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 0-16823
SILVER SCREEN PARTNERS III, L.P.
(a Delaware Limited Partnership)
(Exact name of registrant as specified in its
Certificate and Agreement of Limited Partnership)
Delaware 13-3372004
- ------------------------------- --------------------
(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 III, L.P. ("Silver Screen III") was organized in
September 1986. A public offering of units of assigned limited partnership
interests was completed in January 1987, which raised $300 million. After
payment of offering costs and fees, approximately $270 million was available for
investment in films (the "Partnership Contribution").
Silver Screen III entered into a Joint Venture agreement (the "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 from the time
Disney began to utilize Silver Screen III until all of such funds had been
committed (the "Joint Venture Films"). Buena Vista Pictures Distribution, Inc.
(formerly Buena Vista Distribution, Inc.) ("BV"), a wholly-owned subsidiary of
Disney, has been licensed to distribute all Joint Venture Films in all media and
in all territories throughout the world. BV has paid and will pay the expenses
in connection with the worldwide distribution of each Joint Venture Film. The
Partnership Contribution has been fully committed.
The business of Silver Screen III is managed by Silver Screen Management,
Inc., a Delaware corporation which is a general partner of Silver Screen III
(the "Managing General Partner"). Silver Screen III participates through
Disney-Silver Screen III 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.
Silver Screen III committed to fund nineteen films, all of which have been
completed and released with total budgets amounting to approximately
$266,000,000, of which substantially all had been expended as of December 31,
1993. Accordingly, the Partnership Contribution has been fully committed and
Silver Screen III will not finance or purchase any additional motion pictures.
These films are: "Benji the Hunted," released June 17, 1987; "Adventures in
Babysitting," released July 1, 1987; "Can't Buy Me Love," released August 14,
1987; "Hello Again," released November 6, 1987; "Three Men and a Baby," released
November 25, 1987; "Good Morning Vietnam," released December 23, 1987; "Shoot to
Kill" released February 12, 1988; "D.O.A.," released March 18, 1988; "Return to
Snowy River, Part II," released April 15, 1988; "Big Business," released June
10, 1988; "Who Framed Roger Rabbit," released June 22, 1988; "Cocktail,"
released July 29, 1988; "The Rescue," released August 5, 1988; "Heartbreak
Hotel," released September 30, 1988; "Ernest Saves Christmas," released November
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11, 1988; "Oliver and Co.," released November 18, 1988; "Honey, I Shrunk the
Kids," released June 23, 1989 and "Cheetah and Friends," released August 18,
1989. "Stakeout," which was financed approximately 25% by Silver Screen III and
75% by Silver Screen II, L.P. (a separate limited partnership with the same
Managing General Partner formed to finance previous Disney films), was released
August 5, 1987.
Buyout
- ------
Silver Screen III has entered into a Letter Agreement (the "Buyout
Agreement") with Disney providing for the sale to Disney of all of Silver Screen
III's interest in the Joint Venture. The Buyout Agreement provides for the
payment of the purchase price of $125,000,000 in cash (subject to certain
adjustments with respect to revenues received by Silver Screen III from the
exploitation of the film "Oliver & Co."). Closing is scheduled to occur on
September 30, 1997 subject to satisfaction of certain customary conditions. In
addition to the purchase price, the Buyout Agreement provides that BV will
continue to account for and make payments to the Joint Venture as required by
the Distribution Agreement (as defined below) for all revenues received by BV
through August 31, 1997. The Managing General Partner expects that distributions
to Silver Screen III from the Joint Venture will diminish since all Joint
Venture Films have been exploited in most markets. The Buyout Agreement has been
filed as an exhibit to Silver Screen III's quarterly report on Form 10-Q dated
September 30, 1995 and the terms therefore 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 III contributed to
the Joint Venture all amounts included in the Partnership Contribution. 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 III.
Some of the Joint Venture Films were acquired by the Joint Venture in
completed form (the "Acquired Films"). As provided in the Joint Venture
Agreement, the allocation of revenues from Acquired Films are the same as for
Joint Venture Films, except in instances where alternative arrangements have
been entered into as permitted by the Joint Venture Agreement. In addition, the
Joint Venture Agreement provides that special terms be applicable to "Who Framed
Roger Rabbit."
Contributions by Silver Screen III 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 produced by the Joint Venture and upon
the acquisition cost (the "Acquisition Cost") of all Acquired 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 (or, in the
case of an Acquired Film, the Acquisition Cost) of each such Joint Venture Film
until such time as the entire Partnership Contribution was so committed. Silver
Screen III was not obligated to commit funds with respect to any one Joint
Venture Film (other than "Roger Rabbit") in excess of $20,000,000 in the case of
any Disney animated film or Touchstone Joint Venture Film, or in excess of
$15,000,000, in the case of any Disney non-animated Joint Venture Film.
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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.
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, fixed
deferments and bonuses payable at or out of first net profits and an additional
development fee to Disney in the amount of $500,000. 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 55% of 100% of the net
profits of any non-animated Joint Venture Film and 50% of 100% of the net
profits of any animated Joint Venture Film.
