UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-15514
AMERICAN ENTERTAINMENT PARTNERS L.P.
Exact name of registrant as specified in its charter
Delaware 06-1183659
State or other jurisdiction
ofincorporation or organization I.R.S. Employer Identification No.
Attn: Andre Anderson
3 World Financial Center,
New York, New York 29th Floor 10285-2900
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
DEPOSITARY UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark 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 December 31, 1997, there were 63,793.25 depositary units of limited
partnership interests outstanding, of which all but 5 of such units were
held by non-affiliates. The aggregate market value of those interests is
not determinable because there is no active public market trading in the
units.
Documents Incorporated by Reference: Portions of Parts II, III and IV are
incorporated by reference to the Partnership's Annual Report to Unitholders
for the year ended December 31, 1997.
PART I
Item 1. Business
(a) General
American Entertainment Partners L.P. (the "Partnership") was organized May
2, 1986 under the laws of the State of Delaware as a limited partnership.
Through its participation in Amercent Films (the "Joint Venture"), a joint
venture with Twentieth Century Fox Film Corporation ("Fox"), the
Partnership produced, financed, acquired interests in and continues to
exploit feature length motion picture films.
A public offering (the "Offering") of depositary units of limited
partnership interests (the "Units") was completed in July 1986 by the
Partnership. A total of 63,793.25 Units were sold at $1,000 per Unit, for
aggregate offering proceeds of $63,793,250.
The general partner of the Partnership is AEP Premiere Corporation, a
Delaware corporation (the "General Partner") (see Item 10). The
Partnership has certain consultation rights and, through a committee of the
Joint Venture, may be called upon to make certain determinations with
respect to such films. Fox, however, has day-to-day control of creative
and artistic matters in connection with films in which the Joint Venture
invests.
Joint Venture Films, Participation Films and Additional Films
The films which the Partnership acquired interests or participations in can
be classified into three categories. First, the Joint Venture produced
"Joint Venture Films" pursuant to the product origination agreement with
Fox (the "Product Origination Agreement"). To produce a Joint Venture
Film, the Joint Venture engaged Fox under a production services agreement
(the "Production Services Agreement") to produce such film on behalf of the
Joint Venture and to provide all production services necessary to complete
and deliver the film to the Joint Venture. The second category of films in
which the Joint Venture invested were films in which the Joint Venture
acquired participations ("Participation Films"). Participation Films are
films acquired by another joint venture in which Fox has an interest. The
Joint Venture does not own any of the rights in the Participation Films but
instead the Partnership made capital contributions to the Joint Venture
which were used to acquire participations in such films. The third
category of films, "Additional Films," were films which did not meet the
criteria as a Joint Venture Film but which the Joint Venture could have,
upon agreement of Fox and the Partnership, acquired.
The Joint Venture has invested all the net proceeds of the Offering in
films, therefore, no additional investments in films will be made by the
Joint Venture.
Distribution Agreement and Revenues of the Joint Venture
The Joint Venture Films are distributed pursuant to a distribution
agreement between the Joint Venture and Fox (the "Distribution Agreement"),
but Fox is responsible for and makes all decisions with respect to
distribution. A distribution committee of the Joint Venture, consisting of
one designee of Fox and two designees of the Partnership (the "Distribution
Committee"), has the right to consult periodically with Fox concerning the
distribution of Joint Venture Films. Although the Distribution Committee
supervises Fox's performance as a distributor, the Distribution Agreement
does not set forth any objective standards to measure Fox's performance as
a distributor and does not impose minimum commitment obligations with
respect to the distribution and exploitation of Joint Venture Films. The
Distribution Committee, however, is responsible for certain decisions
including, among others, the exercise by the Joint Venture of the Joint
Venture's right not to produce a film by reason of certain interests of
third party participants in the film.
The Joint Venture receives all of the net proceeds from the Joint Venture
Films in accordance with the terms of the Distribution Agreement. The
terms of the Distribution Agreement are disclosed in a Joint Venture
agreement (the "Joint Venture Agreement") which is incorporated by
reference to the Partnership's Registration Statement No. 33-5393 on Form S-
1 as filed with the Securities and Exchange Commission on July 2, 1986.
