UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] 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 transaction period from to
Commission file number: 33-11101
AMERICAN ENTERTAINMENT PARTNERS II L.P.
Exact name of registrant as specified in its charter
Delaware 13-3388759
State or other jurisdiction I.R.S Employer Identification No.
of incorporation or organization
3 World Financial Center, New York,
New York 29th Floor
Attn: Andre Anderson 10285-2900
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Depositary Units of Limited Partnership Interest
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of January 31, 1996, there were 25,000 depositary units of limited
partnership interest outstanding, of which all but 596.5 of such units were
held by non-affiliates. The aggregate market value of those interests is not
determinable because there is no active public trading in the units.
Documents Incorporated by Reference: Portions of Parts II, III and IV are
incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1995.
PART I
Item 1. Business
(a) General
American Entertainment Partners II L.P. (the "Partnership") was organized on
December 19, 1986 under the laws of the State of Delaware as a limited
partnership. Through its participation in Amercent Films (the "Joint
Venture"), a joint venture with Twentieth Century Fox Film Corporation ("Fox"),
the Partnership produced, financed, acquired interests in and continues to
exploit feature length motion picture films.
A public offering (the "Offering") of depositary units of limited partnership
interests (the "Units") was completed in June 1987 by the Partnership. A total
of 25,000 Units were sold for aggregate offering proceeds of $24,940,350
representing 24,403.5 Units at $1,000 per Unit and 596.5 Units at $900 per Unit
purchased by the parent company of the general partner (which amount represents
a price of $1,000 per Unit less selling commission of $100 per Unit which was
not payable by the Partnership on these Units).
The general partner of the Partnership is AEP Premiere Corporation II, a
Delaware corporation (the "General Partner") (See Item 10). The Partnership
has certain consultation rights and, through a committee of the Joint Venture,
may be called upon to make certain determinations with respect to such films.
Fox, however, has day-to-day control of creative and artistic matters in
connection with films in which the Joint Venture invests.
Joint Venture Films, Participation Films and Additional Films
The films which the Partnership acquired interests or participations in can be
classified into three categories. First, the Joint Venture produced "Joint
Venture Films" pursuant to the product origination agreement with Fox (the
"Product Origination Agreement"). To produce a Joint Venture Film, the Joint
Venture engaged Fox under a production services agreement (the "Production
Services Agreement") to produce such film on behalf of the Joint Venture and to
provide all production services necessary to complete and deliver the film to
the Joint Venture. The second category of films in which the Joint Venture
invested were films in which the Joint Venture acquired participations
("Participation Films"). Participation Films are films acquired by another
joint venture in which Fox has an interest. The Joint Venture does not own any
of the rights in the Participation Films but instead the Partnership made
capital contributions to the Joint Venture which were used to acquire
participation in such films. The third category of films, "Additional Films",
were films which did not meet the criteria as a Joint Venture film but which
the Joint Venture could have, upon agreement of Fox and the Partnership,
acquired.
The Joint Venture has invested all the net proceeds of the Offering in films,
therefore, no additional investments in films will be made by the Joint
Venture.
Distribution Agreement and Revenues of the Joint Venture
The Joint Venture Films are distributed pursuant to a distribution agreement
between the Joint Venture and Fox (the "Distribution Agreement"), but Fox is
responsible for and makes all decisions with respect to distribution. A
distribution committee of the Joint Venture, consisting of one designee of Fox
and two designees of the Partnership (the "Distribution Committee"), has the
right to consult periodically with Fox concerning the distribution of Joint
Venture Films. Although the Distribution Committee supervises Fox's performance
as a distributor, the Distribution Agreement does not set forth any objective
standards to measure Fox's performance as a distributor and does not impose
minimum commitment obligations with respect to the distribution and
exploitation of Joint Venture Films. The Distribution Committee, however, is
responsible for certain decisions including, among others, the exercise by the
Joint Venture of the Joint Venture's right not to produce a film by reason of
interests of third party participants in the film.
The Joint Venture receives all of the net proceeds from the Joint Venture Films
in accordance with the terms of the Distribution Agreement. The terms of the
Distribution Agreement are disclosed in a Joint Venture agreement (the "Joint
Venture Agreement") which is incorporated by reference to the Partnership's
Registration Statement No. 33-11101 on Form S-1 as filed with the Securities
and Exchange Commission on March 4, 1987.