If the average production cost per film for all Joint Venture Films was
less than $13,500,000, Silver Screen III would be required by the Joint Venture
Agreement to pay Disney an Underbudget Bonus equal to the difference between
$13,500,000 and the average production cost, up to a maximum of $500,000 per
Joint Venture Film, multiplied by the total number of Joint Venture Films. If
the average production cost was greater than $13,500,000, Disney would be
required to pay Silver Screen III an Overbudget Penalty equal to the difference
between the average production cost and $13,500,000, up to a maximum of $500,000
per Joint Venture Film, multiplied by the total number of Joint Venture Films.
In December, 1988, an Underbudget Bonus of approximately $6,024,000 was paid to
Disney which increased the Budgeted Film Cost (or Acquisition Cost) of all Joint
Venture Films. Upon revision, an additional Underbudget Bonus of $528,585 was
paid in August 1990. Production Cost excluded certain items included in Budgeted
Film Cost. No further Underbudget bonuses or Overbudget penalties are expected
to be paid.
The revenue formula under the Joint Venture Agreement is designed to assure
that Silver Screen III 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 will be allocated between the parties as follows:
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---100% to Silver Screen III 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 or the Acquisition Cost of such Film;
---thereafter, 100% to Disney until Disney has recouped any cost
overruns; and
---thereafter, after payment of applicable participations, 75% to
Silver Screen III and 25% to Disney; provided that in the event that Silver
Screen III has committed to less than the full amount of the Budgeted Film
Cost or Acquisition Cost of a Film as permitted by the Joint Venture
Agreement, the percentage of revenues allocable to Silver Screen III with
respect to such Film will be equal to 75% of the percentage of such
Budgeted Film Cost or Acquisition Cost committed by Silver Screen III, with
the remainder allocated to Disney.
In addition, certain other payments in respect of "Revenue Shortfalls" will
be 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 to 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. Silver Screen III received no
Revenue Shortfall Payments during the year ended December 31, 1995 and received
$1.4 million during the year ended December 31, 1994. All Revenue Shortfall
Payments have been received by Silver Screen III.
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Distribution Agreement
- ----------------------
Pursuant to the Distribution Agreement, BV will distribute the Joint
Venture Films for a term ending September 30, 1997, in all media throughout the
world.
BV (either directly or through third-party licensees or affiliated
companies) is obligated to release and distribute each of the Joint Venture
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 Joint Venture Film. In connection
with the U.S. theatrical release of each Joint Venture Film, BV has committed to
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 Joint Venture Film.
Competition
- -----------
Silver Screen III 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 III.
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 III has no employees. Silver Screen III's business is
administered by the staff of the Managing General Partner.
ITEM 2. PROPERTIES.
Silver Screen III neither owns nor leases any physical properties. The
Managing General Partner leases offices in New York, New York.
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ITEM 3. LEGAL PROCEEDINGS.
Silver Screen III 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 quarter
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 43,387 Limited Partners of record
holding an aggregate of 600,000 limited partnership units of Silver Screen III
(the "Units"). The Units are not traded securities in any established trading
market.
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." Two
distributions were made to the Limited Partners in 1995 which aggregated
$3,480,000. The distributions per Unit were as follows: January 27 - $2.30 and
October 23 - $3.50. Two distributions were made to the Limited Partners in 1994
which aggregated $2,220,000. The distributions per Unit were as follows: January
28 - $1.70 and April 22 - $2.00.
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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 ......... $ 4,515,810 $ 3,444,814 $ 5,096,264 $15,794,130 $16,563,805
Interest income ............. 256,654 255,443 389,132 658,403 1,600,548
----------- ----------- ----------- ----------- -----------
4,772,464 3,700,257 5,485,396 16,452,533 18,164,353
Expenses:
General and
administrative
expenses .................... 1,013,517 826,356 1,218,472 1,871,897 2,109,756
----------- ----------- ----------- ----------- -----------
Net income ................... $ 3,758,947 $ 2,873,901 $ 4,266,924 $14,580,636 $16,054,597
=========== =========== =========== =========== ===========
Net income per
$500 limited
partnership unit
(based on 600,000
Units outstanding) ........... $ 6.20 $ 4.74 $ 7.04 $ 24.06 $ 26.49
========== ========== ========== =========== ===========
Cash distribution
per $500 limited
partnership unit ............ $ 5.80 $ 3.70 $ 43.95 $ 30.90 $ 65.50
========== ========== ========== =========== ===========
Total assets ................. $ 6,353,863 $ 6,936,262 $ 9,866,630 $43,094,833 $51,871,281
========== ========== ========== =========== ===========
</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
III for the years ended 1995, 1994 and 1993.
Silver Screen III is a partnership and therefore generally not subject to
U.S. federal taxes. No provision has been made for federal income taxes with
respect to Silver Screen III's income since income or loss of Silver Screen III
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
$3,759,000 compared to approximately $2,874,000 for the year ended December 31,
1994. Income for the year ended December 31, 1995 consisted of income from the
Joint Venture of approximately $4,516,000, a $1,071,000 increase from the prior
annual period. Film revenues increased in 1995 due to certain films still making
their way through the remaining television markets around the world. Income from
the Joint Venture for 1995 was principally derived from "Cocktail, " "Oliver &
Co.," "Shoot to Kill," and "Adventures in Babysitting."
