FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from..............to..................
Commission file number 0-17713
SILVER SCREEN PARTNERS IV, L.P.
(a Delaware Limited Partnership)
(Exact name of registrant as specified in its
Certificate and Agreement of Limited Partnership)
Delaware 06-1236433
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Chelsea Piers - Pier 62, Ste. 300
New York, New York 10011
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 336-6700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part IV of this Form 10-K or any amendment to this
Form 10-K.[ ]
1
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PART I
ITEM 1. BUSINESS.
Silver Screen Partners IV, L.P. ("Silver Screen IV") was organized in
December 1987. A public offering of units of assigned limited partnership
interests was completed in October 1988, which raised $400 million. After
payment of offering costs and fees, approximately $357 million was available for
investment in films (the "Net Offering Proceeds").
Silver Screen IV entered into a Joint Venture agreement (the "Joint Venture
Agreement") with The Walt Disney Company ("Disney") for the purpose of
financing, (in whole or in part), producing and exploiting all feature length
theatrical motion pictures selected for production by Disney from the time funds
provided by Silver Screen IV began to be utilized (the "Joint Venture Films").
Silver Screen IV was obligated to use its best efforts to provide to the Joint
Venture funds in an amount equal to 150% of the gross proceeds of the offering
(all amounts being contributed toward the Joint Venture Films being hereinafter
referred to as the "Partnership Contribution"). Amounts in excess of the Net
Offering Proceeds have been derived from revenues earned on temporary
investments of Net Offering Proceeds prior to investment in Joint Venture Films,
revenues received by Silver Screen IV from the Joint Venture's investment in
Joint Venture Films and, to the extent necessary, borrowings by Silver Screen
IV. Pursuant to the terms of Silver Screen IV's Amended and Restated Agreement
of Limited Partnership (the "Partnership Agreement"), which is incorporated by
reference as Exhibit 4 hereto, Silver Screen IV had the authority to borrow
funds in an amount up to 75% of the gross proceeds of the offering.
On December 21, 1990, Silver Screen IV established a revolving credit
facility of $60,000,000 with a syndicate of commercial banks led by
Manufacturers Hanover Trust Company. On October 1, 1991 the facility was reduced
to $20,000,000, and on January 17, 1992 the facility was discontinued. This
facility was utilized by Silver Screen IV to meet its best efforts funding
obligation to provide funds to the Joint Venture equal to 150% of the gross
proceeds of the offering. Under the facility, Silver Screen IV borrowed funds at
interest rates of prime plus 1/2%.
2
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Buena Vista Pictures Distribution, Inc. (formerly Buena Vista Distribution,
Inc.) ("BV"), a wholly-owned subsidiary of Disney, has been licensed to
distribute all Joint Venture Films in all media and in all territories
throughout the world. BV has paid and will pay the expenses in connection with
the worldwide distribution of each Joint Venture Film.
The business of Silver Screen IV is managed by Silver Screen Management
Services, Inc., a Delaware corporation which is a general partner of Silver
Screen IV (the "Managing General Partner"). Silver Screen IV participates
through Disney-Silver Screen IV Joint Venture (the "Joint Venture") in the
production, ownership and exploitation of the Joint Venture Films and in the
distribution and marketing of the Joint Venture Films in all primary and
ancillary markets. The Managing General Partner is responsible for the
preparation of reports and tax information to be provided to the Limited
Partners.
Silver Screen IV had commitments to thirty-three films, all of which have
been completed and released with total budgets amounting to approximately
$599,000,000, of which substantially all was expended as of December 31, 1994.
Accordingly, the Partnership will not finance or purchase any additional motion
pictures. These films are: "The Good Mother," released November 4, 1988;
"Beaches," released December 21, 1988; "Three Fugitives," released January 27,
1989; "Disorganized Crime," released April 14, 1989; "The Dead Poets Society,"
released June 2, 1989; "Turner and Hooch," released July 28, 1989; "An Innocent
Man" released October 6, 1989; "Gross Anatomy," released October 20, 1989; "The
Little Mermaid," released November 15, 1989; "Blaze," released December 13,
1989; "Where the Heart Is," released February 23, 1990; "Pretty Woman," released
March 23, 1990; "Ernest Goes to Jail," released April 6, 1990; "Spaced
Invaders," released April 27, 1990; "Dick Tracy," released June 15, 1990;
"Betsy's Wedding," released June 22, 1990; "Taking Care of Business," released
August 17, 1990; "Mr. Destiny," released October 12, 1990; "The Rescuers Down
Under," released November 16, 1990; "White Fang," released January 18, 1991;
"Run," released February 1, 1991; "Scenes From a Mall," released February 22,
1991; "The Marrying Man," released April 5, 1991; "Oscar," released April 26,
1991; "One Good Cop," released May 3, 1991; "Wild Hearts Can't Be Broken,"
released May 24, 1991; "The Rocketeer," released June 21, 1991; "The Doctor,"
released July 24, 1991; "V.I. Warshawski," released July 26, 1991; "True
Identity," released August 23, 1991; "Deceived," released September 27, 1991;
"Beauty and the Beast," released November 15, 1991; and "Blame it on the
Bellboy," released on February 28, 1992.
3
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Buyout
- ------
Silver Screen IV has entered into a Letter Agreement (the "Buyout
Agreement") with Disney dated September 11, 1995 providing for the sale to
Disney of all of Silver Screen IV's interest in the Joint Venture. The Buyout
Agreement provides for the payment of the purchase price of $330,000,000, in
cash (subject to certain adjustments with respect to revenues received from the
exploitation of animated films.) Closing is scheduled to occur on November 30,
1998 subject to satisfaction of certain customary conditions. In addition to the
purchase price, the Buyout Agreement provides that BV will continue to account
for and make payments to the Joint Venture, as required by the Distribution
Agreement (as defined below) for all revenues received by BV through April 30,
1998. The Managing General Partner expects that distributions to Silver Screen
IV from the Joint Venture will diminish, since most of the Joint Venture films
have been exploited in most markets and all required Revenue Shortfall Payments
have been received. The Buyout Agreement has been filed as an exhibit to Silver
Screen IV's quarterly report on Form 10-Q dated September 30, 1995 and the terms
thereof are incorporated herein by reference.
Joint Venture Agreement
- -----------------------
Each Joint Venture Film was produced in accordance with the Joint Venture
Agreement. Under the Joint Venture Agreement, Silver Screen IV contributed to
the Joint Venture all amounts included in the Partnership Contribution. Disney
contributed all motion picture projects developed and selected for production
until the Partnership Contribution was fully committed. Disney also furnished
production services for all the Joint Venture Films and furnished or obtained
all financing not furnished by Silver Screen IV.
Some of the Joint Venture Films have been produced by third parties and
acquired by the Joint Venture in completed form (the "Acquired Films"). As
provided in the Joint Venture Agreement, the allocation of revenues from
Acquired Films are the same as for Joint Venture films, except in instances
where alternative arrangements have been entered into as permitted by the Joint
Venture Agreement.
