FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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.)
c/o Chelsea Piers
Pier 62 - Suite 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 requirements for the
past 90 days.
YES X NO
------ ------
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PART I. FINANCIAL INFORMATION
Legal Proceedings
- -----------------
On June 6, 1997, an action purporting to constitute a class action and a
partnership derivative action was filed in the Superior Court of California for
Los Angeles County against the Partnership and certain other defendants by
individuals purporting to own an interest in the Partnership. The action seeks
damages and equitable relief based upon, among other things, alleged breaches of
fiduciary duty on the part of the General Partners in connection with the
Partnership's agreement with The Walt Disney Company for the sale of the
Partnership's interest in the Joint Venture. The Partnership believes that this
action is without merit, intends to defend it vigorously and has filed a motion
to dismiss the action in its entirety."
ITEM 1. FINANCIAL STATEMENTS.
The financial information set forth below is set forth in the June 30, 1997
Second Quarter Report of Silver Screen Partners III, L.P. (the "Partnership")
filed herewith as Exhibit 20 and is incorporated herein by reference.
Balance Sheets -- June 30, 1997 and December 31, 1996.
Statements of Operations -- For the Three and Six Months ended June
30, 1997 and 1996.
Statements of Partners' Equity -- For the Six Months ended June 30,
1997 and the Year ended December 31, 1996.
Statements of Cash Flows -- For the Six Months ended June 30, 1997 and
1996.
Notes to Financial Statements.
The financial statements included herein are unaudited. In the opinion of
the management of the Partnership, all adjustments necessary for a fair
presentation of the results of operations have been included and all adjustments
are of a normal recurring nature. The results of operations for the three and
six months ended June 30, 1997 are not necessarily indicative of the results of
operations which may be expected for the entire year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
---------------------
Revenues for the six months and quarter ended June 30, 1997 were
approximately $18,087,000 and $2,037,000, respectively, as compared with
approximately $3,244,000 and $2,076,000, respectively, for the comparable
periods in 1996. Revenues for the six months and quarter of 1997 consisted of
income from the Joint Venture of approximately $17,850,000 and $1,944,000,
respectively, and interest income of approximately $237,000 and $94,000, while
those for the comparable periods in 1996 consisted of income from the Joint
Venture of approximately $3,173,000 and $2,039,000, respectively, and interest
income of approximately $71,000 and $37,000, respectively. At this time, nearly
all of the films in which the Partnership has an interest have been released in
the theatrical, home video and pay cable markets. Income from the Joint Venture
increased by approximately $14,677,000 from the first six months in 1996 to the
2
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first six months in 1997 and were principally derived from "Oliver and Company"
and to a much lesser extent from several other films in the portfolio. Interest
rates for the first six months of 1997 ranged from 4.95% to 5.57%, while those
for the comparable period in 1996 ranged from 4.8% to 5.79%. The increase in
funds available for investment resulting in a increase in interest income of
approximately $166,000.
Expenses for the six months ended June 30, 1997 were approximately $211,000
as compared with approximately $450,000 for the comparable period in 1996. The
decrease of expenses is due to the overall reduction of expenses and to the
reduction of extraordinary expenses relating to preparations for the
negotiations of the sale of the Partnership's investment in the Joint Venture.
The Partnership generated net income of approximately $17,876,000 for the
six months ended June 30, 1997, as compared with net income of approximately
$2,793,000 for the comparable period in 1996. The increase in net income is
predominantly due to the increase in film revenues and, to a lesser extent, to a
reduction of expenses.
The Partnership became 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 has been expended. Accordingly, all
Partnership Funds have been committed and the Partnership will not finance or
purchase any additional motion pictures.
The Joint Venture 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 August 5, 1988; "Cocktail," released July 29, 1988; "The Rescue,"
released June 22, 1988; "Heartbreak Hotel," released September 30, 1988; "Ernest
Saves Christmas," released November 11, 1988; "Oliver & 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 the Partnership and 75% by Silver Screen Partners II, L.P.
(a separate limited partnership with the same Managing General Partner formed to
finance previous Disney films), was released August 5, 1987.
All Partnership films have been released in the theatrical, home video and
(except "Oliver and Company") in pay cable markets and have made their way
3
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through the remaining television markets. The Partnership anticipated that
future revenues will be principally derived from the sale of its interest in the
Joint Venture (see Investment in Joint Venture below).