Interest income generated by the investment in temporary investments of
revenues pending distribution to partners for the year ended December 31, 1995
was approximately $257,000 compared to $255,000 for the prior annual period. The
weighted average daily interest rate increased in 1995 to 5.771% from 4.194% in
1994 and the average funds available for investment decreased, resulting in a
$2,000 increase in interest. General and administrative expenses were
approximately $1,014,000 for the year ended December 31, 1995, a $188,000
increase from the prior annual period. The increase is attributable to an
increase in reporting to partners expenses of $30,000 and to costs associated
with preparations for negotiation of the sale of the Partnership's interest in
the Joint Venture, which amounted to approximately $384,000. This cost was
offset by a reduction of approximately $55,000 in payroll related expenses,
$26,000 in audit fees, $138,000 in interest on overhead fees payable and $7,000
in miscellaneous expenses. Expenses from the sale of partnership's interest in
the Joint Venture are considered to benefit each of three partnerships: Silver
Screen Partners II, L.P., Silver Screen Partners III, L.P. and Silver Screen
Partners IV, L.P. (collectively and together with the Partnership, the "Silver
Screen Partnerships"), and 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.
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Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
- ---------------------------------------------------------------------
Net income for the year ended December 31, 1994 was approximately
$2,874,000 compared to approximately $4,267,000 for the year ended December 31,
1993. Income for the year ended December 31, 1994 consisted of income from the
Joint Venture of approximately $3,445,000, a $1,651,000 decrease from the prior
annual period. Film revenues continue to decrease since most of the films in
which the Partnership has an interest have been released in the theatrical, home
video and pay cable markets and are now making their way through the remaining
television markets around the world. Income from the Joint Venture for 1994 was
principally derived from "Honey, I Shrunk the Kids," and lesser amounts from
"Three Men and a Baby," "Benji the Hunted" and "Adventures in Babysitting" and
other films in the portfolio.
Interest income generated by the investment in temporary investments of
revenues pending distribution to partners for the year ended December 31, 1994
was approximately $255,000 compared to $389,000 for the prior annual period. The
weighted average daily interest rate increased in 1994 to 4.194% from 3.167% in
1993. The increase in interest rates was offset by a decrease in funds available
for investment, resulting in a decrease in interest income of approximately
$134,000 from 1993 to 1994. General and administrative expenses were
approximately $826,000 for the year ended December 31, 1994, a $392,000 decrease
from the prior annual period. Expenses in general decreased by approximately
$79,000 and interest on overhead fees payable (at 10% per annum) decreased by
approximately $313,000 in 1994 due to the fact that the overhead fee has been
drawn down in total by the Managing General Partner.
Liquidity and Capital Resources
- -------------------------------
Inasmuch as the funding obligations of Silver Screen III with respect to
the financing of the Joint Venture Films have been fully complied with or
reserved against, Silver Screen III has no material commitments for capital
expenditures and does not intend to enter into any such commitments. Receipts
from temporary investments and from the Joint Venture, less reserves established
as determined by the Managing General Partner, are the sources of liquidity for
Silver Screen III. Silver Screen III has no material requirements for liquidity
other than its general and administrative expenses and quarterly distributions
to holders of Units of limited partnership interests. Such sources are
considered adequate for such needs.
The Managing General Partner expects that Silver Screen III will continue
to receive distributions from the Joint Venture (which will substantially
diminish since the Joint Venture Films have been exploited in most markets)
until Silver Screen III sells its interest in the Joint Venture on September 30,
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1997. However, revenues in a particular quarter may not be sufficient to justify
making a cash distribution and therefore, future cash distributions may
fluctuate and there may be quarters where no distributions will be paid.
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 III 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
Screen Partners II, 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 joint venture agreements
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
shortly after the organization of SSMS in 1987. Neither the Limited Partners nor
any general partner of Silver Screen III 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 III.
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
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largest shareholder of the Chelsea Piers Management, Inc. which is the general
partner of the 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
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 Chelsea Piers, L.P.; and a
limited partner of 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.
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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.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the fees, income, distributions and the
amounts payable to the General Partners of Silver Screen III and their
affiliates in connection with the management of Silver Screen III. The executive
officers and directors of the Managing General Partner serve without direct
compensation from Silver Screen III. Except as set forth below, the General
Partners and their affiliates will receive no remuneration of any type
whatsoever from Silver Screen III in connection with the administration of
Silver Screen III's affairs.
COMPENSATION TABLE1
- --------------------------------------------------------------------------------
(A) (B) (C)
- --------------------------------------------------------------------------------
Name of Entity Capacities in which Cash compensation
served
Silver Screen Managing General Overhead fee calculated at
Management, Inc. Partner four percent of the Budgeted
percent of the Budgeted Film
Cost (excluding overhead) of
each Joint Venture Film plus
10% per annum, compounded
quarterly, to the extent the
- ----------
1 See definitions below.
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payment is deferred (as of
December 31, 1994, the overhead
fee had been drawn in its
entirety.) In addition, until
the holders of Units had
received cash distributions
sufficient to reduce their
Adjusted Capital Contributions
plus an amount equal to 8% of
their Adjusted Capital
Contributions per annum to
zero, the Managing General
Partner was allocated 0.9% of
the profits, losses and
Disbursable Cash; from that
time forward until the holders
of Units have received cash
distributions sufficient to
reduce their Adjusted Capital
Contributions plus an amount
equal to 15% of their Adjusted
Capital Contributions per annum
to zero, the Managing General
Partner was allocated 9.9% of
the profits, losses and
Disbursable Cash; thereafter
the Managing General Partner
receives 19.9% of such items.