Contributions by Silver Screen IV to the Joint Venture were made on a film
by film basis and were based upon budgeted production cost (the "Budgeted Film
Cost") of all Joint Venture Films produced by the Joint Venture and upon the
acquisition cost (the "Acquisition Cost") of all Acquired Films. The Partnership
Contribution was committed to the Joint Venture, film by film, in the order that
each Joint Venture Film commenced principal photography by the Joint Venture in
an amount equal to 100% of the Budgeted Film Cost (or, in the case of an
Acquired Film, the Acquisition Cost) of each such Joint Venture Film until such
time as the entire Partnership Contribution was so committed. Silver Screen IV
was not obligated to commit funds with respect to any one Joint Venture Film in
excess of $20,000,000 in the case of any Disney animated film, Touchstone film
and any film produced by Hollywood Pictures, Inc., a newly-created wholly-owned
subsidiary of Disney, or in excess of $15,000,000, in the case of any Disney
non-animated film.
4
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Disney was solely responsible for the development of motion picture
projects for financing by the Joint Venture, the production (or acquisition in
the case of an Acquired Film) by the Joint Venture of each Joint Venture Film
and the delivery by the Joint Venture of each such Joint Venture Film to BV in
full compliance with the terms and conditions of the Distribution Agreement
between the Joint Venture and BV (the "Distribution Agreement"). Disney's
production responsibilities included all services customarily performed by a
major studio. Disney was responsible for any cost overruns and acted in effect
as completion guarantor.
The Budgeted Film Cost of each Joint Venture Film consists of all costs
customarily included as direct production costs in the motion picture industry,
including overhead of 17-1/2%. The Budgeted Film Cost also includes all fixed
deferments, bonuses and participations in gross receipts payable before the
Joint Venture has recouped its investment in that Joint Venture Film, all
deferred guaranteed compensation and an additional development fee to Disney in
the amount of $500,000. The budget of each Joint Venture Film must be approved
in writing by both parties, acting reasonably, prior to the commencement of
principal photography. Disney is empowered to grant participations in the
profits of any Joint Venture Film to third parties on behalf of the Joint
Venture up to an amount no greater in the aggregate than 55% of 100% of the net
profits of any non-animated Joint Venture Film and 50% of 100% of the net
profits of any animated Joint Venture Film.
If the average production cost per film for all Joint Venture Films is less
than $16,500,000, Silver Screen IV will pay Disney an Underbudget Bonus equal to
the difference between $16,500,000 and the average production cost, up to a
maximum of $500,000 per Joint Venture Film, multiplied by the total number of
Joint Venture Films. The Underbudget Bonus, if paid, will be deemed to increase
the Budgeted Film Cost (or Acquisition Cost) of all Joint Venture Films.
Production Cost excludes certain items included in Budgeted Film Cost. Disney
may exclude from such calculations with respect to up to two Joint Venture Films
amounts expended by Disney on the Budgeted Film Costs or Acquisition Costs in
excess of the maximum contributions of Silver Screen IV provided therefore in
the Joint Venture Agreement. Based on the cost of all Joint Venture films, no
Underbudget Bonus has been paid.
5
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The revenue formula under the Joint Venture Agreement is designed to assure
that Silver Screen IV will receive Joint Venture distributions equal to not less
than 100% of the Partnership Contribution applied toward the Joint Venture Films
on a film by film basis before Disney recoups cost overruns or receives any
share of profits. All revenues of the Joint Venture are derived exclusively from
the revenues allocated to the Joint Venture pursuant to the Distribution
Agreement during the term thereof. Revenues received by the Joint Venture in
respect of Joint Venture Films have been and will be allocated between the
parties as follows:
---100% to Silver Screen IV and Disney in proportion to
their respective actual investments in the Budgeted Film Cost of
each Joint Venture Film until they have recovered the amount of
the Budgeted Film Cost actually expended or the Acquisition Cost
of such Joint Venture Film;
---thereafter, 100% to Disney until Disney has recouped any
cost overruns;
---thereafter, after payment of applicable participations,
75% to Silver Screen IV and 25% to Disney; provided that in the
event that Silver Screen IV has committed to less than the full
amount of the Budgeted Film Cost or Acquisition Cost of a Film as
permitted by the Joint Venture Agreement, the percentage of
revenues allocable to Silver Screen IV with respect to such Film
will be equal to 75% of the percentage of such Budgeted Film Cost
or Acquisition Cost committed by Silver Screen IV, with remainder
allocated to Disney; and
---thereafter, after payment of applicable participations,
62-1/2% to Silver Screen IV and 37-1/2% to Disney, provided that
in the event that Silver Screen IV has committed to less than the
full amount of the Budgeted Film Cost or Acquisition Cost of a
Film as permitted by the Joint Venture Agreement, the percentage
of revenues allocable to Silver Screen IV with respect to such
Film will be equal to 62-1/2% of the percentage of such Budgeted
Film Cost or Acquisition Cost committed by Silver Screen IV, with
the remainder allocated to Disney.
6
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In addition, certain other payments in respect of "Revenue Shortfalls" will
be payable to the Joint Venture. The Revenue Shortfall for each Joint Venture
Film is the difference, if any, between the Budgeted Film Cost actually expended
or Acquisition Cost and the sum of all revenues actually received by the Joint
Venture from BV as of a settlement date (the "Settlement Date") occurring five
years after the U.S. theatrical release of such Joint Venture Film. On the
Settlement Date of each Joint Venture Film, BV is obligated to pay to the Joint
Venture an amount equal to the Revenue Shortfall (the "Revenue Shortfall
Payment"), if any, provided, that in no event will the Revenue Shortfall Payment
be greater than the revenues retained by BV with respect to such Joint Venture
Film from all markets subject to adjustment in certain cases. During the years
ended December 31, 1996 and 1995 Silver Screen IV received Revenue Shortfall
Payments amounting to $87.0 and $26.0 million respectively.
Distribution Agreement
- ----------------------
Pursuant to the Distribution Agreement, BV will distribute the Joint
Venture Films for a term ending December 31, 1998, in all media throughout the
world.
BV (either directly or through third-party licensees or affiliated
companies) is obligated to release and distribute each of the Joint Venture
Films delivered to it in accordance with and subject to customary and reasonable
business practices in the motion picture industry in all media throughout the
world, including theatrical, non-theatrical, television, cable television, home
video, syndication, music, print publication, merchandising and new
technologies.
BV has paid and will pay all costs incurred in connection with the
promotion, marketing and distribution of each Joint Venture Film. In connection
with the U.S. theatrical release of each Joint Venture Film, BV has committed to
expend certain minimum amounts. The Distribution Agreement provides that BV is
entitled to customary distribution fees, which vary in each medium, and that the
Joint Venture is entitled to an escalating percentage of the gross proceeds
generated by theatrical distribution of each Joint Venture Film.
7
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Competition
- -----------
Silver Screen IV is in competition with other institutions which provide
financing for films, some of which have substantially greater financial and
personnel resources than the Managing General Partner and Silver Screen IV.