Films in Release
The Partnership's percentage participation in the films in which the
Partnership has an interest through the Joint Venture and certain other
information, are set forth below:
Amount Partnership's
Contributed Percentage
Release to Joint Participation in
Title Date Venture Net Proceeds
Joint Venture Films:
Less Than Zero November 1987 $ 4,104,543 34.33%
Bad Dreams April 1988 1,387,969 26.43
Big June 1988 6,185,491 29.17
Alien Nation October 1988 3,587,892 19.50
15,265,895
Participation Films:
Predator June 1987 1,166,166 5.00
Revenge of the
Nerds II: Nerds
in Paradise July 1987 497,397 4.98
The Pick-Up Artist September 1987 805,507 4.84
Wall Street December 1987 889,145 5.01
Broadcast News December 1987 1,333,230 4.93
Off Limits March 1988 594,931 5.00
5,286,376
$ 20,552,271
Competition
Distribution of motion pictures is a highly competitive business. Fox competes
with several other prominent motion picture distributors, some of which have
substantially greater financial and personnel resources, in licensing motion
pictures to theaters and other markets. The Partnership's films currently are
appearing primarily in ancillary markets such as domestic and foreign
syndication, basic cable and home video. In addition to distributing the
motion pictures of the Joint Venture in these markets, Fox is distributing
other motion pictures produced by or on behalf of Fox and motion pictures as to
which Fox has acquired distribution rights. These films as well as films
released by other motion picture distributors are competing with films which
the Joint Venture produces and films in which it has participations.
Relationship with Fox
Although Fox had substantial discretion with respect to other aspects of the
films, because all the films have been produced, Fox currently has substantial
discretion only in the distribution of films in which the Joint Venture has an
interest.
The Joint Venture's (and therefore the Partnership's) receipt of net proceeds
from the exploitation of the films is dependent upon the compliance by Fox with
its obligations under agreements entered into between it and the Joint Venture.
The term net proceeds is utilized solely as a measuring device to calculate
amounts payable to the Joint Venture by Fox and no specific funds will be
segregated for payment to the Joint Venture. Fox's payment obligations are not
secured, and the Joint Venture relies on the general credit of Fox to receive
any amounts due to it.
Changes in the Motion Picture Industry
The entertainment business in general, and the motion picture business in
particular, has undergone significant changes, primarily due to technological
developments such as the advent of home video equipment. While these
developments have resulted in the availability of alternative forms of leisure
time entertainment, which may have a negative impact on the Partnership's films
while in domestic theatrical release, the developments have also resulted in
additional sources of revenue for the Partnership's films. During the last
several years, revenues from domestic pay television have increased (although
the increases have moderated recently) and revenues from video cassettes and
foreign television have increased significantly. Other technologies continue
to be developed. The level of domestic theatrical success, however, remains a
critical factor in generating revenues in these ancillary markets where the
Partnership's films are currently being distributed. Given the rapidity of
technological development and shifting consumer tastes, it is impossible to
predict what effect these technological and other changes will have on the
potential overall revenues for the Partnership's feature length motion pictures
in the future.
Employees
The Partnership has no employees.
ITEM 2. Properties
The principal offices of the Partnership and the General Partner are located at
3 World Financial Center, 29th Floor, New York, New York. The Partnership pays
no rent. All other charges for space and administrative facilities are borne
by an affiliate of the General Partner.
ITEM 3. Legal Proceedings
The Registrant is not a party to any material pending legal proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5. Market for the Partnership's Limited Partnership Interests and Related
Security Holder Matters
(a)(b) Market Information and Holders - The Partnership is a limited
partnership and there is no established public market for the Partnership's
Units. As of December 31, 1995 there were 4,850 holders of record
("Unitholders") of the Partnership's Units.
(c) Distributions - Incorporated by reference to the sections "Cash
Distributions", "Financial Highlights" and Note 3 of the Notes to the
Financial Statements of the Partnership's Annual Report to Unitholders for
the year ended December 31, 1995, which is filed as an exhibit under Item 14
and incorporated herein by reference.
ITEM 6. Selected Financial Data
Incorporated by reference to the "Financial Highlights" table of the
Partnership's Annual Report to Unitholders for the year ended December 31,
1995.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership's principal source of funds is the proceeds received from Fox
pursuant to the Distribution Agreement, as defined in the Partnership's
prospectus. According to the terms set forth in the Partnership Agreement,
effective January 1993, the Partnership receives proceeds from Fox on an annual
basis. Accordingly, all future cash distributions from the Partnership's
investment in the Joint Venture films will be paid to limited partners on an
annual basis.
