SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE
REQUIRED] OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D)
OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE
REQUIRED]
For Fiscal Year Ended Commission
File
December 31, 1995 Number 0-13158
DELPHI FILM ASSOCIATES III
(Exact name of registrant as specified in its
charter)
New York 13-3177344
(State or other jurisdiction of (IRS
Employer
incorporation or organization) Identification
No.)
666 Third Avenue, New York, New York 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 983
9040
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interests
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 report) and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[x]
As of March 15, 1996, there were 9,702 units of limited
partnership interests outstanding, all held by non-affiliates.
The aggregate market value of those interests is not
determinable because there is no active public trading market
for the units. See Item 5. Market for the Registrant's Common
Equity and Related Security Holder Matters.
<PAGE>
PART I.
Item 1. Business.
Introduction.
Delphi Film Associates III (the "Partnership") is a limited
partnership which was organized under the law of the State of
New York in September 1983 to participate in the production,
acquisition, ownership and exploitation of feature length
motion pictures through a joint venture with Columbia Pictures
Industries, Inc. ("Columbia"), known as Columbia-Delphi III
Productions (the "Columbia Joint Venture"), and through a joint
venture with Tri-Star Pictures, predecessor-in-interest to
TriStar Pictures, Inc. ("TriStar"), known as Tri-Star-Delphi III
Productions (the "Tri-Star Joint Venture"). The terms of the
TriStar Joint Venture and the Columbia Joint Venture are
substantially the same. These two joint ventures are referred
to collectively as the "Joint Ventures" and sometimes
individually as a "Joint Venture," and the Partnership's co-
venturer in each of the joint ventures is sometimes referred to
as the "Studio Venturer."
A public offering (the "Offering") of limited partnership
interests in the Partnership, at $5,000 per unit, was completed
in July 1984 with the sale of 9,702 units. Tricol Partners, a
partnership consisting of TriStar and Columbia, is a limited
partner of the Partnership and contributed $l5,000,000 for the
purchase of 3,000 units of limited partnership interests. Net
proceeds to the Partnership after deducting selling commissions,
organizational expenses and other expenses of the Offering were
approximately $44,100,000. In addition, the general partner of
the Partnership, The Delphi Group (the "General Partner"),
contributed approximately $490,000 as its capital contribution
to the Partnership.
Production and Acquisition of Films.
Until the funds the Partnership agreed to contribute
to each Joint Venture were fully committed, each Joint
Venture had the right to produce or acquire and exploit
each film that met certain criteria for which its Studio
Venturer commenced production after the expiration of the
Studio Venturer's similar existing commitment to its joint
venture with Delphi Film Associates II ("Delphi II").
Delphi II was a limited partnership organized in October
1982 to participate in the production, acquisition,
ownership and exploitation of films through Columbia-
Delphi Productions II
and Tri-Star-Delphi II Productions, which was liquidated in
December 1995. Each Joint Venture also acquired interests
in certain films produced by independent producers that
were distributed by the distribution arm of its Studio
Venturer.
The Partnership, through each Joint Venture, has an
interest ranging from 5% to 25% in each of the Joint
Ventures' films. The Partnership's ownership interest with
respect to each film is generally equal to the percentage
the Partnership's cash contributions for production or
acquisition of a film bears to the total cash contributions
required for production or acquisition of that film.
The Partnership has an interest in 34 films (seven
through the Columbia Joint Venture and 27 through the Tri
Star Joint Venture) all of which have been released. See
"Films in Release." Seven of the Tri-Star Joint Venture
films were co-produced with Tri-Star-Delphi II Productions.
The Partnership, through the Tri-Star Joint Venture, owns a
10% interest in those films.
In each of 1985, 1986 and 1988, the Joint Ventures
were granted participation interests in certain additional
films (the "Additional Films"). The Joint Ventures were
granted a participation interest in three Additional Films
in 1985, one film through the Columbia Joint Venture ("The
Karate Kid: Part II") and two films through the Tri-Star
Joint Venture ("Let's Get Harry" and "Nothing In Common").
The Partnership, through the Joint Ventures, owns a 10%
interest in each of these films. The Partnership did not
make capital contributions for its participation interests
in these Additional Films, but is entitled to a share of
the proceeds from each of these films to the extent those
proceeds exceed the amount that the Partnership would have
contributed had the Joint Venture paid for its interest.
The Partnership does not anticipate receiving any revenue
with
respect to "Let's Get Harry" and "Nothing in Common."
Through December 31, 1995, the Partnership has received
approximately $3,401,000 with respect to "The Karate Kid:
Part II." In 1986, the Partnership, through the Tri-Star
Joint Venture, also received a participation interest in
two motion pictures ("The Principal" and "Suspect"). The
Partnership made no capital contribution for its interest
in these films. The Partnership's interest in each of
these films is substantially the same as described for "The
Karate Kid: Part II," "Let's Get Harry" and "Nothing In
Common,"
except that the Partnership is entitled to receive an
amount, aggregating not more than $520,000, based on the
worldwide theatrical gross receipts of "The Principal" and
"Suspect." Through December 31, 1995, the Partnership has
received $516,000 with respect to "The Principal" and
"Suspect". In 1988, the Tri-Star Joint Venture was granted
a participation interest by TriStar in the motion picture
"Rambo III." The Partnership is entitled to 5% of net
proceeds after "Breakeven" has been reached. For this
purpose, "Breakeven" is defined as the point at which 10%
of net proceeds (after recoupment of deferred distribution
fees) equals 5% of the production cost of the film
(including an overhead charge of 12-1/2%). The Partnership
made no capital contributions for its interest in this
film. Payments due with respect to the interest in "Rambo
III" will be made in June 1996, subject to being paid
earlier under certain circumstances. As of December 31,
1995, the Partnership had accrued revenues of approximately
$138,000 in respect of its interest in "Rambo III." See
"Films in Release."
The Partnership's contributions for the production
and acquisition of films aggregated approximately
$56,384,000 (including interest). Approximately two-thirds
of the Partnership's contributions were made to the Tri-
Star Joint
Venture, and the balance was contributed to the Columbia
Joint Venture.
As a result of the performance of the films in which
the Partnership has an interest, Distribution Fee Reduction
Payments were made in 1992 and 1991 to the Columbia Joint
Venture and the Tri-Star Joint Venture by their respective
Distributors. As of December 31, 1995, approximately
$528,000 and $1,467,000 had been received by the
Partnership through the Columbia Joint Venture and the Tri-
Star Joint Venture, respectively, which are net of amounts
withheld by the Distributor for recoupment of the Advances.
See "Reduction of Distribution Fee and Payment to Joint
Ventures."
The Partnership is in the process of evaluating the
value of its interest in the film assets for the purpose of
possibly selling that interest and eventually liquidating
the Partnership. The General Partner presently anticipates
that the Partnership will be liquidated by the end of 1996.
However, cash distributions will be made to the partners to
the extent, and only to the extent, the proceeds from the
sale of the Partnership's interest in the film assets in
connection with the liquidation are in excess of a reserve
for the Partnership's remaining operating expenses.
Distribution of Films.
The films of the Columbia Joint Venture and the
TriStar Joint Venture are being distributed pursuant to
distribution agreements between Columbia Pictures, a
division of Columbia ("Columbia Pictures"), and the
Columbia Joint Venture, and between TriStar and the Tri-
Star Joint Venture, respectively. Columbia Pictures and
TriStar, as distributors, are sometimes referred to
collectively as the "Distributors" and individually as a
"Distributor." The Distributor has the ultimate authority
for all decisions with
respect to the distribution of the films.
The Partnership, through each Joint Venture, is
generally entitled to receive an amount equal to the
product of its percentage interest in a film multiplied by
the greater of (a) an amount equal to 100% of the net
proceeds (as defined below) from the distribution of a film
and (b) an amount equal to 32% of gross receipts from the
distribution of a film. Distribution arrangements with
respect to films in which a Joint Venture has an interest
that were produced by independent producers may vary from
those with respect to films produced by a Joint Venture.
The Partnership and the Studio Venturer share in the amount
to which the Joint Ventures are entitled from the
distribution of any film in proportion to their respective
interests in the film. The distribution agreements
provide, with certain exceptions, that gross receipts
consist of all sums received by the Studio Venturer from
the exploitation of a film throughout the world. Net
proceeds with respect to each film generally are determined
by deducting from gross receipts:
(a) a distribution fee equal to 17-1/2% of
substantially all of the gross receipts of the film. The
Distributor's entitlement to this distribution fee is
deferred until the Joint Venture has received from the
distribution of that film an amount equal to the amount
contributed by the Joint Venture to produce or acquire an
interest in the film, other than amounts paid in the nature
of interest (See "Reduction of Distribution Fee and Payment
to the Joint Ventures");
(b) all expenses incurred in the distribution,
promotion and marketing of the film, including expenditures
for prints and advertising; and
(c) payments to third party participants who have a
contingent participation in the film. The extent to which
payments to third party participants may be deducted from
the gross receipts of a film in determining net proceeds is
limited by the distribution agreements.
The Joint Ventures' films are subject to agreements
between Home Box Office, Inc. ("HBO") and each of Columbia
and TriStar with respect to HBO's exhibition of those films
on its pay television services. Although the terms of the
agreement between HBO and Columbia (the "Columbia-HBO
Agreement") differ in certain respects from the terms of
the agreement between HBO and TriStar, pursuant to both
Joint Ventures' distribution agreements, gross receipts of
films have been calculated on the basis of the terms of the
Columbia-HBO Agreement. Under that agreement, Columbia
received substantial minimum license fees based generally
on a film's production cost and additional amounts if a
film's domestic box office performance exceeded certain
levels. In addition, under that agreement HBO may acquire
the exclusive pay television rights for a substantial
number of films for a limited period of time, in which case
the license fee based on box office performance was
increased for those films. Most of the Columbia Joint
Venture's and the Tri-Star Joint Venture's films have been
exhibited on HBO's pay television services.
The Joint Ventures' distribution agreements with the
Distributors provide that for purposes of determining the
amounts to which the Joint Ventures are entitled based on
net proceeds, gross receipts include an amount equal to the
higher of the license fees based on domestic box office
performance provided for in the Columbia-HBO Agreement and
the minimum license fee based on a film's production cost.
However, for purposes of determining the amounts to which
the Joint Ventures are entitled based on gross receipts,
gross receipts include only the license fee based on
domestic box
office performance.
Columbia Pictures entered into an arrangement with
CBS Inc. ("CBS") for CBS to license for exhibition on the
CBS television network, a specified number of motion
pictures from among a specified number of groups of motion
pictures under an arrangement providing for CBS to pay a
specified average license fee for the motion pictures in
each group licensed by CBS. The Columbia Joint Venture and
its Distributor have agreed that, subject to adjustment in
certain circumstances, gross receipts for films licensed to
CBS under this arrangement have included an amount equal to
the higher of the license fees paid by CBS and the
comparable fair market value for the license rights
involved for the relevant license period. Certain films in
which the Partnership owns an interest have been licensed
for network television exhibition under this arrangement.
Certain of the Tri-Star Joint Venture's films have been
licensed for network television exhibition on CBS or on
other television networks on a film-by-film basis.
The films in which the Partnership owns an interest
are subject to agreements between each Distributor and
Columbia TriStar Home Video (formerly known as RCA/Columbia
Pictures Home Video) and Columbia TriStar Home Video
(International) Inc. (formerly known as RCA/Columbia
Pictures International Video). The distribution agreements
between each Joint Venture and its Distributor provide for
a specified royalty for videocassettes and discs regardless
of the amounts payable to TriStar or Columbia under their
respective agreements with such joint ventures (which may
exceed the amounts includable in gross receipts).
