UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d)
--- of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1998
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
3 World Financial Center, 29th Floor,
New York, NY Attn: Andre Anderson 10285
Address of Principal Executive Offices Zip Code
(212) 526-3183
Registrant's Telephone Number, Including Area Code
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 ____
<PAGE>
2
<TABLE>
BALANCE SHEETS
(000's Omitted)
<CAPTION>
At September 30, At December 31,
1998 1997
------ ------
<S> <C> <C>
Assets
Cash and cash equivalents $ 342 $ 937
Motion pictures released, net of
accumulated amortization of $20,514
in 1998 and $20,504 in 1997 38 48
Receivable from Twentieth Century Fox 274 --
Accounts receivable - other 1 --
------ ------
Total Assets $ 655 $ 985
====== ======
Liabilities and Partners' Capital
Liabilities:
Distribution payable $ -- $ 303
Accrued management fees 150 200
Accounts payable and accrued expenses 48 47
Unearned motion picture revenue -- 24
------ ------
Total Liabilities 198 574
------ ------
Partners' Capital:
General Partner -- --
Limited Partners 457 411
------ ------
Total Partners' Capital 457 411
------ ------
Total Liabilities and Partners' Capital $ 655 $ 985
====== ======
</TABLE>
<TABLE>
STATEMENT OF PARTNERS' CAPITAL
(000's Omitted)
For the nine months ended September 30, 1998
<CAPTION>
General Limited
Partner Partners Total
-------- -------- --------
<S> <C> <C> <C>
Balance at December 31, 1997 $ -- $411 $411
Net income -- 46 46
---- ---- ----
Balance at September 30, 1998 $ -- $457 $457
==== ==== ====
</TABLE>
<PAGE>
3
<TABLE>
STATEMENTS OF OPERATIONS
(000's Omitted Except Unit Information)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Revenues
Revenues from motion picture
exploitation $ 47 $ 239 $ 298 $ 557
Less: Amortization of motion
picture costs 2 4 10 16
------ ------ ------ ------
Net Revenues 45 235 288 541
------ ------ ------ ------
Other Income (Expenses)
Interest income 6 6 21 27
Management fees (50) (50) (150) (150)
General and administrative (43) (21) (96) (62)
Professional fees (6) (6) (17) (17)
------ ------ ------ ------
Net Other Expenses (93) (71) (242) (202)
------ ------ ------ ------
Net Income (loss) $ (48) $ 164 $ 46 $ 339
====== ====== ====== ======
Net Income (Loss) Allocated:
To the General Partner $ -- $ 1 $ -- $ 3
To the Limited Partners (48) 163 46 336
------ ------ ------ ------
$ (48) $ 164 $ 46 $ 339
====== ====== ====== ======
Per limited partnership unit
(25,000 outstanding) $(1.92) $ 6.53 $ 1.84 $13.46
------ ------ ------ ------
</TABLE>
<TABLE>
STATEMENTS OF CASH FLOWS
(000's Omitted)
For the nine months ended September 30,
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 46 $ 339
Adjustments to reconcile net income to net cash
used for operating activities:
Amortization of motion picture costs 10 16
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Receivable from Twentieth Century Fox (274) (465)
Accounts receivable - other (1) --
Accrued management fees (50) (50)
Accounts payable and accrued expenses 1 11
Unearned motion picture revenue (24) (92)
------ ------
Net cash used for operating activities (292) (241)
------ ------
Cash Flows From Financing Activities
Cash distributions (303) (697)
------ ------
Net cash used for financing activities (303) (697)
------ ------
Net decrease in cash and cash equivalents (595) (938)
Cash and cash equivalents, beginning of period 937 1,315
------ ------
Cash and cash equivalents, end of period $ 342 $ 377
====== ======
</TABLE>
<PAGE>
4
NOTES TO THE FINANCIAL STATEMENTS
The unaudited interim financial statements should be read in conjunction with
the Partnership's annual 1997 audited financial statements within Form 10-K.
The unaudited financial statements include all normal and reoccurring
adjustments which are, in the opinion of management, necessary to present a fair
statement of financial position as of September 30, 1998 and the results of
operations for the three and nine months ended September 30, 1998 and 1997,
statements of cash flows for the nine months ended September 30, 1998 and 1997
and the statement of partners' capital for the nine months ended September 30,
1998. Results of operations for the period are not necessarily indicative of the
results to be expected for the full year.
