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, 1996
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 funds until all 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 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
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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
11, 1988; "Oliver and Company," 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 dated September 11, 1995 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 and 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 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 thereof are incorporated herein by reference.
Joint Venture Agreement
- -----------------------
Each Joint Venture Film was produced in accordance with the Joint Venture
Agreement. Under the Joint Venture Agreement, Silver Screen 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."
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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.
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.
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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:
---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.
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In addition, certain other payments in respect of "Revenue Shortfalls" were
payable to the Joint Venture. The Revenue Shortfall for each Joint Venture Film
was 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 years ended December 31, 1995 and 1996 and
received $1.4 million during the year ended December 31, 1994. All required
Revenue Shortfall Payments have been received by Silver Screen III.
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.
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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.
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, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED
PARTNERSHIP INTEREST AND RELATED SECURITY HOLDER MATTERS.
As of February 14, 1997, there were 42,233 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.
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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 1996 which aggregated
$3,750,000. The distributions per Unit were as follows: January 26 - $3.25 and
July 26 - $3.00. 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.
During 1996, certain groups not affiliated with Silver Screen III or the
Managing General Partner made limited tender offers to acquire Units directly
from Limited Partners. Silver Screen III has advised Limited Partners that the
per Unit prices offered in such tender offers appears to be less than the amount
per Unit expected to be distributed to Limited Partners upon the termination of
Silver Screen III (expected to be by the end of 1997) and therefore Silver
Screen III does not recommend that Limited Partners accept such offers.
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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,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Income from Joint Venture ....... $ 7,220,549 $ 4,515,810 $ 3,444,814 $ 5,096,264 $15,794,130
Interest income ................ 136,188 256,654 255,443 389,132 658,403
----------- ----------- ----------- ----------- -----------
7,356,737 4,772,464 3,700,257 5,485,396 16,452,533
Expenses:
General and administrative
expenses ....................... 680,512 1,013,517 826,356 1,218,472 1,871,897
----------- ----------- ----------- ----------- -----------
Income before tax ............... 6,676,225 3,758,947 2,873,901 4,266,924 14,580,636
Unincorporated business tax...... 791,352 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income ...................... $ 5,884,873 $ 3,758,947 $ 2,873,901 $ 4,266,924 $14,580,636
=========== =========== =========== =========== ===========
Net income per $500
limited partnership
unit (based on 600,000
Units outstanding) ............. $ 9.71 $ 6.20 $ 4.74 $ 7.04 $ 24.06
=========== =========== =========== =========== ===========
Cash distribution
per $500 limited
partnership unit ............... $ 6.25 $ 5.80 $ 3.70 $ 43.95 $ 30.90
=========== =========== =========== =========== ===========
Total assets .................... $ 7,414,529 $ 6,353,863 $ 6,936,262 $ 9,866,630 $43,094,833
=========== =========== =========== =========== ===========
</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 1996, 1995 and 1994.
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, 1996 Compared to Year Ended December 31, 1995
- ---------------------------------------------------------------------
Net income for the year ended December 31, 1996 was approximately
$5,885,000 compared to approximately $3,759,000 for the year ended December 31,
1995. Revenue for the year ended December 31, 1996 consisted of income from the
Joint Venture of approximately $7,221,000, a $2,705,000 increase from the prior
year. Film revenues continue to fluctuate 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 1996 was principally
derived from "Oliver and Company," and lesser amounts from "Honey, I Shrunk the
Kids," "Benji the Hunted" and other films in the portfolio.
Interest income generated by temporary investments of cash which is
distributed to partners for the year ended December 31, 1996 was approximately
$136,000 compared to $257,000 for the prior annual period. Interest rates ranged
from 4.8% to 5.79% in 1996 while those for 1995 ranged from 5% to 6.02%. The
decrease in interest rates resulted in a decrease in interest income of
approximately $121,000 from 1995 to 1996. General and administrative expenses
were approximately $681,000 for the year ended December 31, 1996, a $333,000
decrease from the prior year due to costs associated with preparation for
negotiation of the sale of the Partnership's interest in the Joint Venture.
