FORM 10-K
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
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from..............to..................
Commission file number 0-14421
SILVER SCREEN PARTNERS II, L.P.
(a Delaware Limited Partnership)
(Exact name of registrant as specified in its
Certificate and Agreement of Limited Partnership)
Delaware 13-3276962
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Chelsea Piers - Pier 62, Ste. 300
New York, New York 10011
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 336-6700
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 INTEREST
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
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.[ ]
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PART I
ITEM 1. BUSINESS.
Silver Screen Partners II, L.P. ("Silver Screen II") was organized in June
1985. A public offering of units of limited partnership interests was completed
in November 1985, which raised approximately $192.6 million. After payment of
offering costs and fees, $173.1 million was available for investment in films
(the "Partnership Contribution").
Silver Screen II entered into a Joint Venture agreement (the "Joint Venture
Agreement") with Walt Disney Productions ("Disney") for the purpose of
financing, producing and exploiting all feature length theatrical motion
pictures selected for production by Disney until all of Silver Screen II's funds
had been committed (the "Joint Venture Films"). In addition to providing
financing for the Joint Venture Films, Silver Screen II entered into a Loan
Agreement with Disney (the "Loan Agreement") whereby a portion of Silver Screen
II's funds were used to finance a portion of certain specified completed Disney
films (the "Completed Films" and, together with the Joint Venture Films, the
"Films"). Buena Vista Pictures Distribution, Inc. (formerly Buena Vista
Distribution, Inc.) ("BV"), a wholly-owned subsidiary of Disney, has been
licensed to distribute all Films in all media and in all territories directly or
indirectly throughout the world. BV has paid and will pay the expenses in
connection with the worldwide distribution of each Film. The Partnership
Contribution has been fully committed.
The business of Silver Screen II is managed by Silver Screen Management,
Inc., a Delaware corporation which is a general partner of Silver Screen II (the
"Managing General Partner"). Silver Screen II participates through Disney-Silver
Screen II Joint Venture (the "Joint Venture") in the production, ownership and
exploitation of the Joint Venture Films and in the distribution and marketing of
the Joint Venture Films in all primary and ancillary markets. The Managing
General Partner is responsible for the preparation of reports and tax
information to be provided to the Limited Partners.
The Joint Venture financed films designed to appeal to children and family
audiences under the Walt Disney label and motion pictures produced and released
under the name of Touchstone Films to appeal to all segments of the audience.
All Joint Venture Films were rated "G," "PG," "PG-13," or "R."
Silver Screen II committed approximately $22,000,000 towards the Completed
Films pursuant to the Loan Agreement. In addition, Silver Screen II became
committed to fund ten films and part of one additional film, all of which were
completed and released with total budgets amounting to approximately
$150,690,000, of which substantially all was expended as of December 31, 1992.
Accordingly, the Partnership Contribution has been fully committed and Silver
Screen II will not finance or purchase any additional motion pictures. The four
Completed Films are: "Return to Oz," released June 21, 1985; "The Black
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Cauldron," released July 19, 1985; "My Science Project," released August 9, 1985
and "The Journey of Natty Gann," released September 27, 1985. The Joint Venture
Films are "One Magic Christmas," released November 22, 1985; "Down and Out in
Beverly Hills," released January 31, 1986; "Off Beat" released April 11, 1986;
"Ruthless People," released June 27, 1986; "The Great Mouse Detective," released
July 2, 1986 and re-released February 14, 1992 under the title "The Adventures
of the Great Mouse Detective;" "Tough Guys," released October 3, 1986; "The
Color of Money," released October 17, 1986; "Outrageous Fortune," released
January 30, 1987; "Tin Men," released March 6, 1987 and "Ernest Goes to Camp,"
released May 22, 1987. "Stakeout," which was financed approximately 75% by
Silver Screen II and 25% by Silver Screen Partners III, L.P. (a separate limited
partnership with the same Managing General Partner formed to finance subsequent
Disney films), was released August 5, 1987.
Buyout
- ------
Silver Screen II entered into a Letter Agreement (the "Buyout Agreement")
with Disney dated September 11, 1995 providing for the sale to Disney of all of
Silver Screen II's interest in the Joint Venture. In accordance with the Buyout
Agreement the closing of such sale occurred on January 2, 1996 and the purchase
price paid to Silver Screen II was $44,678,304 in cash after an adjustment for
certain film revenues totaling $321,696 received in 1995. Appropriate
distributions will be made to Silver Screen II limited partners, and Silver
Screen II will be dissolved as quickly as possible. The Buyout Agreement has
been filed as an exhibit to Silver Screen II's quarterly report on Form 10-Q
dated September 30, 1995 and the terms thereof are incorporated herein by
reference.
Joint Venture Agreement
- -----------------------
Each Joint Venture Film was produced in accordance with the Joint Venture
Agreement. Under the Joint Venture Agreement, Silver Screen II contributed to
the Joint Venture all amounts available for investing in films (the "Partnership
Commitment") less the amounts furnished for financing the Completed Films.
Disney contributed all motion picture projects developed and selected for
production by Disney until the Partnership Contribution was fully committed.
Disney also furnished production services for all the Joint Venture Films, and
furnished or obtained all financing not furnished by Silver Screen II.
Contributions by Silver Screen II to the Joint Venture were made on a
film-by-film basis and were based upon budgeted production cost (the "Budgeted
Film Cost") of all Joint Venture Films. The Partnership Contribution was
committed to the Joint Venture, film-by-film, in the order that each Joint
Venture Film commenced principal photography by the Joint Venture, in an amount
equal to 100% of the Budgeted Film Cost of each such Joint Venture Film until
such time as the entire Partnership Contribution was so committed. Silver Screen
II was not obligated to commit funds with respect to any one Joint Venture Film
in excess of $20,000,000 in the case of any Disney animated film or Touchstone
Joint Venture Film, or in excess of $10,000,000, in the case of any Disney
non-animated Joint Venture Film.
Disney was solely responsible for the development of motion picture
projects for contribution to the Joint Venture, the production by the Joint
Venture of each Joint Venture Film and the delivery by the Joint Venture of each
such Joint Venture Film to BV in full compliance with the terms and conditions
of the Distribution Agreement between the Joint Venture and BV (the
"Distribution Agreement"). Disney's production responsibilities included all
services customarily performed by a major studio. Disney was responsible for any
cost overruns and acted in effect as completion guarantor.
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The Budgeted Film Cost of each Joint Venture Film consists of all costs
customarily included as direct production costs in the motion picture industry,
including overhead of 17-1/2%. The Budgeted Film Cost also includes all fixed
deferments, bonuses and participations in gross receipts payable before the
Joint Venture has recouped its investment in that Joint Venture Film and all
additional fixed deferments and bonuses payable prior to the payment of net
profits or out of first net profits. The budget of each Joint Venture Film was
approved in writing by both parties prior to the commencement of principal
photography. Disney was empowered to grant participations in the profits of any
Joint Venture Film to third parties on behalf of the Joint Venture up to an
amount no greater in the aggregate than 50% of 100% of the net profits of any
Joint Venture Film.
The revenue formula under the Joint Venture Agreement is designed to assure
that Silver Screen II will receive Joint Venture distributions equal to not less
than 100% of the Partnership Contribution applied toward the Joint Venture Films
on a film-by-film basis before Disney recoups cost overruns or receives any
share of profits. All revenues of the Joint Venture are derived exclusively from
the revenues allocated to the Joint Venture pursuant to the Distribution
Agreement during the term thereof. Revenues received by the Joint Venture in
respect of Joint Venture Films have been and will be allocated between the
parties as follows:
---100% to Silver Screen II and Disney in proportion to their
respective actual investments in the Budgeted Film Cost of each Joint
Venture Film until they have recovered the amount of the Budgeted Film Cost
actually expended of such Joint Venture Film;
---thereafter, 100% to Disney until Disney has recouped any cost
overruns; and
---thereafter, after payment of applicable participations, 75% to
Silver Screen II and 25% to Disney.