These institutions include the major film studios and television networks. There
is substantial competition in the industry for a limited number of producers,
directors, actors and properties which are able to attract major distribution in
all media and all markets throughout the world.
There is intense competition within the industry for exhibition time at
theaters and for the attention of the movie-going public. Competition for
distribution in other media is as intense as the competition for theatrical
distribution.
Employees
- ---------
Silver Screen IV has no employees. Silver Screen IV's business is
administered by the staff of the Managing General Partner.
ITEM 2. PROPERTIES.
Silver Screen IV neither owns nor leases any physical properties. The
Managing General Partner occupies offices in New York, New York.
ITEM 3. LEGAL PROCEEDINGS.
Silver Screen IV knows of no legal proceedings of a material nature to
which it is a party or of which any of its properties is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the quarter
ended December 31, 1997.
8
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS AND
RELATED SECURITY HOLDER MATTERS.
As of February 17, 1998, there were 50,539 Limited Partners of record
holding an aggregate of 800,000 limited partnership units of Silver Screen IV
(the "Units"). The Units are not traded securities in any market.
The Partnership Agreement of Silver Screen IV provides for quarterly
distributions to Limited Partners out of receipts from operations, net of
certain expenses and reserves. See the material set forth under "Item 11.
Executive Compensation." Two distributions were made to the Limited Partners in
1997 which agregated $12,200,000. The distributions per unit were as follows:
April 25 - $8.75 and October 24 - $6.50. Four distributions were made to the
Limited Partners in 1996 which aggregated $105,200,000. The distributions per
unit were as follows: January 26 - $15.00; April 26 - $30.00; July 26 - $52.50
and October 26 - $34.00.
During 1996 certain groups not affiliated with Silver Screen IV or the
Managing General Partner made limited tender offers to acquire Units directly
from Limited Partners. Silver Screen IV has informed Limited Partners that the
per Unit prices offered in such tender offers appears to be less than the amount
per Unit expected to be distributed to Limited Partners upon the termination of
Silver Screen IV (expected to be by the end of 1998).
9
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Income from Joint
Venture ............ $ 14,716,819 $ 77,285,458 $ 9,531,277 $ 23,023,577 $ 60,811,416
Interest income ..... 256,120 2,633,888 2,604,893 1,927,300 1,458,200
------------ ------------ ------------ ------------ ------------
14,972,939 79,919,346 12,136,170 24,950,877 62,269,616
------------ ------------ ------------ ------------ ------------
EXPENSES:
General and
administrative
expenses ........... 467,289 3,209,723 4,078,150 3,592,351 3,418,833
Interest and
borrowing costs .... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
467,289 3,209,723 4,078,150 3,592,351 3,418,833
------------ ------------ ------------ ------------ ------------
Income before
taxes . ............ 14,505,650 76,709,623 8,058,020 21,358,526 58,850,783
Unincorporated
business tax ....... -- 1,148,519 -- -- --
------------ ------------ ------------ ------------ ------------
Net income ......... $ 14,505,650 $ 75,561,104 $ 8,058,020 $ 21,358,526 $ 58,850,783
============ ============ ============ ============ ============
Net income per
$500 limited
partnership unit
(based on 800,000
Units outstanding .. $ 16.32 $ 90.82 $ 9.97 $ 26.43 $ 72.83
============ ============ ============ ============ ============
Cash distribution
per $500 limited
partnership unit .. $ 15.25 $ 131.50 $ 75.00 $ 70.00 $ 131.00
============ ============ ============ ============ ============
Total assets ....... $ 77,435,595 $100,321,447 $138,506,425 $193,395,146 $225,932,541
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements
10
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
- ---------------------
The following is an analysis of the results of operations of Silver Screen
IV for the years ended December 31, 1997, 1996 and 1995.
Silver Screen IV is a partnership and therefore generally not subject to
U.S. federal taxes. No provision has been made for federal income taxes with
respect to Silver Screen IV's income since income or loss of Silver Screen IV is
required to be reported by the respective partners on their income tax returns.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
- ---------------------------------------------------------------------
Net Income for the year ended December 31, 1997 was approximately
$14,506,000 compared to net income of approximately $75,561,000 for the year
ended December 31, 1996. Income for the year ended December 31, 1997 consisted
of income from the Joint Venture of approximately $14,717,000, compared to
$77,285,000 for the prior year. Most of the films in which the Partnership has
an interest have been released in the theatrical, home video and pay cable
markets. Income from the Joint Venture in 1997 was principally derived from the
final Revenue Shortfall payment from "Blame it on the Bellboy" and additional
revenue was received from "Little Mermaid," "The Rescuers Down Under," "Beauty
and the Beast," and "Pretty Woman."
Interest income generated by the temporary investments of cash pending
distribution to partners for the year ended December 31, 1997 was approximately
$256,000 compared to $2,634,000 for the prior annual period. The decrease of
approximately $2,378,000 from the prior annual period is due to the decrease in
funds available for investment. Interest rates ranged from 4.8% to 5.63% in 1997
while those for 1996 ranged from 4.65% to 5.8%. General and administrative
expenses for the year ended December 31, 1997 were approximately $467,000
compared to $3,210,000 for the prior annual period. The reduction is primarily
due to the payment of overhead fee to the Managing General Partner eliminating
the interest charged under unpaid overhead fee which aggregated approximately
$2,297,000 in 1996. In addition there were reductions in expenses relating to
the sale of the Partnership's interest in the Joint Venture of $185,000 and
reductions in general and administrative expenses in 1997.
11
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Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
- ---------------------------------------------------------------------
Net Income for the year ended December 31, 1996 was approximately
$75,561,000 compared to net income of approximately $8,058,000 for the year
ended December 31, 1995. Income for the year ended December 31, 1996 consisted
of income from the Joint Venture of approximately $77,285,000, compared to
$9,531,000 from the prior year. Most of the films in which the Partnership has
an interest have been released in the theatrical, home video, pay cable markets.
However, income from the Joint Venture increased by approximately $67,754,000
due to revenue Shortfall payments from "Scenes from a Mall," "V.I. Warshawski,"
"One Good Cop," "The Marrying Man," "True Identity," "Oscar," "Run," "The
Rocketeer," "Wild Hearts Can't be Broken," "Deceived," and "The Doctor."
Additional revenue amounts were generated from other films in the portfolio.
Interest income generated by temporary investments of cash which is pending
distributions to partners for the year ended December 31, 1996 was approximately
$2,634,000, a $29,000 increase from the prior year. Interest rates ranged from
4.65% to 5.8% in 1996 while those for 1995 ranged from 5% to 6.04%. General and
administrative expenses for the year ended December 31, 1996 were approximately
$3,210,000, a $868,000 decrease from the prior annual period. The compounding
effect of the overhead fee is responsible for a decrease of approximately
$350,000, while expenses associated with the preparation for the negotiations of
the sale of the Partnership's interest in the Joint Venture decreased by
$452,000. Reporting to partners and film audit and general and administrative
expenses decreased by approximately $66,000.