The Partnership's cash balance at December 31, 1995 was approximately
$2,085,000 compared to approximately $1,373,000 at December 31, 1994. The
$712,000 increase is primarily attributable to the receipt of motion picture
revenue from Fox in December 1995 partially offset by the payment of the 1994
cash distribution of approximately $792,000 in February 1995, the payment of
the Partnership's 1994 annual management fee in 1995 and the payment of 1995
Partnership expenses. The Partnership's cash balance is expected to provide
sufficient liquidity to enable the Partnership to meet its expenses.
In February 1996, the Partnership paid the 1995 annual distribution totaling
$1,445,762 of which $1,431,304 or $57.25 per Unit was paid to the Limited
Partners and $14,458 was paid to the General Partner.
During the third quarter of 1993, the General Partner engaged an independent
audit firm to perform a distribution audit to ensure that the Partnership is
receiving its allocable share of the revenues generated by the Joint Venture
films. The audit was completed during the second quarter of 1994 and the
results indicated that, overall, Fox properly allocated revenues to the
Partnership. Nevertheless, it was determined that approximately $75,000 of
additional revenue was owed to the Partnership by Fox, of which approximately
$50,000 was received by the Partnership during 1994. In accordance with a
settlement agreement between Fox and the Partnership executed in January 1995,
the Partnership received the remaining $25,000 on February 2, 1995.
The Partnership's receivable from Fox totaled approximately $148,000 at
December 31, 1995, as compared to approximately $1,375,000 at December 31,
1994. The decrease is due to the collection in 1995 of motion picture revenue
from Fox and the collection of $25,000 from Fox on February 2, 1995 mentioned
above, partially offset by the Joint Venture's recognition of motion picture
revenue for 1995.
Results of Operations
1995 compared to 1994
For the year ended December 31, 1995, the Partnership reported net income of
approximately $243,000 as compared to approximately $601,000 for 1994. The
decrease in net income is primarily the result of decreases in revenues from
motion picture exploitation. Motion picture profits are based on current
estimates of ultimate film revenues and costs. These estimates are subject to
review periodically as more information about a film's distribution becomes
available. Such reviews can result in significant adjustments to prior
estimates.
For the year ended December 31, 1995, the Partnership recognized revenues from
motion picture exploitation and amortization of motion picture costs with
respect to its investment in the released films of approximately $520,000 and
$33,000, respectively, compared to $1,027,000 and $164,000 during 1994. The
decreases in revenues from motion picture exploitation and amortization of
motion picture costs are primarily attributable to the mature stage of the
films. The Partnership currently receives revenues from the distribution of
the films in ancillary markets.
Interest income for the year ended December 31, 1995 totaled $36,000 compared
to $20,000 during 1994. The increase is primarily due to higher interest rates
earned on the Partnership's cash balance.
1994 versus 1993
For the year ended December 31, 1994, the Partnership reported revenues from
motion picture exploitation and amortization of motion picture costs with
respect to its investment in the released films of approximately $1,027,000 and
$164,000, respectively, as compared to $936,000 and $220,000 for the year ended
December 31, 1993. The Partnership currently receives revenues from the
distribution of the films in ancillary markets. The increase in revenues from
motion picture exploitation is due primarily to the availability of certain of
the Joint Venture films in the domestic syndication and foreign free TV markets
during 1994.
For the year ended December 31, 1994, the Partnership reported net income of
approximately $601,000, as compared to net income of approximately $413,000 for
the year ended December 31, 1993. The increase in net income is primarily the
result of an increase in revenues from motion picture exploitation due to the
availability of a film in the syndicated television market and decreases in
amortization of motion picture costs and professional fees. Motion picture
profits are based on current estimates of ultimate film revenues and costs.
These estimates are subject to review periodically as more information about a
film's distribution becomes available. Such reviews can result in significant
adjustments to prior estimates.
Interest income increased from approximately $10,000 for the year ended
December 31, 1993 to approximately $20,000 for the year ended December 31, 1994
as a result of the Partnership maintaining a higher average invested cash
balance during 1994, and to an increase in interest rates.
Professional fees for the year ended December 31, 1994 were approximately
$33,000 as compared to approximately $68,000 for the corresponding period in
1993. The decrease is attributable to consulting fees incurred in 1993
associated with the evaluation of a potential buy-out by Fox of the
Partnership's interests in the Joint Venture films, a reduction in the
Partnership's 1994 annual audit fee, and a decrease during 1994 in expenses
associated with the film distribution audit.