Films in Release
The Partnership's percentage participation in the films in which the
Partnership has an interest through the Joint Venture, and certain other
information, is set forth below:
Amount Partnership's
Contributed Percentage
Release to Joint Participation in
Title Date Venture Net Proceeds
Joint Venture Films:
Black Widow February 1987 $ 4,405,428 34.79%
Project X April 1987 6,259,399 31.18
Predator June 1987 6,691,070 30.13
Revenge of the Nerds II:
Nerds in Paradise July 1987 3,463,408 34.87
Wall Street December 1987 5,284,830 29.82
Broadcast News December 1987 7,000,000 26.11
Off Limits March 1988 3,874,389 32.61
36,978,524
Participation Films:
Aliens July 1986 3,500,000 12.65
The Fly August 1986 1,750,000 15.25
Jumpin' Jack Flash October 1986 6,471,363 30.66
11,721,363
Additional Film:
The Pick-Up Artist September 1987 5,417,693 33.10
$54,117,580
Competition
Distribution of motion pictures is a highly competitive business. Fox
competes with several other prominent motion picture distributors, some of
which have substantially greater financial and personnel resources, in
licensing motion pictures to theaters and other markets. The Partnership's
films currently are appearing primarily in ancillary markets such as
domestic and foreign syndication, basic cable and home video. In addition
to distributing the motion pictures of the Joint Venture in these markets,
Fox is distributing other motion pictures produced by or on behalf of Fox
and motion pictures as to which Fox has acquired distribution rights.
These films, as well as films released by other motion picture
distributors, are competing with films which the Joint Venture produced and
films in which it has participations.
Relationship with Fox
Although Fox had substantial discretion with respect to other aspects of
the films, because all the films have been produced, Fox currently has
substantial discretion only in the distribution of films in which the Joint
Venture has an interest.
The Joint Venture's (and therefore the Partnership's) receipt of net
proceeds from the exploitation of the films is dependent upon the
compliance by Fox with its obligations under agreements entered into
between it and the Joint Venture. The term "net proceeds" is utilized
solely as a measuring device to calculate amounts payable to the Joint
Venture by Fox and no specific funds will be segregated for payment to the
Joint Venture. Fox's payment obligations are not secured, and the Joint
Venture relies on the general credit of Fox to receive any amounts due to
it.
Fox Buy-Out Option
Pursuant to the terms of the Partnership Agreement, Fox has the right to
purchase the Partnership's interest in the Joint Venture films at an
appraised fair market value determined by an independent, third-party
appraisal commencing on June 30, 1995. On February 2, 1998, the
Partnership received formal notice from Fox that it is considering a
potential buy out of the Partnership's interest in the films and may
exercise this option in the near future. Subsequently, the Partnership and
Fox signed a letter of engagement with an independent third-party appraiser
to determine a fair market value of the Partnership's interest in the Joint
Venture. Pursuant to the Joint Venture agreement, Fox has the option, but
not the obligation, to buy out the Partnership's interest at this
independently appraised value. If Fox exercises its option, the
Partnership will attempt to complete the sale of its interest in the Joint
Venture by the end of the second quarter of 1998 and subsequently make
liquidating distributions and dissolve the Partnership. However, there can
be no assurance that a sale will take place or that a sale will be
completed within this time-frame.
Changes in the Motion Picture Industry
The entertainment business in general, and the motion picture business in
particular, has undergone significant changes, primarily due to
technological developments such as the advent of home video equipment.
While these developments have resulted in the availability of alternative
forms of leisure time entertainment, which may have a negative impact on
the Partnership's films while in domestic theatrical release, the
developments have also resulted in additional sources of revenue for the
Partnership's films. The level of domestic theatrical success, however,
remains a critical factor in generating revenues in the ancillary markets
where the Partnership's films are currently distributed. Given the
rapidity of technological development and shifting consumer tastes, it is
impossible to predict what effect these technological and other changes
will have on the potential overall revenues for the Joint Venture's feature
length motion pictures in the future.
Employees
The Partnership has no employees.
ITEM 2. Properties
The principal offices of the Partnership and the General Partner are
located at 3 World Financial Center, 29th Floor, New York, New York. The
Partnership pays no rent. All other charges for space and administrative
facilities are borne by an affiliate of the General Partner.
ITEM 3. Legal Proceedings
The Registrant is not a party to any material pending legal proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5. Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters
(a)(b) Market Information and Holders - The Partnership is a limited
partnership and there is no established public market for
the Partnership's Units. As of December 31, 1997, there were 8,825
holders of record ("Unitholders") of the Partnership's Units.
(c) Distributions - Incorporated by reference to the sections "Cash
Distributions", "Financial Highlights" and Note 3 of the Notes to the
Financial Statements of the Partnership's Annual Report to Unitholders
for the year ended December 31, 1997, which is filed as an exhibit
under Item 14 and incorporated herein by reference.
ITEM 6. Selected Financial Data
Incorporated by reference to the "Financial Highlights" table of the
Partnership's Annual Report to Unitholders for the year ended December 31,
1997.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership's principal source of funds is the proceeds received from
Fox pursuant to the Distribution Agreement, as defined in the Partnership's
prospectus. According to the terms set forth in the Partnership Agreement,
effective January 1993, the Partnership receives proceeds from Fox on an
annual basis. Accordingly, all subsequent cash distributions from the
Partnership's investment in the Joint Venture films have been paid to
Limited Partners on an annual basis.