Many films in which the Partnership has an interest
have been licensed by the Distributor for exhibition on
cable television services other than HBO and Cinemax,
independent
television stations in the United States and on foreign
television stations. Generally, these films have been made
available for foreign television exhibition and domestic
independent television exhibition approximately three and
five years, respectively, after a film's domestic
theatrical release.
Pursuant to an agreement between TriStar and the Tri
Star Joint Venture entered into in 1985, TriStar agreed to
make a payment in 1991 to the Tri-Star Joint Venture
increasing gross receipts otherwise payable in respect of
syndicated television. In addition, in 1986, TriStar
agreed to prepay the Tri-Star Joint Venture in 1987, on a
discounted basis, an amount relating to network television
license fees and syndicated television minimum license
fees. All payments to the Tri-Star Joint Venture with
respect to these payments were allocable to the
Partnership.
Each Distributor reports gross receipts and net
proceeds for each film to the Joint Venture on behalf of
which it acts, on a quarterly basis, and makes payments to
that Joint Venture based on those reports when the reports
are delivered. In addition to distributing motion pictures
produced or acquired by the Joint Ventures, each
Distributor distributes films in which joint ventures
between each of Columbia and TriStar and certain other
limited partnerships (the "Delphi Partnerships") own an
interest, as well as films in which neither the Partnership
nor any of the Delphi Partnerships own an interest.
Reduction of Distribution Fee and Payment to Joint
Ventures. The agreements relating to the
distribution of films
owned by the Joint Ventures provided for a payment (the
"Distribution Fee Reduction Payment") to be made by each
Distributor of an amount by which, as of June 1991,
contributions by each Joint Venture for the production of
and
acquisition of interests in its respective films, other
than sequels, (the "Expenditures") exceeded amounts paid to
the Joint Venture with respect to those films. As of
December 31, 1995, the Partnership received, in the
aggregate, approximately $528,000 and $1,467,000 (net of
amounts withheld by the Distributor for the recoupment of
the Advances) from the Columbia Joint Venture and the Tri-
Star Joint Venture, respectively, which represents the
Partnership's share of accrued distribution fees paid with
respect to the Distribution Fee Reduction Payments. Since
these payments were not sufficient to enable either Joint
Venture to recoup its Expenditures, each Distributor is
required to pay to its Joint Venture an amount equal to all
subsequent distribution fees earned by it from the
distribution of films on behalf of that Joint Venture up to
that Joint Venture's unrecouped Expenditures. If the Joint
Ventures are able to recoup their Expenditures, the
Distributors would be entitled to recoup these payments,
with interest calculated at 110% of the prime rate of
interest from time to time, from amounts thereafter
otherwise payable to the Partnership.
Based on the anticipated performance of the
Partnership's films, each Distributor is required to
continue making Distribution Fee Reduction Payments with
respect to its films. Accordingly, the Partnership's share
of distribution fees earned and expected to be earned by
the Distributors, as of December 31, 1995, of approximately
$44,000 and $395,000 have been accrued by the Partnership
and included in the receivable from the Columbia Joint
Venture and the Tri-Star Joint Venture, respectively.
Interest-free advances (the "Advances") from the
Distributors were allocated to the Partnership in the
amount of $333,000 and $667,000 from the Columbia and the
TriStar
Distributors, respectively. In July, 1991, an agreement
was reached between each Distributor and each Joint Venture
whereby the recoupment of Advances paid by the Distributor
to the Joint Venture would generally be deferred until the
earlier of December 31, 1993 or the date of receipt of
proceeds of a sale or transfer by the Partnership of its
interest in the Joint Ventures or the sale or transfer by
all of the limited partners of the Partnership of their
limited partnership interests. Since no such sale or
transfer was agreed to, in writing, by December 31, 1993,
the Distributors were entitled to retain an amount equal to
the unrecouped portion of the Advances from all amounts
thereafter otherwise payable pursuant to the Distribution
Agreement and allocable to the Partnership. As of December
31, 1995, the Advances from the Distributors had been fully
recouped and, therefore, all subsequent amounts will be
allocated to the Partnership.
Since the Distribution Fee Reduction Payment is
limited by the amount of distribution fees received by the
Distributors, it is anticipated that the Distribution Fee
Reduction Payments received from the Distributors will not
enable the Partnership, through each Joint Venture, to
recoup its Expenditures.
Films in Release.
All seven films in which the Columbia Joint Venture
has an interest have been released. Certain information
concerning these films is set forth below:
Partnership's
Approximate
Initial Percentage
Title Release Date Interest
Hardbodies May 1984 10%
Micki & Maude December 1984
25%
Fast Forward February 1985
25%
Perfect June 1985
20.4%
The Bride August 1985
25%
Big Trouble November 1985
25%
The Karate Kid: Part II June 1986
10%
All 27 films in which the Tri-Star Joint Venture
has
an interest have been released. Certain information
concerning these films is set forth below:
Partnership's
Approximate
Initial Percentage
Title Release Date Interest
The Evil That Men Do March 1984 (Foreign) 15%
September 1984 (Domestic)
Where The Boys Are May 1984 15%
The Natural May 1984
9.9%
The Muppets
Take Manhattan July 1984
10%
Places In The Heart September 1984
10%
Songwriter October 1984
10%
Lovelines October 1984
10%
Blame It On The Night October 1984
10%
Birdy December 1984
25%
Runaway December 1984
25%
Berry Gordy's
The Last Dragon March 1985
25%
Alamo Bay April 1985
25%
Little Treasure May
1985
10%
Rambo: First Blood Part II May
1985
7.5%
Private Resort May
1985
25%
Lifeforce June 1985
7.5%
Legend Of Billie Jean July 1985
25%
Real Genius July 1985
25%
My Man Adam October 1985
25%
Santa Claus: The Movie November 1985
5%
Iron Eagle January 1986
10%
Labyrinth June 1986
5%
Nothing In Common July 1986
10%
Let's Get Harry October 1986
10%
The Principal September 1987
10%
Suspect October 1987
10%
Rambo III May 1988
5%
All of the films of both Joint Ventures have been
theatrically released both domestically and in foreign
markets. In addition, all of these films have been made
available on video cassettes and have been exhibited on pay
television. Certain of these films have been exhibited on
network television and, all of these films are currently
available or under license for domestic syndicated
television exhibition and foreign television exhibition.
See "Distribution of Films".
In addition to having a 10% participation interest
in the motion pictures "The Principal" and "Suspect," the
Partnership, through the Tri-Star Joint Venture, is
entitled to receive an amount aggregating not more than
$520,000 based on specified percentages of the worldwide
theatrical gross receipts of those films. Through December
31, 1995, the Partnership had received $516,000 with
respect to these participation interests. See "Business -
Production and Acquisition of Films."
Competition.
Competition in the motion picture industry is
intense, both in theatrical distribution as well as in the
ancillary markets where the Partnership's films are now
being distributed. All of the "major" studios and
independent distribution companies are distributing films
that compete for the attention of purchasers of product for
these ancillary markets which include pay cable television,
home video, network television exhibition, and syndicated
television exhibition both foreign and domestic. The
Partnership's films compete in many of these markets not
only with films that were released contemporaneously, but
also with many films that were released in prior and
subsequent years. The level of theatrical success that a
film enjoyed is often an important factor with respect to
results achieved in these ancillary markets.
Employees.
The Partnership has no employees. The General
Partner, however, retains the services of Magera Management
Corporation ("Magera") to provide operational and financial
services to it. See Item l0 "Directors and Executive
Officers of the Partnership-Operational and Financial
Services." Magera has eight employees who perform services
for the General Partner, and for the general partners of
other private and public limited partnerships, including
the other Delphi Partnerships.
<PAGE>
Item 2. Properties.
The executive offices of the Partnership and the
General Partner are located at 666 Third Avenue, New York,
New York 10017. The Partnership pays no rent.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security
Holders.
None.
<PAGE>
PART II.
Item 5. Market for the Registrant's Common Equity
and
Related Security Holder Matters.
The Partnership is a limited partnership; there is
no established public market for limited partnership units
of the Partnership.
Effective November 9, 1992, the Partnership was
advised that Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") introduced a new limited
partnership secondary service available to its clients
through Merrill Lynch's Limited Partnership Secondary
Transaction Department.
Beginning with the December 1994 client account
statements, Merrill Lynch implemented new guidelines for
providing estimated values of limited partnerships and
other direct investments reported on client account
statements. Pursuant to the guidelines, estimated values
for limited partnership interests originally sold by
Merrill Lynch (such as the Partnership's Units) will be
provided two times per year to Merrill Lynch by independent
valuation services. The estimated values will be based on
financial and other information available to the
independent services on the prior August l5th for reporting
on December year-end client
account statements, and on information available to the
services on March 31st for reporting on June month-end
Merrill Lynch client account statements. Merrill Lynch
clients may contact their Merrill Lynch Financial
Consultants or telephone the number provided to them on
their account statements to obtain a general description of
the methodology used by the independent valuation services
to determine their estimates of value. The estimated
values provided by the independent services are not market
values and Unit holders may not be able to sell Units or
realize the amount upon a sale. In addition, Unit holders
may not realize the independent estimated value upon the
liquidation of the Partnership over its remaining life.
As of March 15, 1996, there were approximately 3,800
holders of record of limited partnership units of the
Partnership.
Cash Distributions.
The Partnership commenced making cash distributions
in February 1986. The following chart sets forth the cash
distributions made by the Partnership through March 15,
1996:
Year Amount Per Unit
1986 $ 650
1987 975
1988 350
1989 100
1990 100
1991 460
1992 275
1993 75
1994 25
1995
60 1996 (through March 15)
0 Total $ 3,070
Accordingly, as of March 15, 1996, the partners have
received distributions aggregating 61.4% of their
investment in the Partnership. The Partnership does not
currently anticipate that the partners will receive cash
distributions equal to their capital contribution to the
Partnership.
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data.
(000's omitted except for per unit
information)
Year Ended December 31,
<S> 1995 1994 1993 1992
1991 < <C> <C> <C> <C> <C>
Operating revenues(1): $ 0 $
0 $ 0 $ 0$ 0
Share of profit
in motion picture
ventures, net: $1,447
$ 241 $ 602 $ 1,206 $2,034
Net profit (loss): $1,182
$ (162) $ 185 $ 840 $1,755
Net profit (loss)
per unit: $ 121
$ (17) $ 19 $ 86$ 179
Total assets: $2,872
$ 2,253 $ 2,668 $ 3,207 $5,108
Total liabilities: $ 55
$ 30 $ 38 $ 27$ 73
Cash distributions
per unit: $ 60
$ 25 $ 75 $ 275$ 460
(1) The Partnership's interests in the Joint Ventures
are not included in Operating Revenues as they are
accounted for by the equity method.
/TABLE
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.
1. Liquidity and Capital Resources.
The Partnership has fully satisfied its commitment to
contribute funds to the Joint Ventures for the production of,
and acquisition of interests in, films. At December 31,
1995, the Partnership held cash of approximately $155,000
and short-term investments of approximately $986,000.
Short-term investments consist solely of U.S. Government
Securities.
As of December 31, 1995, the Partnership has
received,
in the aggregate, approximately $528,000 and $1,467,000
(net
of amounts withheld by the Distributor for the recoupment
of the Advances) from the Columbia Joint Venture and the
TriStar Joint Venture, respectively, which represent
accrued distribution fees paid with respect to the
Distribution Fee Reduction Payments. Since these payments
were not sufficient to enable either Joint Venture to
recoup its Expenditures, each Distributor will be required
to pay to its Joint Venture an amount equal to all
subsequent distribution fees earned by it from the
distribution of films on behalf of that Joint Venture up to
that Joint Venture's unrecouped Expenditures. If the Joint
Ventures are able to recoup their Expenditures, the
Distributors would be entitled to recoup these payments,
with interest calculated at 110% of the prime rate of
interest from time to time, from amounts thereafter
otherwise payable to the Partnership.