On September 30, 1996, Silver Screen IV received an assessment from New
York City regarding unincorporated business tax covering all periods from
inception through December 31, 1995 of $1,095,100 (including interest). This
liability was paid on the date of assessment. The Unincorporated Business Tax
Expense reflects the excess of this payment over an amount previously
established as a contingency reserve plus a provision for 1996.
Investment in Joint Venture
- ---------------------------
The investment in the Joint Venture was accounted for using the equity
method of accounting. Under the equity method, the investment was initially
recorded at cost, and was thereafter increased by additional investment,
adjusted by Silver Screen IV's share of the Joint Venture's results of
operations and reduced by distributions received from the Joint Venture. The
Joint Venture's fiscal year ends September 30, while Silver Screen IV's fiscal
year ends December 31.
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Silver Screen IV entered into the Buyout Agreement with Disney dated
September 11, 1995 providing for the sale to Disney of all of Silver Screen IV's
interest in the Joint Venture. The Buyout Agreement provides for the payment of
the purchase price of $330,000,000 in cash (subject to certain adjustment with
respect to revenue received from the exploitation of animated films). Closing is
scheduled to occur on November 30, 1998 subject to satisfaction of certain
customary conditions. In addition to the purchase price, the Buyout Agreement
provides that Buena Vista Pictures Distribution, Inc. ("BV") will continue to
account for and make payments to the Joint Venture, as required by the
Distribution Agreement for all revenues received by BV through April 30, 1998.
As a result of the Buyout Agreement Silver Screen IV is using the cost
method of accounting starting January 1, 1996. Under the cost method,
distributions received are recognized as income and investments will be reduced
in proportion that actual cash received bears to ultimate revenues expected.
Liquidity and Capital Resources
- -------------------------------
Inasmuch as the funding obligations of Silver Screen IV with respect to the
financing of the Joint Venture Films have been fully complied with, Silver
Screen IV has no material commitments for capital expenditures and does not
intend to enter into any such commitments. Receipts from temporary investments
and from the Joint Venture, less reserves established as determined by the
Managing General Partner, are the sources of liquidity for Silver Screen IV.
Silver Screen IV has no material requirements for liquidity other than its
general and administrative expenses and quarterly distributions to holders of
Units of limited partnership interests. Such sources are considered adequate for
such needs.
The Managing General Partner expects that Silver Screen IV will continue to
receive distributions from the Joint Venture (which will substantially diminish
since the Joint Venture Films have been exploited in most markets) until Silver
Screen IV sells its interests in the Joint Venture on November 30, 1998.
Although the Joint Venture Films have been released in most film markets
around the world, Silver Screen IV anticipates that it will continue to receive
revenues from certain film markets. However, revenues in a particular quarter
may not be sufficient to justify making a cash distribution and therefore,
future cash distributions may fluctuate and there may be quarters where no
distributions will be paid.
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Closing under the Buyout Agreement with Disney is scheduled to occur on
November 30, 1998. Silver Screen IV currently expects to dissolve by the end of
1998 upon disposition of its remaining assets and distribution of cash to the
partners.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the financial statements referenced in Item 14 of this annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Silver Screen IV is a Limited Partnership managed by the Managing General
Partner and has no officers or directors. The officers and directors of the
Managing General Partner are also officers and directors of Silver Screen
Management, Inc. ("SSM"), which serves as managing general partner of Silver
Screen Partners, L.P., and Silver Screen Partners III, L.P., limited
partnerships formed to finance, own and exploit feature-length motion pictures
pursuant to a license agreement with a subsidiary of Home Box Office, Inc., in
the case of Silver Screen Partners, L.P., and pursuant to joint venture
agreements with Disney, in the case of Silver Screen Partners III, L.P. Neither
the Limited Partners nor any General Partner of Silver Screen IV other than the
Managing General Partner has the power to participate in the management of, have
any control over the business of or act for, sign for or bind Silver Screen IV.
Roland W. Betts, 51, is the President, Treasurer, a Director, principal
shareholder and founder of the Managing General Partner. Mr. Betts is also the
President, Treasurer, a Director and principal shareholder of SSM. He is the
Individual General Partner of Silver Screen Partners, L.P., Silver Screen
Partners III, L.P. and Silver Screen Partners IV, L.P. Mr. Betts has been
President and a Director of International Film Investors, Inc. ("IFI"), which is
the Managing General Partner of International Film Investors, L.P., since 1982
and has been an officer since 1980. Mr. Betts is also the Individual General
Partner of that Partnership. Mr. Betts is also the lead owner of the Texas
Rangers Baseball Club; and the Chairman and largest shareholder of the Chelsea
Piers Management, Inc. which is the general partner of the Chelsea Piers, L.P.,
a limited partnership which developed and operates a major public recreation and
entertainment complex at the Chelsea Piers in New York City. Prior to joining
IFI in 1980, Mr. Betts was engaged in the practice of law as an attorney in the
Entertainment Department of the law firm of Paul, Weiss, Rifkind, Wharton &
Garrison in New York.
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In addition to Mr. Betts, the executive officers and directors of the
Managing General Partner are as follows:
Name Positions Held
---- --------------
Paul Bagley Chairman of the Board, Director
Tom A. Bernstein Executive Vice President,
Secretary, Director
John A. Tommasini Director
William Turchyn, Jr. Director
Paul Bagley, 55, is the founding partner of Stone Pine Capital LLC (1994),
and is Chairman of FCM Fiduciary Capital Managers, LLC (1989 to date), the
advisor to mezzanine and private equity funds. For more than twenty years prior
to 1988, Mr. Bagley was engaged in investment banking activities with Shearson
Lehman Hutton Inc. and its predecessor, E.F. Hutton & Company Inc. Mr. Bagley
serves as Chairman of the Board of Directors of Silver Screen Management, Inc.
and International Film Investors, Inc., which manage film portfolios with
aggregate assets of $1.0 billion. Mr.Bagley has served on the boards of a number
of public and private companies. Currently he is on the boards of Fiduciary
Capital, Hollis-Eden Pharmaceuticals, Consolidated Capital, Logan Machinery
Corp. and Pacific Consumer Funding. Mr. Bagley graduated from the University of
California at Berkeley in 1965 with a B.S. in Business and Economics and from
Harvard Business School in 1968 with an M.B.A. in Finance.
Tom A. Bernstein, 45, has been Executive Vice President of the Managing
General Partner since June 1983 and Secretary, a Director and a principal
shareholder since March 1985. He has also been Executive Vice President,
Secretary, a Director and a principal shareholder of SSM since its organization.
Mr. Bernstein is also President and Treasurer of Chelsea Piers Management, Inc.
which is the general partner of Chelsea Piers, L.P.; and a limited partner of
the Texas Rangers Baseball Club. Prior to June 1983, Mr. Bernstein was engaged
in the practice of law as an attorney in the Entertainment Department of the law
firm of Paul, Weiss, Rifkind, Wharton & Garrison in New York.
