UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 33-11101
AMERICAN ENTERTAINMENT PARTNERS II L.P.
Exact name of registrant as specified in its charter
Delaware 13-3388759
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
Attn: Andre Anderson
3 World Financial Center, New York,
New York 29th Floor 10285-2900
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
DEPOSITARY UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of 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, 1996.
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 II (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 participations in such films. The third
category of films, "Additional Films", were films which did not meet the
criteria as a Joint Venture film but which the Joint Venture could have,
upon agreement of Fox and the Partnership, acquired.
The Joint Venture has invested all the net proceeds of the Offering in
films, therefore, no additional investments in films will be made by the
Joint Venture.
Distribution Agreement and Revenues of the Joint Venture
The Joint Venture Films are distributed pursuant to a distribution
agreement between the Joint Venture and Fox (the "Distribution Agreement"),
but Fox is responsible for and makes all decisions with respect to
distribution. A distribution committee of the Joint Venture, consisting of
one designee of Fox and two designees of the Partnership (the "Distribution
Committee"), has the right to consult periodically with Fox concerning the
distribution of Joint Venture Films. Although the Distribution Committee
supervises Fox's performance as a distributor, the Distribution Agreement
does not set forth any objective standards to measure Fox's performance as
a distributor and does not impose minimum commitment obligations with
respect to the distribution and exploitation of Joint Venture Films. The
Distribution Committee, however, is responsible for certain decisions
including, among others, the exercise by the Joint Venture of the Joint
Venture's right not to produce a film by reason of certain interests of
third party participants in the film.
The Joint Venture receives all of the net proceeds from the Joint Venture
Films in accordance with the terms of the Distribution Agreement. The
terms of the Distribution Agreement are disclosed in a Joint Venture
agreement (the "Joint Venture Agreement") which is incorporated by
reference to the Partnership's Registration Statement No. 33-11101 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. 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, 1996 there were 4,847 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, 1996, 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,
1996.
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, 1996 was approximately
$1,315,000 compared to approximately $2,085,000 at December 31, 1995. The
$770,000 decrease is primarily attributable to the payment of the 1995 cash
distribution of approximately $1,445,000 in February 1996, the payment of
the Partnership's 1995 annual management fee in 1996 and the payment of
1996 Partnership expenses and offset by the receipt of the annual
distribution of proceeds from Fox in the amount of $915,000. The
Partnership's cash balance is expected to provide sufficient liquidity to
enable the Partnership to fund cash distributions and meet its operating
expenses.
In February 1997, the Partnership paid the 1996 annual distribution
totaling $697,000 of which $690,000 or $27.60 per Unit was paid to the
Limited Partners and $7,000 was paid to the General Partner.
The Partnership's receivable from Fox totaled approximately $148,000 at
December 31, 1995 as compared to $0 at December 31, 1996. The Partnership
had unearned motion picture revenue at December 31, 1996 of approximately
$92,000 as compared to $0 at December 31, 1995. The change from receivable
in 1995 to unearned revenue in 1996 is due to 1996 cash receipts in excess
of revenues accrued through December 31, 1996.
Results of Operations
1996 compared to 1995
For the year ended December 31, 1996, the Partnership reported net income
of approximately $399,000 as compared to approximately $243,000 for 1995.
The increase in net income is primarily the result of increases 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, 1996, the Partnership recognized revenues
from motion picture exploitation and amortization of motion picture costs
with respect to its investment in the released films of approximately
$675,000 and $50,000, respectively, compared to $520,000 and $33,000 during
1995. The increases in revenues from motion picture exploitation and
amortization of motion picture costs are primarily attributable to higher
revenue from international television licenses and from the home video sell-
through market. The Partnership currently receives revenues from the
distribution of the films in ancillary markets.
Professional fees decreased from approximately $34,000 at December 31, 1995
to $19,000 at December 31, 1996 primarily due to lower legal and audit fees
incurred by the Partnership.
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.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders
for the year ended December 31, 1996. 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 & Chief Financial
Officer
Moshe Braver, 43, 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.
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, 1996.
(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 the Financial Statements of the
Partnership's Annual Report to Unitholders for the year ended December 31,
1996, which is incorporated herein by reference.
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
Balance Sheets
At December 31, 1996 and 1995 (1)
Statements of Partners' Capital
For the years ended December 31, 1996, 1995 and 1994 (1)
Statements of Operations
For the years ended December 31, 1996, 1995 and 1994 (1)
Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994 (1)
Notes to the Financial Statements (1)
Report of Independent Auditors (1)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996.