Pursuant to the terms of the Partnership Agreement, Fox's right to purchase
the Partnership's interest in the Joint Venture films at an appraised fair
market value determined by an independent, third-party appraisal commenced
on June 30, 1997. On February 2, 1998 the Partnership received formal
notice from Fox that it is considering a potential buy out of the
Partnership's interest in the films and may exercise this option in the
near future. Subsequently, the Partnership and Fox signed a letter of
engagement with an unaffiliated third-party appraiser to determine a fair
market value of the Partnership's interest in the Joint Venture. Pursuant
to the Joint Venture agreement, Fox has the option, but not the obligation
to buy out the Partnership's interest at this independently appraised
value. If Fox exercises its option, the Partnership will attempt to
complete the sale of its interest in the Joint Venture by the end of the
second quarter of 1998 and subsequently dissolve the Partnership. However,
there can be no assurance that a sale will take place or that a sale will
be completed within this time-frame.
The Partnership's cash balance at December 31, 1997 was approximately
$1,559,000 as compared to approximately $2,479,000 at December 31, 1996.
The decrease is primarily attributable to the payment of the 1996 cash
distribution in February 1997 totaling approximately $1,995,000 and the
payment of Partnership expenses during 1997. The Partnership's cash
balance is expected to provide sufficient liquidity to enable the
Partnership to fund cash distributions and meet its operating expenses.
On February 20, 1998, the Partnership paid the 1997 annual distribution
totaling $902,000 of which $893,000 or $14.00 per Unit was paid to the
Limited Partners and approximately $9,000 was paid to the General Partner.
The Partnership's receivable from Fox totaled approximately $11,000 at
December 31, 1997, compared to approximately $44,000 at December 31, 1996.
The decrease is due to the collection in 1997 of motion picture revenue
from Fox. As stated above, the Partnership receives proceeds from Fox on
an annual basis.
Accounts payable and accrued expenses increased from approximately $34,000
at December 31, 1996, to approximately $59,000 at December 31, 1997. The
increase is primarily due to higher audit fees for 1997, as well as the
accrual of certain expenses incurred by an unaffiliated third party service
provider in servicing the Partnership, which were voluntarily absorbed by
affiliates of the General Partner in prior periods, and were reimbursed to
the General Partner and its affiliates.
Results of Operations
1997 compared to 1996
For the year ended December 31, 1997, the Partnership reported net income
of approximately $997,000 as compared to approximately $1,451,000 in 1996.
The decrease in net income is primarily due to a decrease in revenue
generated from motion picture exploitation. Motion picture profits are
based on current estimates of ultimate film revenues and costs. These
estimates are subject to review periodically as more information about a
film's distribution becomes available. Such reviews can result in
significant adjustments to prior estimates. The decrease in net income is
also due to an increase in general and administrative expenses.
For the year ended December 31, 1997, the Partnership recognized revenues
from motion picture exploitation and amortization of motion picture costs
with respect to its investment in the released films of approximately
$1,319,000 and $20,000, respectively, compared to $1,797,000 and $97,000
during 1996. The decrease in revenue from motion picture exploitation and
amortization of motion picture costs is primarily due to lower revenue from
the foreign pay and free television markets and domestic syndicated
television market. The Partnership currently receives nearly all of its
revenues from the distribution of the films in ancillary markets.
General and administrative expenses for the year ended December 31, 1997
were approximately $114,000, compared to $79,000 in 1996. During the 1997
period, certain expenses incurred by an unaffiliated third party service
provided in servicing the Partnership, which were voluntarily absorbed by
affiliates of the General Partner in prior periods, were reimbursed to the
General Partner and its affiliates. Professional fees increased from
approximately $21,000 at December 31, 1996 to approximately $28,000 at
December 31, 1997, primarily due to an increase in audit fees incurred by
the Partnership.
1996 compared to 1995
For the year ended December 31, 1996, the Partnership reported net income
of approximately $1,451,000 as compared to approximately $730,000 in 1995.
The increase in net income was primarily due to an increase in revenues
generated from motion picture exploitation in foreign pay and free
television markets and the domestic syndicated market. Motion picture
profits are based on current estimates of ultimate film revenues and costs.
These estimates are subject to review periodically as more information
about a film's distribution becomes available. Such reviews can result in
significant adjustments to prior estimates.
For the year ended December 31, 1996, the Partnership recognized revenues
from motion picture exploitation and amortization of motion picture costs
with respect to its investment in the released films of approximately
$1,797,000 and $97,000, respectively, compared to $1,046,000 and $46,000
during 1995. The increases in revenues from motion picture exploitation
and amortization of motion picture costs were primarily attributable to
higher revenue from the home video sell-through market and from new sales
in the U.S. free television market. The Partnership currently receives
revenues from the distribution of the films in ancillary markets.