Investment in Joint Venture
---------------------------
Until January 1, 1996, 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 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 Partnership entered into 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 exploitation of the film
"Oliver & Company"). 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 with
respect to the Joint Venture Films 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 the investment will be
reduced in the proportion that actual cash received bears to ultimate revenues
expected.
4
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Liquidity and Capital Resources
-------------------------------
Inasmuch as the funding obligations of the Partnership with respect to the
financing of the Joint Venture Films have been fully complied with or reserved
against, the Partnership 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 the
Partnership.
The Partnership 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.
Closing under the Buyout Agreement with Disney is scheduled to occur on
September 30, 1997. The Partnership currently expects to dissolve by the end of
1997 upon disposition of its remaining assets and distributions of cash to the
partners.
5
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ITEM 3. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SILVER SCREEN PARTNERS III, L.P.
--------------------------------
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Income from Joint Venture $ 1,943,859 $17,849,626 $ 2,039,091 $ 3,172,659
Interest income ......... 93,621 237,250 37,388 70,942
------------- ------------- ------------- -------------
2,037,480 18,086,876 2,076,479 3,243,601
Costs and Expenses:
General and
administrative
expenses ............... 132,739 211,345 119,715 450,204
------------- ------------- ------------- -------------
Net income ................ $ 1,904,741 $17,875,531 $ 1,956,764 $ 2,793,397
============= ============= ============= =============
Net income per $500
limited partnership
unit (based on 600,000
Units outstanding) ...... $ 3.14 $ 29.49 $ 3.23 $ 4.61
============= ============= ============= =============
Cash distribution
per $500 limited
partnership unit ........ $ 22.00 $ 27.25 $ 0.00 $ 3.25
============= ============= ============= =============
June 30, 1997 June 30, 1996
------------- -------------
Total assets .............. $ 4,884,536 $ 6,689,244
============= =============
</TABLE>
See notes to financial statements.
6
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 20 -- 1997 Second Quarter Report
(b) The Partnership did not file any reports on Form 8-K during the
quarter ended June 30, 1997.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has 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
Date: August 14, 1997 By: /s/ Roland W. Betts
--------------------------------
Roland W. Betts, President
8
<PAGE>
Silver Screen Management, Inc.
Chelsea Piers-Pier 62
Suite 300
New York, NY 10011
(212) 336-6700
Recorded News Update:
(800) 333-SILV Silver Screen III
SILVER SCREEN III
Second Quarter Report
June 30, 1997
9
<PAGE>
Dear Limited Partner:
The 1997 second quarter cash distribution totals nearly $1.7 million,
bringing total distributions since the Partnership's inception in 1987 to
approximately $446 million.
Quarterly revenue continued to be generated principally from the U.S. home
video release of "Oliver & Company."
"Roger Rabbit" is the only remaining Partnership film that has yet to
appear on either U.S. syndicated television or USA Network. We anticipate that
it will be released on U.S. syndicated television in late 1997.
Between now and the dissolution of the Partnership, current expectations
are that, after the current distribution and expenses, Silver Screen Partners
III will distribute an additional $110 to $140 per unit to investors (this
amount includes all anticipated future quarterly distributions and the buyout
proceeds from Disney). The 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 by the end of 1997. These figures and
dates represent our best estimates as of today.
As you may be aware, a number of private investment groups have sent out
correspondence relating to a tender offer for units in Silver Screen Partners
III. 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 tender offers. If and when you receive such solicitations, unless
you are 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.
Please note that the Partnership will not accept any transfers after August
15, 1997. The sale of the Partnership's Joint Venture interest is scheduled to
take place on September 30, 1997. The income associated with the sale will be
allocated to the partners of record on that date. For a transfer to be effective
on September 30, 1997, all properly completed transfer documents must be
received by the Partnership on or before August 15, 1997. Incomplete transfer
documents, or transfer documents received after August 15, 1997, will not be
processed.
Our Third Quarter Report will be mailed in October. If you need any
assistance in the meantime, please contact our Investor Relations Department
between the hours of 10 A.M. and 2 P.M., Eastern Standard Time.