No significant events have occurred subsequent to fiscal year 1997, and no
material contingencies exist which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
<PAGE>
5
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Partnership's principal source of revenues is the cash distributions it
receives pursuant to its participation in Amercent Films II (the "Joint
Venture"), a joint venture with Twentieth Century Fox ("Fox"). The Joint Venture
was formed to produce, finance, acquire interests in and exploit feature length
motion pictures.
The Joint Venture Agreement provides Fox with an option to acquire the
Partnership's interest in the Joint Venture at any time after December 31, 1997
at a price determined by an independent, third-party appraiser. On February 2,
1998, Fox delivered the Preliminary Option Notice required to begin the process
of determining the fair market value of the Partnership's interest in the Joint
Venture. The Partnership and Fox subsequently appointed Houlihan, Lokey, Howard
& Zukin ("Houlihan") as their independent third-party appraiser. Houlihan
delivered its final appraisal report to the Partnership and Fox on October 16,
1998 indicating a fair market value of $2.1 million. On October 28, 1998, Fox
exercised its option to purchase the Partnership's interest in the Joint
Venture. The Partnership and Fox have scheduled the closing of the sale to occur
by November 30, 1998. However, there can be no assurance that a sale will occur
or be completed within this time-frame.
The Partnership's cash balance at September 30, 1998 was approximately $342,000
compared to approximately $937,000 at December 31, 1997. The decrease is
primarily attributable to the payment of the 1997 cash distribution on February
20, 1998 totaling approximately $303,000 and the payment of Partnership expenses
during 1998. The Partnership's cash balance is expected to provide sufficient
liquidity to enable the Partnership to fund cash distributions and meet its
operating expenses.
The Partnership's receivable from Fox totaled approximately $274,000 at
September 30, 1998 compared with $0 at December 31, 1997. The September 30, 1998
balance represents 1998 motion picture revenues due from Fox. As stated above,
the Partnership receives proceeds from Fox on an annual basis.
Accrued management fees totaled approximately $150,000 at September 30, 1998
compared with approximately $200,000 at December 31, 1997. The balance at
December 31, 1997 represents the entire 1997 management fee, while the balance
at September 30, 1998 represents three-quarters of the 1998 management fee.
Results of Operations
For the three and nine months ended September 30, 1998, the Partnership reported
net income (loss) of approximately $(48,000) and $46,000, respectively, compared
with approximately $164,000 and $339,000 for the corresponding periods in 1997.
The decreases in net income are primarily due to decreases in revenue generated
from motion picture exploitation and increases in general and administrative
expenses.
For the three and nine months ended September 30, 1998, the Partnership
recognized revenues from motion picture exploitation, net of amortization of
motion picture costs, of approximately $45,000 and $288,000, respectively,
compared to $235,000 and $541,000 in the corresponding periods in 1997. The
decreases are primarily due to lower revenue from the foreign pay and U.S. free
television markets. The Partnership currently receives nearly all of its
revenues from the distribution of the films in ancillary markets. 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.
<PAGE>
6
General and administrative expenses for the three and nine months ended
September 30, 1998 were approximately $43,000 and $96,000, respectively,
compared to approximately $21,000 and $62,000 in the corresponding periods in
1997. The increases primarily reflect an increase in Partnership administrative
expenses and appraisal fees.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
<PAGE>
7
SIGNATURES
Pursuant to the requirements 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.
AMERICAN ENTERTAINMENT PARTNERS II L.P.
BY: AEP PREMIERE CORPORATION II
General Partner
Date: November 13, 1998 BY: /s/Michael T. Marron
Michael T. Marron
President & Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 342,000
<SECURITIES> 000
<RECEIVABLES> 275,000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 617,000
<PP&E> 000
<DEPRECIATION> 000
<TOTAL-ASSETS> 655,000
<CURRENT-LIABILITIES> 198,000
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 457,000
<TOTAL-LIABILITY-AND-EQUITY> 655,000
<SALES> 000
<TOTAL-REVENUES> 298,000
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 242,000
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 46,000
<INCOME-TAX> 000
<INCOME-CONTINUING> 46,000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 46,000
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.84
</TABLE>