Based on the anticipated performance of the
Partnership's films, each Distributor is required to
continue making Distribution Fee Reduction Payments with
respect to its films. Accordingly, the Partnership's share
of distribution fees earned and expected to be earned by
the Distributors, as of December 31, 1995, of approximately
$44,000 and $395,000 have been accrued by the Partnership
and included in the receivable from the Columbia Joint
Venture and the Tri-Star Joint Venture, respectively.
Since the Distribution Fee Reduction Payment is
limited by the amount of distribution fees received by the
Distributors, it is anticipated that the Distribution Fee
Reduction Payments received from the Distributors will not
enable the Partnership, through each Joint Venture, to
recoup its Expenditures.
The Partnership received Advances in the amount of
$333,000 and $667,000 from the Columbia and the TriStar
Distributors, respectively. In July, 1991, an agreement
was
reached between each Distributor and each Joint Venture
whereby the recoupment of Advances by the Distributor to
the Joint Venture would generally be deferred until the
earlier of December 31, 1993 or the date of receipt of
proceeds of a sale or transfer by the Partnership of its
interest in the Joint Venture or the sale or transfer by
all of the limited partners of the Partnership of their
limited partner interests. Since no such sale or transfer
was agreed to, in writing, by December 31, 1993, the
Distributors were entitled to retain amounts equal to the
unrecouped portion of the Advances from all amounts
thereafter otherwise payable pursuant to the distribution
agreement and allocable to the Partnership.
As of December 31, 1995, the $333,000 Advance from
the Columbia Distributor had been fully recouped and as
such, all subsequent amounts will be allocated to the
Partnership. As of December 31, 1994, the $667,000 Advance
from the TriStar Distributor had been fully recouped and,
as such, all subsequent amounts are being allocated to the
Partnership.
The Partnership is in the process of evaluating the
value of its interest in the film assets for the purpose of
possibly selling that interest and eventually liquidating
the Partnership. The General Partner presently anticipates
that the Partnership will be liquidated by the end of 1996.
No assurance can be provided that the film assets will be
successfully sold, or if sold, on such schedule. Upon the
ultimate sale of the film assets, the Partnership will
commence taking steps to liquidate and dissolve. Since the
Partnership's obligation to make contributions to the Joint
Ventures for the production of, and acquisition of
interests in, films has been satisfied, all revenues
received by the Partnership is used to establish a reserve
for operating expenses of the Partnership and, to the
extent possible, to
make cash distributions to partners. The Partnership does
not anticipate significant future revenues and accordingly,
the Partnership does not currently anticipate making cash
distributions to partners on a quarterly basis. However,
the Partnership may make future distributions if it
realizes proceeds from its interest in films or from the
sale of its interest in films (should the sale occur) net
of a reserve for the Partnership's operating expenses. The
most recent cash distribution by the Partnership was made
in November 1995.
2. Results of Operations.
The Partnership's operating results are primarily
dependent upon the operating results of the Joint Ventures
and are significantly impacted by the Joint Ventures'
policies.
The performance of each film is based upon the
amount expended for production and other costs associated
with a film and the revenue generated by a film. The
amount and timing of revenue generated by each film is
dependent upon the degree of acceptance by the consumer
public and the particular ancillary market in which the
film is then being exhibited.
Amounts contributed toward each film are compared
periodically to the expected total revenue to be generated
for that film, and write-downs may occur to the extent the
amounts invested exceed the expected total revenue for that
film.
Additionally, each Joint Venture may record income
with respect to Distribution Fee Reduction Payments, to the
extent available, which may allow it to recover its
investment in films.
For the year ended December 31, 1995, the Columbia
Joint Venture had a net profit of which the Partnership's
share was approximately $228,000 due primarily to the
profitable results of certain films and the accrual of
Distribution Fee Reduction Payments. The Tri-Star Joint
Venture had a net profit of which the Partnership's share
was approximately $1,219,000, due primarily to the
recognition of distributions accrued in excess of the
Partnership's investment in the Tri-Star Joint Venture, the
profitable results of certain films and the accrual of
Distribution Fee Reduction Payments. In addition, the
Partnership earned approximately $66,000 from its short-
term investments and incurred approximately $331,000 of
expenses from its operations, resulting in an overall net
profit of approximately $1,182,000.
For the year ended December 31, 1994, the Columbia
Joint Venture had a net profit of which the Partnership's
share was approximately $166,000 due primarily to the
profitable results of certain films offset, in part, by
expenses related to foreign exchange losses. The Tri-Star
Joint Venture had a net profit of which the Partnership's
share was approximately $75,000, due primarily to the
profitable results of certain films and the accrual of
Distribution Fee Reduction Payments offset, in part, by
expenses related to foreign exchange losses. In addition,
the Partnership earned approximately $42,000 from its short
term investments and incurred approximately $445,000 of
expenses from its operations, resulting in an overall net
loss of approximately $162,000.
For the year ended December 31, 1993, the Columbia
Joint Venture had a net profit of which the Partnership's
share was approximately $340,000 due primarily to the
profitable results of certain films and the resolution of
several outstanding issues with its Distributor. The Tri
Star Joint Venture had a net profit of which the
Partnership's share was approximately $262,000, due
primarily to the accrual of Distribution Fee Reduction
Payments and the profitable results of certain films. In
addition, the Partnership earned approximately $49,000 from
its short-term investments and incurred approximately
$466,000 of expenses from its operations, resulting in an
overall net profit of approximately $185,000.
The increase in interest income for the year ended
December 31, 1995 as compared with the prior year is due
primarily to higher interest rates earned on for short-term
investments during 1995.
The decrease in interest income for the year ended
December 31, 1994 as compared with the prior year is due
primarily to the availability of less funds for short-term
investments during 1994.
The decrease in the Partnership's total expenses for
the year ended December 31, 1995 as compared with the prior
year is attributable to the Management Fee incurred in 1994
but not in 1995 offset, in part, by an increase in Other
Expenses. The increase in Other Expenses is primarily due
to the reimbursement to the General Partner for out-of-
pocket expenses incurred in connection with its management
of the Partnership's business in lieu of the Management Fee
paid to the General Partner prior to 1995.
The decrease in the Partnership's total expenses for
the year ended December 31, 1994 as compared with the prior
year is due primarily to a decrease in Other Expenses. The
decrease in Other Expenses is primarily attributable to a
decrease in professional fees related to the performance of
fewer production and distribution audits in 1994.
The Partnership does not believe that the impact of
inflation on the results of its operations has been
material. Item 8. Financial Statements and Supplementary
Data.
See the financial statements set forth in Item 14
of
this annual report.
Item 9.Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
<PAGE>
PART III.
Item 10. Directors and Executive Officers of the
Partnership.
The General Partner of the Partnership is The
Delphi Group, a New York general partnership originally
formed in September 1983 by Lewis J. Korman and Delphi III
Partners. In January 1987, ML Film Entertainment Inc. ("ML
Film"), a Delaware corporation, and a wholly-owned
subsidiary of ML Leasing Equipment Corp. (which is an
indirect wholly-owned subsidiary of Merrill Lynch & Co.
Inc., and the successor in interest to Merrill Lynch
Leasing Inc. and Merlease Leasing Corp.) and an affiliate
of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), was admitted as a partner in the
General Partner and replaced Mr. Korman as managing
partner of the General Partner (the "Managing Partner").
Set forth below is certain information regarding the
management of the General Partner.
ML Film.
The executive officers and directors of ML Film are:
Kevin K. Albert . . . . . . . . President, Director
Robert F. Aufenanger . . . Executive Vice President,
Director
Steven N. Baumgarten . . . Vice President, Director
Michael E. Lurie . . . . . . . Vice President, Director
Diane T. Herte. . . . . . . . . . Treasurer
Kevin K. Albert, 43, a Managing Director of
Merrill Lynch Investment Banking Group ("ML
Investment Banking"), joined Merrill Lynch in 1981.
Mr. Albert works in the Equity Private Placement
Group and is involved in structuring and placing a
diversified array of private equity financings
including common stock,
preferred stock, limited partnership interests and
other equity related securities. Mr. Albert is also a
director of ML Media Management Inc. ("ML Media"), an
affiliate of ML Film and a joint venturer of Media
Management Partners, the general partner of ML Media
Partners, L.P.; a director of ML Opportunity Management
Inc. ("ML Opportunity"), an affiliate of ML Film and a
joint venturer in Media Opportunity Management
Partners, the general partner of ML Media Opportunity
Partners, L.P.; a director of ML Mezzanine II Inc. ("ML
Mezzanine II"), an affiliate of ML Film and the general
partner of the managing general partner of ML Lee
Acquisition Fund II, L.P. and ML Lee Acquisition Fund
(Retirement Accounts) II, L.P.; a director of ML
Mezzanine Inc. ("ML Mezzanine"), an affiliate of ML
Film and the general partner of the managing general
partner of ML Lee Acquisition Fund, L.P.; a director of
Merrill Lynch Venture Capital Inc. ("ML Venture"), an
affiliate of ML Film and the general partner of the
Managing General Partner of ML Venture Partners I, L.P.
("Venture I"), ML Venture Partners II, L.P. ("Venture
II"), and ML Oklahoma Venture Partners Limited
Partnership ("Oklahoma"); and a director of Merrill
Lynch R&D Management Inc. ("ML R&D"), an affiliate of
ML Film and the general partner of the Managing General
Partner of ML Technology Ventures, L.P. Mr. Albert also
serves as an independent general partner of Venture I
and Venture II.
Robert F. Aufenanger, 42, a Vice President of
Merrill Lynch & Co. Corporate Credit and a Director of
the Partnership Management Department joined Merrill
Lynch in 1980. Mr. Aufenanger is responsible for the
ongoing management of the operations of the equipment
and project related limited partnerships for which
affiliates
of ML Film serve as general partners. Mr. Aufenanger
is also a director of ML Media, ML Opportunity, ML
Venture, ML R&D, ML Mezzanine and ML Mezzanine II.
Steven N. Baumgarten, 40, a Vice President of
Merrill Lynch & Co. Corporate Credit, joined Merrill
Lynch in 1986. Mr. Baumgarten shares responsibility
for the ongoing partnerships for which subsidiaries of
ML Leasing Equipment Corp., an affiliate of Merrill
Lynch, are general partners.
Michael E. Lurie, 52, a First Vice President of
Merrill Lynch & Co. Corporate Credit and the Director
of the Asset Recovery Management Department, joined
Merrill Lynch in 1970. Prior to his present position,
Mr. Lurie was the Director of Debt and Equity Markets
Credit responsible for the global allocation of credit
limits and the approval and structuring of specific
transactions relating to debt and equity products. He
also served as Chairman of the Merrill Lynch
International Bank Credit Committee. Mr. Lurie is also
a director of ML Media, ML Opportunity, ML Venture and
ML R&D.
Diane T. Herte, 35, an Assistant Vice President
of Merrill Lynch & Co., Corporate Credit since 1992,
joined Merrill Lynch in 1984. Ms. Herte's
responsibilities include controllership and financial
management functions for certain partnerships for which
subsidiaries of ML Leasing Equipment Corp., an
affiliate of Merrill Lynch, are general partners.
Mr. Aufenanger is an executive officer of Mid
Miami Diagnostics Inc. ("Mid-Miami Inc."). On October
28, 1994 both Mid-Miami Inc. and Mid-Miami Diagnostics,
L.P. filed voluntary petitions for protection from
creditors under Chapter 7 of the United States
Bankruptcy Code in the United States Bankruptcy Court
for the
southern District of New York.