15
<PAGE>
John A. Tommasini, 53, the President of Laidlaw Global Securities, Inc.,
has been a Director of the Managing General Partner since 1985 and a Director of
SSM since its organization. He was Senior Vice President of Shearson Lehman
Hutton from January 1988 until March 30, 1990. He was associated with E.F.
Hutton & Company from 1972 until 1988 and served as First Vice President from
January 1985 to January 1988. He is also an Officer and a Director of American
National Security, Inc.
William Turchyn, Jr., 52, has been a Director of the Managing General
Partner and SSM since their respective organizations. He was Executive Vice
President of Shearson from January 1988 until April 1989. He was associated with
E.F. Hutton & Company, Inc. from 1970 until 1988, was named First Vice President
in 1982 and served as Senior Vice President from 1983 until January 1988. Mr.
Turchyn is presently Chief Operating Officer of the Private Client Group at
Furman Selz Capital Management.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the fees, income, distributions and the
amounts payable to the General Partners of Silver Screen IV and their affiliates
in connection with the management of Silver Screen IV. The executive officers
and directors of the Managing General Partner serve without direct compensation
from Silver Screen IV. Except as set forth below, the General Partners and their
affiliates will receive no remuneration of any type whatsoever from Silver
Screen IV in connection with the administration of Silver Screen IV's affairs.
16
<PAGE>
CASH COMPENSATION TABLE1
- --------------------------------------------------------------------------------
(A) (B) (C)
- --------------------------------------------------------------------------------
Name of Entity Capacities in which Cash compensation
served
Silver Screen Managing General Overhead fee calculated as four
Management Partner percent of the Budgeted Film
Services, Inc. Cost (excluding overhead) or
Acquisition Cost (excluding
overhead) actually contributed
by Silver Screen IV to each
Joint Venture Film, plus 10%
per annum. In addition, until
the holders of Units have
received cash distributions
sufficient to reduce their
Adjusted Capital Contributions
plus an amount equal to 8% of
their Adjusted Capital
Contributions per annum to
zero, the Managing General
Partner will be allocated 0.9%
of the profits, losses and
Disbursable Cash; thereafter
until the holders of Units have
received cash distributions
sufficient to reduce their
Adjusted Capital Contributions
plus an amount equal to 15% of
their Adjusted Capital
Contributions per annum to
zero, the Managing General
Partner will be allocated 9.9%
of the profits, losses and
Disbursable Cash; thereafter
the Managing General Partner
will receive 19.9% of such
items. During 1997, $1,342,000
was distributed to the Managing
General Partner from
Disbursable Cash.
1 See definitions below.
17
<PAGE>
Roland W. Betts Individual General Mr. Betts is allocated 0.1% of
Partner profits, losses and Disbursable
Cash. Mr. Betts received
$13,556 therefrom in 1997.
DEFINITIONS USED IN CASH COMPENSATION TABLE
INITIAL CAPITAL
CONTRIBUTION .......... $500 per Unit
ADJUSTED CAPITAL
CONTRIBUTION .......... With respect to each Unit, the Initial
Capital Contribution reduced by all cash
distributions thereon. The Adjusted
Capital Contribution may not, however, be
less than zero. The Adjusted Capital
Contributions differ from the Limited
Partners' capital accounts for tax and
accounting purposes.
DISBURSABLE CASH ...... Receipts from operations, or funds
released from reserves, after deducting
cash used to pay operating expenses
(including expenses reimbursable to the
Managing General Partner), debt service,
capital expenditures and amounts used for
the creation or restoration of reserves,
but without deduction for depreciation or
amortization of film investments.
Receipts from operations include all
items of income, whether ordinary or
extraordinary.
BUDGETED FILM COST ... The estimated cost of a Joint Venture
Film, including contingency reserves of
7-1/2% and overhead of 17-1/2%. The
Budgeted Film Cost also includes all
fixed deferments, bonuses and
participations in gross receipts payable
before the Joint Venture has recouped its
investment in that Joint Venture Film,
deferred guaranteed compensation and an
additional development fee to Disney in
the amount of $500,000.
18
<PAGE>
ACQUISITION COST ...... The cost to the Joint Venture to acquire
an Acquired Film plus each of the
elements included in Budgeted Film Cost;
provided that the Acquisition Cost does
not include a contingency reserve.
The Partnership Agreement provides that all Silver Screen IV expenses,
including, among other things, legal, auditing and accounting expenses, and the
expenses of preparing and distributing reports to the Limited Partners, will be
billed to and paid by Silver Screen IV. Subject to restrictions contained in the
Partnership Agreement, the Managing General Partner has been reimbursed for
certain administrative services. In addition, the Managing General Partner has
been reimbursed for expenses incurred in connection with the organization of
Silver Screen IV and the public offering of the Units.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
No officer or Director of the Managing General Partner beneficially owns
any equity securities of Silver Screen IV. To the knowledge of Silver Screen IV,
no unitholder beneficially owns more than 5% of the Units of Silver Screen IV.
Roland W. Betts and Tom A. Bernstein are controlling shareholders of the
Managing General Partner. Of the 100 issued and outstanding shares of Common
Stock of the Managing General Partner, 60 are owned by Roland W. Betts and 40
are owned by Tom A. Bernstein.
19
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See Items 10, 11 and 12 hereof.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)1. Financial Statements
--------------------------
The following financial statements of Silver Screen Partners IV, L.P. (a
Limited Partnership) are included pursuant to Item 8 hereof:
Page
----
Independent auditors' reports ................... F-1
Balance sheets as of December 31, 1997 and
1996 ................................... F-2
Statement of operations for the years ended
December 31, 1997, 1996 and 1995 ....... F-3
Statement of partners' equity for the years ended
December 31, 1997, 1996 and 1995 ....... F-4
Statement of cash flows for the years ended
December 31, 1997, 1996 and 1995 ....... F-5
Notes to Financial Statements ................... F6-12
(a)2. Financial Statement Schedules
-----------------------------------
No schedules are listed because they are not applicable or the required
information is shown in the financial statements or notes thereto.
20
<PAGE>
(a)3. Exhibits
--------------
4 Amended and Restated Agreement of Limited
Partnership.(2)
10(a) Joint Venture Agreement dated as of December 23,
1987 by and between Silver Screen IV and the Walt
Disney Company.(3)
10(b) Distribution Agreement dated as of December 23,
1987 by and between Disney -- Silver Screen IV
Joint Venture and BV Pictures Distribution Inc.(4)
10(c) Letter Agreement dated September 11, 1995 by and
between Silver Screen IV and The Walt Disney
Company.(5)
- --------
2 Incorporated by reference to Silver Screen IV's Registration Statement
on Form S-1, Registration No. 33-19249.
3 Incorporated by reference to exhibits filed with Amendment No. 1 to
Silver Screen IV's Registration Statement on Form S-1, Registration
No. 33-19249.
4 See footnote three.
5 Incorporated by reference as exhibit 10 filed with Form 10-Q,
quarterly report dated September 30, 1995.