During 1995, $865,650 was
distributed to the Managing
General Partner from
Disbursable Cash.
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Roland W. Betts Individual General Mr. Betts is allocated 0.1% of
Partner the profits, losses and
Disbursable Cash. Mr. Betts
received $4,350 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.
The Adjusted Capital Contribution may not, however, be
less than zero. The 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.
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 at or out of first net profits and
an additional development fee to Disney in the amount of
$500,000.
15
<PAGE>
The Partnership Agreement provides that all Silver Screen III 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 III. 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 III 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 III. To the knowledge of Silver Screen
III, no unitholder beneficially owns more than 5% of the Units of Silver Screen
III.
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.
16
<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 III, 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-8-11
(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 Amended and Restated Agreement of
Limited Partnership2
- ------
2 Incorporated by reference to Silver Screen III's
Registration Statement on Form S-1, Registration No. 33-8059.
17
<PAGE>
10(a) Joint Venture Agreement dated as of September 25,
1986 by and between Silver Screen III and the Walt
Disney Company.3
10(b) Distribution Agreement dated as of September 25,
1986 by and between Disney -- Silver Screen III
Joint Venture and BV Distribution Co., Inc.4
10(c) Letter Agreement dated September 11, 1995 by and
between Silver Screen III and The Walt Disney
Company.5
(b) Report on Form 8-K
------------------
No reports on Form 8-K have been filed by Silver Screen III during the last
quarter of the period covered by this annual report.
- ----------
3 Incorporated by reference to exhibits filed with Amendment No. 1 to Silver
Screen III's Registration Statement on Form S-1, Registration No. 33-8059.
4 See footnote three.
5 Incorporated by reference as exhibit 10 filed with Form 10-Q, quarterly
report dated September 30, 1995.
18
<PAGE>
(d)1. Financial Statements
--------------------------
The following financial statements of the Disney-Silver Screen III Joint
Venture are included as required by Regulation S-X:
Page
----
Report of independent accountants ................ F-14
Balance sheet as of September 30, 1995
and 1994 ......................................... F-15
Statement of Income for the three years ended
September 30, 1995 ............................... F-16
Statement of Venturers' Capital for the three
years ended September 30, 1995 ................... F-17
Statement of Cash Flows for the three
years ended September 30, 1995 ................... F-18
Notes to Financial Statements..................... F-19-22
Quarterly Financial Summary
(Unaudited) for 1995 and 1994 .................... F-23
(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.
19
<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 III, L.P.
(a Delaware Limited Partnership)
By SILVER SCREEN MANAGEMENT, INC.
Managing General Partner
Dated: March 28, 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 28, 1996 By /s/ Roland W. Betts
------------------------------
Roland W. Betts
SILVER SCREEN MANAGEMENT, INC.
Managing General Partner
Dated: March 28, 1996 By /s/ Roland W. Betts
------------------------------
Roland W. Betts,
President/Treasurer
Dated: March 28, 1996 By /s/ Paul Bagley *
-------------------------------
Paul Bagley
Director,
Silver Screen Management, Inc.
Dated: March 28, 1996 By /s/ Tom A. Bernstein *
-------------------------------
Tom A. Bernstein
Director,
Silver Screen Management, Inc.
Dated: March 28, 1996 By /s/ John A. Tommasini *
-------------------------------
John A. Tommasini
Director,
Silver Screen Management, Inc.
20
<PAGE>
Dated: March 28, 1996 By /s/ William Turchyn, Jr. *
------------------------------
William Turchyn, Jr.
Director,
Silver Screen Management, Inc.
- ----------
* By Roland W. Betts, Attorney-in-Fact
21
<PAGE>
-------------
SILVER SCREEN
-------------
[THE ROMAN NUMERAL III SUPERIMPOSED DIAGONALLY
OVER THE WORDS SILVER SCREEN IN A RECTANGLE]
Annual Report 1995
F-1
<PAGE>
Silver Screen Management
(c)1996 Silver Screen Management, Inc. Design: Pentagram
Officers: Directors:
Roland W. Betts Paul Bagley
President and Chief Executive Officer New York, New York
Tom A. Bernstein Tom A. Bernstein
Executive Vice President New York, New York
Barbara Stubenrauch Roland W. Betts
Senior Vice President New York, New York
Richard S. Kasof John Tommasini
First Vice President New York, New York
Dana Thayer William Turchyn, Jr.
First Vice President New York, New York
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
F-2
<PAGE>
To Our Limited Partners
Silver Screen Partners III distributed approximately $4 million for the
four quarters of 1995, bringing total distributions since the Partnership's
inception in 1987 to $426 million. Of the $426 million, approximately 60% is
return of capital and 40% is income.
During 1995, the majority of Partnership revenue was generated from the
foreign free television market for "Shoot to Kill," "Honey, I Shrunk the Kids,"
and "Adventures in Babysitting." "Roger Rabbit" generated Partnership revenue
from the U.S. network television market during the year.
As reported in our November 6, 1995 letter to investors, Silver Screen
Partners III and The Walt Disney Company have agreed on the sale of the
Partnership's interest in the Disney-Silver Screen III Joint Venture. Disney
agreed to purchase the Silver Screen Partners III interest for $125 million.
This payment is scheduled to occur on the closing of the purchase on September
30, 1997.