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, 1996.
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 14, 1997
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 14, 1997
BY: /s/ Moshe Braver
Moshe Braver
Director, President &
Chief Financial Officer
American Entertainment Partners II L.P.
EXHIBIT 13(a)
1996 Annual Report
American Entertainment Partners II L.P.
American Entertainment Partners II L.P. (the "Partnership") is a limited
partnership formed in 1986 for the purpose of contributing funds to a
joint venture (the "Joint Venture") with Twentieth Century Fox Film
Corporation ("Fox"). The Joint Venture acquired interests in 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
$1,104 per $1,000 Unit, representing approximately 110% 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
6 Notes to the Financial Statements
8 Report of Independent Auditors
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
Message to Investors
Presented for your review is the 1996 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, 1996.
The Partnership continued to collect revenues from its interests
in the Joint Venture films during 1996. Currently, the Joint
Venture films generate revenues predominantly in domestic and
foreign television syndication markets, which typically represent
the final markets to be exploited in a film's life cycle.
Through October 31, 1996, the Partnership had received payments
totaling $30,011,983 as compared to an original contribution
after expenses to the Joint Venture of $20,552,271. As discussed
in prior reports, due to the mature stage of the films future
revenues received by the Partnership will most likely decline.
Cash Distributions
The Partnership's annual distribution for 1996, in the amount of
$27.60 per $1,000 Unit, was paid to Limited Partners in February
1997. Cumulative cash distributions to date total $1,103.84 per
$1,000 Unit, which represents approximately 110% 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 1998.
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. 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.
Outlook
Pursuant to the terms of the Joint Venture Agreement, Fox's right
to purchase the Partnership's interest in the Joint Venture films
at an appraised fair market value determined by an independent
appraisal will commence on December 31, 1997. At this time, Fox
has given the Partnership no indication that it 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 14, 1997
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,
1996. Graph content follows:
Films in Release
Cumulative payments
received from Amount contributed
Fox through to Joint Venture
October 31, 1996
Predator $ 2,626,000 $ 1,170,000
Revenge of the Nerds II 679,000 497,000
The Pick-up Artist 464,000 806,000
Less Than Zero 2,515,000 4,105,000
Wall Street 2,002,000 889,000
Broadcast News 1,373,000 1,333,000
Off Limits 497,000 595,000
Bad Dreams 781,000 1,388,000
Big 15,487,000 6,185,000
Alien Nation 3,590,000 3,590,000
Financial Highlights (in thousands except per Unit data)
Years Ended December 31,
1996 1995 1994 1993 1992
Revenues from
motion picture
exploitation $ 675 $ 520 $ 1,027 $ 936 $ 975
Net Income 399 243 601 413 589
Net Income per
Limited Partnership
Unit 15.68 9.14 23.74 16.27 22.94
Total Assets 1,377 2,345 2,893 2,914 2,618
Total Liabilities 1,015 1,685 1,031 860 370
Total Partners'
Capital 362 660 1,862 2,054 2,248
Cash Distributions/
Unit (1) (2) (3)
First Quarter - - - - -
Second Quarter - - - - 48.24
Third Quarter - - - - -
Fourth Quarter 27.60 57.25 31.39 24.05 12.77
Totals 27.60 57.25 31.39 24.05 61.01
(1) Cash distributions were paid to investors on an annual
basis during 1993, 1994, 1995 and 1996. 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, 1990 and 1991 totaled $31.60,
$310.86, $204.41, $265.40 and $90.27, 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.