ITEM 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1995. For a listing of financial statements and
schedules, see Item 14a.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Partnership
The General Partner of the Partnership is AEP Premiere Corporation II, a
Delaware corporation formed on November 18, 1986. It is an affiliate of Lehman
Brothers Inc. ("Lehman Brothers")
Certain officers and directors of the General Partner are now serving (or in
the past have served) as officers or directors of entities which act as general
partners of a number of real estate limited partnerships which have sought
protection under the provisions of the federal Bankruptcy Code. The
partnerships which have filed bankruptcy petitions own real estate which has
been affected adversely by the economic conditions in the markets in which that
real estate is located and, consequently, the partnerships sought protection of
the bankruptcy laws to protect the partnerships' assets from loss through
foreclosure.
Name Office
Moshe Braver Director & President
Joseph Donaldson Vice President & Chief Financial Officer
Moshe Braver, 42, is currently a Managing Director of Lehman Brothers and has
held such position since October 1985. During this time, he has held positions
with the Business Analysis Group, International and Capital Markets
Administration and currently, with the Diversified Asset Group. Mr. Braver
joined Shearson Lehman Brothers in August 1983 as Senior Vice President. Prior
to joining Shearson, Mr. Braver was employed by the accounting firm of Coopers
& Lybrand from January 1975 through August 1983 as an Audit Manager. He
received a Bachelor of Business Administration degree from Bernard Baruch
College in January 1975 and is a Certified Public Accountant.
Joseph Donaldson, 32, serves as a Vice President of Lehman Brothers in its
Diversified Asset Group and has held such position since November 1990. From
October 1988 to October 1990, Mr. Donaldson held the position of Assistant
Manager with the Internal Audit Department of Citibank's Investment Bank.
Prior to that, Mr. Donaldson was employed with Price Waterhouse and Company.
Mr. Donaldson received a B.B.A. in accounting from the University of Georgia
and is a Certified Public Accountant.
ITEM 11. Executive Compensation
Neither the General Partner nor any of its officers or directors received any
compensation from the Partnership.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners - No person is known to
beneficially own in excess of 5% of the Units of the Partnership.
(b) Security Ownership of Management - No officers or directors of the
General Partner beneficially owned any Units of the Partnership as of December
31, 1995.
(c) Changes in Control - None
ITEM 13. Certain Relationships and Related Transactions
The Partnership's operations relating to the production, acquisition of
interests and participations and exploitation of films through the Joint
Venture involves the following agreements with Fox: Joint Venture Agreement,
Product Origination Agreement, Production Services Agreement (with respect to
Joint Venture Films produced by Fox as the production services company),
Participation Agreement and Distribution Agreement. See the Joint Venture
Agreement which is incorporated by reference to the Partnership's Registration
Statement No. 33-11101 on Form S-1 as filed with the Securities and Exchange
Commission on March 4, 1987.
First Data Investor Services Group, formerly The Shareholder Services Group,
provides partnership accounting and investor relations services for the
Partnership. Prior to May 1993, those services were provided by an affiliate
of the General Partner. Transfer agent services and certain tax reporting
services are provided by Service Data Corporation. Both First Data Investor
Services Group and Service Data Corporation are unaffiliated companies.
For additional information on related transactions with affiliates, see notes
5, 6 and 7 of the Notes to Financial Statements of the Partnership's Annual
Report to Unitholders for the year ended December 31, 1995, which is
incorporated herein by reference. <PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports of Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
AMERICAN ENTERTAINMENT PARTNERS II L.P.
(a Delaware limited partnership)
INDEX TO FINANCIAL STATEMENTS
Statements of Financial Condition
As of December 31, 1995 and 1994 (1)
Statements of Partners' Capital
For the years ended December 31, 1995, 1994 and 1993 (1)
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993 (1)
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993 (1)
Notes to Financial Statements (1)
Report of Independent Auditors (1)
(1) Incorporated by reference to the Partnership's Annual Report to Unitholders
for the year ended December 31, 1995.
2. Financial Statement Schedules
No financial statement schedules have been filed as part of this report as none
are required.