On September 30, 1996 Silver Screen III received an assessment from New
York City regarding unincorporated business tax covering all periods from
inception through December 31, 1995 of $878,000 (including interest). This
liability was paid on the date of assessment. The Unincorporated Business Tax
Expense reflects the excess of this payment over an amount previously
established as a contingency reserve plus a provision for 1996.
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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 and
Company," "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 the 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.
Investment in Joint Venture
- ---------------------------
The investment in the Joint Venture was accounted for using the equity
method of accounting. Under the equity method, the investment was initially
recorded at cost, and was thereafter increased by additional investment,
adjusted by Silver Screen III's share of the Joint Venture's results of
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operations and reduced by distributions received from the Joint Venture. The
Joint Ventures' fiscal year ends September 30, while Silver Screen III's fiscal
year ends December 31. The investment in the Joint Venture on January 1, 1996
totaled $2,862,545.
Silver Screen III entered into the Buyout Agreement with Disney dated
September 11, 1995 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
adjustment with respect to revenue 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 that Buena Vista Pictures
Distribution, Inc. ("BV") will continue to account for and make payments to the
Joint Venture, as required by the Distribution agreement for all revenues
received by BV through August 31, 1997.
As a result of the Buyout Agreement, Silver Screen III is using the cost
method of accounting starting January 1, 1996. Under the cost method,
distributions received are recognized as income and investments will be reduced
in proportion that actual cash received bears to ultimate revenues expected.
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 until Silver Screen III sells
its interest in the Joint Venture on September 30, 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.
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Closing under the Buyout Agreement with Disney is scheduled to occur on
September 30, 1997. Silver Screen III currently expects to dissolve by the end
of 1997 upon disposition of its remaining assets and distribution of cash to the
partners.
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, 50, 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
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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 lead owner of the Texas Rangers Baseball Club; and the Chairman and largest
shareholder of the Chelsea Piers Management, Inc. which is the general partner
of the Chelsea Piers, L.P., a limited partnership which developed and operates 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, 54, is the founding partner of Stone Pine Capital LLC (1994),
and is Chairman of FCM Fiduciary Capital Managers, LLC (1989 to date), the
advisor to mezzanine and private equity funds. For more than twenty years prior
to 1988, Mr. Bagley was engaged in investment banking activities with Shearson
Lehman Hutton Inc. and its predecessor, E.F. Hutton & Company Inc. 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 has served on the boards of a number
of public and private companies. Currently he is on the boards of America First
Financial Fund, Fiduciary Capital, EurekaBank, Hollis-Eden Pharmaceuticals,
Lithium Technology, Consolidated Capital, Logan Machinery Corp. and Pacific
Consumer Funding. 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, 44, 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
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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.
John A. Tommasini, 52, the President of Laidlaw Equities, Inc., 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., 51, 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.
15
<PAGE>
- --------------------------------------------------------------------------------
(A) (B) (C)
- --------------------------------------------------------------------------------
Name of Entity Capacities in which Cash compensation
served
Silver Screen Managing General Overhead fee calculated as four
Management, Inc. Partner percent of the Budgeted Film
Cost (excluding overhead) of
each Joint Venture Film.
Pursuant to the Partnership
Agreement, the overhead was
paid in full on December 2,
1994. 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
sufficient cash distributions
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.
$932,812 was distributed to the
Managing General Partner from
Disbursable Cash.
- ----------------------
1 See definitions
16
<PAGE>
Roland W. Betts Individual General Mr. Betts is allocated 0.1% of
Partner the profits, losses and
Disbursable Cash. Mr. Betts
received $4,688 therefrom in
1996.
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.
17
<PAGE>
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.
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.
18
<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
Page
----
Independent auditors' reports ................. F-1
Balance sheets as of December 31, 1996 and
1995 ..................................... F-2
Statement of operations for the years ended
December 31, 1996, 1995 and 1994 ......... F-3
Statement of partners' equity for the years
ended December 31, 1996, 1995 and 1994.... F-4
Statement of cash flows for the years ended
December 31, 1996, 1995 and 1994.......... F-5
Notes to Financial Statements.................. F6-12
(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.