Merrill Lynch was a co-managing underwriter of
the initial public offering of Sony Pictures
Entertainment, Inc. ("SPE") (then known as "Tri-Star
Pictures, Inc.") securities and of several subsequent
public offerings of additional SPE securities. In
addition, an affiliate of the Managing Partner serves
as a manager for certain film financing transactions
conducted on behalf of SPE in Japan. Therefore, ML
Film and its affiliates could have interests that may
conflict with those of the Partnership.
Merrill Lynch, or an affiliate, has served as a
selling agent for the public offerings of units in each
of the Delphi Partnerships.
Operational and Financial Services.
To assist it in the performance of its duties,
the General Partner has engaged Magera, subject to the
direction and supervision of the General Partner, to
provide operational and financial services which are
provided at no additional cost to the Partnership for
each year for which there is a management fee. Magera
is owned by Richard M. Mason and Aaron German. Mr.
Mason, a partner of the non-managing partner of the
General Partner and the President of Magera, and Mr.
German, the Executive Vice President of Magera, also
previously acted as consultants to SPE. Magera also
provides operational and financial services to the
general partners of other private and public limited
partnerships, including the other Delphi Partnerships,
and serves as a consultant to others engaged in the
entertainment industry.
Item 11. Executive Compensation.
For 1995 and subsequent years, the General
Partner is reimbursed for out-of-pocket expenses with
respect to
administering the Partnership and reporting to
partners. In that regard, the General Partner, on
behalf of the Partnership, has retained Magera to
provide those services to the Partnership for 1995 and
subsequent years.
Until limited partners have received total cash
distributions equal to their capital contributions (the
"Capital Return"), they will receive 99% of, and the
General Partner will receive 1% of, all cash
distributions. The General Partner, in addition to
receiving distributions in respect of the 1% interest
for which it has paid, will be entitled to receive
additional distributions in amounts up to 20% of all
cash distributions made after the Capital Return.
Prior to reaching the Capital Return, income will be
allocated 99% to the limited partners and l% to the
General Partner. To the extent and after the Capital
Return is reached, allocations of income would be based
on the aggregate allocations of income and losses and
cash distributions after Capital Return is reached.
The Partnership does not currently anticipate that
Capital Return will be achieved. See Item 5 "Cash
Distributions."
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
Tricol Partners, having an address c/o Columbia
Pictures Industries, Inc., 10202 West Washington
Boulevard, Culver City, California 90232, a partnership
comprised of Columbia and TriStar, is the owner of 3,000
units of limited partnership interests of the Partnership,
representing approximately 31% of all such units. As to
any matters submitted to limited partners of the
Partnership for a vote, Tricol Partners has agreed to vote
its units in the same proportion as the votes of the other
limited partners. To
the best of the knowledge of the Partnership, no person
other than Tricol Partners beneficially owns in excess of
5% of the limited partnership units of the Partnership.
To the best of the knowledge of the Managing Partner, as of
March 1, 1996, no person is the beneficial owner of 5% or
more of the outstanding common stock of Merrill Lynch. Item
13. Certain Relationships and Related Transactions.
The Partnership's operations relating to the
ownership and exploitation of films involve Columbia or
TriStar. See Item 1 "Business."
The General Partner is entitled to management fees
and to a portion of cash distributions to partners. The
General Partner of the Partnership is affiliated with the
general partner of the other Delphi Partnerships which are
limited partnerships similar to the Partnership.
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a)(1) Financial Statements:
Delphi Film Associates III
Independent Auditors' Report
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the
Years Ended December 31, 1995, 1994 and
1993
Statements of Changes in Partners' Capital
for the Years Ended December 31, 1995,
1994 and 1993
Notes to Financial Statements Columbia-
Delphi III Productions
Independent Auditors' Report
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the
Years Ended December 31, 1995, 1994 and
1993
Statements of Venturers' Capital for the
Years Ended December 31, 1995, 1994 and
1993 Notes to Financial Statements
Tri-Star-Delphi III Productions
Independent Auditors' Report
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993
Statements of Cash Flows for the
Years Ended December 31, 1995, 1994 and
1993
Statements of Venturers' Capital for the
Years ended December 31, 1995, 1994, and
1993
Notes to Financial Statements
(a)(2) Financial Statement Schedules:
No financial statement schedules have been filed
as part of
this report as none are required.
<TABLE>
<CAPTION>
(a)(3) Exhibits
Exhibit No.
<S> <C>
Amended Agreement
of Limited Partnership (1)
4.l(a)
Amendment to the Amended Agreement
of Limited Partnership dated as of
December 26, 1986 (3)
4.1(b)
Joint Venture Agreements (1)
l0.1
Product Origination
Agreements (1)
l0.2
Product Acquisition Agreement (1) l0.4
Distribution Agreements (1)
l0.5(a)
Amendment to the Columbia Distribution
Agreement dated January 17, 1986
(2) 10.5(b)
Amendment to the Tri-Star
Distribution Agreement dated
January 17, 1986 (2)
10.5(c)
Financial Data Schedule 27
</TABLE>
(1) Incorporated by reference to the Partnership's
registration statement No.2-87673, as amended, on file
with the Securities and Exchange Commission.
(2) Incorporated by reference to the Partnership's
Form 10-K for the year ended December 31, 1985 on file
with the Securities and Exchange Commission.
(3) Incorporated by reference to the Partnership's
Form 10-K for the year ended December 31, 1986 on file
with the Securities and Exchange Commission.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last
quarter of the Partnership's fiscal year ended December
31, 1995.
(c) Exhibits.
The Exhibits required by Item 601 of Regulation S-
K are submitted as a separate section following the
Partnership's financial statements.
(d) Financial Statement Schedules.
No financial statement schedules have been filed as
part of this report as none are required.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
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.
Dated: March 26, 1996 DELPHI FILM
ASSOCIATES III
By: THE
DELPHI GROUP
General Partner
By: ML
Film
Entertainment Inc.,
Managing
Partner
/s/ Kevin K.
Albert (Kevin K.
Albert) President
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
Signature Title Date
/s/ Kevin K. Albert Director and President
of
March 26, 1996
(Kevin K. Albert) the Managing Partner
of the General Partner
(principal executive
officer of the Registrant)
/s/ Robert F. Aufenanger Director and
Executive Vice March 26, 1996
(Robert F. Aufenanger) President of the
Managing
Partner of the General Partner
/s/ Steven N. Baumgarten Director and Vice
President March 26, 1996
(Steven N. Baumgarten) of the Managing Partner
of the General Partner
Director and
Vice President March 26 , 1996
(Michael E. Lurie) of the Managing Partner
of the General Partner
/s/ Diane T. Herte Treasurer of the March
26,
1996
(Diane T. Herte) Managing Partner
of the General Partner
(principal financial
officer and principal
accounting officer of the
Registrant)
<PAGE>
EXHIBIT INDEX
Page Reference
in Sequentially
Numbered Copy
4.1(a) Amended Agreement
of Limited
Partnership*
4.1(b) Amendment to the
Amended Agreement of
Limited Partnership dated
as of December 26, 1986*
l0.l Joint Venture Agreements*
l0.2 Product Origination
Agreements* l0.4 Product
Acquisition Agreement* l0.5(a)
Distribution Agreements*
10.5(b) Amendment to the Columbia
Distribution
Agreement dated January 17, 1986*
10.5(c) Amendment to the Tri-Star Distribution
Agreement dated January 17, 1986*
27 Financial Data Schedule
*Incorporated by reference
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Delphi Film Associates III:
We have audited the accompanying balance sheets of Delphi
Film Associates III (a New York Limited Partnership) as of
December 31, 1995 and 1994, and the related statements of
operations, cash flows and changes in partners' capital
for each of the years in the three-year period ended
December 31, 1995. These financial statements are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Delphi Film Associates III (a New York Limited
Partnership) at December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1995
in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
New York, New York
March 25, 1996
<PAGE>
DELPHI FILM ASSOCIATES III
(A New York Limited Partnership)
BALANCE SHEETS
(000's Omitted)
<TABLE>
<CAPTION>
December 31,
1995
1994
<S> <C> <C>
ASSETS
Cash $
$
155
132 Short-Term Investments (Note 2) 986
1,033
Receivable from Columbia-Delphi
III
Productions, net (Note 4) 640
686
Receivable from Tri-Star-Delphi
III
Productions, net (Note 4) 503
118
Interest in Motion Picture
Venture-Columbia-
Delphi III Productions (Notes 132
182
2 & 4)
Interest in Motion Picture
Venture-Tri-Star-
Delphi III Productions (Notes
2 & 4) 456
102
Total $
$
Assets 2,872
2,253
LIABILITIES AND PARTNERS'
CAPITAL
Liabilities:
Accrued Expenses and Accounts $
$
Payable 55
30
Total
Liabilities 55
30
Partners' Capital (Note 1):
General Partner 70
64
Limited Partners
2,747
2,159
Total
Partners' Capital 2,817
2,223
Total
Liabilities and Partners'
$
$ Capital 2,872
2,253
See accompanying notes to the financial
statements.
</TABLE>
<PAGE>
DELPHI FILM ASSOCIATES III
(A New York Limited Partnership)
STATEMENTS OF OPERATIONS
(000's Omitted, except net profit (loss) per unit)
<TABLE>
<CAPTION>
For the Year Ended December
31,
1995 1994 1993
<S> <C> <C> <C>
Interest Income $ $
$
66 42
49
Expenses:
Management Fee -- 400
400
Other Expenses
331 45
66
331 445
466
Loss before Share of
Profit
in Motion Picture (265) (403)
(417)
Ventures
Share of Profit in
Motion Picture
Venture--Columbia-
Delphi III
Productions (Notes 2 & 228 166
4)
340
Share of Profit in
Motion Picture
Venture--Tri-Star-
Delphi III
Productions (Notes 2
& 4) 1,219 75
262
Net Profit (Loss) $ $
$
1,182 (162)
185
Net Profit (Loss) Per
Unit of
Limited Partnership
Interest
(9,702 Units) $ $
$
121 (17)
19
See accompanying notes to the financial
statements.
</TABLE>
<PAGE>
DELPHI FILM ASSOCIATES III
(A New York Limited
Partnership)
STATEMENTS OF CASH FLOWS
(000's Omitted)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1995
1994 1993
<S>
<C> <C> <C>
Cash Flow From Operating
Activities:
Net Profit (Loss) $ $
$
1,182 (162)
185
Adjustments to reconcile Net
Profit (Loss) to net
cash provided (used) by
operating activities:
Share of Income in Motion (1,447) (241)
(602)
Picture Ventures
Distributions from Joint 1,143 377
875
Ventures
Changes in Assets and
Liabilities:
(Increase) Decrease in
Receivables from
Joint Ventures, net (339) (202)
20
Increase (Decrease) in
Accrued Expenses
and Accounts Payable
25 (8)
11
Net Cash Provided (Used)
by Operating
Activities
564 (236)
489
Cash Flow From Investing
Activities:
Purchases of Short-Term (3,609) (2,508)
(2,071)
Investments
Redemptions of Short-Term
Investments 3,656 2,658
2,303
Net Cash Provided by Investing
Activities
47 150
232
Cash Flow From Financing
Activities:
Distributions to Partners
(588) (245)
(735)
Net Cash Used by Financing
Activities (588) (245)
(735)
Increase (Decrease) In Cash 23 (331)
(14)
Cash at beginning of year
132 463
477
Cash at end of year $ $
$
155 132
463
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
DELPHI FILM ASSOCIATES III
(A New York Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 3l, 1995, 1994 AND
1993 (000's Omitted, except distributions per
unit)
<TABLE>
<CAPTION>
General Limited
Total
<S> <C> <C>
<C>
Balance January 1, 1993 $ $
$
73 3,107
3,180
Net Profit for the Year
Ended
December 31, 1993 2 183
185
Distributions to Partners
($75 per unit) (7) (728)
(735)
Balance December 31, 1993 68 2,562
2,630
Net Loss for the Year Ended
December 31, 1994 (2) (160)
(162)
Distributions to Partners
($25 per unit) (2) (243)
(245)
Balance December 31, 1994 64 2,159
2,223
Net Profit for the Year
Ended
December 31, 1995 12 1,170
1,182
Distributions to Partners
($60 per unit) (6) (582)
(588)
Balance December 31, 1995 $ $
$
70 2,747
2,817
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
DELPHI FILM ASSOCIATES III
(A New York Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. General
Delphi Film Associates III (the "Partnership") is a
limited partnership which was formed to participate in the
production, ownership, and exploitation of feature length
motion pictures through Columbia-Delphi III Productions, a
joint venture with Columbia Pictures Industries, Inc.