Normal revenues will continue to be distributed to investors until closing
of the purchase, although we expect that Partnership revenue during the next
year will be minimal, and that there will be upcoming quarters when no
distributions will be paid.
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
/s/ Tom A. Bernstein
Tom A. Bernstein
Executive Vice President
January 24, 1996
F-3
<PAGE>
[GRAPHIC OMITTED] Report Of Independent Auditors
To the Partners
Silver Screen Partners III, L.P.
We have audited the accompanying balance sheets of Silver Screen Partners
III, 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 III,
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. New York, New York January 24, 1996
/s/ Ernst & Young LLP
New York, New York
January 24, 1996
F-4
<PAGE>
[GRAPHIC OMITTED] BALANCE SHEETS
December 31, 1995 and 1994 1995 1994
---------- ----------
ASSETS
Current assets:
Cash ................................................. $ 247,033 $ 103,007
Temporary investments (at cost plus accrued interest,
which approximates market) (Note 3) ................ 3,244,285 5,939,989
---------- ----------
Total current assets ................................. 3,491,318 6,042,996
Investment in Joint Venture (Note 4) ................. 2,862,545 893,266
---------- ----------
$6,353,863 $6,936,262
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Due to managing general partner ...................... $ 47,150 $ 38,496
---------- ----------
Total current liabilities ............................ 47,150 38,496
Other liabilities .................................... 106,790 106,790
---------- ----------
Total liabilities .................................... 153,940 145,286
---------- ----------
Partners' equity:
General partners (Note 1) ............................ -- --
Limited partners ..................................... 6,199,923 6,790,976
---------- ----------
Total partners' equity ............................... 6,199,923 6,790,976
---------- ----------
$6,353,863 $6,936,262
========== ==========
See notes to financial statements.
F-5
<PAGE>
[GRAPHIC OMITTED] 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) .............. $4,515,810 $3,444,814 $5,096,264
Interest income ................................. 256,654 255,443 389,132
---------- ---------- ----------
4,772,464 3,700,257 5,485,396
Costs and expenses:
General and administrative expenses (Note 5) .... 1,013,517 826,356 1,218,472
---------- ---------- ----------
Net income ...................................... $3,758,947 $2,873,901 $4,266,924
========== ========== ==========
Net income allocated to:
General partners ................................ $ 37,589 $ 28,739 $ 42,669
Limited partners ................................ 3,721,358 2,845,162 4,224,255
---------- ---------- ----------
$3,758,947 $2,873,901 $4,266,924
========== ========== ==========
Net income per $500 limited partnership unit
(based on 600,000 units outstanding) .......... $ 6.20 $ 4.74 $ 7.04
========== ========== ==========
Cash distribution per $500 limited
partnership unit .............................. $ 5.80 $ 3.70 $ 43.95
========== ========== ==========
</TABLE>
See notes to financial statements.
[GRAPHIC OMITTED] 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, January 1, 1993 ........ $
-- $ 35,037,651 $ 35,037,651
Net income, 1993 ......................... 42,669 4,224,255 4,266,924
Allocation under Treasury Regulation
Section
1.704-1(b) (Note 1) ...................... 6,199,831 (6,199,831) --
Distributions, 1993 ...................... (6,242,500) (26,370,000) (32,612,500)
----------- ------------ ------------
Partners' equity, December 31, 1993 ...... -- 6,692,075 6,692,075
Net income, 1994 ......................... 28,739 2,845,162 2,873,901
Allocation under Treasury Regulation
Section
1.704-1(b) (Note 1) ...................... 526,261 (526,261) --
Distributions, 1994 ...................... (555,000) (2,220,000) (2,775,000)
----------- ------------ ------------
Partners' equity, December 31, 1994 ...... -- 6,790,976 6,790,976
Net income, 1995 ......................... 37,589 3,721,358 3,758,947
Allocation under Treasury Regulation
Section
1.704-1(b) (Note 1) ...................... 832,411 (832,411) --
Distributions, 1995 ...................... (870,000) (3,480,000) (4,350,000)
----------- ------------ ------------
Partners' equity, December 31, 1995 ...... $ -- $ 6,199,923 $ 6,199,923
=========== ============ ============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
[GRAPHIC OMITTED] 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 ........................................ $ 3,758,947 $ 2,873,901 $ 4,266,924
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Charge on overhead fee payable .................... -- 138,414 450,819
Decrease (increase) in accrued interest receivable 27,341 (28,200) 67,927
Net change in operating assets and liabilities:
Increase (decrease) in due to managing general
partner ....................................... 8,654 (24,810) 9,050
Increase in overhead fee payable ................ -- -- 7,504
Drawing on overhead fee ......................... -- (3,142,873) (5,350,000)
------------ ------------ ------------
Net cash provided by (used in) operating activities 3,794,942 (183,568) (547,776)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions received from Joint Venture
(less than) in excess of equity in income ....... (1,969,279) 2,333,529 25,920,458
Investments in Joint Venture ...................... -- -- (11,814)
Net sales of temporary investments ................ 2,668,363 528,889 6,371,394
------------ ------------ ------------
Net cash provided by investing activities ......... 699,084 2,862,418 32,280,038
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners ......................... (4,350,000) (2,775,000) (32,612,500)
------------ ------------ ------------
Net increase (decrease) in cash ................... 144,026 (96,150) (880,238)
Cash, beginning of year ........................... 103,007 199,157 1,079,395
------------ ------------ ------------
Cash, end of year ................................. $ 247,033 $ 103,007 $ 199,157
============ ============ ============
</TABLE>
See notes to financial statements.