In addition, certain other payments in respect of "Revenue Shortfalls" were
payable to the Joint Venture. The Revenue Shortfall for each Joint Venture Film
is the difference, if any, between the Budgeted Film Cost actually expended and
the sum of all revenues actually received by the Joint Venture from BV as of a
settlement date (the "Settlement Date") occurring not later than five years
after the U.S. theatrical release of such Joint Venture Film. On the Settlement
Date of each Joint Venture Film, BV was obligated to pay to the Joint Venture an
amount equal the Revenue Shortfall (the "Revenue Shortfall Payment"), if any,
provided, that in no event would the Revenue Shortfall Payment be greater than
the revenues retained by BV with respect to such Joint Venture Film from all
markets, subject to adjustment in certain cases.
In the event that 15 years after release of the first Joint Venture Film,
Silver Screen II had not recouped the amount of the Partnership Contribution for
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all Joint Venture Films (including amounts received as Revenue Shortfall
Payments, if any), such amounts would be contributed by Disney to the Joint
Venture for distribution to Silver Screen II (the "Ultimate Revenue Shortfall
Payment"); provided, that Disney shall be entitled to recoup such amount from
Silver Screen II's share of additional Joint Venture revenues. The last Revenue
Shortfall Payment was due and received during 1992.
Loan Agreement
- --------------
Pursuant to the Loan Agreement, Silver Screen II loaned to Disney
approximately $22 million, or an amount equal to approximately 25% of the
production costs of the Completed Films plus interest and overhead thereon as
expended or estimated at July 1, 1985 (the "Completed Film Cost"). Repayment of
the loan was completed during 1990.
Silver Screen II's loan was an unsecured obligation of Disney. Payments on
the loan were made by Disney only out of revenues received by Disney pursuant to
the distribution agreement regarding the Completed Films (the "Completed Films
Distribution Agreement"), provided, however, that the amount loaned with respect
to a particular Completed Film must in any event have been repaid by Disney on
the fifth anniversary of the theatrical release of such Completed Film.
In the case of each Completed Film, the revenues received by Disney
pursuant to the Completed Films Distribution Agreement were allocated between
Disney and Silver Screen II as follows, after deduction of applicable
third-party participations:
---100% to Silver Screen II and Disney payable pro rata in the
proportion that Silver Screen II's loan with respect to such film bears to
the Completed Film Cost supplied by Disney until the Completed Film Cost
has been recouped and the full amount of Silver Screen II's loan in respect
of such Completed Film is repaid;
---thereafter, 100% to Disney in an amount equal to cost overruns, if
any; and
---thereafter, 81-1/4% to Disney and 18-3/4% to Silver Screen II.
The provisions of the Loan Agreement with respect to the Completed Films
were substantially similar to those of the Joint Venture Agreement with respect
to the Joint Venture Films, other than those provisions dealing with commitments
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to the Joint Venture out of the Partnership Contributions and with the Joint
Venture ownership rights with respect to Joint Venture Films. The Completed
Films are owned and are being exploited by Disney.
Distribution Agreements
- -----------------------
Pursuant to the Distribution Agreement and the Completed Films Distribution
Agreement, BV distributed the Joint Venture Films for a term ending March 31,
1996, and the Completed Films for the full term of their copyrights (typically,
75 years), in all media throughout the world.
BV (either directly or through third-party licensees or affiliated
companies) was obligated to release and distribute each of the Films delivered
to it in accordance with and subject to customary and reasonable business
practices in the motion picture industry in all media throughout the world,
including theatrical, non-theatrical, television, cable television, home video,
syndication, music, print publication, merchandising and new technologies.
BV has paid and will pay all costs incurred in connection with the
promotion, marketing and distribution of each Film. In connection with the U.S.
theatrical release of each Joint Venture Film, BV was required to and did expend
certain minimum amounts. The Distribution Agreement provides that BV is entitled
to customary distribution fees, which vary in each medium, and that the Joint
Venture is entitled to an escalating percentage of the gross proceeds generated
by theatrical distribution of each Film.
Competition
- -----------
Silver Screen II is in competition with other institutions which provide
financing for films, some of which have substantially greater financial and
personnel resources than the Managing General Partner and Silver Screen II.
These institutions include the major film studios and television networks. There
is substantial competition in the industry for a limited number of producers,
directors, actors and properties which are able to attract major distribution in
all media and all markets throughout the world.
There is intense competition within the industry for exhibition time at
theaters and for the attention of the movie-going public. Competition for
distribution in other media is as intense as the competition for theatrical
distribution.
Employees
- ---------
Silver Screen II has no employees. Silver Screen II's business is
administered by the staff of the Managing General Partner.
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ITEM 2. PROPERTIES.
Silver Screen II neither owns nor leases any physical properties. The
Managing General Partner leases offices in New York, New York.
ITEM 3. LEGAL PROCEEDINGS.
Silver Screen II knows of no legal proceedings of a material nature to
which it is a party or of which any of its properties is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the year ended
December 31, 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP
INTEREST AND RELATED SECURITY HOLDER MATTERS.
As of January 31, 1996, there were 28,104 Limited Partners of record
holding an aggregate of 385,200 limited partnership units of Silver Screen II
(the "Units"). The Units are not traded securities in any established trading
market.
The Agreement of Limited Partnership of the Partnership (the "Partnership
Agreement") provides for quarterly distributions to Limited Partners out of
receipts from operations, net of certain expenses and reserves. See the material
set forth under "Item 11. Executive Compensation." A distribution was made to
the Limited Partners in 1995 which totaled $963,000. The distribution was made
on April 28, for $2.50 per unit. Two distributions were made to the Limited
Partners in 1994 which aggregated $2,927,520. The distributions per Unit were as
follows: January 28 - $2.60 and April 22 - $5.00.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Income
from Joint Venture .......... $ 5,332,543 $ 3,523,841 $ 8,883,054 $ 5,385,005 $ 4,823,357
Interest income .............. 162,096 118,603 132,122 138,326 408,599
----------- ----------- ----------- ----------- -----------
5,494,639 3,642,444 9,015,176 5,523,331 5,231,956
Expenses:
General and
administrative
expenses .................... 666,949 473,094 494,674 491,621 586,305
----------- ----------- ----------- ----------- -----------
Net income ................... $ 4,827,690 $ 3,169,350 $ 8,520,502 $ 5,031,710 $ 4,645,651
=========== =========== =========== =========== ===========
Net income per
$500 limited
partnership unit
(based on 385,200
Units outstanding)........... $ 10.65 $ 7.40 $ 21.90 $ 12.93 $ 11.94
=========== =========== =========== =========== ===========
Cash distribution
per $500 limited
partnership unit ............. $ 2.50 $ 7.60 $ 36.50 $ 18.75 $ 57.70
=========== =========== =========== =========== ===========
Total assets ................. $ 4,904,301 $ 2,509,623 $ 3,549,120 $ 8,152,392 $ 9,037,689
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
- ---------------------
The following is an analysis of the results of operations of Silver Screen
II for the years ended 1995, 1994 and 1993.
Silver Screen II is a partnership and therefore generally not subject to
U.S. federal income taxes. No provision has been made with respect to Silver
Screen II's income since income or loss of Silver Screen II is required to be
reported by the respective partners on their income tax returns.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
- ---------------------------------------------------------------------
Net income for the year ended December 31, 1995 was approximately
$4,828,000, compared to net income of approximately $3,169,000 for the year
ended December 31, 1994. Income for the year ended December 31, 1995 consisted
of income from the Joint Venture of approximately $5,333,000, an increase of
approximately $1,809,000 from the prior annual period. This increase was the
result of U.S. and foreign home video sales of "The Great Mouse Detective".
Additional revenue was generated by "Stakeout", "The Color of Money" and "Down
and Out in Beverly Hills".