19
<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.
20
<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 31, 1997 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 31, 1997 By /s/ Roland W. Betts
------------------------------
Roland W. Betts
SILVER SCREEN MANAGEMENT, INC.
Managing General Partner
Dated: March 31, 1997 By /s/ Roland W. Betts
------------------------------
Roland W. Betts,
President/Treasurer
Dated: March 31, 1997 By /s/ Roland W. Betts *
-------------------------------
Paul Bagley
Director,
Silver Screen Management, Inc.
Dated: March 31, 1997 By /s/ Roland W. Betts *
-------------------------------
Tom A. Bernstein
Director,
Silver Screen Management, Inc.
Dated: March 31, 1997 By /s/ Roland W. Betts *
-------------------------------
John A. Tommasini
Director,
Silver Screen Management, Inc.
21
<PAGE>
Dated: March 31, 1997 By /s/ Roland W. Betts *
------------------------------
William Turchyn, Jr.
Director,
Silver Screen Management, Inc.
- ----------
* By Roland W. Betts, Attorney-in-Fact
22
<PAGE>
Silver Screen Management
(c)1997 Silver Screen Management, Inc. Design: Pentagram
Officers: Directors:
- --------- ----------
Roland W. Betts Paul Bagley
President and New York, New York
Chief Executive Officer
Tom A. Bernstein
Tom A. Bernstein New York, New York
Executive Vice President
Roland W. Betts
Barbara Stubenrauch New York, New York
Senior Vice President
John Tommasini
Richard S. Kasof New York, New York
First Vice President
William Turchyn, Jr.
Dana Thayer New York, New York
First Vice President
Liz A. Brevetti
Vice President
Keith C. Champagne
Vice President
Evelyn Halley
Vice President
Stuart A. Sheinbaum
Director of Investor
Relations
Conchetta S. Mayfield
Director of Operations
Paul Rindone
Director of Operations
F-1
<PAGE>
To Our Limited Partners:
Silver Screen Partners III distributed approximately $5 million for the
four quarters of 1996, bringing total distributions since the Partnership's
inception in 1987 to $431 million. Of the $431 million, approximately 70% is
return of capital and 30% is income.
During 1996, the majority of Partnership revenue was generated from the
U.S. home video release of "Oliver & Company." Additional revenue was produced
by the U.S. syndicated television market for "Honey, I Shrunk the Kids" and
"Benji the Hunted."
In 1997, "Oliver & Company" is expected to continue to contribute revenue
from the U.S. home video market. By the end of the year, "Three Men and a Baby"
will become available to appear in the basic cable television market (USA
Network) and "Roger Rabbit" will become available in the U.S. syndicated
television market.
Our current expectations are that between now and the dissolution of the
Partnership, after expenses, Silver Screen Partners III will distribute
approximately $135 to $165 per unit to investors (this amount includes
anticipated future quarterly distributions and the buyout proceeds from Disney).
Closing of the purchase by Disney is scheduled to occur on September 30, 1997.
The final distribution and dissolution of the Partnership is expected to take
place before December 31, 1997. These figures and dates represent our best
estimates as of today.
As explained in previous correspondence, a number of private investment
groups have sent out correspondence relating to a tender offer for units in
Silver Screen Partners III, and there may be other such offers in the future.
Silver Screen Partners III and Silver Screen Management, Inc. are not affiliated
in any way with these firms and can make no recommendation as to the merits of
any past or future tender offer. If and when you receive such solicitations, if
you are not interested in selling your units, no action by you is required. We
hope the above information will help you in evaluating the various bids from the
tender offer groups.
Tax information for preparing your 1996 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. Please note our new
telephone number and address listed on the back of this report.