F-7
<PAGE>
[GRAPHIC OMITTED] NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Silver Screen Partners III, L.P. ("the Partnership") was formed on September 17,
1986 as a Delaware limited partnership and began operations on January 29, 1987.
The Partnership formed a Joint Venture 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.
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 a principal shareholder of the MGP, is the individual
general partner of the Partnership.
The Partnership Agreement provides that all Partnership profits, losses and
distributable cash ("Proceeds") are allocated 99% to the limited partners and 1%
to the general partners until the Partnership has satisfied certain tests.
Thereafter, all Proceeds will be allocated 90% to the limited partners and 10%
to the general partners until additional tests have been satisfied. Thereafter,
all Proceeds will be allocated 80% to the limited partners and 20% to the
general partners. During the year ended December 31, 1993, the allocation
percentages with regard to distributable cash changed from 90% for the limited
partners and 10% for the general partners to 80% and 20%, respectively. Cash
generated by net gain from sale, as defined, will be allocated 85% to the
limited partners and 15% to the general partners once the general partners have
received an aggregate of 15% of the total cash generated by net gain from sale.
The Partnership Agreement provides for the special allocation of income and
gain, in accordance with Treasury Regulation Section 1.704-1(b), to eliminate
any capital account deficit created through cash distributions to the general
partners. This special allocation in 1995, 1994 and 1993 amounted to $832,411,
$526,261, and $6,199,831, respectively, which represents $1.39, $0.88, and
$10.33 per $500 limited partnership unit, respectively. Cash distributions 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 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 .................................... $3,244,285 $5,939,989
========== ==========
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 III 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 results of operations, 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.
F-8
<PAGE>
At the end of 1995, the Partnership entered into a buyout agreement (the
"Agreement") with Disney (see Note 5). Under the terms of the Agreement, the
Partnership's influence over the Joint Venture has been reduced, and the amount
of future revenues to be received from the Joint Venture has been approximately
determined. As a result, the Partnership will account prospectively for its
investment in the Joint Venture using the cost method of accounting. Under this
method, distributions to be received will be recognized as income except that
the investment will be reduced in the proportion that actual distributions
received bear to ultimate revenues expected to be received.
The investment in the Joint Venture at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Balance, January 1 ............................................. $ 893,266 $ 3,226,795
Investments, January 1 to December 31 .......................... -- --
Income from Joint Venture for the fiscal year ended September 30 4,515,810 3,444,814
Distributions received, January 1 to December 31 ............... (2,546,531) (5,778,343)
----------- -----------
Balance, December 31 ........................................... $ 2,862,545 $ 893,266
=========== ===========
</TABLE>
In general, 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 are as follows.
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Receivable from Buena Vista Pictures Distribution, Inc. . $ 9,601,275 $ 7,656,313
Prepaid distributions to Silver Screen Partners III, L.P. -- 1,462,750
Film production costs, net of accumulated amortization
of $209,457,749 and $289,956,694 ...................... 6,057,023 6,558,078
----------- -----------
$15,658,298 $15,677,141
=========== ===========
LIABILITIES AND VENTURERS' CAPITAL
Accounts and distributions payable to:
The Walt Disney Company ............................... $ 7,071,310 $ 7,079,481
Silver Screen Partners III, L.P. ...................... 1,773,157 --
Deferred revenue ........................................ 756,809 2,039,582
Venturers' capital:
The Walt Disney Company ............................... 3,589,389 4,356,252
Silver Screen Partners III, L.P. ...................... 2,467,633 2,201,826
----------- -----------
$15,658,298 $15,677,141
=========== ===========
</TABLE>
F-9
<PAGE>
The condensed statements of income for the Joint Venture for the years ended
September 30, 1995, 1994, and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues ............................ $ 9,127,690 $ 12,978,791 $ 35,551,109
Amortization of film production costs (501,055) (2,940,665) (20,364,516)
Participation expense ............... (1,759,597) (5,482,403) (1,234,110)
------------ ------------ ------------
Net income .......................... $ 6,867,038 $ 4,555,723 $ 13,952,483
============ ============ ============
</TABLE>
The Partnership's share of the September 30, 1995, 1994 and 1993 net income was
$4,515,810, $3,444,814, and $5,096,264, 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 a
development fee of $500,000 for primarily all films payable to Disney. In
December 1988, an under budget bonus of $6,024,240 was paid to Disney by the
Partnership pursuant to the Joint Venture Agreement. Upon revision, an
additional under budget bonus of $528,585 was paid in August 1990. Film 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. See Note 7 with respect to
the Joint Venture's distribution agreement.
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.
All of the Joint Venture's motion pictures are completed and have been
released and are currently in secondary markets (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 during the next two years.
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.
5. DISNEY BUYOUT OF THE PARTNERSHIP
The Partnership has 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. The Agreement provides for the payment of the purchase price of
$125,000,000 in cash (subject to certain adjustments with respect to revenues
received by the Partnership from the exploitation of the film "Oliver & Co.").