Interest income generated by the investment of temporary investments of
revenues pending distribution to partners for the year ended December 31, 1995
was approximately $162,000, a $43,000 increase from the prior annual period. The
increase in the weighted average daily interest rate from 4.25% in 1994 to 5.81%
in 1995 was responsible for the increase. General and administrative expenses
for the year ended December 31, 1995 were approximately $667,000 compared to
$473,000 for the prior annual period. The increase is attributable to expenses
related to the reporting to partners of $20,000 and to costs associated with
preparations for negotiation of the sale of the Partnership's interest in the
Joint Venture, which amounted to approximately $215,000, which was offset by a
reduction of approximately $42,000 in payroll related expenses. Costs related to
the sale of the partnership's interest in the Joint Venture which are considered
to benefit each of the Partnership, Silver Screen Partners III, L.P. and Silver
Screen Partners IV, L.P. (collectively and together with the Partnership, the
"Silver Screen Partnerships"), have been allocated among the Silver Screen
Partnerships pro rata to the total original limited partner capital
contributions to each of the Silver Screen Partnerships.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
- ---------------------------------------------------------------------
Net income for the year ended December 31, 1994 was approximately
$3,169,000, compared to net income of approximately $8,521,000 for the year
ended December 31, 1993. Income for the year ended December 31, 1994 consisted
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of income from the Joint Venture of approximately $3,524,000, a decrease of
approximately $5,359,000 from the prior annual period. At this time, nearly all
films in which the Partnership has an interest have been released in the
theatrical, home video and pay cable markets. Therefore, film revenues will
continue to decline. The Partnership will continue to receive revenues from
remaining television cycles and territories. Film revenues for 1994 were
principally derived from U.S. home video sales of "The Great Mouse Detective".
In addition, revenues were also generated by "Down and Out in Beverly Hills,"
"Ruthless People" and to a much lesser extent, by all films except "One Magic
Christmas" and "Off Beat."
Interest income generated by the investment of temporary investments of
revenues pending distribution to the partners for the year ended December 31,
1994 was approximately $119,000, a $13,000 decrease from the prior annual
period. An increase in the weighted average daily interest from 3.16% in 1993 to
$4.248% in 1994 was offset by a decrease in funds available for investment in
1994. General and administrative expenses were approximately $473,000 for the
year ended December 31, 1994 compared to $495,000 for year ended December 31,
1993. An increase in costs associated with the sale of Silver Screen II's
interest in the Joint Venture were offset by an overall decrease in costs
associated with the Partnership.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1995, the General Partners' capital accounts reflect a
deficit of $958,843. In view of Silver Screen II's limited requirements for
liquidity, management does not anticipate any effect of current capital account
balances on Silver Screen II's cash flow in the short or long term.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the financial statements referenced in Item 14 of this annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Silver Screen II is a limited partnership managed by the Managing General
Partner and has no officers or directors. The Managing General Partner also
serves as managing general partner of Silver Screen Partners, L.P. and Silver
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Screen Partners III, L.P., limited partnerships formed to finance, own and
exploit feature-length motion pictures pursuant to a license agreement with a
subsidiary of Home Box Office, Inc. and pursuant to a joint venture agreement
with Disney, respectively. The officers and directors of the Managing General
Partner are also officers and directors of Silver Screen Management Services,
Inc. ("SSMS"), which serves as managing general partner of Silver Screen
Partners IV, L.P. a limited partnership formed to finance, own and exploit
feature-length motion pictures pursuant to a joint venture agreement with Disney
since the organization of SSMS in 1987. Neither the Limited Partners nor any
general partner of Silver Screen II other than the Managing General Partner has
the power to participate in the management of, have any control over the
business of or act for, sign for or bind Silver Screen II.
Roland W. Betts, 49, is the President, Treasurer, a Director, principal
shareholder and founder of the Managing General Partner. Mr. Betts is also the
President, Treasurer, a Director and principal shareholder of SSMS. He is the
Individual General Partner of Silver Screen Partners, L.P., Silver Screen
Partners II, L.P., Silver Screen Partners III, L.P. and Silver Screen Partners
IV, L.P. Mr. Betts has been President and a Director of International Film
Investors, Inc. ("IFI"), which is the Managing General Partner of International
Film Investors, L.P., since 1982 and has been an officer since 1980. Mr. Betts
is also the Individual General Partner of that Partnership. Mr. Betts is also
the largest shareholder of the Texas Rangers Baseball Club; and the Chairman and
largest shareholder of Chelsea Piers Management, Inc. which is the general
partner of Chelsea Piers, L.P., a limited partnership formed to develop and
operate a major public recreation and entertainment complex at the Chelsea Piers
in New York City. Prior to joining IFI in 1980, Mr. Betts was engaged in the
practice of law as an attorney in the Entertainment Department of the law firm
of Paul, Weiss, Rifkind, Wharton & Garrison in New York.
In addition to Mr. Betts, the executive officers and directors of the
Managing General Partner are as follows:
Name Positions Held
---- --------------
Paul Bagley Chairman of the Board, Director
Tom A. Bernstein Executive Vice President,
Secretary, Director
John A. Tommasini Director
William Turchyn, Jr. Director
Paul Bagley, 53, is the President and CEO of Laidlaw Holdings, Inc. He is
also a founding principal of Stone Pine Capital, an investment banking group
which owns a controlling interest in Laidlaw. For more than twenty years prior
to October 1988, Mr. Bagley was engaged in investment banking activities with
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Shearson Lehman Hutton Inc. and its predecessor E.F. Hutton, including Executive
Vice President and Director, Managing Director, Head of Direct Investment
Origination and Manager of Corporate Finance. Mr. Bagley controls Fiduciary
Capital, a U.S. registered investment advisor which provides mezzanine debt and
equity capital to corporations. He is also Chairman and CEO of American National
Security, which provides security services to commercial and residential
customers. Mr. Bagley serves as Chairman of the Board of Directors of Silver
Screen Management, Inc. and International Film Investors, Inc., which manage
film portfolios with aggregate assets of $1.0 billion. Mr. Bagley is also a
Director of Logan Machinery Corporation a manufacturer of all-terrain vehicles,
and Eureka Bank, a Federal Savings Bank. He is also a director of America First
Financial Corporation, listed on NASDAQ. Mr. Bagley graduated from the
University of California at Berkeley in 1965 with a B.S. in Business and
Economics and from Harvard Business School in 1968 with an M.B.A. in Finance.
Tom A. Bernstein, 43, has been Executive Vice President of the Managing
General Partner since June 1983 and Secretary, a Director and a principal
shareholder since March 1985. He has also been Executive Vice President,
Secretary, a Director and a principal shareholder of SSMS since its
organization. Mr. Bernstein is also President and Treasurer of Chelsea Piers
Management, Inc., which is the general partner of the Chelsea Piers, L.P.; and a
limited partner in the Texas Rangers Baseball Club. Prior to June 1983, Mr.
Bernstein was engaged in the practice of law as an attorney in the Entertainment
Department of the law firm of Paul, Weiss, Rifkind, Wharton & Garrison in New
York.
John A. Tommasini, 51, the President of Laidlaw Equities, Inc., a NASD
registered broker dealer, has been a Director of the Managing General Partner
since 1985 and a Director of SSMS since its organization. He was Senior Vice
President of Shearson Lehman Hutton from January 1988 until March 30, 1990. He
was associated with E.F. Hutton & Company from 1972 until 1988 and served as
First Vice President from January 1985 to January 1988. He is also an Officer
and a Director of American National Security, Inc.
William Turchyn, Jr., 50, has been a Director of the Managing General
Partner and SSMS since their respective organizations. He was Executive Vice
President of Shearson from January 1988 until April 1989. He was associated with
E.F. Hutton & Company, Inc. from 1970 until 1988, was named First Vice President
in 1982 and served as Senior Vice President from 1983 until January 1988. Mr.
Turchyn is presently Senior Managing Director of the Private Client Group at
Furman Selz Capital Management.