Professional fees decreased from approximately $38,000 at December 31, 1995
to $21,000 at December 31, 1996 primarily due to a decrease in legal fees
incurred by the Partnership.
ITEM 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders
for the year ended December 31, 1997. For a listing of financial
statements and schedules, see Item 14a.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Partnership
The General Partner of the Partnership is AEP Premiere Corporation, a
Delaware corporation formed on May 20, 1985. It is an affiliate of Lehman
Brothers Inc. ("Lehman Brothers").
Certain officers and directors of the General Partner are now serving (or
in the past have served) as officers or directors of entities which act as
general partners of a number of real estate limited partnerships which have
sought protection under the provisions of the federal Bankruptcy Code. The
partnerships which have filed bankruptcy petitions own real estate which
has been affected adversely by the economic conditions in the markets in
which that real estate is located and, consequently, the partnerships
sought protection of the bankruptcy laws to protect the partnerships'
assets from loss through foreclosure.
Name Office
Jeffrey C. Carter President & Director
Rocco F. Andriola Director
Michael T. Marron Vice President and Chief Financial
Officer
Jeffrey C. Carter, 52, is a Senior Vice President of Lehman Brothers in the
Diversified Asset Group. Mr. Carter joined Lehman Brothers in September
1988. From 1972 to 1988, Mr. Carter held various positions with
Helmsley-Spear Hospitality Services, Inc. and Stephen W. Brener Associates,
Inc. including Director of Consulting Services at both firms. From 1982
through 1987, Mr. Carter was President of Keystone Hospitality Services, an
independent hotel consulting and brokerage company. Mr. Carter received
his B.S. degree in Hotel Administration from Cornell University and an
M.B.A. degree from Columbia University.
Rocco F. Andriola, 39, is a Managing Director of Lehman Brothers Inc. in
its Diversified Asset Group and has held such position since October 1996.
Since joining Lehman in 1986, Mr. Andriola has been involved in a wide
range of restructuring and asset management activities involving real
estate and other direct investment transactions. From June 1991 through
September 1996, Mr. Andriola held the position of Senior Vice President in
Lehman's Diversified Asset Group. From June 1989 through May 1991, Mr.
Andriola held the position of First Vice President in Lehman's Capital
Preservation and Restructuring Group. From 1986-89, Mr. Andriola served as
a Vice President in the Corporate Transactions Group of Shearson Lehman
Brothers' office of the general counsel. Prior to joining Lehman, Mr.
Andriola practiced corporate and securities law at Donovan Leisure Newton &
Irvine in New York. Mr. Andriola received a B.A. from Fordham University,
a J.D. from New York University School of Law, and an LL.M in Corporate Law
from New York University's Graduate School of Law.
Michael T. Marron, 34, is a Vice President of Lehman Brothers and has been
a member of the Diversified Asset Group since 1990 where he has actively
managed and restructured a diverse portfolio of syndicated limited
partnerships. Prior to joining Lehman Brothers, Mr. Marron was associated
with Peat Marwick Mitchell & Co. serving in both its audit and tax
divisions from 1985 to 1989. Mr. Marron received his B.S. degree from the
State University of New York at Albany and an M.B.A. from Columbia
University.
ITEM 11. Executive Compensation
Neither the General Partner nor any of its officers or directors received
any compensation from the Partnership.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners - No person is known
to beneficially own in excess of 5% of the Units of the Partnership.
(b) Security Ownership of Management - No officers or directors of the
General Partner beneficially owned any Units of the Partnership as
of December 31, 1997.
(c) Changes in Control - None.
ITEM 13. Certain Relationships and Related Transactions
The Partnership's operations relating to the production, acquisition of
interests and participations and exploitation of films through the Joint
Venture involves the following agreements with Fox: Joint Venture
Agreement, Product Origination Agreement, Production Services Agreement
(with respect to Joint Venture Films produced by Fox as the production
services company), Participation Agreement and Distribution Agreement. See
the Joint Venture Agreement which is incorporated by reference to the
Partnership's Registration Statement No. 33-5393 on Form S-1 as filed with
the Securities and Exchange Commission on July 2, 1986.
Beginning with the first quarter of 1997, certain expenses incurred by an
unaffiliated third party in servicing the Partnership, which were
voluntarily absorbed by affiliates of the General Partner in prior years,
were reimbursed to the General Partner and its affiliate in the amount of
$28,051 for the year ended December 31, 1997.
