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.
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.
Item 3. Legal Proceedings
The Registrant is not a party to any material pending legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.
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.
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.
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.
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None. PART III
Item 10.
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.
Item 11. Executive Compensation
Neither the General Partner nor any of its officers or directors received any compensation from the Partnership.
Item 12.
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.
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.
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.