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ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the fees, income, distributions and the
amounts payable to the General Partners of Silver Screen II and their affiliates
in connection with the management of Silver Screen II. The executive officers
and directors of the Managing General Partner serve without direct compensation
from Silver Screen II. Except as set forth below, the General Partners and their
affiliates will receive no remuneration of any type whatsoever from Silver
Screen II in connection with the administration of Silver Screen II's affairs.
CASH COMPENSATION TABLE1
- --------------------------------------------------------------------------------
(A) (B) (C)
- --------------------------------------------------------------------------------
Name of Entity Capacities in which Cash compensation
served
Silver Screen Managing General Overhead fee calculated as
Management, Inc. Partner four percent of the Budgeted
Film Cost (excluding overhead)
of each Joint Venture Film, and
one percent of direct costs,
including accrued interest, of
each Completed Film. Pursuant
to the Partnership Agreement,
the overhead fee was paid in
full on January 2, 1990. In
addition, until the holders of
Units received cash
distributions sufficient to
reduce their Adjusted Capital
Contributions to zero, the
Managing General Partner was
- ----------
1 See definitions below.
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allocated 0.9% of the profits,
losses and Disbursable Cash;
from that time forward the
Managing General Partner has
received 14.9% of such items.
During 1995, $168,808 was
distributed from Disbursable
Cash to the Managing General
Partner.
Roland W. Betts Individual General Mr. Betts is allocated 0.1% of
Partner the profits, losses and
Disbursable Cash. Mr. Betts
received $1,133 therefrom in
1995.
Definitions Used in Cash Compensation Table
-------------------------------------------
Initial Capital
Contribution .......... $500 per Unit
Adjusted Capital
Contribution .......... With respect to each Unit, the Initial Capital
Contribution reduced by all cash distributions thereon,
and increased, at the beginning of each calendar year,
by an amount equal to 10% per annum of the balance of
the outstanding Initial Capital Contribution as so
adjusted from time to time during the preceding year.
The Adjusted Capital Contribution may not, however, be
less than zero. Adjusted Capital Contributions differ
from the Limited Partners' capital accounts for tax and
accounting purposes.
Disbursable Cash ...... Receipts from operations, after deducting cash used to
pay operating expenses (including expenses reimbursable
to the Managing General Partner), debt service, and
amounts used for the creation or restoration of
reserves, but without deduction for depreciation or
amortization of film investments. Receipts from
operations include all items of income, whether ordinary
or extraordinary.
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Budgeted Film Cost .... The estimated cost of a Joint Venture Film, including
contingency reserves of 7-1/2% and overhead of 17-1/2%.
The Budgeted Film Cost also includes all fixed
deferments, bonuses and participations in gross receipts
payable before the Joint Venture has recouped its
investment in that Joint Venture Film, fixed deferments
and bonuses payable prior to the payment of net profits
or out of first net profits.
The Partnership Agreement provides that all Silver Screen II expenses,
including, among other things, legal, auditing and accounting expenses, and the
expenses of preparing and distributing reports to the Limited Partners, will be
billed to and paid by Silver Screen II. Subject to restrictions contained in the
Partnership Agreement, the Managing General Partner has been reimbursed for
certain administrative services. In addition, the Managing General Partner has
been reimbursed for expenses incurred in connection with the organization of
Silver Screen II and the public offering of the Units.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
No officer or Director of the Managing General Partner beneficially owns
any equity securities of Silver Screen II. To the knowledge of Silver Screen II,
no unitholder beneficially owns more than 5% of the Units of Silver Screen II.
Roland W. Betts and Tom A. Bernstein are controlling shareholders of the
Managing General Partner. 2,000,000 shares of the 3,750,000 issued and
outstanding shares of Common Stock of the Managing General Partner are owned by
Roland W. Betts and 1,250,000 shares are owned by Tom A. Bernstein. An
additional 500,000 shares have been issued to International Film Investors, L.P.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See Items 10, 11 and 12 hereof.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)1. Financial Statements
--------------------------
The following financial statements of Silver Screen Partners II, L.P. (a
Limited Partnership) are included pursuant to Item 8 hereof:
Page
----
Independent auditors' reports ...................... F-4
Balance sheets as of December 31, 1995 and
1994 ...................................... F-5
Statement of operations for the years ended
December 31, 1995, 1994 and 1993 .......... F-6
Statement of partners' equity for the years
ended December 31, 1995, 1994 and 1993..... F-6
Statement of cash flows for the years ended
December 31, 1995, 1994 and 1993 .......... F-7
Notes to Financial Statements....................... F-8-10
(a)2. Financial Statement Schedules
--------------------------------------
No schedules are listed because they are not applicable or the required
information is shown in the financial statements or notes thereto.
(a)3. Exhibits
-----------------
4 Certificate and Agreement of Limited
Partnership2
- ------
2 Incorporated by reference to Silver Screen II's
Registration Statement on Form S-1, Registration No.
2-96230.
16
<PAGE>
10(a) Joint Venture Agreement dated as of April 29, 1985
by and between Silver Screen II and Walt Disney
Productions.3
10(b) Loan Agreement dated as of April 29, 1985 by and
between Silver Screen II and Walt Disney
Productions.4
10(c) Distribution Agreement dated as of April 29, 1985 by
and between Disney -- Silver Screen II Joint Venture
and BV Distribution Co., Inc.5
10(d) Completed Pictures Distribution Agreement dated as
of April 29, 1985 and between Walt Disney
Productions and BV Distribution Co., Inc.6
10(e) Letter Agreement dated September 11, 1995 by and
between Silver Screen II and the Walt Disney
Company.7
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed by Silver Screen II during the last
quarter of the period covered by this annual report.
- ------
3 Incorporated by reference to exhibits filed with Silver
Screen II's Registration Statement on Form S-1, Registration
No. 2-98033.
4 See footnote three.
5 See footnote three.
6 See footnote three.
7 Incorporated by reference as exhibit 10 filed with Form 10-Q, quarterly
report dated September 30, 1995.
17
<PAGE>
(d)1. Financial Statements
-----------------------------
The following financial statements of the Disney-Silver Screen II Joint
Venture are included as required by Regulation S-X:
Page
----
Report of independent accountants ................... F-13
Balance sheet as of September 30, 1995
and 1994 ............................................ F-14
Statement of Income for the three years ended
September 30, 1995 .................................. F-15
Statement of Venturers' Capital for the
three years ended September 30, 1995 ................ F-164
Statement of Cash Flows for the three
years ended September 30, 1995 ..................... F-17
Notes to Financial Statements....................... F-18-21
Quarterly Financial Summary
(Unaudited) for 1995 and 1994....................... F-22
(d)2. Financial Statement Schedules
--------------------------------------
Schedules have been omitted because they are not applicable or the required
information is shown in the financial statements or the notes thereto.
18
<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.
SILVER SCREEN PARTNERS II, L.P.
(a Delaware Limited Partnership)
By SILVER SCREEN MANAGEMENT, INC.
Managing General Partner
Dated: March 29, 1996 By /s/ Roland W. Betts
------------------------------
Roland W. Betts,
President/Treasurer
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 and in the capacities and on the dates indicated.
Dated: March 29, 1996 By /s/ Roland W. Betts
------------------------------
Roland W. Betts,
General Partner
SILVER SCREEN MANAGEMENT, INC.
Managing General Partner
Dated: March 29, 1996 By /s/ Roland W. Betts
------------------------------
Roland W. Betts,
President/Treasurer
Dated: March 29, 1996 By /s/ Paul Bagley *
-------------------------------
Paul Bagley
Director,
Silver Screen Management, Inc.
Dated: March 29, 1996 By /s/ Tom A. Bernstein *
-------------------------------
Tom A. Bernstein
Director,
Silver Screen Management, Inc.
Dated: March 29, 1996 By /s/ John A. Tommasini *
-------------------------------
John A. Tommasini
Director,
Silver Screen Management, Inc.