For additional information on related transactions with affiliates, see
notes 5, 6 and 7 of the Notes to the Financial Statements of the
Partnership's Annual Report to Unitholders for the year ended December 31,
1997, which is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Balance Sheets
At December 31, 1997 and 1996 (1)
Statements of Partners' Capital
For the years ended December 31, 1997, 1996 and 1995 (1)
Statements of Operations
For the years ended December 31, 1997, 1996 and 1995 (1)
Statements of Cash Flows
For the years ended December 31, 1997, 1996 and 1995 (1)
Notes to the Financial Statements (1)
Report of Independent Auditors (1)
(1) Incorporated by reference to the Partnership's Annual
Report to Unitholders for the year ended December 31, 1997.
2. Financial Statement Schedules
No financial statement schedules have been filed as part of this
report as none are required.
3. Exhibits
Exhibit No.
* Certificate of Limited Partnership 3 (a)
* Form of Agreement of Limited Partnership 3 (b)
* Form of Joint Venture Agreement 10 (b)
* Form of Distribution Rights Acquisition Agreement 10 (c)
* Form of Production Services Agreement 10 (d)
* Form of Product Origination Agreement 10 (e)
* Form of Participation Agreement 10 (f)
* Form of Guarantee 10 (g)
Annual Report to Unitholders for
the year ended December 31, 1997 13 (a)
Financial Data Schedule 27
* Incorporated by reference to the Partnership's Registration
Statement No. 33-5393 on Form S-1 as filed with the Securities
and Exchange Commission on July 2, 1986.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
year ended December 31, 1997.
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.
AMERICAN ENTERTAINMENT PARTNERS L.P.
BY: AEP Premiere Corporation
General Partner
Date: March 30, 1998 BY: /s/ Jeffrey C. Carter
President and Director
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.
AEP PREMIERE CORPORATION
General Partner
Date: March 30, 1998 BY: /s/ Jeffrey C. Carter
President and Director
Date: March 30, 1998 BY: /s/ Michael T. Marron
Vice President and
Chief Financial Officer
Date: March 30, 1998 BY: /s/ Rocco F. Andriola
Director
American Entertainment Partners L.P.
EXHIBIT 13(a)
1997 Annual Report
American Entertainment Partners L.P.
American Entertainment Partners L.P. (the
"Partnership") is a limited partnership formed in 1986
for the purpose of contributing funds to a joint
venture (the "Joint Venture") with Twentieth Century
Fox Film Corporation ("Fox"). The Joint Venture
acquired interests in eleven feature-length motion
pictures. The Partnership receives a percentage of the
net revenue generated by the films as they are
distributed in different markets. To date, cumulative
cash distributions total approximately $1,142 per
$1,000 Unit, representing approximately 114% of an
investor's original investment.
Films in Release Release Date
Aliens July 1986
The Fly August 1986
Jumpin' Jack Flash October 1986
Black Widow February 1987
Project X April 1987
Predator June 1987
Revenge of the Nerds II July 1987
The Pick-Up Artist September 1987
Wall Street December 1987
Broadcast News December 1987
Off Limits March 1988
Contents
1 Message to Investors
2 Financial Overview
3 Financial Statements
6 Notes to the Financial Statements
8 Report of Independent Auditors
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
Message to Investors
Presented for your review is the 1997 Annual Report for American
Entertainment Partners L.P. This report provides an update on
the status of the Partnership's investment in the Joint Venture
films, financial highlights and the Partnership's audited
financial statements for the year ended December 31, 1997.
Partnership Update
The Partnership continued to collect revenues from its interests
in the Joint Venture films during 1997. Currently, the Joint
Venture films generate revenues predominantly in domestic and
foreign television syndication markets, which typically represent
the final markets to be exploited in a film's life cycle.
As previously reported, pursuant to the terms of the Joint
Venture, commencing on June 30, 1995, Fox has the right and
option to purchase the Partnership's interest in the Joint
Venture films at an appraised fair market value determined by an
independent appraisal firm. On February 2, 1998, the Partnership
received formal notice from Fox that it is considering a purchase
of the Partnership's interest in the Joint Venture and may
exercise this option within the next few months. Subsequently,
the Partnership and Fox signed a letter of engagement with an
independent third-party appraiser to determine a fair market
value of the Partnership's interest in the Joint Venture.
Pursuant to the Joint Venture agreement, Fox has the option, but
not the obligation, to buy out the Partnership's interest at the
independently appraised value. If Fox exercises its option, the
Partnership will attempt to complete the sale of its interest in
the Joint Venture by the end of the second quarter of 1998 and
subsequently make liquidating distributions and dissolve the
Partnership. However, there can be no assurance that a sale will
take place or that a sale will be completed within this time-
frame.
Through October 31, 1997, the Partnership had received payments
totaling $75,600,752 as compared to an original contribution
after expenses to the Joint Venture of $54,117,580. As discussed
in prior reports, due to the mature stage of the films, future
revenues received by the Partnership will most likely further
decline.