("Columbia") (the "Columbia Joint Venture"), and through
TriStar-Delphi III Productions, a joint venture with
TriStar Pictures, Inc. ("TriStar") (the "Tri-Star Joint
Venture") (the "Joint Ventures"). The Partnership was
organized under the law of the State of New York in
September 1983. The Delphi Group, a New York general
partnership (the "General Partner"), is the general partner
of the Partnership. The General Partner, which has the
full responsibility for the management of the Partnership's
business, received a fee for its management services of
$400,000 in each of 1994 and 1993.
For 1995, the General Partner was reimbursed approximately
$255,000 for out-of-pocket expenses incurred in connection
with its management of the Partnership's business. A
public offering (the "Offering") of limited partnership
interests was completed on July l7, l984. A total of 9,702
units were sold of which 3,000 were purchased by Tricol
Partners, a partnership of TriStar and Columbia. The
General Partner contributed $490,000, an amount equal to 1%
of the total capital contributed to the Partnership.
Profits and losses have been allocated l% to the General
Partner and 99% to the limited partners.
The principal business of the Partnership is the
production, ownership and exploitation of motion pictures
through its participation in the Joint Ventures.
Accordingly, the Partnership's operating results are in
large part dependent upon the operating results of the
Joint Ventures and are significantly impacted by the Joint
Ventures' policies (see Note 4).
2. Summary of Significant Accounting Policies
(a) Short-Term Investments
Short-Term Investments consist solely of U.S. Government
Securities which are stated at cost plus accrued interest,
which approximates market value.
(b) Accounting for Participation in Joint Ventures
The Partnership records its investment in the Joint
Ventures under the equity method of accounting. Columbia
and TriStar agreed to compensate the Partnership for the
unavailability to the Columbia Joint Venture and the Tri-
Star Joint Venture, respectively, of investment tax credits
with respect to one of the Columbia and two of the TriStar
films which had been released by paying to the Partnership
in l985 an amount of $l5,000 and $497,000, respectively,
equal to approximately twice the investment tax credits
applicable to
the Partnership's interest in those films. These payments
had been applied as a reduction of the Partnership's
interest in the Columbia Joint Venture and Tri-Star Joint
Venture, respectively. During the year ended December 31,
1995, the Partnership recognized distributions from the Tri-
Star Joint Venture in excess of its Interest in Motion
Picture Venture. As a result, the Partnership included an
additional $497,000 in its share of profit from the Tri-
Star Joint Venture.
(c) Accounting for Income Taxes
No provision for income taxes has been made as Delphi
Film Associates III is treated as a partnership for income
tax purposes, with all income tax consequences flowing
directly to its partners.
Effective January l, l993, the Partnership adopted
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." As of December 31, 1995 and
1994, the tax bases of the Partnership's assets less
liabilities exceeded the reported amounts by approximately
$1,952,000 and $3,265,000, respectively. The adoption of
the Statement had no impact on the Partnership's financial
statements.
3. Supplemental Disclosure of Cash Flow Information
No amounts for interest were paid in l995, l994 and l993.
4. Transactions with Joint Ventures
(a) Interests in Motion Pictures
The Partnership, through each Joint Venture, has
interests in 28 films ranging from approximately 5% to 25%
in (and has borne 5% to 25% of the cost of) the motion
pictures. The Partnership also has a participation
interest in six additional films in which it made no cash
investment (the "Additional Films").
The Partnership has satisfied its commitment to
contribute
funds to the Joint Ventures for the production and
acquisition of films. Approximately two-thirds of the
aggregate amount committed by the Partnership for the
production and acquisition of films was contributed to the
Tri-Star Joint Venture and the balance to the Columbia
Joint Venture. As of December 31, 1995, the Tri-Star Joint
Venture had an interest in twenty-two films (exclusive of
five Additional Films) for which the Partnership's cash
contributions (including interest) aggregated approximately
$38,795,000. As of that date, the Columbia Joint Venture
had an interest in six films (exclusive of one Additional
Film) for which the Partnership's cash contributions
(including interest) aggregated approximately $l7,589,000.
(b) Current Operations
As of December 31, 1995, all thirty-four films in which
the Partnership has an interest (including the six
Additional Films) had been released. All of these films
have completed their initial theatrical release and are
being distributed in various ancillary markets. Based on
the results of the films during the year ended December 31,
1995, and after deducting the net operating expenses of the
Partnership, the Partnership is reporting a net profit of
$1,182,000 for the year ended December 31, 1995.
(c) Transactions with Columbia and TriStar
The films in which the Columbia Joint Venture has an
interest are being distributed pursuant to a distribution
agreement between Columbia Pictures, a division of Columbia
(a "Distributor"), and the Columbia Joint Venture. The
films in which the Tri-Star Joint Venture has an interest
are being distributed pursuant to a distribution agreement
between TriStar Pictures (a "Distributor") and the Tri-Star
Joint Venture. The Distributors receive a fee of l7.5% of
substantially all gross receipts. However, the
Distributor's
entitlement to this distribution fee for each film is
deferred until its Joint Venture has received from the
distribution of that film an amount equal to that spent by
the Joint Venture to produce or acquire an interest in the
film, other than amounts spent for payments in the nature
of interest (see Note 6).
In light of the results of the Joint Venture films, net
revenues have been computed without deducting a
distribution fee to the Distributors, with the exception of
nine films for which a portion of the fees were deducted.
(d) Joint Venture Revenue Recognition
Each Joint Venture recognizes net revenue from its
Distributor on an accrual basis. Net revenues consist of
the portion of net proceeds (gross receipts less a
distribution fee, unless deferred, and other distribution
and releasing costs) or, if greater, the portion of gross
receipts payable to the Joint Venture under the
distribution agreements. However, certain advances received
by the Distributors which are includable in gross receipts
under the distribution agreements are not reflected in the
calculation of net revenues until those advances are
earned.
(e) Joint Venture Amortization Policies
Unamortized production costs are amortized under the
individual film forecast method based upon net revenues
recognized in proportion to the Joint Venture's estimate of
ultimate net revenues to be received. These costs are
compared with net realizable value on a film by film basis,
and losses are recognized to the extent of any excess of
costs over net realizable value.
(f) Receivable from Columbia Joint Venture, net
This asset represents the excess of the amounts
receivable by the Partnership from the Columbia Joint
Venture over amounts payable by the Partnership to the
Columbia Joint
Venture. The total receivable as of December 31, 1995 of
$640,000 consists of $596,000 accrued with respect to film
exploitation and $44,000 accrued as a Distribution Fee
Reduction Payment (as defined below in Note 6). The total
receivable as of December 31, 1994 of $686,000 consisted of
$647,000 accrued with respect to film exploitation and
$66,000 accrued as a Distribution Fee Reduction Payment (as
defined below in Note 6), partially offset by advances to
the Partnership of $27,000 (see Note 5).
(g) Receivable from Tri-Star Joint Venture, net
This asset represents the excess of the amounts
receivable by the Partnership from the Tri-Star Joint
Venture over amounts payable by the Partnership to the Tri-
Star Joint Venture. The total receivable as of December
31, 1995 of $503,000 consists of $108,000 accrued with
respect to film exploitation and $395,000 accrued as a
Distribution Fee Reduction Payment (as defined below in
Note 6). The total receivable as of December 31, 1994 of
$118,000 consisted of $213,000 accrued as a Distribution
Fee Reduction Payment (as defined below in Note 6),
partially offset by a net nonrefundable advance of $95,000.
5. Advances from Distributor
The Partnership has benefited from an arrangement
between each Joint Venture and its related Distributor
under which up to an aggregate of $l,000,000 (the
"Advances") has been made available to the Joint Ventures,
for the benefit of the Partnership, as an interest free
advance against payments that would otherwise be made to
the Joint Ventures at a later date. The Partnership has
received the entire $l,000,000 under these arrangements.
Each Distributor was entitled to retain an amount equal to
the unrepaid portion of its Advance from any Distribution
Fee Reduction Payments (as defined below in Note 6)
otherwise payable to the respective Joint
Ventures for the benefit of the Partnership. However, in
July, 1991, an agreement was reached between each
Distributor and each Joint Venture whereby the recoupment
of Advances paid by the Distributor to the Joint Venture
would generally be deferred until the earlier of December
31, l993 or the date of receipt of proceeds of a sale or
transfer by the Partnership of its interest in the Joint
Ventures or the sale or transfer by all of the limited
partners of the Partnership of their limited partnership
interests. Since no such sale or transfer was agreed to,
in writing, by December 31, 1993, the Distributors were
entitled to retain amounts equal to the unrecouped portion
of the Advances from all amounts thereafter otherwise
payable pursuant to the Distribution Agreement and
allocable to the Partnership.
As of December 31, 1995, the $333,000 advance from the
Columbia Distributor has been fully recouped and, as such,
all subsequent amounts will be allocated to the
Partnership. As of December 31, l994, the $667,000 advance
from the TriStar Distributor had been fully recouped and,
as such, all subsequent amounts are being allocated to the
Partnership. 6. Distribution Fee Reduction
The agreements relating to the distribution of films
owned by the Joint Ventures provided for a payment (the
"Distribution Fee Reduction Payment") to be made by the
Distributor of an amount by which, as of June 1991,
contributions by a Joint Venture for the production of and
acquisition of interests in its respective films (other
than sequels) (the "Expenditures") exceeded amounts paid to
the Joint Venture with respect to those films. The
Partnership received approximately $528,000 from the
Columbia Joint Venture and $l,467,000 from the Tri-Star
Joint Venture which represents accrued distribution fees
paid as of December 31, 1995 with respect to the
Distribution Fee Reduction Payments.
These payments are net of amounts withheld by the
Distributor for the recoupment of the Advances. Since
these payments were not sufficient to enable either Joint
Venture to recoup its Expenditures, each Distributor will
be required to pay to its Joint Venture an amount equal to
all subsequent distribution fees earned by it from the
distribution of films on behalf of that Joint Venture up to
that Joint Venture's unrecouped Expenditures. If the Joint
Ventures are able to recoup their Expenditures, the
Distributors would be entitled to recoup these payments,
with interest calculated at ll0% of the prime rate from
time to time, from amounts thereafter otherwise payable to
the Partnership.
Based on the anticipated performance of the films
released through the Columbia Joint Venture and the Tri-
Star Joint Venture, each Distributor is required to make
Distribution Fee Reduction Payments with respect to its
films. Accordingly, distribution fees earned and expected
to be earned by the Distributors as of December 31, 1995 of
approximately
$44,000 and $395,000 have been accrued by the Partnership
and included in the receivable from the Columbia Joint
Venture and the Tri-Star Joint Venture, respectively.