3. Exhibits Exhibit No.
* Certificate of Limited Partnership 3 (a)
* Form of Amended and Restated Agreement of
Limited Partnership 3 (b)
* Form of Joint Venture Agreement 10 (b)
* Form of Distribution Rights Acquisition Agreement 10 (c)
* Form of Production Services Agreement 10 (d)
* Form of Product Origination Agreement 10 (e)
* Form of Participation Agreement 10 (f)
* Form of Guarantee 10 (g)
Annual Report to Unitholders for the year
ended December 31, 1995 13 (a)
Financial Data Schedule 27
* Incorporated by reference to the Partnership's Registration Statement
No. 33-11101 on Form S-1 as filed with the Securities and Exchange
Commission on March 4, 1987.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the year ended
December 31, 1995.
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.
Dated: March 22, 1996
AMERICAN ENTERTAINMENT PARTNERS II L.P.
BY: AEP Premiere Corporation II
General Partner
BY: /s/ Moshe Braver
Name: Moshe Braver
Title: Director and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
AEP PREMIERE CORPORATION II
General Partner
Date: March 22, 1996
BY: /s/ Moshe Braver
Moshe Braver
Director and President
Date: March 22, 1996
BY: /s/ Joseph Donaldson
Joseph Donaldson
Vice President and
Chief Financial Officer
American Entertainment Partners II L.P.
EXHIBIT 13(a)
American Entertainment Partners II L.P.
1995 Annual Report
American Entertainment Partners II L.P. (the "Partnership") is a limited
partnership formed in 1987 for the purpose of contributing funds to a joint
venture (the "Joint Venture") with Twentieth Century Fox Film Corporation
("Fox"). The Joint Venture acquired interests in ten feature-length motion
pictures. The Partnership receives a percentage of the revenue generated by
the films as they are distributed in different markets. To date, cumulative
cash distributions total approximately $1,076 per $1,000 Unit, representing
approximately 108% of an investor's original investment.
Films in Release Release Date
Predator June 1987
Revenge of the Nerds II July 1987
The Pick-Up Artist September 1987
Less Than Zero November 1987
Wall Street December 1987
Broadcast News December 1987
Off Limits March 1988
Bad Dreams April 1988
Big June 1988
Alien Nation October 1988
Contents
1 Message to Investors
2 Financial Overview
3 Financial Statements
5 Notes to the Financial Statements
8 Report of Independent Auditors
Message to Investors
Presented for your review is the 1995 Annual Report for American Entertainment
Partners II L.P. This report provides an update on the status of the
Partnership's investment in the Joint Venture films, financial highlights and
the Partnership's audited financial statements for the year ended December 31,
1995.
The Partnership continued to collect revenues from its interests in the Joint
Venture films during 1995. Currently, the Joint Venture films generate
revenues predominantly in both domestic and foreign television syndication
markets, which typically represent the final markets to be exploited in a
film's life cycle. Video sales of the Joint Venture film Big were particularly
strong during 1995, which had a positive impact on Partnership revenues.
Through October 31, 1995, the Partnership had received payments totaling
$29,097,358 as compared to an original contribution after expenses to the Joint
Venture of $20,552,271. As discussed in prior reports, the mature stage of the
films will most likely result in declines in the amount of future revenues
received by the Partnership.
Cash Distributions
The Partnership's annual distribution for 1995, in the amount of $57.25 per
$1,000 Unit, was paid to Limited Partners in February 1996. Cumulative cash
distributions to date total approximately $1,076.24 per $1,000 Unit, which
represents approximately 108% of an investor's original investment. Currently,
cash distributions are paid on an annual basis. The Partnership's next cash
distribution will be paid to investors in early 1997.
Based upon current projections of future revenue, the General Partner estimates
that investors will recover approximately 113% of their original investment in
the Partnership, including the distributions which have been paid to date.
This represents an upward revision from the estimate of 105% contained in the
1994 Annual Report. Please note that this projected return is based on
estimates which the General Partner believes to be reasonable. Such estimates,
however, are subject to change.
As we previously reported, the General Partner engaged a public accounting firm
to perform a distribution audit to ensure that the Partnership had received its
allocable share of the revenues generated by the Joint Venture films. The
audit was completed during the second quarter of 1994. The results of the
audit indicated that, overall, Fox properly allocated revenues to the
Partnership. Nevertheless, it was determined that approximately $75,000 of
additional revenue was owed to the Partnership by Fox. Approximately $50,000
of this amount was paid to the Partnership during 1994. In accordance with a
settlement agreement between Fox and the Partnership executed in January 1995,
the Partnership received the remaining $25,000 on February 2, 1995.