19
<PAGE>
Dated: March 29, 1996 By /s/ William Turchyn, Jr. *
------------------------------
William Turchyn, Jr.
Director,
Silver Screen Management, Inc.
- ----------
* By Roland W. Betts, Attorney-in-Fact
20
<PAGE>
SILVER SCREEN
PARTNERS II
...............................................
ANNUAL REPORT
1995
[GRAPHIC OMITTED]
F-1
<PAGE>
Silver Screen Management
(c)1996 Silver Screen Management, Inc. Design: Pentagram
OFFICERS:
Roland W. Betts
President and Chief Executive Officer
Tom A. Bernstein
Executive Vice President
Barbara Stubenrauch
Senior Vice President
Richard S. Kasof
First Vice President
Dana Thayer
First Vice President
Liz A. Brevetti
Vice President
Keith C. Champagne
Vice President
Evelyn Halley
Vice President
Stuart A. Sheinbaum
Director of Investor Relations
Conchetta S. Mayfield
Director of Operations
Paul Rindone
Director of Operations
DIRECTORS:
Paul Bagley
New York, New York
Tom A. Bernstein
New York, New York
Roland W. Betts
New York, New York
John Tommasini
New York, New York
William Turchyn, Jr.
New York, New York
F-2
<PAGE>
Letter To Investors
To Our Limited Partners
Silver Screen Partners II distributed approximately $1 million for the four
quarters of 1995, bringing total distributions since the Partnership's inception
in 1985 to $244 million. Of the $244 million, approximately 69% is return of
capital and 31% is income.
During 1995, the Partnership negotiated with The Walt Disney Company
regarding the sale of the Partnership's interest in the Disney-Silver Screen II
Joint Venture. Disney agreed to purchase the Silver Screen Partners II interest
for $45 million, and we are pleased to report that we have received the proceeds
and that appropriate distributions will be made to investors.
In the past year, the Partnership earned revenue principally from the
foreign home video market for "The Great Mouse Detective." Revenue was also
produced from films released in the foreign free television market ("Down and
Out in Beverly Hills," "Ruthless People," "The Color of Money").
Tax information for preparing your 1995 income tax returns will be mailed
to you by March 15. In the meantime, our Investor Relations Department is
available to assist you with any questions you may have.
Sincerely,
/s/ Roland W. Betts
Roland W. Betts
President
January 24, 1996
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS FINANCIAL STATEMENTS
To the Partners
Silver Screen Partners II, L.P.
We have audited the accompanying balance sheets of Silver Screen Partners
II, L.P. (a limited partnership) as of December 31, 1995 and 1994, and the
related statements of operations, partners' equity, and cash flows for each of
the three years in the 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 Silver Screen Partners II,
L.P. (a limited partnership) 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.
/s/ Ernst & Young LLP
New York, New York
January 24, 1996
F-4
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1995 and 1994 1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash ........................................................ $ 818,642 $ 63,669
Temporary investments (at cost plus accrued interest,
which approximates market) (Note 3) ........................ 3,493,817 2,445,954
----------- -----------
Total current assets ........................................ 4,312,459 2,509,623
Investment in Joint Venture (Note 4) ........................ 591,842 --
----------- -----------
$ 4,904,301 $ 2,509,623
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Due to managing general partner ............................. $ 30,896 $ 76,930
----------- -----------
Total current liabilities ................................... 30,896 76,930
Other liabilities ........................................... 100,000 100,000
Distributions in excess of investment in
Joint Venture (Note 4) .................................... -- 1,254,037
----------- -----------
Total liabilities ........................................... 130,896 1,430,967
----------- -----------
Partners' equity:
General partners ............................................ (958,843) (1,513,056)
Limited partners ............................................ 5,732,248 2,591,712
----------- -----------
Total partners' equity ...................................... 4,773,405 1,078,656
----------- -----------
$ 4,904,301 $ 2,509,623
=========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31, 1995, 1994 and 1993 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Income from Joint Venture (Note 4) ......... $5,332,543 $3,523,841 $8,883,054
Interest income ............................ 162,096 118,603 132,122
---------- ---------- ----------
5,494,639 3,642,444 9,015,176
Costs and expenses:
General and administrative expenses ........ 666,949 473,094 494,674
---------- ---------- ----------
Net income ................................. $4,827,690 $3,169,350 $8,520,502
========== ========== ==========
Net income allocated to:
General partners ........................... $ 724,154 $ 317,903 $ 85,205
Limited partners ........................... 4,103,536 2,851,447 8,435,297
---------- ---------- ----------
$4,827,690 $3,169,350 $8,520,502
========== ========== ==========
Net income per $500 limited partnership unit
(based on 385,200 units outstanding) ...... $ 10.65 $ 7.40 $ 21.90
========== ========== ==========
Cash distribution per $500
limited partnership unit .................. $ 2.50 $ 7.60 $ 36.50
========== ========== ==========
</TABLE>
See notes to financial statements.
STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
General Limited
Years ended December 31, 1995, 1994 and 1993 Partners Partners Total
---------- ---------- ----------
<S> <C> <C> <C>
Partners' equity (deficiency),
January 1, 1993 ........................... $(1,664,467) $8,292,288 $6,627,821
Net income, 1993 ........................... 85,205 8,435,297 8,520,502
Distributions, 1993 ........................ (142,019) (14,059,800) (14,201,819)
---------- ---------- ----------
Partners' equity (deficiency),
December 31, 1993 ......................... (1,721,281) 2,667,785 946,504
Net income, 1994 ........................... 317,903 2,851,447 3,169,350
Distributions, 1994 ........................ (109,678) (2,927,520) (3,037,198)
---------- ---------- ----------
Partners' equity (deficiency),
December 31, 1994 ......................... (1,513,056) 2,591,712 1,078,656
Net income, 1995 ........................... 724,154 4,103,536 4,827,690
Distributions, 1995 ........................ (169,941) (963,000) (1,132,941)
---------- ---------- ----------
Partners' equity (deficiency),
December 31, 1995 ......................... $ (958,843) $5,732,248 $4,773,405
========== ========== ==========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31, 1995, 1994 and 1993 1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 4,827,690 $ 3,169,350 $ 8,520,502
Adjustments to reconcile net income to net cash
provided by operating activities:
Net change in operating assets and liabilities:
Decrease (increase) in accrued interest receivable ... 1,692 (9,215) 2,337
(Decrease) increase in due to managing general partner (46,034) 38,533 1,890
------------ ------------ ------------
Net cash provided by operating activities .............. 4,783,348 3,198,668 8,524,729
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions received from Joint Venture
(less than) in excess of equity in income ............. (1,845,879) (1,210,182) 1,111,602
Increase in investment in Joint Venture ................ -- -- (35,447)
Net (purchases) sales of temporary investments ......... (1,049,555) 1,060,551 308,796
------------ ------------ ------------
Net cash (used in) provided by investing activities .... (2,895,434) (149,631) 1,384,951
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners .............................. (1,132,941) (3,037,198) (14,201,819)
------------ ------------ ------------
Net increase (decrease) in cash ........................ 754,973 11,839 (4,292,139)
Cash, beginning of year ................................ 63,669 51,830 4,343,969
------------ ------------ ------------
Cash, end of year ...................................... $ 818,642 $ 63,669 $ 51,830
============ ============ ============
</TABLE>
See notes to financial statements.
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Silver Screen Partners II, L.P. ("the Partnership") was formed on April 16, 1985
as a Delaware limited partnership. The Partnership entered into a Joint Venture
Agreement with The Walt Disney Company ("Disney") for the purpose of financing
(in whole or in part), producing and exploiting all feature-length theatrical
motion pictures selected for production by Disney until the Partnership's funds
were fully committed. The Partnership provided substantially all the financing
for the Joint Venture's films, while Disney was responsible for the development
and production or acquisition decisions on behalf of the Joint Venture in
connection with the films.
At the end of 1995, the Partnership entered into a buyout agreement with
Disney (see Note 5). The purchase price will be reflected in the 1996 results of
operations and will result in a substantial gain to the Partnership.
