-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lars8wxuTVDKM5iPTZeIgTX7AijEJpvgcQsn3CGxt582LsXCBx5tys7/5UQkDCZZ OmvKNEN9Nw+/9el787/FnA== 0000912057-96-017813.txt : 19960906 0000912057-96-017813.hdr.sgml : 19960906 ACCESSION NUMBER: 0000912057-96-017813 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LORIMAR FILM PARTNERS L P CENTRAL INDEX KEY: 0000778923 STANDARD INDUSTRIAL CLASSIFICATION: 7812 IRS NUMBER: 953994360 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14844 FILM NUMBER: 96613459 BUSINESS ADDRESS: STREET 1: 4000 WARNER BLVD STREET 2: BLDG 3 CITY: BURBANK STATE: CA ZIP: 91522 BUSINESS PHONE: 818-954-6000 MAIL ADDRESS: STREET 1: 4000 WARNER BOULEVARD CITY: BURBANK STATE: CA ZIP: 91522 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 1996, or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ____________ to _____________ Commission file number 0-14844 ---------- LORIMAR FILM PARTNERS L.P. --------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 95-3994360 - - ------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4000 WARNER BLVD., BURBANK, CALIFORNIA 91522 - - -------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (818) 954-6000 --------------- N/A - - ------------------------------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ---- Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practicable date. DEPOSITARY UNITS OF LIMITED PARTNERSHIP INTEREST 33,854 - - ------------------------------------------------ --------------------- Description of Class Units Outstanding as of July 31, 1996 LORIMAR FILM PARTNERS L.P. INDEX PART I. FINANCIAL INFORMATION PAGE NO. -------- ITEM 1. FINANCIAL STATEMENTS (Unaudited) BALANCE SHEETS -- June 30, 1996 and December 31, 1995 3 STATEMENTS OF OPERATIONS -- Three and six months ended June 30, 1996 and 1995 4 STATEMENT OF PARTNERS' CAPITAL -- December 31, 1995 through June 30, 1996 4 STATEMENTS OF CASH FLOWS -- Six months ended June 30, 1996 and 1995 5 NOTES TO FINANCIAL STATEMENTS 6-16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17-19 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 20-23 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24 2 PART I. FINANCIAL INFORMATION LORIMAR FILM PARTNERS L.P. BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31, 1996 1995 ------------ ------------ ASSETS: Cash and cash equivalents $ 1,033,496 1,188,809 ------------ ------------ Total current assets 1,033,496 1,188,809 Film costs, net 749,452 10,496,816 ------------ ------------ Total Assets $ 1,782,948 $11,685,625 ============ ============ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT): Current Liabilities: Amounts due Managing General Partner and affiliates $ 7,867,488 $17,374,018 Amounts due Special Limited Partner 247,324 249,315 Accrued expenses 39,935 69,600 ------------ ------------ Total Current Liabilities 8,154,747 17,692,933 ------------ ------------ Commitments & Contingencies Partners' Capital (Deficit): Limited Partners (5,922,021) (5,739,702) Managing General Partner (174,789) 7,383 Special Limited Partner (274,989) (274,989) ------------ ------------ Total Partners' Capital (Deficit) (6,371,799) (6,007,308) ------------ ------------ Total Liabilities and Partners' Capital (Deficit) $ 1,782,948 $11,685,625 ============ ============
See accompanying notes to financial statements. 3 LORIMAR FILM PARTNERS L.P. STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------- -------------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1996 1995 1996 1995 -------- --------- ----------- ---------- Revenues: Film revenues $ 15,095 $ 21,377 $ 9,856,835 $ 45,335 Interest income 11,252 18,295 25,913 36,166 --------- --------- ----------- --------- Total revenues 26,347 39,672 9,882,748 81,501 --------- --------- ----------- --------- Expenses: Amortization of film costs and other direct costs 9,427 19,816 9,755,411 41,643 Interest expense 152,010 362,506 371,932 706,951 General and administrative 40,000 57,000 119,559 144,000 Management fees 302 642 337 1,361 --------- --------- ----------- --------- Total expenses 201,739 439,964 10,247,239 893,955 --------- --------- ----------- --------- Net loss $(175,392) $(400,292) $ (364,491) $(812,454) ========= ========= =========== ========= Allocation of Net Loss: Limited Partners $ (87,768) $(200,135) $ (182,319) $(406,199) ========= ========= =========== ========= Managing General Partner $ (87,624) $(200,157) $ (182,172) $(406,255) ========= ========= =========== ========= Net loss per unit of limited partnership interest $ (2.59) $ (5.91) $ (5.39) $ (12.00) ========= ========= =========== =========
STATEMENT OF PARTNERS' CAPITAL (DEFICIT) (UNAUDITED)
LIMITED MANAGING SPECIAL PARTNERS' LIMITED GENERAL LIMITED UNITS PARTNERS PARTNER PARTNER TOTAL --------- ---------- --------- ---------- ---------- Partners' capital (deficit) December 31, 1995 33,854 $(5,739,702) $ 7,383 $(274,989) $(6,007,308) Net loss 0 (182,319) (182,172) 0 (364,491) ------ ----------- --------- --------- ----------- Partners' capital (deficit) June 30, 1996 33,854 $(5,922,021) $(174,789) $(274,989) $(6,371,799) ====== =========== ========= ========= ===========
See accompanying notes to financial statements. 4 LORIMAR FILM PARTNERS L.P. STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED ------------------------------ JUNE 30, 1996 1995 ------------ ------------ Cash flows from operating activities: Net loss $ (364,491) $ (812,454) Adjustments to reconcile net loss to cash (used in) provided by operations: Amortization of film costs 9,747,364 40,880 Changes in balance sheet accounts: Amounts due Managing General Partner and Affiliates 347,214 678,622 Accrued expenses (29,665) 26,794 Amounts due to Special Limited Partner (1,991) (7,401) ------------ ------------ Net cash (used in) provided by operations 9,698,431 (73,559) Cash flows from financing activities: Repayments of borrowings from Managing General Partner and affiliates (9,853,744) (45,335) ------------ ------------ Change in cash (155,313) (118,894) Cash and cash equivalents at beginning of period 1,188,809 1,366,210 ------------ ------------ Cash and cash equivalents at end of period $ 1,033,496 $ 1,247,316 ============ ============