Summary
Pursuant to the terms of the Partnership Agreement, Fox will have the option to
purchase the Partnership's interest in the Joint Venture films at an appraised
fair market value determined by an independent appraisal anytime after December
31, 1997. Currently, we do not anticipate that a buy-out of the Partnership's
interest in the Joint Venture films will occur prior to this date. In
addition, the Partnership has received no indication that Fox intends to
exercise this option. Consequently, the Partnership will focus its efforts on
maximizing the return on your investment and continue to make cash
distributions from available cash flow on an annual basis. We will update you
on the Partnership's status in future correspondence.
Very truly yours,
AEP Premiere Corporation II
General Partner
/s/Moshe Braver
Moshe Braver
President
March 22, 1996
Financial Overview
Graph detailing amounts contributed by the Partnership to the Joint Venture and
cumulative payments received by the Partnership from Fox through October 31,
1995. Graph content follows:
Films in Release
Cumulative payments
received from
Amount contributed Fox through
to Joint Venture October 31, 1995
Predator $ 1,170,000 $ 2,540,000
Revenge of the Nerds II 497,000 670,000
The Pick-up Artist 806,000 470,000
Less Than Zero 4,100,000 2,330,000
Wall Street 889,000 1,930,000
Broadcast News 1,330,000 1,340,000
Off Limits 594,000 470,000
Bad Dreams 1,390,000 720,000
Big 6,185,000 15,080,000
Alien Nation 3,590,000 3,590,000
Financial Highlights (in thousands except per Unit data)
Years Ended December 31,
1995 1994 1993 1992 1991
Revenues from
motion picture
exploitation $ 520 $ 1,027 $ 936 $ 975 $ 2,606
Net Income 243 601 413 589 1,916
Net Income per
Limited Partnership Unit 9.14 23.74 16.27 22.94 75.74
Total Assets 2,345 2,893 2,914 2,618 3,919
Total Liabilities 1,685 1,031 860 370 720
Total Partners' Capital 660 1,862 2,054 2,248 3,199
Cash Distributions/
Unit (1) (2) (3)
First Quarter 0 0 0 0 6.04
Second Quarter 0 0 0 48.24 49.40
Third Quarter 0 0 0 0 9.56
Fourth Quarter 57.25 31.39 24.05 12.77 25.27
Totals 57.25 31.39 24.05 61.01 90.27
(1) Cash distributions were paid to investors on an annual basis during 1993,
1994 and 1995. All future distributions will be paid on an annual basis.
(2) Cash distributions were paid to investors on a semiannual basis during
1992.
(3) Distributions paid to investors on a per Unit basis in 1987, 1988, 1989 and
1990 totaled $31.60, $310.86, $204.41 and $265.40 respectively.
The financial data set forth above reflects the Partnership's pro rata share of
all assets, liabilities, revenues and expenses of the Joint Venture.
Statements of Financial Condition
December 31, 1995 and 1994
(000's Omitted)
Assets 1995 1994
Cash and cash equivalents $ 2,085 $ 1,373
Motion pictures released, net of accumulated
amortization
of $21,031 in 1995 and $20,998 in 1994 112 145
Receivable from Twentieth Century Fox 148 1,375
Total Assets $ 2,345 $ 2,893
Liabilities and Partners' Capital
Liabilities:
Distribution payable $ 1,445 $ 792
Accrued management fees 200 200
Accounts payable and accrued expenses 40 39
Total Liabilities 1,685 1,031
Partners' Capital:
General Partner
Limited Partners 660 1,862
Total Partners' Capital 660 1,862
Total Liabilities and Partners' Capital $ 2,345 $ 2,893
Statements of Partners' Capital
For the years ended December 31, 1995, 1994 and 1993
(000's Omitted)
General Limited
Partner Partners Total
Balance at December 31, 1992 $ -- $ 2,248 $ 2,248
Net income 6 407 413
Distributions (6) (601) (607)
Balance at December 31, 1993 -- 2,054 2,054
Net income 8 593 601
Distributions (8) (785) (793)
Balance at December 31, 1994 -- 1,862 1,862
Net income 14 229 243
Distributions (14) (1,431) (1,445)
Balance at December 31, 1995 $ -- $ 660 $ 660
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
(000's Omitted Except Unit Information)
Net Revenues 1995 1994 1993
Revenues from motion picture
exploitation $ 520 $ 1,027 $ 936
Less: Amortization of motion picture
costs 33 164 220
Net Revenues 487 863 716
Other Income (Expenses)
Interest income 36 20 10
Professional fees (34) (33) (68)
General and administrative (46) (49) (45)
Management fees (200) (200) (200)
Net Other Expenses (244) (262) (303)
Net Income $ 243 $ 601 $ 413
Net Income Allocated:
To the General Partner $ 14 $ 8 $ 6
To the Limited Partners 229 593 407
$ 243 $ 601 $ 413
Per limited partnership unit
(25,000 outstanding) $9.14 $ 23.74 $16.27
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
(000's Omitted)
Cash Flows from Operating Activities: 1995 1994 1993