Silver Screen Management, Inc., a Delaware corporation, is the managing
general partner ("MGP") of the Partnership and has exclusive responsibility for
the management of the business and the affairs of the Partnership. Roland W.
Betts, the President and principal shareholder of the MGP, is the individual
general partner of the Partnership.
The Partnership Agreement provides that all Partnership income, losses and
distributable cash ("Proceeds") are distributed 99% to the limited partners and
1% to the general partners until the Partnership has satisfied certain tests, as
defined. Thereafter, all Proceeds will be allocated 85% to the limited partners
and 15% to the general partners. At the end of the first quarter of 1994, the
allocation percentages with regard to Proceeds changed from 99% for the limited
partners and 1% for the general partners to 85% and 15%, respectively. The
Proceeds to the limited partners are allocated pro rata according to the capital
accounts of the respective limited partners.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income taxes:
No provision has been made for income taxes since the income or loss of the
Partnership is required to be reported by the respective partners on their
income tax returns.
3. TEMPORARY INVESTMENTS
Temporary investments consisted of the following:
1995 1994
---------- ----------
Commercial paper $3,493,817 $2,445,954
========== ==========
All commercial paper is rated by Standard & Poor's A1 or A1+.
1995 commercial paper matured on January 11, 1996 and had interest rates ranging
from 5.75% to 5.79%.
1994 commercial paper matured between January 5 and January 12, 1995 and had
interest rates ranging from 5.75% to 6.00%.
4. INVESTMENT IN JOINT VENTURE
The investment in the Disney-Silver Screen II Joint Venture (the "Joint
Venture") is accounted for using the equity method of accounting. Under the
equity method, the investment is initially recorded at cost, and is thereafter
increased by additional investments, adjusted by the Partnership's share of the
Joint Venture's operating results and reduced by distributions received from the
Joint Venture. The Joint Venture's fiscal year ends September 30, while the
Partnership's fiscal year ends December 31. The 1995, 1994 and 1993 statements
of operations reflect the Joint Venture's results of operations for its fiscal
years ended September 30, 1995, 1994 and 1993, respectively. At December 31,
1994, distributions received from the Joint Venture exceeded the Partnership's
investment in and equity in net income of the Joint Venture, resulting in a
negative balance and classified as a liability in the balance sheet.
F-8
<PAGE>
The investment in Joint Venture at December 31, 1995 and 1994 was as
follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Balance, January 1 .............................................. $(1,254,037) $(2,464,219)
Income from Joint Venture for the fiscal years ended September 30 5,332,543 3,523,841
Distributions received, January 1 to December 31 ................ (3,486,664) (2,313,659)
----------- -----------
Balance, December 31 ............................................ $ 591,842 $(1,254,037)
=========== ===========
</TABLE>
For each Joint Venture film, all revenues received by the Joint Venture are
allocated and distributed first to the Partnership and Disney in proportion to
their respective investments in the budgeted cost of each film until each has
recovered its investment; second, net of participations, to Disney until it
recovers any amounts paid for cost overruns; and thereafter, net of
participations, 75% to the Partnership and 25% to Disney (adjusted for any
Disney investment in the film other than cost overruns).
The condensed balance sheets for the Joint Venture at September 30, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Receivable from Buena Vista Pictures Distribution, Inc. ......... $ 3,044,632 $ 629,844
Prepaid Distributions:
Silver Screen Partners II, L.P. ............................... -- 1,740,029
The Walt Disney Company ....................................... -- 580,007
Film production costs, net of accumulated amortization
of $145,677,986 and $145,469,980 ............................... 11,824 219,830
----------- -----------
$ 3,056,456 $ 3,169,710
=========== ===========
LIABILITIES AND VENTURERS' CAPITAL
Accounts payable to:
Silver Screen Partners II, L.P. ............................... $ 1,892,293 --
The Walt Disney Company ....................................... 1,152,258 1,366,763
Deferred revenue ................................................ -- 1,582,257
Venturers' capital:
Silver Screen Partners II, L.P. ............................... 8,876 165,466
The Walt Disney Company ....................................... 3,029 55,224
----------- -----------
$ 3,056,456 $ 3,169,710
=========== ===========
</TABLE>
The condensed income statements for the Joint Venture for the years ended
September 30, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues ........................... $ 7,339,413 $ 7,064,964 $ 15,941,171
Amortization of film
production costs .................. (208,006) (621,990) (3,747,124)
Participation expense .............. (21,351) (1,744,516) (327,648)
------------ ------------ ------------
Net income ......................... $ 7,110,056 $ 4,698,458 $ 11,866,399
============ ============ ============
</TABLE>
The Partnership's share of the September 30, 1995, 1994 and 1993 net income
was $5,332,543, $3,523,841 and $8,883,054, respectively.
Film costs include production costs, a 17.5% overhead charge on the
budgeted film cost (payable 13.5% to Disney and 4% to the MGP), and interest on
development costs, as contractually defined, payable to Disney. Film production
costs are charged to earnings on an individual film basis in the ratio that the
current year's revenues bear to Joint Venture management's estimate of the
ultimate revenues to be received from all sources.
Film costs are stated at the lower of cost or estimated net realizable
value on an individual film basis. Revenue forecasts for all motion pictures are
continually reviewed by Joint Venture management and revised when warranted by
changing conditions. When estimates of ultimate revenues to be received indicate
that a motion picture will result in an ultimate loss, additional amortization
is provided to reduce the film to its net realizable value.
F-9
<PAGE>
All of the Joint Venture's motion pictures are completed, released and are
currently in secondary markets (theatrical re-release, home video, pay
television, free television, and syndication). Based on Joint Venture
management's ultimate revenue estimates at September 30, 1995, all unamortized
film production costs will be amortized within one year.
Participations represent a participant's share of a motion picture's
profits as contractually defined. An ultimate participation expense is
determined for each motion picture using ultimate revenues. Revenue forecasts
for all motion pictures are continually reviewed by Joint Venture management and
ultimate participation expense is revised when warranted. Ultimate participation
expense is charged to earnings on an individual film basis in the ratio that
current year's revenues bear to Joint Venture management's estimate of the
ultimate revenues to be received from all sources. During fiscal years 1995 and
1994, certain charges were made to residual estimates to better reflect actual
payment history. The impact of these changes was to increase fiscal years 1995
and 1994 net income by approximately $300,000 and $1,000,000, respectively.
5. DISNEY BUYOUT OF THE PARTNERSHIP
The Partnership entered into an agreement (the "Agreement") with Disney
providing for the sale to Disney of all of the Partnership's interest in the
Joint Venture. In accordance with the Agreement, on January 2, 1996, the closing
date, the purchase price was $44,678,304 in cash after an adjustment for certain
film revenues totalling $321,696 received in 1995. Buena Vista Pictures
Distribution, Inc. ("Buena Vista"), a wholly owned subsidiary of Disney, has
made payments to the Joint Venture, as required by the distribution agreement
(defined in Note 6) for all revenues received by Buena Vista through November
30, 1995, and the Partnership received its share of such revenues.
6. AGREEMENT WITH RELATED PARTIES
The Joint Venture entered into a distribution agreement with Buena Vista whereby
the Joint Venture granted Buena Vista a license to distribute all the Joint
Venture's films, in all media throughout the world through March 31, 1996. The
distribution agreement provides that if the revenues received by the Joint
Venture for a Joint Venture film are less than 100% of the film's budgeted film
cost, as defined, actually expended, then five years after the release of that
film (or, if earlier, seven years after the release of the first Joint Venture
film), Buena Vista, to the extent it has retained revenues from that film, will
pay the Joint Venture an additional amount (the "Revenue Shortfall Payment")
sufficient to return the budgeted film cost actually expended. Buena Vista will
be entitled to recoup any Revenue Shortfall Payments from the Joint Venture's
share of film revenue from such film after the date of such payment. During
1992, the Partnership received $400,000 representing the last Revenue Shortfall
Payment. Revenue Shortfall Payments were due on the fifth anniversary of each
affected film's U.S. theatrical release.
