's Discussion and Analysis of
- - ---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Material Changes in Results of Operations
-----------------------------------------
ACT 2 is no longer engaged in the cable television business
and is currently seeking to make a final determination of its
liabilities so that liquidating distributions can be made in
connection with its dissolution. Accordingly, the Partnership's
results of operations for the nine month periods ended September
30, 1996 and 1995 include (i) the advancement of legal and other
fees and expenses associated with the litigation described in
note 5 to the accompanying financial statements, (ii) costs
associated with the administration of the Partnership and (iii)
interest income earned on the Partnership's invested cash and
cash equivalents.
Material Changes in Financial Condition
---------------------------------------
ACT 2 anticipates that it will make liquidating
distributions in connection with its dissolution as soon as
possible following the final determination and satisfaction of
ACT 2's liabilities. However, ACT 2 currently is unable to
predict the timing or amount of such final cash distributions due
primarily to the existence of the litigation described in note 5
to the accompanying financial statements.
I-8
AMERICAN CABLE TV INVESTORS 2
(A Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- - ------- --------------------------------
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended
September 30, 1996 - none
II-1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMERICAN CABLE TV INVESTORS 2
(A Limited Partnership)
By: IR-TCI PARTNERS II,
Its Managing General Partner
By: TCI VENTURES, INC.,
A General Partner
Date: November 5, 1996 By: /s/ Gary K. Bracken
Gary K. Bracken
Vice President and Controller
(Principal Accounting Officer)
II-2