(b) Report on Form 8-K
----------------------
No reports of Form 8-K have been filed by Silver Screen IV during the last
quarter of the period covered by this annual report.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
SILVER SCREEN PARTNERS IV, L.P.
(a Delaware Limited Partnership)
By SILVER SCREEN MANAGEMENT SERVICES, INC.
Managing General Partner
Dated: March 30, 1998 By /s/ Roland W. Betts
------------------------------
Roland W. Betts,
President/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 30, 1998 By /s/ Roland W. Betts
------------------------------
Roland W. Betts,
General Partner
SILVER SCREEN MANAGEMENT SERVICES, INC.
Managing General Partner
Dated: March 30, 1998 By /s/ Roland W. Betts
------------------------------
Roland W. Betts,
President/Treasurer
Silver Screen Management Services, Inc.
Dated: March 30, 1998 By /s/ Roland W. Betts *
-------------------------------
Paul Bagley
Director,
Silver Screen Management Services, Inc.
Dated: March 30, 1998 By /s/ Roland W. Betts *
-------------------------------
Tom A. Bernstein
Director,
Silver Screen Management Services, Inc.
22
<PAGE>
Dated: March 30, 1998 By /s/ Roland W. Betts *
-------------------------------
John A. Tommasini
Director,
Silver Screen Management Services, Inc.
Dated: March 30, 1998 By /s/ Roland W. Betts *
------------------------------
William Turchyn, Jr.
Director,
Silver Screen Management Services, Inc.
- ----------
* By Roland W. Betts, Attorney-in-Fact
23
<PAGE>
1997 Annual Report
[Silver Screen logo]
F-1
<PAGE>
(c)1998 Silver Screen Management Services, Inc.
Design: Pentagram
SILVER SCREEN MANAGEMENT
SERVICES, INC.
Officers: Directors:
- --------- ----------
Roland W. Betts Paul Bagley
President and Chief Executive Officer New York, New York
Tom A. Bernstein Tom A. Bernstein
Executive Vice President New York, New York
Barbara Stubenrauch Roland W. Betts
Senior Vice President New York, New York
Richard S. Kasof John Tommasini
First Vice President New York, New York
Dana Thayer William Turchyn, Jr.
First Vice President New York, New York
Liz A. Brevetti
Vice President
Keith Champagne
Vice President
Evelyn Halley
Vice President
Stuart A. Sheinbaum
Director of Investor Relations
Conchetta S. Mayfield
Director of Operations
Paul Rindone
Director of Operations
F-2
<PAGE>
LETTER TO INVESTORS
Dear Limited Partners:
Silver Screen Partners IV distributed over $16 million for the four
quarters of 1997, bringing total distributions since the Partnership's inception
in 1988 to $595 million. This represents total distributions of $747.19 per $500
unit. Of the $595 million, approximately 62% is return of capital and 38% is
income.
During 1997, the majority of Partnership revenue came from sales of
merchandise related to "The Little Mermaid" and "Beauty and the Beast." Our
other animated film, "The Rescuers Down Under," produced revenue from the
foreign home video market. "Pretty Woman" contributed revenue from the U.S.
syndication and foreign free television markets. "Blame It on the Bellboy"
generated additional revenue in the form of the final Revenue Shortfall Payment
to the Partnership.
Partnership revenue in the future is expected to be generated from the 1997
U.S. theatrical re-release of "The Little Mermaid", as well as from the proceeds
of the Disney buyout of the Silver Screen IV-Disney Joint Venture. As always,
distributions depend on the amount of revenue generated each quarter, and will
fluctuate accordingly. There may be quarters when no distributions will be paid.
Between now and the dissolution of the Partnership, current expectations
are that, after expenses, Silver Screen Partners IV will distribute
approximately $280 to $310 per unit to investors (this amount includes all
anticipated future quarterly distributions and the buyout proceeds from Disney).
The closing of the purchase by Disney is scheduled to occur on November 30,
1998. The final distribution and dissolution of the Partnership is expected to
take place on or before December 31, 1998. These figures and dates represent our
best estimates as of today.
Tax information for preparing your 1997 income tax returns will be mailed
to you by March 15. In the meantime, our Investor Relations Department is
available to assist you with any questions you may have.
Sincerely,
/s/ Roland W. Betts
- --------------------
Roland W. Betts
President
/s/ Tom S. Bernstein
- --------------------
Tom S. Bernstein
Executive Vice President
January 23, 1998
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Silver Screen Partners IV, L.P.
We have audited the accompanying balance sheets of Silver Screen Partners
IV, L.P. (a limited partnership) as of December 31, 1997 and 1996, and the
related statements of operations, partners' equity, and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Silver Screen Partners IV,
L.P. (a limited partnership) at December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
January 20, 1998
F-4
<PAGE>
F I N A N C I A L S T A T E M E N T S
BALANCE SHEETS
December 31, 1997 and 1996 1997 1996
- -------------------------- ------------ ------------
ASSETS
CURRENT ASSETS:
Cash ........................................... $ 132,879 $ 314,835
Temporary investments (at cost, plus accrued
interest, which approximates market) ......... 7,180,956 25,794,708
------------ ------------
Total current assets ........................... 7,313,835 26,109,543
Investment in Joint Venture .................... 70,121,760 74,211,904
------------ ------------
$ 77,435,595 $100,321,447
============ ============
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Due to managing general partner ................ $ 35,696 $ 4,960
Accrued unincorporated business tax ............ 126,157 153,419
Overhead fees payable .......................... -- 23,839,420
------------ ------------
Total current liabilities ...................... 161,853 23,997,799
Partners' Equity:
General partners ............................... -- --
Limited partners ............................... 77,273,742 76,323,648
------------ ------------
Total partners' equity ......................... 77,273,742 76,323,648
------------ ------------
$ 77,435,595 $100,321,447
============ ============
See notes to financial statements.
F-5
<PAGE>
F I N A N C I A L S T A T E M E N T S
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31, 1997, 1996, 1995 1997 1996 1995
- -------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Revenues:
Income from Joint Venture ................. $14,716,819 $77,285,458 $ 9,531,277
Interest income ........................... 256,120 2,633,888 2,604,893
----------- ----------- -----------
14,972,939 79,919,346 12,136,170
Costs and expenses:
General and administrative ................ 467,289 3,209,723 4,078,150
----------- ----------- -----------
Income before income tax .................. 14,505,650 76,709,623 8,058,020
Unincorporated business tax ............... -- 1,148,519 --
----------- ----------- -----------
Net income ................................ $14,505,650 $75,561,104 $ 8,058,020
=========== =========== ===========
Net income allocated to:
General partners .......................... $ 1,450,565 $ 2,908,830 $ 80,580
Limited partners .......................... 13,055,085 72,652,274 7,977,440
----------- ----------- -----------
$14,505,650 $75,561,104 $ 8,058,020
=========== =========== ===========
Net income per a $500 limited partnership
unit (based on 800,000 units outstanding) $ 16.32 $ 90.82 $ 9.97
=========== =========== ===========
Cash distribution per $500 limited
partnership unit ....................... $ 15.25 $ 131.50 $ 75.00
=========== =========== ===========
</TABLE>
See notes to financial statements.
STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
General Limited
Years ended December 31, 1997, 1996 and 1995 Partners Partners Total
- -------------------------------------------- ----------- ----------- ------------
<S> <C> <C> <C>
Partners' equity, January 1, 1995 ....... $ -- $ 165,350,987 $ 165,350,987
Net income, 1995 ........................ 80,580 7,977,440 8,058,020
Distributions, 1995 ..................... (606,060) (60,000,000) (60,606,060)
Allocation under Treasury Regulation
Section 1.704 - 1(b) .................. 525,480 (525,480) --
----------- ------------- -------------
Partners' equity, December 31, 1995 ..... -- 112,802,947 112,802,947
Net income, 1996 ........................ 2,908,830 72,652,274 75,561,104
Distributions, 1996 ..................... (6,840,403) (105,200,000) (112,040,403)
Allocation under Treasury Regulation
Section 1.704 - 1(b) .................. 3,931,573 (3,931,573) --
----------- ------------- -------------
Partners' equity, December 31, 1996 ..... -- 76,323,648 76,323,648
Net income, 1997 ........................ 1,450,565 13,055,085 14,505,650
Distributions, 1997 ..................... (1,355,556) (12,200,000) (13,555,556)
Allocation under Treasury Regulation
Section 1.704 - 1(b) .................. (95,009) 95,009 --
----------- ------------- -------------
Partners' equity, December 31, 1997 ..... $ -- $ 77,273,742 $ 77,273,742
=========== ============= =============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
F I N A N C I A L S T A T E M E N T S
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31, 1997, 1996 and 1995 1997 1996 1995
- -------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................ $ 14,505,650 $ 75,561,104 $ 8,058,020
Adjustments to reconcile net income to net
cash provided by operating activities:
Decrease (increase) in accrued
interest receivable .......................... 136,716 (10,131) 245,769
Charge on overhead fee payable ................. 13,244 2,296,670 2,646,998
Net change in operating assets and liabilities:
Increase (decrease) in due to
managing general partner .................... 30,736 (55,768) 53,013
(Decrease) increase in accrued
unincorporated business tax ................. (27,262) 153,419 --
Decrease in other liabilities ................. -- (100,000) --
Increase in overhead fee payable .............. -- -- 9,308
Drawing on overhead fee ....................... (23,852,664) (4,000,000) (5,050,000)
------------- ------------- -------------
Net cash (used in) provided by operating activities (9,193,580) 73,845,294 5,963,108
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions received from Joint Venture
in excess of equity in income .................... -- -- 34,920,896
Decrease (increase) in investment in Joint Venture 4,090,144 21,479,408 (78,566)
Net sales of temporary investments, with
maturities of three months or less, net ....... 18,477,036 16,638,031 16,913,875
------------- ------------- -------------
Net cash provided by investing activities ......... 22,567,180 38,117,439 51,756,205
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners ......................... (13,555,556) (112,040,403) (60,606,060)
------------- ------------- -------------
Net cash used in financing activities ............. (13,555,556) (112,040,403) (60,606,060)
------------- ------------- -------------
Net decrease in cash .............................. (181,956) (77,670) (2,886,747)
Cash, beginning of year ........................... 314,835 392,505 3,279,252
------------- ------------- -------------
Cash, end of year ................................. $ 132,879 $ 314,835 $ 392,505
============= ============= =============
</TABLE>
See notes to financial statements.
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Silver Screen Partners IV, L.P. ("the Partnership") was formed on December 16,
1987 as a Delaware limited partnership and began operations on June 16, 1988.
The Partnership formed a Joint Venture with The Walt Disney Company ("Disney")
for the purpose of financing (in whole or in part), producing, acquiring and
exploiting all feature-length theatrical motion pictures selected for production
by Disney until the Partnership's funds were fully committed. The Partnership
was obligated to use its best efforts to provide to the Joint Venture funds in
an amount equal to 150% of the gross proceeds of the offering. The Partnership
met this obligation through the use of a revolving credit facility and the
reinvestment of Partnership funds. The Partnership provided financing for the
Joint Venture's films, while Disney was responsible for the development and
production or acquisition decisions on behalf of the Joint Venture in connection
with the films.
Silver Screen Management Services, Inc., a Delaware corporation, is the
managing general partner ("MGP") of the Partnership and has exclusive
responsibility for the management of the business and the affairs of the
Partnership. Roland W. Betts, the President and principal shareholder of the
MGP, is the individual general partner of the Partnership.
The Partnership Agreement provides that all profits, losses and
distributable cash ("Proceeds"), are allocated 99% to the limited partners and
1% to the general partners until the Partnership has satisfied certain tests.
Thereafter, all Proceeds will be allocated 90% to the limited partners and 10%
to the general partners until additional tests have been satisfied. Thereafter,
Proceeds will be allocated 80% to the limited partners and 20% to the general
partners. Cash generated by net gain from sale, as defined, will be allocated
85% to the limited partners and 15% to the general partners once the general
partners have recovered an aggregate of 15% of the total cash generated by net
gain from sale. The Partnership Agreement provides for the special allocation of
income and gain, in accordance with Treasury Regulation Section 1.704-1(b), to
eliminate any capital account deficit created through cash distributions to the
general partners. This special allocation has a reverse effect in 1997 with a
reverse allocation of $95,009 and special allocation in 1996 and 1995 amounting
to $3,931,573 and $525,480 respectively, which represents $0.12, $4.91 and $0.66
per $500 limited partnership unit, respectively. Cash distributions to the
limited partners are allocated pro rata according to the capital accounts of the
respective limited partners.
F-8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income taxes: No provision has been made for income taxes except for the City of
New York unincorporated business tax since the income or loss of the Partnership
is required to be reported by the respective partners on their income tax
returns (see Note 7).
3. TEMPORARY INVESTMENTS
Temporary investments consisted of the following:
1997 1996
-------- ---------
Commercial
paper ........ $ 7,180,956 $25,794,708
=========== ===========
All commercial paper is rated by Standard & Poor's A1 or A1+.
1997 commercial paper matured between January 8 and January 23, 1998 and had
interest rates ranging from 5.55% to 5.63%.
1996 commercial paper matured between January 2 and January 23, 1997 and had
interest rates ranging from 5.25% to 5.38%.
4. INVESTMENT IN JOINT VENTURE
The Partnership entered into a Letter Agreement ("the Buyout Agreement") with
Disney dated September 11, 1995 providing for the sale to Disney of all of the
Partnership's interest in the Joint Venture. The Buyout Agreement provides for
the payment of the purchase price of $330,000,000, in cash (subject to certain
adjustments with respect to revenues received from the exploitation of animated
films). Closing is scheduled to occur on November 30, 1998 subject to
satisfaction of certain customary conditions. In addition to the purchase price,
the Buyout Agreement provides that Buena Vista Pictures Distribution, Inc.