- --------------------------------------------------------------------------------
(unaudited)
VALUE PER UNIT BASED ON ANNUAL APPRAISAL
The appraised value per unit based on projected cash flow as of December 31,
1995 is $102. The amount does not consider the time value of money.
CASH DISTRIBUTIONS
The Partnership made one distribution during 1995 totalling $2.50 or 0.5% per
$500 unit. Cumulative distributions through December 31, 1995 totalled $635 or
127% per unit.
AVAILABILITY OF FORM 10-K
A copy of the Partnership's Annual Report to the SEC on Form 10-K may be
obtained without charge by writing to the Partnership, c/o Silver Screen
Management, Inc., 936 Broadway, New York, N.Y. 10010.
F-10
<PAGE>
Silver Screen Management, Inc.
936 Broadway
New York, NY 10010
Bulk Rate
U. S. Postage
PAID
Permit #9
Boston, MA
F-11
<PAGE>
DISNEY-SILVER SCREEN II JOINT VENTURE
(A California Joint Venture)
Financial Statements
September 30, 1995 and 1994
F-12
<PAGE>
1880 Century Park East Telephone 310-553-6030
Price Waterhouse LLP [GRAPHIC OMITTED]
Report of Independent Accountants
---------------------------------
December 20, 1995
To the Joint Venturers of
Disney-Silver Screen II Joint Venture
In our opinion, the accompanying balance sheet and the related statements of
income, of Venturers' capital and of cash flows present fairly, in all material
respects, the financial position of Disney-Silver Screen II Joint Venture (a
California Joint Venture) at September 30, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Joint 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.
/s/Price Waterhouse LLP
F-13
<PAGE>
DISNEY - SILVER SCREEN II JOINT VENTURE
(A California Joint Venture)
Balance Sheet
September 30, September 30,
1995 1994
----------- -----------
Assets
------
Receivable from Buena Vista
Pictures Distribution, Inc. ............... $3,044,632 $ 629,844
Prepaid distributions
Silver Screen Partners II, L.P. ........... -- 1,740,029
The Walt Disney Company ................... -- 580,007
Film production costs, less accumulated
amortization of $145,677,986 and
$145,469,980 at September 30, 1995 and
September 30, 1994, respectively .......... 11,824 219,830
---------- ----------
$3,056,456 $3,169,710
========== ==========
Liabilities and Venturers' Capital
----------------------------------
Accounts and distributions payable
The Walt Disney Company .................. $1,892,293 $ --
Silver Screen Partners II, L.P. .......... 1,152,258 1,366,763
Deferred revenue ........................... -- 1,582,257
Venturers' capital
Silver Screen Partners II, L.P. .......... 8,876 165,466
The Walt Disney Company .................. 3,029 55,224
---------- ----------
11,905 220,690
---------- ----------
$3,056,456 $3,169,710
========== ==========
See accompanying notes to financial statements.
F-14
<PAGE>
DISNEY - SILVER SCREEN II JOINT VENTURE
(A California Joint Venture)
Statement of Income
Year Ended
September 30,
-------------
1995 1994 1993
------------ ------------ ------------
Revenues .................... $ 7,339,413 $ 7,064,964 $ 15,941,171
Costs and expenses
Amortization of film
production costs ........ (208,006) (621,990) (3,747,124)
Participation expense .... (21,351) (1,744,516) (327,648)
------------ ------------ ------------
Net income .................. $ 7,110,056 $ 4,698,458 $ 11,866,399
============ ============ ============
See accompanying notes to financial statements.
F-15
<PAGE>
DISNEY - SILVER SCREEN II JOINT VENTURE
(A California Joint Venture)
Statement of Venturers' Capital
Years Ended September 30, 1995, 1994 and 1993
Silver Screen The Walt
Partners Disney
II, L.P. Company Total
------------ ------------ ------------
Balance at September 30, 1992 $ 3,470,992 $ 1,393,614 $ 4,864,606
Capital distributions ..... (9,448) (166,903) (176,351)
Net income ................ 8,883,054 2,983,345 11,866,399
Distributions ............. (11,711,453) (3,998,937) (15,710,390)
------------ ------------ ------------
Balance at September 30, 1993 633,145 211,119 844,264
Net income ................ 3,523,841 1,174,617 4,698,458
Distributions ............. (3,991,520) (1,330,512) (5,322,032)
------------ ------------ ------------
Balance at September 30, 1994 165,466 55,224 220,690
Net income ................ 5,332,133 1,777,513 7,110,056
Distributions ............. (5,489,133) (1,829,708) (7,318,841)
------------ ------------ ------------
Balance at September 30, 1995 $ 8,876 $ 3,029 $ 11,905
============ ============ ============
See accompanying notes to financial statements.
F-16
<PAGE>
DISNEY - SILVER SCREEN II JOINT VENTURE
(A California Joint Venture)
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended
September 30,
-------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................... $ 7,110,056 $ 4,698,458 $ 11,866,399
Adjustments to reconcile net income
to net cash provided by operating
activities:
Charges to income not requiring cash outlays
Amortization of film production costs ....... 208,006 621,990 5,536,156
Change in assets and liabilities
(Increase) decrease in receivable from
Buena Vista Pictures Distribution, Inc. ... (2,414,788) 224,776 5,536,156
(Decrease) increase in participations payable
to The Walt Disney Company ................ (845,272) 1,270,239 (343,709)
Decrease in deferred revenue ................ (1,582,257) (1,446,740) (2,059,179)
------------ ------------ ------------
Total adjustments ............................. (4,634,311) 670,265 6,880,392
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ....... 2,556,150 9,586,759 44,408,955
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions (distributions)
Silver Screen Partners II, L.P. ............. -- -- 20,328
The Walt Disney Company ..................... -- -- (166,903)
Distributions
Silver Screen Partners II, L.P. ............. (1,856,811) (4,035,308) (13.978,664)
The Walt Disney Company ..................... (618,934) (1,333,415) (4,768,127)
------------ ------------ ------------
NET CASH USED BY FINANCING ACTIVITIES ........... (2,475,745) (5,368,723) (18,893,366)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Film production costs additions ............... -- -- 146,575
------------ ------------ ------------
NET CHANGE IN CASH, AND CASH AT END OF PERIOD ... $ -- $ -- $ --
============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE>
DISNEY-SILVER SCREEN II JOINT VENTURE
(A California Joint Venture)
Notes to Financial Statements
September 30, 1995
(1) ORGANIZATION AND SIGNIFICANT AGREEMENTS
Organization
------------
The Disney-Silver Screen II Joint Venture (Joint Venture) was formed under
the laws of the State of California on April 29, 1985 pursuant to a Joint
Venture agreement (JV Agreement) between the Walt Disney Company (Disney)
and Silver Screen II, L.P. (Silver Screen), collectively referred to as the
Venturers. The Joint Venture was formed to finance, produce and exploit
feature length live action and animated theatrical motion pictures selected
for production by Disney. Silver Screen was capitalized through a public
offering of limited partnership units and has provided approximately $150
million of funding to the Joint Venture.
Joint Venture Agreement
-----------------------
The JV Agreement sets forth the rights and obligations of the Venturers,
including their capital contribution requirements and sharing of net
proceeds and tax attributes. The JV Agreement requires Silver Screen to
provide substantially all the financing for the Joint Venture's films,
while Disney is required to finance all necessary costs in excess of Silver
Screen's limits and is solely responsible for all decisions incidental to
the development and production or acquisition of motion pictures for the
Joint Venture. Silver Screen's financing contribution is limited to 100% of
the budgeted film production costs (BFC), as contractually defined. The
Joint Venture is managed by Disney.