Balance Sheets At December 31, At December 31,
(000's Omitted) 1996 1995
Assets
Cash and cash equivalents $ 1,315 $ 2,085
Motion picture released, net of
accumulated amortization of $21,081
in 1996 and $21,031 in 1995 62 112
Receivable from Twentieth Century Fox _ 148
Total Assets $ 1,377 $ 2,345
Liabilities and Partners' Capital
Liabilities:
Distribution payable $ 697 $ 1,445
Accrued management fees 200 200
Accounts payable and accrued expenses 26 40
Unearned motion picture revenue 92 _
Total Liabilities 1,015 1,685
Partners' Capital:
General Partner _ _
Limited Partners (25,000 outstanding) 362 660
Total Partners' Capital 362 660
Total Liabilities and Partners' Capital $ 1,377 $ 2,345
Statements of Partners' Capital
(000's Omitted)
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partners Total
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
Net Income 7 392 399
Distributions (7) (690) (697)
Balance at December 31, 1996 $ _ $ 362 $ 362
Statements of Operations
(000's Omitted- except unit information)
For the years ended December 31, 1996 1995 1994
Net Revenues
Revenues from motion picture exploitation $ 675 $ 520 $ 1,027
Less: Amortization of motion picture costs 50 33 164
Net Revenues 625 487 863
Other Income (Expenses)
Interest Income 37 36 20
Professional fees (19) (34) (33)
General and administrative (44) (46) (49)
Management fees (200) (200) (200)
Net Other Expenses (226) (244) (262)
Net Income $ 399 $ 243 $ 601
Net Income Allocated:
To the General Partner $ 7 $ 14 $ 8
To the Limited Partners 392 229 593
$ 399 $ 243 $ 601
Per limited partnership unit
(25,000 outstanding) $ 15.68 $ 9.14 $ 23.74
Statements of Cash Flows
(000's Omitted)
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities
Net Income $ 399 $ 243 $ 601
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of motion picture costs 50 33 164
Increase (decrease) in cash arising
from changes in operating assets
and liabilities
Receivable from Twentieth Century Fox 148 1,227 (35)
Accounts payable and accrued expenses (14) 1 (14)
Unearned motion picture revenue 92 _ _
Net cash provided by operating activities 675 1,504 716
Cash Flows From Financing Activities
Cash distributions (1,445) (792) (608)
Net cash used for financing activities (1,445) (792) (608)
Net decrease (increase) in cash and
cash equivalents (770) 712 108
Cash and cash equivalents, beginning
of period 2,085 1,373 1,265
Cash and cash equivalents, end of period $ 1,315 $ 2,085 $ 1,373
Notes to the Financial Statements
December 31, 1996, 1995 and 1994
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
affiliate of Lehman Brothers. On July 31, 1993, certain of Shearson Lehman
Brothers, Inc.'s domestic retail brokerage and management businesses were sold
to Smith Barney, Harris Upham & Co., Inc. Included in the purchase was the
name "Shearson." Consequently, the General Partner's name was changed to AEP
Premiere Corporation 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 their adjusted capital
contribution, as defined in the Agreement. Thereafter, cash will be
distributed 15% to the General Partner and 85% to the Unitholders.
Allocation of Losses
Losses in any fiscal year shall be allocated 15% to the General Partner and 85%
to the Unitholders, except that if the Unitholders have an Unallocated Return,
as defined in the Agreement, then 1% shall be allocated to the General Partner
and 99% to the Unitholders. In any event, losses will not be allocated to
Unitholders if such allocation would cause or increase a deficit in the
Unitholders' capital accounts.
Allocation of Profits
Profits in any fiscal year shall be allocated 1% to the General Partner and 99%
to the Unitholders until the Unallocated Return, as defined in the Agreement,
is reduced to zero; thereafter, 15% shall be allocated to the General Partner
and 85% to the Unitholders.
Notwithstanding the foregoing provisions, the Agreement provides that to the
extent the General Partner has a negative capital account at any time, profit
shall first be allocated to the General Partner until the capital account has
been increased to zero.
In 1996, 1995 and 1994, 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 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.
At December 31, 1996, the Partnership had unearned motion picture revenue from
Fox as distributor totaling $92,000. The receivable from Fox as distributor at
December 31, 1995 represents accrued net revenues of approximately $148,000. 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 an annual management fee of $200,000
from which the General Partner pays certain expenses incurred in connection
with the management of the Partnership. The General Partner waived its right
to management fees from January 1, 1989 through December 31, 1992, which
totaled $800,000. The Partnership paid the General Partner its 1994 management
fee in 1995, and its 1995 management fee in 1996. The Partnership accrued
$200,000 in management fees payable to the General Partner as of December 31,
1996.
8. Reconciliation of Financial Statement Net Income to Tax Basis Net Income
(Loss)
The Partnership has reported for the year ended December 31, 1996 net income
for federal income tax purposes (tax basis) of approximately $550,000. 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. 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 balance sheets of American Entertainment
Partners II L.P. as of December 31, 1996 and 1995, and the related statements
of operations, partners' capital, 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 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, 1996 and 1995, and the results of 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.
ERNST & YOUNG LLP
Boston, Massachusetts
February 10, 1997
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<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 1,315,000
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<ALLOWANCES> 000
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000
000
<OTHER-SE> 362,000
<TOTAL-LIABILITY-AND-EQUITY> 1,377,000
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<TOTAL-REVENUES> 675,000
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<OTHER-EXPENSES> 226,000
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