Cash Distributions
The Partnership's annual distribution for 1997, in the amount of
$14.00 per $1,000 Unit, was paid to Limited Partners on February
20, 1998. Cumulative cash distributions to date total $1,142.49
per $1,000 Unit, which represents approximately 114% of an
investor's original investment.
General Information
As you are probably aware, several third parties have commenced
tender offers to purchase Units of the Partnership at prices
which are below the Partnership's estimate of the fair market
value of the Units. In response, we recommended that Limited
Partners reject these offers because we believe that they do not
reflect the underlying value of the Partnership's assets.
According to published industry sources, most of the investors
who hold units of limited partnerships similar to the Partnership
have rejected these types of tender offers due to their
inadequacy.
Summary
We will continue our discussions with Fox and will attempt to
complete the sale of the Partnership's interest in the Joint
Venture by the end of the second quarter of 1998 and subsequently
dissolve the Partnership. However, there can be no assurance
that a sale will take place or that a sale will be completed
within this time-frame. We will update you on significant events
affecting the Partnership in future correspondence.
Very truly yours,
AEP Premiere Corporation
General Partner
/s/Jeffrey C. Carter
Jeffrey C. Carter
President
March 30, 1998
(Graph depicting the following information)
Films in Release
Cumulative Payments
Amount Contributed Received from Fox Through
to Joint Venture October 31, 1997
Aliens $3,500,000 $8,542,326
The Fly 1,750,000 4,497,403
Jumpin' Jack Flash 6,471,000 6,471,363
Black Widow 4,405,000 5,045,278
Project X 6,260,000 3,943,395
Predator 6,691,000 16,300,842
Revenge of the Nerds II 3,463,000 4,783,762
Wall Street 5,285,000 12,072,628
Broadcast News 7,000,000 7,324,472
Off Limits 3,874,000 3,304,228
The Pick-Up Artist 5,418,000 3,315,055
Financial Highlights (in thousands except per Unit data)
Years Ended December 31,
1997 1996 1995 1994 1993
Total Assets $1,656 $2,629 $3,934 $4,742 $4,615
Total Liabilities 1,161 2,229 2,990 1,788 1,871
Total Partners'Capital 495 400 944 2,954 2,744
Revenues from
motion picture
exploitation 1,319 1,797 1,046 2,255 2,236
Net Income 997 1,451 730 1,750 1,643
Net Income per
Limited Partnership Unit 15.47 22.45 11.05 27.16 25.50
Cash Distributions per Unit 14.00 30.97 42.52 23.89 24.88
All distributions are paid on an annual basis.
The financial data set forth above reflects the Partnership's pro rata
share of all assets, liabilities, revenues and expenses of the Joint Venture.
Balance Sheets At December 31, At December 31,
(000's omitted - except unit information) 1997 1996
Assets
Cash and cash equivalents $1,559 $2,479
Motion pictures released, net of accumulated amortization
of $54,638 in 1997 and $54,634 in 1996 86 106
Receivable from Twentieth Century Fox 11 44
Total Assets $1,656 $2,629
Liabilities and Partners' Capital
Liabilities:
Distribution payable $ 902 $1,995
Accrued management fees 200 200
Accounts payable and accrued expenses 59 34
Total Liabilities 1,161 2,229
Partners' Capital:
General Partner _ _
Limited Partners (63,793.25 units outstanding) 495 400
Total Partners' Capital 495 400
Total Liabilities and Partners' Capital $1,656 $2,629
Statements of Partners' Capital
(000's omitted)
For the years ended December 31, 1997, 1996 and 1995
General Limited
Partner Partners Total
Balance at December 31, 1994 $ 2 $2,952 $2,954
Net Income 25 705 730
Distributions (27) (2,713) (2,740)
Balance at December 31, 1995 _ 944 944
Net Income 19 1,432 1,451
Distributions (19) (1,976) (1,995)
Balance at December 31, 1996 _ 400 400
Net Income 9 988 997
Distributions (9) (893) (902)
Balance at December 31, 1997 $ _ $ 495 $ 495
Statements of Operations
(000's omitted - except unit information)
For the years ended December 31, 1997 1996 1995
Net Revenues
Revenues from motion picture exploitation $ 1,319 $1,797 $1,046
Less: Amortization of motion picture costs 20 97 46
Net Revenues 1,299 1,700 1,000
Other Income (Expenses)
Interest and miscellaneous income 40 51 49
Professional fees (28) (21) (38)
General and administrative (114) (79) (81)
Management fees (200) (200) (200)
Net Other Expenses (302) (249) (290)
Net Income $ 997 $1,451 $ 730
Net Income Allocated:
To the General Partner $ 10 $ 19 $ 25
To the Limited Partners 987 1,432 705
$ 997 $1,451 $ 730
Per limited partnership unit
(63,793.25 outstanding) $ 15.47 $ 22.45 $ 11.05
Statements of Cash Flows
(000's omitted)
For the years ended December 31, 1997 1996 1995
Cash Flows From Operating Activities
Net Income $ 997 $1,451 $ 730
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of motion picture costs 20 97 46
Increase (decrease) in cash arising from changes
in operating assets and liabilities
Receivable from Twentieth Century Fox 33 233 2,074
Accounts payable and accrued expenses 25 (16) _
Net cash provided by operating activities 1,075 1,765 2,850
Cash Flows From Financing Activities
Cash distributions (1,995) (2,740) (1,538)
Net cash used for financing activities (1,995) (2,740) (1,538)
Net increase (decrease) in cash and cash
equivalents (920) (975) 1,312
Cash and cash equivalents, beginning of period 2,479 3,454 2,142
Cash and cash equivalents, end of period $ 1,559 $ 2,479 $ 3,454
Notes to the Financial Statements
December 31, 1997, 1996 and 1995
1. Organization
American Entertainment Partners L.P. (the "Partnership") is a
limited partnership which was organized May 2, 1986 under the
laws of the State of Delaware to produce, finance, acquire
interests in and exploit feature length motion picture films
through its participation in Amercent Films (the "Joint
Venture"), a Joint Venture with Twentieth Century Fox Film
Corporation ("Fox").