Closing will be on September 30, 1997. In addition to the purchase price, the
Agreement provides that Buena Vista Pictures Distribution, Inc. ("Buena Vista"),
a wholly owned subsidiary of Disney, will continue to account for and make
payments to the Joint Venture as required by the distribution agreement (defined
in Note 7) for all revenues received by Buena Vista through August 31, 1997.
6. OVERHEAD FEES PAYABLE
The Partnership Agreement provides that overhead fees received by the
Partnership for the benefit of the MGP (see Note 4) will remain on account with
the Partnership with the understanding that the MGP may draw from such account
from time to time in order to cover its actual operating expenses not reimbursed
from other sources. Pursuant to the Partnership Agreement, the overhead on
account was paid to the MGP on June 14, 1994. Whenever the MGP drew from such
account, it was entitled at that time to receive from the Partnership an amount
equal to 10% per annum on the amounts not yet paid to the MGP. This amount,
included in general and administrative expenses, was $138,414, and $450,819 in
1994 and 1993, respectively.
F-10
<PAGE>
7. AGREEMENT WITH RELATED PARTIES
The Joint Venture has entered into a distribution agreement with Buena Vista
whereby the Joint Venture has granted Buena Vista a license to distribute all
the Joint Venture's films, in all media throughout the world through September
30, 1997. The distribution agreement provides that if the revenues received by
the Joint Venture for primarily all Joint Venture films 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. The Partnership received no Revenue Shortfall Payments
during 1995 and $1.4 million during 1994. Disney has guaranteed Buena Vista's
obligation to make Revenue Shortfall Payments.
- --------------------------------------------------------------------------------
(unaudited)
VALUE PER UNIT BASED ON ANNUAL APPRAISAL
The appraised value per unit based on projected cash flow as of December 31,
1995 is $184. The amount does not consider the time value of money.
CASH DISTRIBUTIONS
The Partnership made two distributions in 1995 totalling $6 or 1% per $500 unit.
Cumulative distributions through December 31, 1995 totalled $707 or 141% 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, 936 Broadway, New York, N.Y. 10010.
F-11
<PAGE>
Silver Screen Management, Inc.
936 Broadway
New York, NY 10010
Bulk Rate
U. S. Postage
PAID
Permit #9
Boston, MA
F-12
<PAGE>
DISNEY-SILVER SCREEN III JOINT VENTURE
(A California Joint Venture)
Financial Statements
September 30, 1995 and 1994
F-13
<PAGE>
Price Waterhouse LLP
Report of Independent Accountants
---------------------------------
December 20, 1995
To the Joint Venturers of
Disney-Silver Screen III 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 III 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-14
<PAGE>
DISNEY - SILVER SCREEN III JOINT VENTURE
(A California Joint Venture)
Balance Sheet
September 30, September 30,
1995 1994
----------- -----------
Assets
------
Receivable from Buena Vista
Pictures Distribution, Inc. ............... $ 9,601,275 $ 7,656,313
Prepaid distributions
Silver Screen Partners III, L.P. .......... -- 1,462,750
Film production costs, less accumulated
amortization of $290,457,749 and
$289,956,694 at September 30, 1995 and
September 30, 1994, respectively .......... 6,057,023 6,558,078
----------- -----------
$15,658,298 $15,677,141
=========== ===========
Liabilities and Venturers' Capital
----------------------------------
Accounts and distributions payable
The Walt Disney Company .................. $ 7,071,310 $ 7,079,481
Silver Screen Partners III, L.P. ......... 1,773,157 --
Deferred revenue ........................... 756,809 2,039,582
Venturers' capital
Silver Screen Partners III, L.P. ......... 2,467,633 2,201,826
The Walt Disney Company .................. 3,589,389 4,356,252
----------- -----------
6,057,021 6,558,078
----------- -----------
$15,658,298 $15,677,141
=========== ===========
See accompanying notes to financial statements.
F-15
<PAGE>
DISNEY - SILVER SCREEN III JOINT VENTURE
(A California Joint Venture)
Statement of Income
Year Ended
September 30,
-------------
1995 1994 1993
------------ ------------ ------------
Revenues ....................... $ 9,127,690 $ 12,978,791 $ 35,551,109
Costs and expenses
Amortization of film
production costs ........... (501,055) (2,940,665) (20,364,516)
Participation expense ....... (1,759,597) (5,482,403) (1,234,110)
------------ ------------ ------------
Net income ..................... $ 6,867,038 $ 4,555,723 $ 13,952,483
============ ============ ============
See accompanying notes to financial statements.