Since the Distribution Fee Reduction Payment is limited
by the amount of distribution fees received by the
Distributors, it is anticipated that the Distribution Fee
Reduction Payments received from the Distributors will not
enable the Partnership, through each Joint Venture, to
recoup its Expenditures.
The Partnership is in the process of evaluating the
value of its interest in the film assets for the purpose of
possibly selling that interest and eventually liquidating
the Partnership. The General Partner anticipates that the
Partnership will be liquidated by the end of 1996. No
assurance can be provided that the film assets will be
successfully sold, or if sold, on such schedule. Upon the
ultimate sale of the film assets, the Partnership will
commence taking steps to liquidate and dissolve. Since
the Partnership's obligation to make contributions to the
Joint Ventures for the production of, and acquisition of
interests in, films has been satisfied, all revenues
received by the Partnership are used to establish a
reserve for operating expenses of the Partnership and, to
the extent possible, to make cash distributions to
partners. The Partnership does not anticipate significant
future revenues and accordingly, the Partnership does not
currently anticipate making cash distributions to partners
on a quarterly basis. However, the Partnership may make
future distributions if it realizes proceeds from its
interest in films or from the sale of its interest in
films (should the sale occur) net of a reserve for the
Partnership's operating expenses.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Venturers
Columbia - Delphi III Productions
In our opinion, the accompanying balance sheets and the
related statements of operations, of cash flows and of
venturers' capital present fairly, in all material
respects, the financial position of Columbia - Delphi III
Productions at December 31, 1995 and 1994, and the results
of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. These
financial statements are the responsibility of the
Venture's management; our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance
with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made
by management, and evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for the
opinion expressed above.
Century City, California
March 22 , l996
<PAGE>
COLUMBIA-DELPHI III
PRODUCTIONS (A Joint
Venture)
BALANCE SHEETS
(000's Omitted)
<TABLE>
<CAPTION>
December 31,
1995
1994
<S> <C> <C>
ASSETS
Motion Picture Production and
Advertising
Costs, net of accumulated
amortization
of $76,726 and $76,532,
respectively
(Notes 1, 2 & 5) $
$
760
954
Motion Picture Costs Recoverable
from
Distribution Fees (Notes 3, 171
262
5 & 6)
Receivable from Columbia
Pictures
(Distributor) (Note 6)
2,010
2,263
Total $ 2,941
$
Assets
3,479
LIABILITIES AND VENTURERS'
CAPITAL
Liabilities:
Payable to Columbia Pictures
Industries, Inc.
(Note 6) $
$
1,541
1,812
Payable to Delphi Film
Associates III, net
(Note 6) 640
686 Advance from Columbia Pictures
Industries,
Inc. (Distributor) (Notes 5
& 6) --
27
Total
Liabilities 2,181 2,525
Venturers' Capital (Notes 1 &
3):
Columbia Pictures Industries, 613 757
Inc.
Delphi Film Associates III
147 197
Total
Venturers' Capital 760 954
Total
Liabilities and Venturers'
$ $
Capital 2,941 3,479
See accompanying notes to the financial
statements. </TABLE>
<PAGE>
COLUMBIA - DELPHI III PRODUCTIONS
(A Joint Venture)
STATEMENTS OF
OPERATIONS (000's
Omitted)
<TABLE>
<CAPTION>
For
the Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Net Revenues From Motion
Picture
Exploitation (Notes $ $
$
2 & 3) 902 1,383
1,123
Less: Amortization of
Motion
Picture
Production and
Advertising
Costs
(Notes 2 & 5)
194 462
325
Income from Operations 708 921
798
Accrued Distribution Fee
Reduction (Notes 3 & 139 --
- --
5)
Interest Income -- --
352
Other Income (Expense)
(Note 7) -- (199)
37
Net Income $ $
$
847 722
1,187
See accompanying notes to the financial
statements.
</TABLE>
<PAGE>
COLUMBIA - DELPHI III PRODUCTIONS
(A Joint Venture)
STATEMENTS OF CASH
FLOWS (000's
Omitted)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1995
1994 1993
<S>
<C> <C> <C>
Cash Flow From Operating
Activities:
Net Income $ $
$
847 722
1,187
Adjustments to reconcile Net
Income to net cash
provided by operating
activities:
Amortization of Motion Picture
Production and
Advertising Costs 194 462
325
Accrued Distributions to 344 (27)
(110)
Venturers
Changes in Assets and
Liabilities:
(Decrease) Increase in
Payable to Columbia
Pictures Industries, (271) 66
84
Inc.
Decrease (Increase) in
Receivable from
Columbia Pictures 253 (245)
(379)
(Distributor)
Decrease in Investment in
Motion Picture
Production and -- --
488
Advertising Costs
Decrease in Motion Picture
Costs
Recoverable from 91 218
269
Distribution Fees
(Decrease) Increase in
Payable to Delphi
Film Associates III, net (46)
26
267
Decrease in Advance from
Columbia
Pictures Industries,
Inc. (Distributor) (27) (306)
- --
Net Cash Provided by
Operating Activities 1,385 1,157
1,890
Cash Flow from Financing
Activities:
Distributions to Venturers
(1,385) (1,157)
(1,890)
Net Cash Used by
Financing Activities (1,385) (1,157)
(1,890)
Net Change in Cash -- --
- --
Cash at beginning of year
-- --
- --
Cash at end of year $ $
$
-- --
- --
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
COLUMBIA - DELPHI III PRODUCTIONS
(A Joint Venture)
STATEMENTS OF VENTURERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 3l,
1995, 1994 AND 1993 (000's Omitted)
<TABLE>
<CAPTION>
Columbia Delphi
Pictures Film
Total
Industries, Associates
Venturers'
Inc.
III
Capital
<S> <C> <C>
<C>
Venturers' Capital as of $ $ $
January 1, 1993 1,731 498 2,229
Net Income for the Year
Ended
December 31, 1993 847 340 1,187
Accrued Distributions to
Venturers (1,462) (538) (2,000)
Venturers' Capital as of
December 31,
1993 1,116 300 1,416
Net Income for the Year
Ended
December 31, 1994 556 166 722
Accrued Distributions to
Venturers (915) (269) (1,184)
Venturers' Capital as of
December 31,
1994 757 197 954
Net Income for the Year
Ended
December 31, 1995 619 228 847
Accrued Distributions to
Venturers (763) (278)
(1,041)
Venturers' Capital as of
December 31,
1995 $ $
$
613 147
760
See accompanying notes to the financial statements.
/TABLE
<PAGE>
COLUMBIA - DELPHI III PRODUCTIONS
(A Joint Venture)
NOTES TO FINANCIAL STATEMENTS
1. General
Columbia-Delphi III Productions (the "Joint Venture") is
a joint venture between Columbia Pictures Industries, Inc.
("Columbia") and Delphi Film Associates III, a New York
limited partnership (the "Partnership"), formed on January
3, l984 to engage in the business of producing, owning and
exploiting feature length motion pictures. Through the
Joint Venture, Columbia has approximately a 75%-80%
interest and the Partnership has approximately a 20%-25%
interest in, and each was responsible for those respective
percentages of, the production cost of the Joint Venture's
films ("Joint Venture Films"). The Joint Venture acquired
a 20% interest in one film (in which the Partnership has a
10% interest) distributed by Columbia and a 20% interest,
without cost to the Joint Venture, in one additional film
distributed by Columbia in which the Partnership and
Columbia each have an interest of l0% through the Joint
Venture.
As of December 31, 1995, all five of the Joint Venture
Films and the two films in which the Joint Venture has a
20% interest had been released (see Note 5).
All of the Joint Venture's films are distributed pursuant
to a distribution agreement between Columbia Pictures (the
"Distributor"), a division of Columbia, and the Joint
Venture (see Note 2).
Tricol Partners, a partnership of TriStar Pictures, Inc.
(formerly Tri-Star Pictures, Inc.) ("TriStar") and
Columbia, has a limited partnership interest in the
Partnership which is equal to the proportion that its
capital contribution of $15,000,000 bears to the aggregate
capital contributed by all limited partners of $48,510,000.
Columbia contributed onethird of the amount contributed by
Tricol Partners.
The Partnership participates in a joint venture with
TriStar (the "Other Venture") similar to the Joint Venture.
Sony Pictures Entertainment Inc., the parent company of
Columbia and TriStar, is an indirect wholly-owned
subsidiary of Sony Corporation.
2. Summary of Significant Accounting Policies
Recognition of Revenue
The Joint Venture recognizes net revenues from the
Distributor on the accrual basis. Net revenues consist of
the portion of net proceeds (gross receipts less a
distribution fee, unless deferred, and other distribution
and releasing costs) or, if greater, gross receipts payable
to the Joint Venture under the distribution agreement.
However, certain advances received by the Distributor which
are includable in gross receipts under the distribution
agreement are not reflected in the calculation of net
revenues until those advances are earned. The Joint
Venture's advertising and promotion charge expenditures
were recovered (subject to certain limitations) from gross
receipts from all films in which the Joint Venture has an
interest.
Distribution Fee
The Distributor is entitled to receive a 17.5%
distribution fee on all gross receipts in calculating the
net proceeds to which the Joint Venture is entitled from
the distribution of a film; however, the Distributor's
entitlement to this distribution fee will be deferred until
the Joint Venture has received from the distribution of
that film an amount equal to the amount spent by the Joint
Venture to produce or acquire an interest in the film,
other than amounts spent for payments in the nature of
interest ("Cost Return"). After Cost Return for a film,
for purposes of determining any additional payments based
on net proceeds to which the Joint Venture is entitled in
respect of that film, the Distributor will be entitled to
receive a distribution fee equal to 17.5% of all gross
receipts of the film prior to Cost Return and 17.5% of all
additional gross receipts after Cost Return (See Note 3).
Net revenues accrued at December 31, 1995, 1994 and 1993
have been computed without deducting a distribution fee to
the Distributor in light of the results of films released
through those respective dates, with the exception of one
films in l995 and 1994 and one film in 1993 for which a
portion of the distribution fee was deducted, and the
additional film that was acquired without cost to the Joint
Venture.
Motion Picture Production and Advertising Costs
Motion picture production costs include the direct costs
of production plus an overhead charge equivalent to 12.5%
of the direct production costs; these costs were
capitalized as incurred by the Joint Venture. Payments by
the Joint Venture in respect of the advertising and
promotion charge payable to the Distributor were
capitalized as incurred by the Joint Venture to the extent
those payments benefit future periods. These costs are
amortized under the individual film forecast method based
upon net revenues recognized in proportion to the Joint
Venture's estimate of ultimate net revenues to be received.
Unamortized production and advertising costs are compared
with net realizable value on a film by film basis
and losses are recognized to the extent of any excess of
costs over net realizable value. However, as a result of
the Joint Venture's entitlement to a payment under the
circumstances described in Note 3, where losses to the
Joint Venture are recorded in the aggregate from the
application of the above method of accounting, a review is
made of the estimated future revenues and costs on all
films of the Joint Venture in release to estimate their
ultimate profitability. If this review indicates that in
the aggregate such films are ultimately unprofitable to the
Joint Venture, an amount equal to the lesser of (a) the
distribution fees earned or expected to be earned by the
Distributor on films released or (b) the ultimate estimated
aggregate loss from production and acquisition of motion
pictures is accrued as Motion Picture Costs Recoverable
from Distribution Fees.