Sincerely,
/s/ Roland W. Betts
- --------------------
Roland W. Betts
President
/s/ Tom S. Bernstein
- --------------------
Tom A. Bernstein
Executive Vice President
January 24, 1997
F-2
<PAGE>
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, 1996 and 1995, and the
related statements of operations, partners' equity, and cash flows for each of
the three years in the period ended December 31, 1996. 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 audits 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, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
January 24, 1997
F-3
<PAGE>
BALANCE SHEETS
December 31, 1996 and 1995 1996 1995
- -------------------------- ---------- ----------
ASSETS
Current assets:
Cash ................................................. $ 164,506 $ 247,033
Temporary investments (at cost plus accrued interest,
which approximates market) ......................... 4,545,092 3,244,285
---------- ----------
Total current assets ................................. 4,709,598 3,491,318
Investment in Joint Venture .......................... 2,704,931 2,862,545
---------- ----------
$7,414,529 $6,353,863
---------- ----------
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Due to managing general partner ...................... $ 3,881 $ 47,150
Accrued unincorporated business tax .................. 13,352 --
---------- ----------
Total current liabilities ............................ 17,233 47,150
Other liabilities .................................... -- 106,790
---------- ----------
Total liabilities .................................... 17,233 153,940
---------- ----------
Partners' Equity:
General partners ..................................... -- --
Limited partners ..................................... 7,397,296 6,199,923
---------- ----------
Total partners' equity ............................... 7,397,296 6,199,923
---------- ----------
$7,414,529 $6,353,863
========== ==========
See notes to financial statements.
F-4
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31, 1996, 1995 and 1994 1996 1995 1994
- -------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Income from Joint Venture ......................... $7,220,549 $4,515,810 $3,444,814
Interest income ................................... 136,188 256,654 255,443
---------- ---------- ----------
7,356,737 4,772,464 3,700,257
Costs and expenses:
General and administrative ........................ 680,512 1,013,517 826,356
---------- ---------- ----------
Income before income tax .......................... 6,676,225 3,758,947 2,873,901
Unincorporated business tax ....................... 791,352 -- --
---------- ---------- ----------
Net income ........................................ $5,884,873 $3,758,947 $2,873,901
---------- ---------- ----------
Net income allocated to:
General partners .................................. $ 58,849 $ 37,589 $ 28,739
Limited partners .................................. 5,826,024 3,721,358 2,845,162
---------- ---------- ----------
$5,884,873 $3,758,947 $2,873,901
---------- ---------- ----------
Net income per $500 limited partnership unit
(based on 600,000 units outstanding) ............ $ 9.71 $ 6.20 $ 4.74
---------- ---------- ----------
Cash distribution per $500 limited partnership unit $ 6.25 $ 5.80 $ 3.70
---------- ---------- ----------
</TABLE>
See notes to financial statements.
STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
General Limited
Years ended December 31, 1996, 1995 and 1994 Partners Partners Total
- -------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Partners' equity, January 1, 1994 .......... $ -- $ 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) ............................... 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) ............................... 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
Net income, 1996 ........................... 58,849 5,826,024 5,884,873
Allocation under Treasury Regulation Section
1.704-1(b) ............................... 878,651 (878,651) --
Distributions, 1996 ........................ (937,500) (3,750,000) (4,687,500)
----------- ----------- -----------
Partners' equity, December 31, 1996 ........ $ -- $ 7,397,296 $ 7,397,296
----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31, 1996, 1995 and 1994 1996 1995 1994
- -------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 5,884,873 $ 3,758,947 $ 2,873,901
Adjustments to reconcile net income to net cash
provided by operating activities:
Charge on overhead fee payable ................................... -- -- 138,414
(Increase) decrease in accrued interest receivable ............... (7,160) 27,341 (28,200)
Net change in operating assets and liabilities:
Increase in accrued unincorporated business tax .................. 13,352 -- --
Decrease in other liabilities .................................... (106,790) -- --
(Decrease) increase in due to managing general partner ........... (43,269) 8,654 (24,810)
Drawing on overhead fee .......................................... -- -- (3,142,873)
----------- ----------- -----------
Net cash provided by (used in) operating activities .............. 5,741,006 3,794,942 (183,568)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions received from Joint Venture (less than) in excess of
equity in income ............................................... -- (1,969,279) 2,333,529
Decrease in investments in Joint Venture ......................... 157,614 -- --
(Purchases) sales of temporary investments with
maturities of three months or less, net .......................... (1,293,647) 2,668,363 528,889
----------- ----------- -----------
Net cash (used in) provided by investing activities .............. (1,136,033) 699,084 2,862,418
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners ........................................ (4,687,500) (4,350,000) (2,775,000)
----------- ----------- -----------
Net (decrease) increase in cash .................................. (82,527) 144,026 (96,150)
Cash, beginning of year .......................................... 247,033 103,007 199,157
----------- ----------- -----------
Cash, end of year ................................................ $ 164,506 $ 247,033 $ 103,007
----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
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 1996, 1995 and 1994 amounted to $878,651,
$832,411 and $526,261, respectively, which represents $1.46, $1.39 and $0.88 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 except for the City of
New York unincorporated business tax since income or loss of the Partnership is
required to be reported by the respective partners on their income tax returns
(see Note 7).