Net income $ 243 $ 601 $ 413
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of motion picture costs 33 164 220
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Receivable from Twentieth Century Fox 1,227 (35) 124
Accrued management fees 0 0 200
Accounts payable and accrued expenses 1 (14) 5
Net cash provided by operating activities 1,504 716 962
Cash Flows from Financing Activities:
Cash distributions (792) (608) (322)
Net cash used for financing activities (792) (608) (322)
Net increase in cash and cash equivalents 712 108 640
Cash and cash equivalents at beginning
of period 1,373 1,265 625
Cash and cash equivalents at end
of period $ 2,085 $1,373 $ 1,265
Notes to the Financial Statements
December 31, 1995, 1994 and 1993
1. Organization
American Entertainment Partners II L.P. (the "Partnership") is a limited
partnership which was organized December 19, 1986 under the laws of the State
of Delaware to produce, finance, acquire interests in and exploit feature
length motion picture films through its participation in Amercent Films II (the
"Joint Venture"), a Joint Venture with Twentieth Century Fox Film Corporation
("Fox").
AEP Premiere Corporation II, formerly Shearson Lehman Premiere Corporation II,
is the general partner (the "General Partner") of the Partnership and is an
indirect wholly-owned subsidiary of Lehman Brothers. On July 31, 1993, certain
of Shearson Lehman Brothers, Inc.'s domestic retail brokerage and management
businesses were sold to Smith Barney, Harris Upham & Co., Inc. Included in the
purchase was the name "Shearson." Consequently, the General Partner's name was
changed to AEP Premiere Corporation II to delete any reference to "Shearson."
A public offering (the "Offering") of depositary units of limited partnership
interests (the "Units") was completed in June 1987 by the Partnership. A total
of 25,000 Units were sold totaling approximately $24,940,000 representing
24,403.5 Units at $1,000 per Unit and 596.5 Units at $900 per Unit purchased by
the parent company of the General Partner (which amount represents a price of
$1,000 per Unit less selling commission of $100 per Unit which was not payable
by the Partnership on these Units).
2. Significant Accounting Policies
Basis of Accounting
The accompanying financial statements have been prepared on the accrual basis
of accounting in accordance with generally accepted accounting principles.
Revenues are recognized as earned and expenses are recorded as obligations are
incurred.
Revenue Recognition
Net revenues from motion picture exploitation consist of the Partnership's pro
rata share of revenues from the licensing of film exhibition rights, less
related expenses for prints and advertising, other distribution expenses,
participations to third parties and distribution fees, unless deferred (see
Note 6).
Cash Equivalents
Cash equivalents consist of short-term highly liquid investments with
maturities of three months or less from the date of issuance. The carrying
amount approximates fair value because of the short maturity of these
instruments.
Concentration of Credit Risk
Financial instruments which potentially subject the Partnership to a
concentration of credit risk principally consist of cash in excess of the
financial institutions' insurance limits. The Partnership invests available
cash with high credit quality financial institutions.
Amortization of Motion Picture Costs
Costs, including production administration fees, which benefit future periods
are capitalized. Amortization is computed under the individual-film-forecast
method based upon net revenues recognized in proportion to the Joint Venture's
estimate of ultimate net revenues to be received. Unamortized costs are
compared with net realizable value on a film by film basis, and losses are
recognized to the extent costs exceed estimated net realizable value.
Income Taxes
No provision for income taxes has been made in the financial statements since
such taxes are the responsibility of the individual partners rather than that
of the Partnership.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Partnership Allocations
The Partnership Agreement ("Agreement") substantially provides the following:
Cash Distributions
Cash distributions will be made at the discretion of the General Partner and
allocated 1% to the General Partner and 99% to the Unitholders, until such time
as the Unitholders have received a return of capital, as defined in the
Agreement. Thereafter, cash will be distributed 15% to the General Partner and
85% to the Unitholders.