3. Distribution Fee Reduction (See Note 5)
The Joint Venture was entitled to a payment from the
Distributor in reduction of the Distributor's aggregate
distribution fee if, by mid-l991, the Joint Venture had not
received net proceeds and gross receipts (excluding amounts
paid to the Joint Venture for the recovery of advertising
and promotion charge payments) at least equal to the
amounts spent by the Joint Venture for the production of
films and the acquisition of interests in films (excluding
certain amounts spent for payments in the nature of
interest) (the "Expenditures"). Consequently, payments of
$230,000 and $218,000 were made in 1995 and 1994,
respectively, representing the amount available for the
Joint Venture to be repaid, without interest, its
unrecouped Expenditures to the extent of the aggregate
distribution fee previously received by the Distributor.
Since the cumulative payments to December 31, l995 were not
sufficient to enable the Joint
Venture to recoup its Expenditures, the Distributor will
pay the Joint Venture an amount equal to all subsequent
distribution fees earned by it until the Joint Venture has
recouped an amount equal to its Expenditures. The
payments to the Joint Venture are allocated to the
Partnership and Columbia based on their respective
percentage interest in each film for which a distribution
fee was received. After the Joint Venture recoups the
Expenditures, the Distributor will be entitled to recoup
these payments, with an amount in the nature of interest,
from the Joint Venture's share of subsequent net proceeds
and gross receipts and from the proceeds of any subsequent
sale of the Joint Venture's interest in films.
If the gross receipts from a film do not exceed the costs
of distributing the film, or if the most recent payment to
the Joint Venture with respect to the film is based on
gross receipts, no amounts from the distribution of that
film will be available for payment to the Joint Venture
for this purpose.
4. Income Taxes
No provision for income taxes is made in the Joint
Venture's financial statements since the venturers treat
the Joint Venture as a partnership for income tax
purposes, with all income tax consequences flowing
directly to the venturers.
Effective January l, l993, the Partnership adopted
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." As of October 31, 1995 and
1994 (the Joint Venture's tax year end is October 31), the
tax bases of the Joint Venture's assets less liabilities
exceeded amounts reported in the financial statements at
December 31, 1995 and l994 by approximately $6,047,000 and
$7,683,000, respectively. Management estimates that the
tax bases of the Joint Venture's assets and liabilities did
not differ significantly between October 31 and December 31
in 1995 and l994. The adoption of the Statement had no
impact on the Joint Venture's financial statements.
5. Current Operations
As of December 31, 1995, the Distributor had released all
seven films in which the Joint Venture has an interest (see
Note l). The Joint Venture is not expected to recoup its
investment in four of these films out of the proceeds from
their distribution. For the years ended December 31, 1995,
1994 and 1993, motion picture production costs have been
reduced by amortization of $194,000, $462,000 and $325,000,
respectively.
Based on the anticipated performance of the films
released through December 31, 1995 and 1994, approximately
$171,000 and $262,000, respectively, were accrued as Motion
Picture Costs Recoverable from Distribution Fees in the
accompanying financial statements. The current year
decrease in Motion Picture Costs Recoverable from
Distribution Fees of $91,000 is the result of payments made
by the Distributor of approximately $230,000 (see Note 3)
partially offset by, additional accruals of $139,000 due to
changes in expected distribution fees.
During 1989 (and amended in 1990), an agreement was
reached between the Joint Venture and the Distributor
pursuant to which the Distributor made non-interest bearing
advances to the Joint Venture up to an aggregate of
$333,000 against amounts to be due to the Joint Venture.
Amounts advanced have been allocated to the Partnership in
order to make cash distributions to its partners. The
entire $333,000 had been advanced to the Partnership. In
July, l99l, an
agreement was reached between the Distributor and the
Joint Venture whereby the recoupment of advances paid by
the Distributor to the Joint Venture in the amount of
$333,000 would generally be deferred until the date of
receipt of proceeds of a sale or transfer by the
Partnership of its interest in the Joint Venture or the
sale or transfer by all of the limited partners of the
Partnership of their limited partnership interests. Since
no such sale or transfer was agreed to, in writing, on or
before December 31, 1993, the Distributor was entitled to
retain an amount equal to the unrecouped portion of the
advances from all amounts thereafter otherwise payable
pursuant to the Distribution Agreement and allocable to
the Partnership. In accordance with the aforementioned
agreement, as of December 31, l995, the Distributor has
recouped all of this advance which would otherwise have
been payable to the Joint Venture and allocable to the
Partnership.
<PAGE>
6. Receivables and Payables
An analysis of the Joint Venture's receivables and payables
is as follows:
<TABLE> AT DECEMBER 31,
1995
<CAPTION> Receivable Payable Payable
Payable to
from to to to
the
Distributor Distributor
Columbia Partnership
(000's
omitted) <S> <C> <C> <C> <C>
Net Proceeds and Gross $ $ $
$
Receipts 2,010 0 1,414
596
Accrued Distribution
Fee
Reduction
171 0 127
44
Total $ $ $
$
2,181 0 1,541
640
AT DECEMBER 31,
1994
Receivable Payable Payable
Payable to
from to to to
the Distributor Distributor
Columbia Partnership
(000's
omitted) <S> <C> <C>
<C> <C>
Net Proceeds and Gross $ $ $
$
Receipts 2,263 0 1,616
647
Accrued Distribution 262 0 196
66
Fee
Reduction
Advance to Partnership
0 27 0
(27)
Total $ $ $
$
2,525 27 1,812
686
</TABLE>
7. Foreign Exchange Gains and Losses
The distribution agreement between the Joint Venture and
the Distributor provides that revenues earned in foreign
currencies be valued as of the date that monies are remitted
or are "freely remittable" to the United States. Other
Expense for the year ended December 31, l994 of $199,000
represents the cumulative difference between the monies
remitted in U.S. dollars and the value previously recorded
based on the exchange rate at the time of revenue recognition
in the applicable international territory. No such revenue
valuation adjustment was necessary in 1995.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Venturers
TriStar - Delphi III Productions
In our opinion, the accompanying balance sheets and the
related statements of operations, of cash flows and of
venturers' capital present fairly, in all material respects,
the financial position of TriStar - Delphi III Productions
at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years
in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the Venture's
management; our responsibility is to express an opinion on
these financial statements based on our audits. We
conducted our audits of these statements in accordance
with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting
principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Century City, California
March 22, l996
<PAGE>
TRI-STAR-DELPHI III PRODUCTIONS
(A Joint Venture)
BALANCE SHEETS
(000's Omitted)
<TABLE>
<CAPTION>
December 31,
1995
1994
<S> <C> <C>
ASSETS
Motion Picture Production and
Advertising
Costs, net of accumulated
amortization
of $194,664 and $194,137,
respectively
(Notes 1, 2 & 5) $
$
2,666
3,193 Motion Picture Costs Recoverable
from
Distribution Fees (Notes 3, 1,432
964
5 & 6)
Receivable from TriStar
Pictures, Inc.
(Distributor) (Note 6)
476
(287)
Total $ 4,574
$
Assets
3,870
LIABILITIES AND VENTURERS'
CAPITAL
Liabilities:
Payable to TriStar Pictures
Inc., net
(Note 6) $ 1,405
$
559 Payable to Delphi Film
Associates III, net
(Note 6)
503
118
Total
Liabilities 1,908
677
Venturers' Capital (Notes 1 &
3):
TriStar Pictures, Inc. 2,210
2,594
Delphi Film Associates III
456
599
Total
Venturers' Capital 2,666
3,193
Total
Liabilities and Venturers'
$
$
Capital 4,574
3,870
See accompanying notes to the financial
statements. </TABLE>
<PAGE>
TRI-STAR-DELPHI III PRODUCTIONS
(A Joint Venture)
STATEMENTS OF
OPERATIONS (000's
Omitted)
<TABLE>
<CAPTION>
For
the Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Net Revenues From Motion
Picture
Exploitation (Notes $ $
$
2 & 3) 1,634 900
764
Less: Amortization of
Motion
Picture
Production and
Advertising
Costs
(Notes 2 & 5)
527 208
293
Income from Operations 1,107 692
471
Accrued Distribution Fee
Reduction (Notes 3 & 951 318
274
5)
Other (Expense) Income
(Note 7) -- (629)
5
Net Income $ $
$
2,058 381
750
See accompanying notes to the financial
statements.
</TABLE>
<PAGE>
TRI-STAR-DELPHI III PRODUCTIONS
(A Joint Venture)
STATEMENTS OF CASH
FLOWS (000's
Omitted)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1995
1994 1993
<S>
<C> <C> <C>
Cash Flow From Operating
Activities:
Net Income $ $
$
2,058 381
750 Adjustments to reconcile Net
Income to net cash
provided by operating
activities:
Amortization of Motion Picture
Production and
Advertising Costs 527 208
293
Accrued Distributions to (1,230) 1,810
80
Venturers
Changes in Assets and
Liabilities:
Increase (Decrease) in
Payable to TriStar
Pictures, Inc. 846 (1,078)
(34)
(Increase) Decrease in
Receivable from
TriStar Pictures, Inc. (763) 909
(311)
(Distributor)
(Increase) Decrease in
Motion Picture Costs
Recoverable from (468) 901
391
Distribution Fees
Increase (Decrease) in
Payable to Delphi
Film Associates III, net 385 (65)
(46)
Decrease in Advance from
TriStar
Pictures, Inc.
(Distributor) -- (667)
- --
Net Cash Provided by
Operating Activities 1,355 2,399
1,123
Cash Flow from Financing
Activities:
Distributions to Venturers
(1,355) (2,399)
(1,123)
Net Cash Used by
Financing Activities (1,355) (2,399)
(1,123)
Net Change in Cash -- --
- --
Cash at beginning of year
-- --
- --
Cash at end of year $ $
$
-- --
- --
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
TRI-STAR-DELPHI III PRODUCTIONS
(A Joint Venture)
STATEMENTS OF VENTURERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 3l,
1995, 1994 AND 1993 (000's
Omitted)
<TABLE>
<CAPTION>
Delphi
TriStar Film
Total
Pictures, Associates
Venturers'
Inc.
III
Capital
<S> <C> <C>
<C>
Venturers' Capital as of $ $
$
January 1, 1993 2,987 707
3,694
Net Income for the Year
Ended
December 31, 1993 488 262
750
Accrued Distributions to
Venturers (706) (337)
(1,043)
Venturers' Capital as of
December 31,
1993 2,769 632
3,401
Net Income for the Year
Ended
December 31, 1994 306 75
381
Accrued Distributions to
Venturers (481) (108)
(589)
Venturers' Capital as of
December 31,
1994 2,594 599
3,193
Net Income for the Year
Ended
December 31, 1995 1,336 722
2,058
Accrued Distributions to
Venturers (1,720) (865)
(2,585)
Venturers' Capital as of
December 31,
1995 $ $
$
2,210 456
2,666
See accompanying notes to the financial
statements. </TABLE>
<PAGE>
TRI-STAR-DELPHI III PRODUCTIONS
(A Joint Venture)
NOTES TO FINANCIAL
STATEMENTS
1. General
Tri-Star-Delphi III Productions (the "Joint Venture") is
a joint venture between TriStar Pictures, Inc. (formerly
TriStar Pictures, Inc.) ("TriStar") ("TSPI") and Delphi
Film Associates III, a New York limited partnership (the
"Partnership"), formed on April l8, l985 to engage in the
business of producing, owning and exploiting feature length
motion pictures. Generally, through the Joint Venture,
TSPI has a 75% interest and the Partnership has a 25%
interest in, and each was responsible for those respective
percentages of, the production cost of films in which the
Joint Venture has a 100% interest and which were produced
by the Joint Venture ("Joint Venture Films"). The Joint
Venture engaged TSPI to produce the Joint Venture Films.
The Joint Venture also has a 20-30% interest in certain
films (the "Acquired Films"), the other 70-80% interest of
which is held by Tri-Star-Delphi II Productions, a joint
venture between TSPI and Delphi Film Associates II, a New
York limited partnership, which was liquidated in December
1995. In addition, the Joint Venture conveyed a 20%
interest in one film to Tri-Star-Delphi II Productions.