Sincerely,
/s/ Roland W. Betts /s/ Tom A. Bernstein
- ------------------- ------------------------
Roland W. Betts Tom A. Bernstein
President Executive Vice President
F-1
<PAGE>
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash ................................................. $ 27,592 $ 164,506
Temporary investments (at cost, plus accrued
interest, which approximates market) ............... 2,541,645 4,545,092
---------- ----------
Total current assets ................................. 2,569,237 4,709,598
Investment in Joint Venture .......................... 2,315,299 2,704,931
---------- ----------
4,884,536 7,414,529
========= =========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Due to managing general partner ...................... $ 49,209 $ 3,881
Accrued unincorporated business tax .................. -- 13,352
---------- ----------
Total liabilities ................................... 49,209 17,233
---------- ----------
Partners' equity:
General partners ..................................... -- --
Limited partners ..................................... 4,835,327 7,397,296
---------- ----------
Total partners' equity ............................... 4,835,327 7,397,296
---------- ----------
$4,884,536 $7,414,529
========== ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Income from Joint Venture ................. $ 1,943,859 $17,849,626 $ 2,039,091 $ 3,172,659
Interest income ........................... 93,621 237,250 37,388 70,942
----------- ----------- ----------- -----------
2,037,480 18,086,876 2,076,479 3,243,601
COSTS AND EXPENSES:
General and administrative expenses ....... 132,739 211,345 119,715 450,204
----------- ----------- ----------- -----------
Net income ................................ $ 1,904,741 $17,875,531 $ 1,956,764 $ 2,793,397
=========== =========== =========== ===========
NET INCOME ALLOCATED TO:
General partners .......................... $ 19,047 $ 178,755 $ 19,568 $ 27,934
Limited partners .......................... 1,885,694 17,696,776 1,937,196 2,765,463
----------- ----------- ----------- -----------
$ 1,904,741 $17,875,531 $ 1,956,764 $ 2,793,397
=========== =========== =========== ===========
Net income per a $500 limited partnership
unit (based on 600,000 units outstanding) $ 3.14 $ 29.49 $ 3.23 $ 4.61
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
STATEMENTS OF PARTNERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
and Six Months Ended June 30, 1997
======================================================
General Partners Limited Partners Total
---------------- ---------------- -----
<S> <C> <C> <C>
Balance, January 1, 1996 ........... $ -- $ 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)
------------ ------------ ------------
Balance, December 31, 1996 ......... -- 7,397,296 7,397,296
NET INCOME, SIX MONTHS 1997 ........ 178,755 17,696,776 17,875,531
ALLOCATION UNDER TREASURY REGULATION
SECTION 1.704 - 1(b) ............. 3,908,745 (3,908,745) --
DISTRIBUTIONS DURING SIX MONTHS 1997 (4,087,500) (16,350,000) (20,437,500)
------------ ------------ ------------
$ -- $ 4,835,327 $ 4,835,327
============ ============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 17,875,531 $ 2,793,397
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in accrued interest receivable ............. (7,432) (10,393)
Net change in operating assets and liabilities:
Increase(decrease) in due to managing general partner 45,328 (13,726)
Decrease in accrued unincorporated business tax ..... (13,352) --
Decrease in other liabilities ....................... -- (6,790)
------------ ------------
Net cash provided by operating activities ............. 17,900,075 2,762,488
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in investment in Joint Venture ............... 389,632 69,255
Sale (Purchase) of temporary investments, net ......... 2,010,879 (506,478)
------------ ------------
Net cash provided by (used in) investing activities ... 2,400,511 (437,223)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners ............................. (20,437,500) (2,437,500)
------------ ------------
Net cash used in financing activities ................. (20,437,500) (2,437,500)
------------ ------------
Net decrease in cash .................................. (136,914) (112,235)
Cash, beginning of year ............................... 164,506 247,033
------------ ------------
Cash at end of six months ............................. $ 27,592 $ 134,798
============ ============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
TEMPORARY INVESTMENTS
Temporary investments represent investments in commercial paper.
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
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 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 began using the cost method
of accounting starting January 1, 1996. Under the cost method, distributions
received are recognized as income and the investment will be reduced in
proportion that actual cash received bears to ultimate revenues expected.
The Joint Venture's fiscal year ends September 30, while the Partnership's
fiscal year ends December 31. The investment in the Joint Venture on June 30,
1997 totaled $2,315,299.
F-5
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AS OF JUNE 30, 1997, AND THE STATEMENT OF OPERATIONS FOR
THE PERIOD ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Jun-30-1997
<CASH> 28
<SECURITIES> 2,542
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,569
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,885
<CURRENT-LIABILITIES> 49
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4,835
<TOTAL-LIABILITY-AND-EQUITY> 4,885
<SALES> 17,850
<TOTAL-REVENUES> 18,087
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 211
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,876
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,876
<EPS-PRIMARY> 29.49
<EPS-DILUTED> 0
</TABLE>