AEP Premiere Corporation, formerly Shearson Premiere Corporation,
is the general partner (the "General Partner") of the Partnership
and is an affiliate of Lehman Brothers. On July 31, 1993,
certain of Shearson Lehman Brothers, Inc.'s domestic retail
brokerage and management businesses were sold to Smith Barney,
Harris Upham & Co, Inc. Included in the purchase was the name
"Shearson." Consequently, the General Partner's name was changed
to AEP Premiere Corporation to delete any reference to
"Shearson."
A public offering (the "Offering") of depositary units of limited
partnership interests (the "Units") was completed in July 1986 by
the Partnership. A total of 63,793.25 Units were sold at $1,000
per Unit totaling $63,793,250.
2. Significant Accounting Policies
Basis of Accounting The accompanying financial statements have
been prepared on the accrual basis of accounting in accordance
with generally accepted accounting principles. Revenues are
recognized as earned and expenses are recorded as obligations are
incurred.
Cash Equivalents Cash equivalents consist of short-term highly
liquid investments with maturities of three months or less from
the date of issuance. The carrying amount approximates fair
value because of the short maturity of these instruments.
Concentration of Credit Risk Financial instruments which
potentially subject the Partnership to a concentration of credit
risk principally consist of cash in excess of the financial
institutions' insurance limits. The Partnership invests
available cash with high credit quality financial institutions.
Revenue Recognition Net revenues from motion picture exploitation
consist of the Partnership's pro rata share of revenues from the
licensing of film exhibition rights, less related expenses for
prints and advertising, other distribution expenses,
participations to third parties and distribution fees, unless
deferred (see Note 6).
Amortization of Motion Picture Costs Motion picture costs,
including production administration fees which benefit future
periods, are capitalized. Amortization is computed 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 costs are
compared with net realizable value on a film by film basis, and
losses are recognized to the extent costs exceed estimated net
realizable value.
Income Taxes No provision for income taxes has been made in the
financial statements since such taxes are the responsibility of
the individual partners rather than that of the Partnership.
Use of Estimates The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
3. Partnership Allocations
The Partnership Agreement ("Agreement") substantially provides
the following:
Cash Distributions Cash distributions will be made at the
discretion of the General Partner and allocated 1% to the General
Partner and 99% to the Unitholders, until such time as the
Unitholders have received a return of their adjusted capital
contribution, as defined in the Agreement. Thereafter, cash will
be distributed 15% to the General Partner and 85% to the
Unitholders.
Allocation of Losses Losses in any fiscal year shall be allocated
15% to the General Partner and 85% to the Unitholders, except
that if the Unitholders have an Unallocated Return, as defined in
the Agreement, then 1% shall be allocated to the General Partner
and 99% to the Unitholders. In any event, losses will not be
allocated to Unitholders if such allocation would cause or
increase a deficit in the Unitholders' capital accounts.
Allocation of Profits Profits in any fiscal year shall be
allocated 1% to the General Partner and 99% to the Unitholders
until the Unallocated Return, as defined in the Agreement, is
reduced to zero; thereafter, 15% shall be allocated to the
General Partner and 85% to the Unitholders.
Notwithstanding the foregoing provisions, the Agreement provides
that to the extent the General Partner has a negative capital
account at any time, profits shall be allocated to the General
Partner until the capital account has been increased to zero.
In 1997 and 1996, pursuant to the provisions of the Partnership
Agreement described above, income was allocated to the General
Partner to increase its negative capital account to zero.