F-16
<PAGE>
DISNEY - SILVER SCREEN III JOINT VENTURE
(A California Joint Venture)
Statement of Venturers' Capital
Years Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Silver Screen The Walt
Partners Disney
III, L.P. Company Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance at September 30, 1992 ........... 26,679,997 3,190,204 29,870,201
Capital distributions ................ (3,018) (3,924) (6,942)
Net income ........................... 5,096,264 8,856,219 13,952,483
Distributions ........................ (27,326,844) (6,990,155) (34,316,999)
------------ ------------ ------------
Balance at September 30, 1993 ........... 4,446,399 5,052,344 9,498,743
Net income ........................... 3,444,814 1,110,909 4,555,723
Distributions ........................ (5,689,387) (1,807,001) (7,496,388)
------------ ------------ ------------
Balance at September 30, 1994 .......... 2,201,826 4,356,252 6,558,078
Net income ........................... 4,515,810 2,351,228 6,867,038
Distributions ........................ (4,250,003) (3,118,091) (7,368,095)
------------ ------------ ------------
Balance at September 30, 1995 (unaudited) $ 2,467,633 $ 3,589,389 $ 6,057,021
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
DISNEY - SILVER SCREEN III 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 ........................................ $ 6,867,038 $ 4,555,723 $ 13,952,483
Adjustments to reconcile net income
to net cash provided by operating
activities:
Charges to income not requiring cash outlays
Amortization of film production costs ........... 501,055 2,940,665 20,364,516
Change in assets and liabilities
(Increase) decrease in receivable from
Buena Vista Pictures Distribution, Inc. ....... (1,944,962) 3,619,052 13,156,805
(Decrease) increase in participations payable
to The Walt Disney Company .................... (1,584,208) 2,285,426 (2,753,682)
Decrease in deferred revenue .................... (1,282,773) (3,814,107) (311,167)
------------ ------------ ------------
Total adjustments ................................. (4,310,888) 5,031,036 30,456,472
------------ ------------ ------------
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 III, L.P. ................ -- -- 11,814
The Walt Disney Company ......................... -- -- (3,924)
Distributions
Silver Screen Partners III, L.P. ................ (1,014,096) (6,267,347) (33,520,511)
The Walt Disney Company ......................... (1,542,054) (3,319,412) (10,888,444)
------------ ------------ ------------
Net cash used by financing activities ............... (2,556,150) (9,586,759) (44,401,065)
------------ ------------ ------------
Cash flows from investing activities:
Film production costs additions ................... -- -- (7,890)
------------ ------------ ------------
Net change in cash, and cash at end of period ....... $ -- $ -- $ --
============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-18
<PAGE>
DISNEY-SILVER SCREEN III JOINT VENTURE
(A California Joint Venture)
Notes to Financial Statements
September 30, 1995
(1) ORGANIZATION AND SIGNIFICANT AGREEMENTS
Organization
- ------------
The Disney-Silver Screen III Joint Venture (Joint Venture) was formed under the
laws of the State of California on September 25, 1986 pursuant to a Joint
Venture agreement (JV Agreement) between the Walt Disney Company (Disney) and
Silver Screen III, 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 $266 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. At its option, Silver Screen
may limit its contribution to $20 million per film. Special provisions pertain
to Silver Screen's contribution limit on the film "Who Framed Roger Rabbit?" 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, as adjusted for any Disney
investment in the film's BFC. Special provisions pertain to the distribution of
revenues on the film "Who Framed Roger Rabbit?"
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 September 30, 1997 (or
such later date as mutually agreed to by the parties) and requires Buena Vista
F-19
<PAGE>
DISNEY-SILVER SCREEN III JOINT VENTURE
(A California Joint Venture)
Notes to Financial Statements
September 30, 1995
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 August 31, 1997.
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.
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.
F-20
<PAGE>
DISNEY-SILVER SCREEN III JOINT VENTURE
(A California Joint Venture)
Notes to Financial Statements
September 30, 1995
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 $84,523.
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, a development fee of $500,000 for each
film payable to Disney, an underbudget bonus of $372,809 for each film payable
to Disney, 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
during the next three years.
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 $359,914. 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.
F-21
<PAGE>
DISNEY-SILVER SCREEN III JOINT VENTURE
(A California Joint Venture)
Notes to Financial Statements
September 30, 1995
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. Revenue
Shortfall Payments made to the Joint Venture for the years ended September 30,
1995, 1994, and 1993 totaled $0, $1,391,142, and $20,912,861 respectively.
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 III, L.P.:
Distributions payable, net ................. $1,773,157 $ --
---------- ----------
Due to The Walt Disney Company:
Participations payable ..................... $3,687,682 $ 5,271,890
Distributions payable, net ................. 3,383,628 1,807,591
---------- ----------
$7,071,310 $7,079,481
========== ==========
F-22
<PAGE>
DISNEY - SILVER SCREEN III 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 .............................. $ 1,313,182 $ 3,251,771 $ 1,391,296 3,171,441
Costs and expenses:
Amortization of film production costs (103,909) (204,023) (32,384) (160,739)
Participation expense ............... 244,663 (1,204,263) (349,955) (450,042)
----------- ----------- ----------- -----------
Net income ............................ $ 1,453,936 $ 1,843,485 $ 1,008,957 $ 2,560,660
=========== =========== =========== ===========
Fiscal 1994
- -----------
Revenues .............................. $ 2,999,833 $ 4,167,850 $ 3,670,069 $ 2,141,039
Costs and expenses:
Amortization of film production costs (742,388) (726,651) (93,423) (1,378,203)
Participation expense ............... (2,171,389) (1,799,462) (794,537) (717,015)
----------- ----------- ----------- -----------
Net income ............................ $ 86,056 $ 1,641,737 $ 2,782,109 $ 45,821
=========== =========== =========== ===========
</TABLE>
F-23
<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> 247
<SECURITIES> 3,244
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,491
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,354
<CURRENT-LIABILITIES> 47
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 6,200
<TOTAL-LIABILITY-AND-EQUITY> 6,354
<SALES> 4,516
<TOTAL-REVENUES> 4,772
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,014
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,759
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,759
<EPS-PRIMARY> 6.20
<EPS-DILUTED> 0
</TABLE>