3. TEMPORARY INVESTMENTS
Temporary investments consisted of the following:
1996 1995
---------- ----------
Commercial paper ...... $4,545,092 $3,244,285
---------- ----------
All commercial paper is rated by Standard & Poor's A1 or A1+.
1996 commercial paper matured between January 2 and January 23, 1997 and had
interest rates ranging from 5% to 5.30%.
1995 commercial paper matured January 11, 1996 and had interest rates ranging
from 5.75% to 5.79%.
F-7
<PAGE>
4. INVESTMENT IN JOINT VENTURE
The Partnership entered into a Letter Agreement (the "Buyout Agreement") with
Disney dated September 11, 1995 providing for the sale to Disney of all of the
Partnership'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 the Partnership from the
exploitation of the film "Oliver & Co.").
The 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 Buena Vista Pictures Distribution, Inc.
("BV") will continue to account for and make payments to the Joint Venture as
required by the Distribution Agreement for all revenues received by BV through
August 31, 1997.
As a result of the Buyout Agreement, the Partnership is using the cost
method of accounting starting January 1, 1996. Under the cost method,
distributions received are recognized as income and investments will be reduced
in proportion to the actual cash received to ultimate revenues expected to be
received.
The investment in the Disney-Silver Screen III Joint Venture (the "Joint
Venture") was accounted for using the equity method of accounting. Under the
equity method, the investment was initially recorded at cost, and was thereafter
increased by additional investments, adjusted by the Partnerhip'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 and 1994 statements of
operations reflect the Joint Venture's results of operations for its fiscal
years ended September 30, 1995 and 1994. The investment in the Joint Venture on
January 1, 1996 totaled $2,862,545.
The investment in Joint Venture at December 31, 1995 was as follows:
1995
-----------
Balance, January 1 .............................................. $ 893,266
Income from Joint Venture for the fiscal year ended September 30 4,515,810
Distributions received, January 1 to December 31 ................ (2,546,531)
-----------
Balance, December 31 ............................................ $ 2,862,545
===========
For each Joint Venture Film, all revenues received by the Joint Venture (except
for "Roger Rabbit") were allocated and distributed first to the Partnership and
Disney in proportion to their respective investments in the budgeted cost of
each film until each recovered its investment; second, net of participations, to
Disney until it recovered 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).
F-8
<PAGE>
The condensed balance sheet for the Joint Venture at September 30, 1995 was as
follows:
1995
-----------
ASSETS
Receivable from Buena Vista Pictures Distribution, Inc. ........ $ 9,601,275
Film production costs, net of accumulated
amortization of $209,457,749 ................................. 6,057,023
-----------
$15,658,298
===========
LIABILITIES AND VENTURERS' CAPITAL
Accounts and distributions payable to:
The Walt Disney Company ........................................ $ 7,071,310
Silver Screen Partners III, L.P. ............................... 1,773,157
Deferred revenue ............................................... 756,809
Venturers' capital:
The Walt Disney Company ........................................ 3,589,389
Silver Screen Partners III, L.P. ............................... 2,467,633
-----------
$15,658,298
===========
The condensed statements of income for the Joint Venture for the years ended
September 30, 1995 and 1994 were as follows:
1995 1994
------------ ------------
Revenues ................................... $ 9,127,690 $ 12,978,791
Amortization of film production costs ...... (501,055) (2,940,665)
Participation expense ...................... (1,759,597) (5,482,403)
------------ ------------
Net income ................................. $ 6,867,038 $ 4,555,723
============ ============
The Partnership's share of the September 30, 1995 and 1994 net income was
$4,515,810 and $3,444,814, respectively.