Dissolution of Partnership If, upon dissolution of the
Partnership, the General Partner has a negative capital account,
it shall contribute capital equal to the amount of the deficit.
In no event, however, shall the required capital contribution be
more than 1.01% of total capital contributed by the Unitholders.
4. Interests and Participations in Motion Pictures
As of December 31, 1987, the Partnership invested approximately
$54,740,000 in eleven films of which approximately $54,118,000
was contributed to the Joint Venture, and approximately $622,000
of production administration fees were paid by the Partnership
to the General Partner. As this represents the total funds
available for investment in films, no further investment in
films will be made by the Partnership.
The Partnership has a participation interest in three films not
produced by the Joint Venture and an interest in eight films
produced by the Joint Venture. All of the eleven films invested
in by the Partnership were released between July 1986 and March
1988.
5. Transactions with Fox
Fox, as distributor of Joint Venture films, has entered into
licensing agreements with other Fox affiliated companies in the
United States and United Kingdom television markets. In the
United States, Fox has licensed seven Joint Venture and
participation films to Fox Television Stations, Inc., a Fox
affiliate, and eight Joint Venture and participation films to Fox
Broadcasting Company, a Fox affiliate, for the free television
market. In the United Kingdom, Fox has licensed all of the Joint
Venture films to British Sky Broadcasting, a Fox affiliate, for
the pay television market.
The receivable from Fox as distributor at December 31, 1997 and
1996 represents accrued net revenues of approximately $11,000 and
$44,000, respectively. No interest is charged on amounts
receivable from or payable to Fox.
6. Deferred Distribution Fee
Fox, as distributor, retains a distribution fee of 17-1/2% from
substantially all gross receipts of the films. The fee is
deferred for a film until the Joint Venture receives, from the
distribution of that film, an amount equal to its investment in
the film. The distribution fees for six films have been earned
since the Joint Venture has received distributions from such
films greater than its investment. A portion of the distribution
fee for one of the remaining five films released has been earned
since the Joint Venture has received distributions from such
films equal to its investment. No distribution fees are expected
to be earned by Fox for the other four films.
7. Transactions with Related Parties
The General Partner is entitled to receive an annual management
fee of $200,000 from which the General Partner pays certain
expenses incurred in connection with the management of the
Partnership. The General Partner waived its right to management
fees from January 1, 1989 through December 31, 1992, which
totaled $800,000. The Partnership paid the General Partner its
1995 management fee in 1996, and its 1996 management fee in 1997.
The Partnership accrued $200,000 in management fees payable to
the General Partner as of December 31, 1997.
8. Reconciliation of Financial Statement Net Income to Tax Basis
Net Income
The Partnership has reported for the years ended December 31,
1997, 1996 and 1995 net income for federal income tax purposes
(tax basis) of approximately $917,720, $1,448,000 and $1,343,000
respectively. Differences between financial statement net income
and tax basis net income are due to the timing of revenue
recognition and related amortization of motion picture costs.
9. Subsequent Event - Fox Buy-Out Option
Pursuant to the terms of the Partnership Agreement, Fox's right
to purchase the Partnership's interest in the Joint Venture films
at an appraised fair market value determined by an independent,
third-party appraisal commenced on June 30, 1995. On February 2,
1998, the Partnership received formal notice from Fox that it is
considering a potential buy-out of the Partnership's interest in
the films and may exercise this option in the near future.
Subsequently, the Partnership and Fox signed a letter of
engagement with an independent third-party appraiser to determine
a fair market value of the Partnership's interest in the Joint
Venture. Pursuant to the Joint Venture agreement, Fox has the
option, but not the obligation, to buy out the Partnership's
interest at this independently appraised value. If Fox exercises
its option, the Partnership will attempt to complete the sale of
its interest in the Joint Venture by the end of the second
quarter of 1998 and subsequently make a liquidating distribution
and dissolve the Partnership. However, there can be no assurance
that a sale will take place or that a sale will be completed
within this time-frame.
Report of Independent Auditors
To Partners
American Entertainment Partners L.P.
We have audited the accompanying balance sheets of American
Entertainment Partners L.P. as of December 31, 1997 and 1996, and
the related statements of operations, partners' capital, and cash
flows for each of the three years in the period ended
December 31, 1997. 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 American Entertainment Partners L.P. at December 31, 1997 and
1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 6, 1998
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<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 1,559,000
<SECURITIES> 000
<RECEIVABLES> 11,000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 2,141,000
<PP&E> 000
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<TOTAL-ASSETS> 2,227,000
<CURRENT-LIABILITIES> 1,161,000
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000
<OTHER-SE> 495,000
<TOTAL-LIABILITY-AND-EQUITY> 1,656,000
<SALES> 000
<TOTAL-REVENUES> 1,319,000
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<TOTAL-COSTS> 20,000
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