The remaining 80% interest is held 55% by TSPI and 25% by
the Partnership. The Joint Venture has a 20% interest,
without cost to the Partnership, in two additional films
distributed by TSPI in which the Partnership has a l0%
interest. However, no participation interest amounts are
payable to the Partnership with respect to these two films
pursuant to the distribution agreement unless and until,
and then only to the extent that, the amounts payable
exceed 10% of the direct production cost of the film plus
an overhead
charge equivalent to l2.5% of the direct production cost.
During l988, the Partnership, through the Joint Venture,
was granted a 5% participation interest without cost to the
Joint Venture in one additional film distributed by TSPI.
The Partnership will be entitled to 5% of net proceeds
after "Breakeven" has been reached. "Breakeven" in this
instance is defined as the point at which l0% of net
proceeds equals 5% of the production cost of the film
(including an overhead charge of 12.5%). In addition, the
Partnership through the Joint Venture has a gross
participation interest without cost to the Joint Venture in
two additional films. The Joint Venture has acquired
interests in other films which are being distributed by
TSPI ("Other Films"). The respective venturer's percentage
interests in these Other Films was determined at the time
of the Joint Venture's acquisition of an interest in these
films and ranged from 5-l0% for each of the venturers. All
of the Joint Venture's films are distributed pursuant to a
distribution agreement with TSPI (the "Distributor")(See
Note 2). The general partner of the Partnership is
affiliated with the general partner of Delphi Film
Associates II.
As of December 31, 1995, the Joint Venture had released
all twenty-seven films in which the Joint Venture has an
interest.
The Partnership participates in a joint venture (the
"Other Venture") with Columbia Pictures Industries, Inc.
("Columbia") similar to the Joint Venture.
Tricol Partners, a partnership of TSPI and Columbia, has
a limited partnership interest in the Partnership which is
equal to the proportion that its capital contribution of
$15,000,000 bears to the aggregate capital contributed by
all limited partners of $48,510,000. TSPI contributed two-
thirds of the amount contributed by Tricol Partners.
Sony Pictures Entertainment Inc., the parent company of
Columbia and TriStar, is an indirect wholly-owned
subsidiary of Sony Corporation.
2. Summary of Significant Accounting Policies
Recognition of Revenue
The Joint Venture recognizes net revenues from the
Distributor on an accrual basis. Net revenues consist of
net proceeds (gross receipts less a distribution fee,
unless deferred, and other distribution and releasing
costs) or, if greater, gross receipts payable to the Joint
Venture under the distribution agreement. However, certain
advances received by the Distributor which are includable
in gross receipts under the distribution agreement are not
reflected in the calculation of net revenues until those
advances are earned.
Distribution Fee
TSPI is entitled to receive a distribution fee equal to
17.5% on all gross receipts in calculating net proceeds to
which the Joint Venture is entitled from the distribution
of a film; however, TSPI's entitlement to this distribution
fee is deferred until the Joint Venture has received from
the distribution of that film an amount equal to the amount
spent by the Joint Venture to produce or acquire an
interest in that film, other than amounts spent for
payments in the nature of interest ("Cost Return"). After
Cost Return for a film, in calculating subsequent payments
to the Joint Venture based on net proceeds, the Distributor
will be entitled to recoup from gross receipts the entire
deferred amount of the distribution fee plus its 17.5%
distribution fee on a current basis (see Note 3). Net
revenues accrued at December 31, 1995, 1994 and 1993 have
been computed without deducting a distribution fee to the
Distributor in light of the results
of films released through those respective dates, with the
exception of seven films in 1995 and six films in l994 and
l993 for which a portion of the distribution fee has been
deducted from accrued revenues.
Motion Picture Production and Advertising Costs
Motion picture production costs include the direct costs
of production plus an overhead charge equivalent to 12.5%
of the direct production costs; these costs were
capitalized as incurred by the Joint Venture. Payments by
the Joint Venture in respect of the advertising and
promotion charge payable to the Distributor were
capitalized as incurred by the Joint Venture to the extent
those payments benefit future periods. These costs are
amortized under the individual film forecast method based
upon net revenue recognized in proportion to the Joint
Venture's estimate of ultimate net revenues to be received.
Unamortized production costs are compared with net
realizable value on a film by film basis and unamortized
advertising costs are compared with net realizable value in
the aggregate: losses are recognized to the extent of any
excess of costs over net realizable value. However, as a
result of the Joint Venture's entitlement to a payment
under the circumstances described in Note 3, where losses
are recorded in the aggregate from the application of the
above method of accounting, a review is made of the
estimated future revenues and costs on all films of the
Joint Venture in release to estimate their ultimate
profitability. If this review indicates that in the
aggregate such films are ultimately unprofitable to the
Joint Venture an amount equal to the lesser of (a) the
distribution fees earned or expected to be earned by the
Distributor on films released or (b) the ultimate estimated
aggregate loss from production and acquisition of motion
pictures is accrued as Motion Picture Costs Recoverable
from Distribution Fees.
3. Distribution Fee Reduction (see Note 5)
The Joint Venture was entitled to a payment from TSPI in
reduction of its aggregate distribution fee if, by mid-
1991, the Joint Venture had not received net proceeds and
gross receipts (excluding amounts paid to the Joint Venture
for the recovery of its advertising and promotion charge
payments) at least equal to the amounts spent by the Joint
Venture for the production of films and the acquisition of
interests in films (excluding certain amounts spent for
payments in the nature of interest) (the "Expenditures").
Consequently, payments of $483,000, $1,218,000 and $665,000
were made in 1995, 1994 and l993, respectively,
representing the amount available for the Joint Venture to
be repaid, without interest, its unrecouped Expenditures to
the extent of the aggregate distribution fee previously
received by the Distributor. Since the cumulative payments
through December 31, 1995 were not sufficient to enable the
Joint Venture to recoup its Expenditures, the Distributor
will pay to the Joint Venture an amount equal to all
subsequent distribution fees earned by it until the Joint
Venture has recouped an amount equal to its Expenditures.
The payments to the Joint Venture are allocated to the
Partnership and TSPI based on their respective percentage
interest in each film for which a distribution fee was
received. After the Joint Venture recoups the
Expenditures, the Distributor will be entitled to recoup
these payments, with an amount in the nature of interest,
from the Joint Venture's share of subsequent net proceeds
and gross receipts, from the proceeds of any subsequent
sale of the Joint Venture's interest in the films and from
certain other amounts payable to the Joint Venture.
The amount available for payment to the Joint Venture by
the Distributor is limited to the Joint Venture's
appropriate
ownership percentage in that film multiplied by the
distribution fee paid to the Distributor for that film. If
the gross receipts from a film do not exceed the costs of
distributing the film or, generally, if the most recent
payment to the Joint Venture with respect to the film is
based on gross receipts, no amounts from the distribution
of that film will be available for payment to the Joint
Venture for this purpose.
4. Income Taxes
No provision for income taxes is made in the Joint
Venture's financial statements since the venturers treat
the Joint Venture as a partnership for income tax purposes,
with all income tax consequences flowing directly to the
venturers.
Effective January l, l993, the Joint Venture adopted
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." As of October 31, 1995 and
1994 (the Joint Venture's tax year end is October 31), the
tax bases of the Joint Venture's assets less liabilities
exceeded amounts reported in financial statements at
December 31, l995 and l994 by approximately $23,758,000 and
$24,407,000, respectively. Management estimates that the
tax bases of the Joint Venture's assets and liabilities did
not differ significantly between October 31 and December 31
in l995 and l994. The adoption of the Statement had no
impact on the Joint Venture's financial statements.
5. Current Operations
As of December 31, 1995, the Distributor had released all
twenty-seven films in which the Joint Venture has an
interest. The Joint Venture is not expected to recoup its
investment in fourteen of these films out of the proceeds
from their distribution. For the years ended December 31,
1995, 1994 and 1993, motion picture production and
advertising costs have been reduced by amortization
of $527,000, $208,000 and $293,000, respectively.
Based upon the anticipated performance of the films
released, approximately $1,432,000 and $964,000,
respectively, were accrued as Motion Picture Costs
Recoverable from Distribution Fees at December 31, 1995 and
l994, respectively, in the accompanying financial
statements. The current year increase in Motion Picture
Costs Recoverable from Distribution Fees of $468,000
consists of an increase in the estimated distribution fee
to be earned by the Distributor of approximately $951,000
partially offset by a Distribution Fee Reduction Payment of
$483,000 (see Note 3).
An agreement was reached during 1989 (and amended in
1990)
between the Joint Venture and the Distributor whereby the
Distributor agreed to make non-interest bearing advances to
the Joint Venture of up to an aggregate amount of $667,000
against amounts to be due to the Joint Venture. Amounts
advanced have been allocated to the Partnership in
order for it to make cash distributions to its partners.
The entire $667,000 had been advanced to the Partnership.
In July, l99l, an agreement was reached between the
Distributor and the Joint Venture whereby the recoupment of
advances paid by the Distributor to the Joint Venture in
the amount of $667,000 would generally be deferred until
the date of receipt of proceeds of a sale or transfer by
the Partnership of its interest in the Joint Venture or the
sale or transfer by all of the limited partners of the
Partnership of their limited partnership interests. Since
no such sale or transfer was agreed to, in writing, on or
before December 31, 1993, the Distributor is entitled to
retain an amount equal to the unrecouped portion of the
advances from all amounts thereafter otherwise payable
pursuant to the Distribution
Agreement and allocable to the Partnership. As of
December 31, 1995, the entire advance of $667,000 has
been recouped by the Distributor.
<PAGE>
6. Receivables and Payables
An analysis of the Joint Venture's receivables and
payables is as follows:
AT DECEMBER 31,
1995 <TABLE> Receivable Payable Payable to
<CAPTION> from to to the
Distributor TSPI Partnership
(000's omitted)
<S> <C> <C> <C>
Net Proceeds and Gross $ $ $
Receipts 476 368 108
Accrued Distribution
Fee
Reduction
1,432 1,037 395
Total $ $ $
1,908 1,405 503
AT DECEMBER 31,
1994
Receivable Payable Payable
to
from to to the
Distributor TSPI
Partnership
(000's omitted)
<S> <C> <C> <C>
Net Proceeds and Gross $ $ $
Receipts (287) (192) (95)
Accrued Distribution
Fee
Reduction
964 751 213
Total $ $ $
677 559 118
A contra receivable balance from the Distributor arises as
unearned advances previously remitted to the Joint Venture
by the Distributor (See Note 2) exceed regular receivables.
</TABLE>
7. Foreign Exchange Gains and Losses
The distribution agreement between the Joint Venture
and the Distributor provides that revenues earned in foreign
currencies be valued as of the date that monies are remitted or
are "freely remittable" to the United States. Other Expense
for the year ended December 31, l994 of $629,000 represents the
cumulative difference between the monies remitted in U.S.
dollars and the value previously recorded based on the exchange
rate at the time of revenue recognition in the applicable
international territory. No such revenue valuation adjustment
was necessary in 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from Balance Sheets and Statement
of Operations for the year ended December 31, 1995 Form
10K of Delphi Film Associates III and is qualified in its
entirety by reference to such financial statements.
<S>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 155,000
<SECURITIES> 986,000
<RECEIVABLES> 1,143,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,872,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 2,817,000
<TOTAL-LIABILITY-AND-EQUITY> 2,872,000
<SALES> 0
<TOTAL-REVENUES> 66,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 331,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,182,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,182,000
<EPS-PRIMARY> 121.00
<EPS-DILUTED> 0
</TABLE>