("BV") will continue to account for and make payments to the Joint Venture, as
required by the Distribution Agreement for all revenues received by BV through
April 30, 1998.
F-9
<PAGE>
As a result of the Buyout Agreement, the Partnership began using the cost
method of accounting starting January 1, 1996. Under the cost method,
distributions received are recognized as income and investments will be reduced
in proportion to the actual cash received to ultimate revenues expected to be
received.
The investment in the Disney-Silver Screen IV Joint Venture (the "Joint
Venture") was accounted for using the equity method of accounting. Under the
equity method, the investment was initially recorded at cost, and was thereafter
increased by additional investments, adjusted by the Partnership's share of the
Joint Venture's results of operations, and reduced by distributions received
from the Joint Venture. The Joint Venture's fiscal year ends September 30, while
the Partnership's fiscal year ends December 31. The 1995 statements of
operations reflect the Joint Venture's results of operations for its fiscal year
ended September 30, 1995.
For each Joint Venture film, all revenues received by the Joint Venture are
allocated and distributed first to the Partnership and Disney in proportion to
their respective investments in the budgeted or acquisition cost of each film
until each has recovered its investment; second, net of participations, to
Disney until it recovers any amounts paid for cost overruns; and thereafter, net
of participations, 75% to the Partnership and 25% to Disney (adjusted for any
Disney investment in the film other than cost overruns) until the Partnership
has received an amount equal to 150% of its investment; and thereafter, 62 1/2%
to the Partnership and 37 1/2% to Disney (adjusted for any Disney investment in
the film other than cost overruns).
The condensed statements of income for the Joint Venture for the year ended
September 30, 1995 were as follows:
1995
------------
Revenues .................................................... $ 83,979,513
Amortization of film production costs ....................... (57,665,111)
Participation expense ....................................... (7,594,341)
Net income .................................................. $ 18,720,061
============
The Partnership's share of the September 30, 1995 net income was $9,531,277.
F-10
<PAGE>
Films costs include production costs, a 17.5% overhead charge on the
budgeted film cost (payable 13.5% to Disney and 4% to the MGP), a development
fee of $500,000 for each film payable to Disney, and interest on development
costs, as contractually defined, payable to Disney. Film production costs are
charged to earnings on an individual film basis in the ratio that the current
year's revenues bear to Joint Venture management's estimate of ultimate revenues
to be received from all sources. See Note 6 with respect to the Joint Venture's
distribution agreement.
Film costs are stated at the lower of cost or estimated net realizable
value on an individual film basis. Revenue forecasts for all motion pictures are
continually reviewed by Joint Venture management and revised when warranted by
changing conditions. When estimates of ultimate revenues to be received indicate
that a motion picture will result in an ultimate loss, additional amortization
is provided to reduce the film to its net realizable value.
All of the Joint Venture's motion pictures are completed, have been
released, and are currently in secondary markets (home video, pay television,
free television, and syndication). Based on Joint Venture management's ultimate
revenue estimates at September 30, 1996, all unamortized film production costs
will be amortized during the next year.
Participations represent a participant's share of a motion picture's
profits as contractually defined. An ultimate participation expense is
determined for each motion picture using ultimate revenues. Revenue forecasts
for all motion pictures are reviewed by Joint Venture management and ultimate
participation expense is revised when warranted. Ultimate participation expense
is charged to earnings on an individual film basis in the ratio that current
year's revenues bear to Joint Venture management's estimate of the ultimate
revenues to be received from all sources. Pursuant to the Joint Venture
agreement, Disney is entitled to a participation in the profits of all animated
films.
F-11
<PAGE>
5. OVERHEAD FEES PAYABLE
The Partnership Agreement provides that overhead fees received by the
Partnership for the benefit of the MGP (see Note 4) will remain on account with
the Partnership with the understanding that the MGP may draw from such account
from time to time, in order to cover its actual operating expenses not
reimbursed from other sources. Such amounts are included in the temporary
investments and earn interest which accrues to the Partnership. The fees
remaining on account will earn 10% per annum (compounded quarterly) for the MGP.
The amount included in general and administrative expenses for the years ended
December 31, 1996 and 1995 is $2,296,670 and $2,646,997, respectively. The
balance of $23,852,664 of such overhead fee was paid on January 2, 1997.
6. AGREEMENT WITH RELATED PARTIES
The Joint Venture entered into a distribution agreement with Buena Vista
Pictures Distribution, Inc. ("Buena Vista), a wholly-owned subsidiary of Disney.
The agreement provides that the Joint Venture grant Buena Vista a license to
distribute all the Joint Venture's films in all media throughout the world
through December 31, 1998. The distribution agreement provides that if the
revenues received by the Joint Venture for a Joint Venture film were less that
100% of the film's budgeted film cost or acquisition cost, as defined, actually
expended, then, five years after the release of that film, Buena Vista, to the
extent it retained revenues from that film, would pay the Joint Venture an
additional amount (the "Revenue Shortfall Payment") sufficient to return the
budgeted film cost or acquisition cost actually expended. If revenues retained
by Buena Vista are not sufficient to return the budgeted film cost or
acquisition cost, then the Joint Venture will receive 100% of the gross receipts
(net of certain distribution costs) until the Joint Venture has received an
amount equal to the unreimbursed portion of the revenue shortfall. Buena Vista
will be entitled to recoup any Revenue Shortfall Payments from the Joint
Venture's share of film revenue from such film after the Joint Venture has
recouped its investment. The Partnership received Revenue Shortfall Payments
during the years ended December 31, 1997 and 1996 of $6.4 million and $87.0
million, respectively. Disney guaranteed Buena Vista's obligation to make
Revenue Shortfall Payments.
F-12
<PAGE>
7. UNINCORPORATED BUSINESS TAX
On September 30, 1996, the Partnership received an assessment from New York City
regarding unincorporated business tax covering all periods from inception
through December 31, 1995 of $1,095,100 (including interest). This liability was
paid on the date of assessment.
================================================================================
Unaudited
Value per unit based on annual appraisal
- ----------------------------------------
The appraised value per unit based upon projected cash flow as of December 31,
1997 is $320. The appraised value does not consider the time value of money.
Cash distributions
- ------------------
The Partnership made two distributions in 1997 totaling $15.25 or 3% per $500
unit. Cumulative distributions through December 31, 1997 totaled $742 or 148%
per unit.
Availability of Form 10-K
- -------------------------
A copy of the Partnership's Annual report to the SEC on Form 10-K may be
obtained without charge by writing to the Partnership, c/o Silver Screen
Management Services, Inc., Chelsea Piers-Pier 62, Suite 300, New York, N.Y.,
10011
F-13
<PAGE>
Silver Screen Management Services, Inc.
Chelsea Piers-Pier 62
Suite 300 New York, NY 10011
(212) 336-6700
Bulk Rate
U. S. Postage
PAID
Permit #1665
Brooklyn, NY
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED BALANCE SHEET AS OF DECEMBER 31, 1997, AND THE STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 133
<SECURITIES> 7,181
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,314
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0
0
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