Allocation of Losses
Losses in any fiscal year shall be allocated 15% to the General Partner and 85%
to the Unitholders, except that if the Unitholders have an Unallocated Return,
as defined in the Agreement, then 1% shall be allocated to the General Partner
and 99% to the Unitholders. In any event, losses will not be allocated to
Unitholders if such allocation would cause or increase a deficit in the
Unitholders' capital accounts.
Allocation of Profits
Profits in any fiscal year shall be allocated 1% to the General Partner and 99%
to the Unitholders until the Unallocated Return, as defined in the Agreement,
is reduced to zero; thereafter, 15% shall be allocated to the General Partner
and 85% to the Unitholders.
Notwithstanding the foregoing provisions, the Agreement provides that to the
extent the General Partner has a negative capital account at any time, profit
shall first be allocated to the General Partner until the capital account has
been increased to zero.
In 1995, 1994 and 1993, pursuant to the provisions of the Partnership Agreement
described above, income was allocated to the General Partner to increase its
negative capital account to zero.
Dissolution of Partnership
If, upon dissolution of the Partnership, the General Partner has a negative
capital account, it shall contribute capital equal to the amount of the
deficit.
4. Interests and Participations in Motion Pictures
As of December 31, 1988, the Partnership had invested approximately $21,143,000
in ten films of which approximately $20,552,000 was contributed to the Joint
Venture, and approximately $591,000 of production administration fees were paid
by the Partnership to the General Partner. As this represents the total funds
available for investment in films, no further investment in films will be made
by the Partnership.
The Partnership has a participation interest in six films not produced by the
Joint Venture and an interest in four films produced by the Joint Venture. All
of the ten films invested in by the Partnership were released between June 1987
and October 1988.
5. Transactions with Fox
Fox, as distributor of Joint Venture films, has entered into licensing
agreements with other Fox affiliated companies in the United States and United
Kingdom television markets. In the United States, Fox has licensed two
participation films to Fox Television Stations, Inc., a Fox affiliate, and
seven Joint Venture and participation films to Fox Broadcasting Company, a Fox
affiliate, for the free television market. In the United Kingdom, Fox has
licensed all of the Joint Venture films to British Sky Broadcasting, a Fox
affiliate, for the pay television market.
The receivable from Fox as distributor at December 31, 1995 and 1994 represents
accrued net revenues of approximately $148,000 and $1,375,000, respectively.
No interest is charged on amounts receivable from or payable to Fox.
6. Deferred Distribution Fee
Fox, as distributor, retains a distribution fee of 17-1/2% from substantially
all gross receipts of the films. The fee is deferred for a film until the
Joint Venture receives, from the distribution of that film, an amount equal to
its investment in the film. The distribution fees for four films have been
earned since the Joint Venture has received distributions from such films
greater than its investment. A portion of the distribution fee for one of the
remaining six films released has been earned since the Joint Venture has
received distributions from the film equal to its investment. No distribution
fees are expected to be earned by Fox for the other five films.
7. Transactions with Related Parties
The General Partner is entitled to receive (i) an annual management fee of
$200,000 from which the General Partner pays certain expenses incurred in
connection with the management of the Partnership, and (ii) a production
administration fee equal to 2.875% of the Partnership's aggregate capital
contributions to the Joint Venture. The General Partner waived its right to
management fees from January 1, 1989 through December 31, 1992, which totaled
$800,000. The Partnership paid the General Partner its 1993 management fee in
1994, and its 1994 management fee in 1995. The Partnership accrued $200,000 in
management fees payable to the General Partner as of December 31, 1995.
8. Reconciliation of Financial Statement Net Income to Tax Basis Net Income
(Loss)
The Partnership has reported for the year ended December 31, 1995 net income
for federal income tax purposes (tax basis) of approximately $465,000. The
Partnership has reported for the year ended December 31, 1994 a net loss for
federal income tax purposes (tax basis) of approximately $170,000. The
Partnership has reported for the year ended December 31, 1993 net income for
federal income tax purposes (tax basis) of approximately $726,000. Differences
between financial statement net income and tax basis net income (loss) are due
to the timing of revenue recognition and related amortization of motion picture
costs.
Report of Independent Auditors
To Partners
American Entertainment Partners II L.P.
We have audited the accompanying statements of financial condition of American
Entertainment Partners II L.P. as of December 31, 1995 and 1994, and the
related statements of operations, partners' capital, 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 American Entertainment
Partners II L.P. 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.
ERNST & YOUNG LLP
Boston, Massachusetts
February 6, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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