Revenues received by the Joint Venture from each film are distributed first
to Silver Screen until it has received an amount equal to its investment in
the film's BFC. Thereafter, revenues are distributed to Disney until it has
received an amount equal to its investment in film production costs in
excess of the film's BFC. Thereafter, all remaining revenues, net of
participations, are distributed 75% to Silver Screen and 25% to Disney.
On September 29, 1995, Disney entered into an agreement (Purchase
Agreement) with Silver Screen to purchase all of Silver Screen's rights and
interest in, to and under the JV Agreement and the distribution agreement
(as defined below). The Purchase Agreement provides for the payment of the
purchase price (subject to certain adjustments with respect to animated
films) on January 2, 1996 (or such later date as mutually agreed to by the
parties) and requires Buena Vista Pictures Distribution, Inc. (Buena
Vista), a wholly owned subsidiary of Disney, to continue accounting for and
making payments to the Joint Venture as required by the distribution
agreement for all revenues received through November 30, 1995. After the
payment of the purchase price, the Joint Venture will be dissolved. Until
such time, the Joint Venture financial statements will be prepared in
accordance with the accounting policies described below.
F-18
<PAGE>
DISNEY-SILVER SCREEN II JOINT VENTURE
(A California Joint Venture)
Notes to Financial Statements
September 30, 1995
Distribution Agreement
----------------------
Concurrent with its formation, the Joint Venture entered into a
distribution agreement with Buena Vista, for the distribution of all films
produced by the Joint Venture in all media throughout the world. From the
revenues received from the distribution of the Joint Venture films net of
certain contractually defined costs, Buena Vista retains a distribution
fee, as contractually defined, and an amount to recoup residuals it has
paid, and remits the balance of the revenues to the Joint Venture. The
receivable from Buena Vista relates to receivables due to Buena Vista from
exhibitors and distributors of motion picture products.
If the total revenues received by the Joint Venture five years after the
release of each film are less than 100% of the Joint Venture's investment
in the BFC of that film, Buena Vista is required to pay the Joint Venture
an additional amount (the "Revenue Shortfall Payment") to the extent it has
retained revenues from the film. Buena Vista will be entitled to recoup any
Revenue Shortfall Payment from the Joint Venture's share of revenues from
the film after the date of such payment. Disney has guaranteed Buena
Vista's obligation to make Revenue Shortfall Payments, if any.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
-------------------
All of the Joint Venture's motion pictures have been produced for
theatrical release as its primary market. Revenues from theatrical
distribution of motion pictures are recognized when revenues are reported
by distributors. Television licensing revenues are recognized when the
motion picture is available for telecasting by the licensee and when
certain other conditions are met. Revenues from the sale of home video
cassettes are recognized, net of an allowance for estimated returns, on the
date that they are made widely available for sale by retailers.
Generally, motion pictures are first made available for six months after
theatrical release for home video, one year after theatrical release for
pay television, two to three years after theatrical release for initial
free television, and approximately three to five years after theatrical
release for syndication.
Revenues are presented net of the amount Buena Vista retains, as described
above. Certain changes were made to residual estimates during the three
months ended December 31, 1994 to better reflect actual payment history.
The impact of these changes was to increase net income for the year ended
September 30, 1995 by $127,471.
F-19
<PAGE>
DISNEY-SILVER SCREEN II JOINT VENTURE
(A California Joint Venture)
Notes to Financial Statements
September 30, 1995
Accounting for Film Production Costs
------------------------------------
Film production costs include production costs, a 17.5% overhead charge
payable 13.5% to Disney and 4% to Silver Screen, and interest on
development costs, as contractually defined, payable to Disney. These costs
are expected to benefit future periods. Film production costs are charged
to earnings on an individual film basis in the ratio that the current
year's revenues bear to management's estimate of ultimate revenues from all
sources.
Film production costs are stated at the lower of cost or estimated net
realizable value on an individual film basis. Revenue forecasts for all
motion pictures are continually reviewed by management and revised when
warranted by changing conditions. When estimates of ultimate revenues
indicate that a motion picture will result in an ultimate loss, additional
amortization is provided to reduce the film to its net realizable value.
All of the Joint Venture's motion pictures are completed, released, and are
currently in secondary markets (home video, pay television, free
television, and syndication). Based on management's ultimate revenue
estimates at September 30, 1995, approximately 100% of unamortized film
production costs will be amortized within one year.
Participation Expense
---------------------
Participations represent a participant's share of motion picture's profits
as contractually defined. An ultimate participation expense is determined
for each motion picture using ultimate revenues. Revenue forecasts for all
motion pictures are continually reviewed by management and ultimate
participation expense is revised when warranted. Certain changes were made
to participation estimates during the three months ended December 31, 1994
to better reflect actual payment history. The impact of these changes was
to increase net income for the year ended September 30, 1995 by $305,933.
Ultimate participation expense is charged to earnings on an individual film
basis in the ratio that the current year's revenues bear to management's
estimate of ultimate revenues from all sources.
Revenue Shortfall Payment
-------------------------
The Revenue Shortfall Payment (as defined above) is recognized when earned.
The revenue is earned five years after the release date of the film. Since
1992 was the fifth year from the release date of the last film in the Joint
Venture, the Revenue Shortfall Payment in the year ended September 30,
1992, represented the final payment.
F-20
<PAGE>
DISNEY-SILVER SCREEN II JOINT VENTURE
(A California Joint Venture)
Notes to Financial Statements
September 30, 1995
Income Taxes
------------
The Joint Venture is treated as a partnership for Federal and State income
tax purposes. Accordingly, no provision for income taxes has been made in
the accompanying financial statements since the Joint Venture's results of
operations are reported in the income tax returns of the Venturers.
(3) PREPAID DISTRIBUTIONS
Prepaid distributions to the Venturers are fully realizable as future and
deferred revenues are recognized, and accrued participations are paid by
the Joint Venture. Prepaid distributions are presented net of distributions
payable to the Venturers.
(4) ACCOUNTS AND DISTRIBUTION PAYABLE
September 30, September 30,
1995 1994
------------- -------------
Due to Silver Screen Partners II, L.P.:
Distributions payable, net ................. $1,892,293 $ --
---------- ----------
Due to The Walt Disney Company:
Participations payable ..................... $ 521,491 $1,366,763
Distributions payable, net ................. 630,767 --
---------- ----------
$1,152,258 $1,366,763
========== ==========
F-21
<PAGE>
DISNEY - SILVER SCREEN II JOINT VENTURE
(A California Joint Venture)
Quarterly Financial Summary
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Ended
---------------------------------------------------------
December 31 March 31 June 30 September 30
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fiscal 1995
- -----------
Revenues .............................. $ 737,117 $ 2,972,245 $ 1,035,151 $ 2,594,900
Costs and expenses:
Amortization of film production costs (1,833) (210,785) 7,913 (3,301)
Participation expense ............... 320,531 (93,350) (166,873) (81,659)
----------- ----------- ----------- -----------
Net income ............................ $ 1,055,815 $ 2,668,110 $ 876,191 $ 2,509,940
=========== =========== =========== ===========
Fiscal 1994
- -----------
-----------
Revenues .............................. $ 2,822,201 $ 924,798 $ 2,653,937 $ 664,028
Costs and expenses:
Amortization of film production costs (352,607) (98,097) (141,869) (29,417)
Participation expense ............... (816,574) (101,580) (678,902) (147,460)
----------- ----------- ----------- -----------
Net income ............................ $ 1,653,020 $ 725,121 $ 1,833,166 $ 487,151
=========== =========== =========== ===========
</TABLE>
F-22
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED BALANCE SHEET AS OF DECEMBER 31, 1995, AND THE STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<CASH> 819
<SECURITIES> 3,494
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,312
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,904
<CURRENT-LIABILITIES> 31
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4,773
<TOTAL-LIABILITY-AND-EQUITY> 4,904
<SALES> 5,333
<TOTAL-REVENUES> 5,495
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 667
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,828
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,828
<EPS-PRIMARY> 10.65
<EPS-DILUTED> 0
</TABLE>