F-9
<PAGE>
Film costs included 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 each film (except "Roger Rabbit") payable to
Disney. In December 1988, an underbudget bonus of $6,024,240 was paid to Disney
by the Partnership pursuant to the Joint Venture Agreement. Upon revision, an
additional underbudget bonus of $528,585 was paid in August 1990. Film costs
were charged to earnings on an individual film basis in the ratio that the
current year's revenues bore to Joint Venture management's estimate of the
ultimate revenues to be received from all sources. See Note 6 with respect to
the Joint Venture's distribution agreement.
Film costs were stated at the lower of cost or estimated net realizable
value on an individual film basis. Revenue forecasts for all motion pictures
were continually reviewed by Joint Venture management and revised when warranted
by changing conditions. When estimates of ultimate revenues to be received
indicated that a motion picture would result in an ultimate loss, additional
amortization was provided to reduce the film to its net realizable value.
All of the Joint Venture's motion pictures have been completed and
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 1997.
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. OVERHEAD FEES PAYABLE
The Partnership Agreement provided that overhead fees received by the
Partnership for the benefit of the MGP (see Note 4) would remain on account with
the Partnership with the understanding that the MGP could 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 to receive at that time from the Partnership an amount
equal to 10% per annum on the amounts not yet paid to the MGP. The amount
included in general and administrative expenses in 1994 was $138,414.
6. AGREEMENT WITH RELATED PARTIES
The Joint Venture entered into a distribution agreement with Buena Vista
Pictures Distribution, Inc. ("Buena Vista"), a wholly-owned subsidiary of
Disney. The agreement provided that the Joint Venture grant 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 provided that if
the revenues received by the Joint Venture for a Joint Venture film (except for
"Roger Rabbit") were 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 had retained revenues from that film, would pay
the Joint Venture an additional amount (the "Revenue Shortfall Payment")
sufficient to return the budgeted film cost actually expended. Buena Vista was
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 Revenue Shortfall Payments during the year ended December 31, 1995 of
$1.4 million. Disney had guaranteed Buena Vista's obligation to make Revenue
Shortfall Payments.
F-10
<PAGE>
7. UNINCORPORATED BUSINESS TAX
On September 30, 1996, the Partnership received an assessment from New York City
regarding unincorporated business tax covering all periods from inception
through December 31, 1995 of $878,000 (including interest). This liability was
paid on the date of assessment. The Unincorporated Business Tax Expense reflects
the excess of this payment over an amount previously established as a
contingency reserve plus a provision for 1996.
- --------------------------------------------------------------------------------
(unaudited)
Value per unit based on annual appraisal
- ----------------------------------------
The appraised value per unit based on projected cash flow as of December 31,
1996 is $173. The appraised value does not consider the time value of money.
Cash distributions
- ------------------
The Partnership made two distributions in 1996 totalling $6.25 or 1.3% per $500
unit. Cumulative distributions through December 31, 1996 totalled $713 or 143%
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, Chelsea Piers-Pier 62, Suite 300, New York, N.Y. 10011.
F-11
<PAGE>
Silver Screen Management, Inc.
Chelsea Piers-Pier 62
Suite 300 New York, NY 10011
(212) 336-6700
Bulk Rate
U. S. Postage
PAID
Permit #9
Boston, MA
F-12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED BALANCE SHEET AS OF DECEMBER 31, 1996, AND THE STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996, 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-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 165
<SECURITIES> 4,545
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,710
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,414
<CURRENT-LIABILITIES> 17
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 7,397
<TOTAL-LIABILITY-AND-EQUITY> 7,414
<SALES> 7,221
<TOTAL-REVENUES> 7,357
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,676
<INCOME-TAX> 791
<INCOME-CONTINUING> 5,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,885
<EPS-PRIMARY> 9.71
<EPS-DILUTED> 0
</TABLE>