See accompanying notes to financial statements. 5 LORIMAR FILM PARTNERS L.P. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. ORGANIZATION: Lorimar Film Partners L.P., a Delaware limited partnership ("the Partnership"), was organized in October 1985. The Partnership is engaged in the exploitation of four full-length theatrical motion pictures. Since June 16, 1992, Lorimar Motion Picture Management, Inc., the Managing General Partner, has been a wholly-owned subsidiary of Warner Communications Inc. ("WCI") as a result of the merger of Lorimar Telepictures Corporation ("Lorimar") into WCI. On June 30, 1992 WCI contributed certain of Lorimar's former assets (excluding the stock of the Managing General Partner) to Time Warner Entertainment Company, L.P., a limited partnership ("TWE"), of which WCI is a general partner. All references in this quarterly report to Lorimar for all periods prior to June 26, 1992 are intended to refer to Lorimar, for the period from June 26, 1992 through June 30, 1992 are intended to refer to WCI, and for all periods after June 30, 1992 are intended to refer to TWE. WCI is a wholly-owned subsidiary of Time Warner Inc. Prudential-Bache Properties, Inc., a wholly-owned subsidiary of Prudential Securities Group Inc. had been the Co-General Partner until it withdrew as Co-General Partner as of March 22, 1996, and became a Special Limited Partner. All references to Prudential-Bache Properties, Inc. in these notes prior to March 22, 1996, are intended to refer to Prudential in its capacity as Co-General Partner, after March 22, 1996, all references are intended to refer to Prudential as the Special Limited Partner. On June 26, 1996, the Managing General Partner exercised the Managing General Partner Option ("MGP Option" - see Note 3). Any references made to Limited Partners within the financial statements means the same as Unitholders. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION: In the opinion of the Partnership's management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Partnership's financial position as of June 30, 1996, the results of its operations for the three and six month periods ended June 30, 1996 and 1995, and its cash flows for the six month periods ended June 30, 1996 and 1995. The adjustments included in the accompanying unaudited financial statements are of a normal recurring nature. In recognition that the Partnership's assets were insufficient to satisfy payment of its liabilities, the report of the independent auditors issued in connection with the Partnership's financial statements for the year ended December 31, 1995 contained a qualifying paragraph regarding the substantial doubt of the ability of the Partnership to continue as a going concern. The 1996 and 1995 financial 6 statements do not include any adjustments that might result from the outcome of this uncertainty. The results of operations for the period ended June 30, 1996 are not necessarily indicative of the results that may be expected for the full year. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. For further information, refer to the more detailed financial statements and related footnotes thereto filed with the Partnership's Form 10-K report for the year ended December 31, 1995. REVENUES AND FILM COSTS: The Partnership acquired four full-length, theatrical motion pictures in 1986 for initial exhibition in domestic theaters followed by distribution in the domestic home video, pay cable, basic cable, broadcast network and syndicated television markets, as well as applicable foreign markets. Generally, distribution to the theatrical, home video and pay cable markets was completed within eighteen months of initial release. Substantially all of the revenues recorded during the six month period ended June 30, 1996 resulted from the Power Guarantee (See Note 3). Film costs, which included costs to acquire the films and deferred print and advertising costs, are stated at estimated net realizable value determined on an individual film forecast basis. The cost of each individual film is amortized based on the proportion that current revenues from the film bear to an estimate of total revenues anticipated from all markets. These estimates are revised periodically and losses, if any, are provided in full. Costs of the released feature films were allocated between current and non-current assets based on the estimated future revenue from their primary and secondary markets. The primary market for feature films is the theatrical market; the secondary markets are the video and pay cable television, network television, basic cable and domestic and foreign syndication markets. CASH EQUIVALENTS: The Partnership considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. INCOME TAXES: No provision has been made for federal income taxes in the accompanying financial statements since all income and losses will 7 be allocated to the partners for inclusion in their respective tax returns. UNITHOLDERS' CAPITAL: At June 30, 1996, the Unitholders had a deficit capital account balance of $5,922,021. Under the Partnership Agreement and the Delaware Revised Uniform Limited Partnership Act, the fact that the Limited Partners have a deficit capital account balance does not impose any liability upon the Unitholders. NET LOSS PER DEPOSITARY UNIT OF LIMITED PARTNERSHIP INTEREST ("UNIT"): Net loss per Unit was computed by dividing the Limited Partners' share of net loss by the number of Units outstanding during the period. The number of Units was 33,854 for the periods ended June 30, 1996 and 1995. NOTE 3. TRANSACTIONS WITH GENERAL PARTNERS, SPECIAL LIMITED PARTNER, AND AFFILIATES: The Partnership purchased the rights to four motion picture films by paying the budgeted production costs of each film. All Partnership films have been completed. The Partnership has reimbursed the Managing General Partner and its affiliates for the budgeted production costs of these films. Partnership funds were insufficient to pay the full budgeted cost of acquiring THE MORNING AFTER; therefore, the Limited Partners' interest in that film was reduced in proportion to their contribution with the balance provided by an additional capital contribution by the Managing General Partner to the Partnership of approximately $2,675,000. The Limited and Managing General Partners' investment shares in THE MORNING AFTER are 42.66% and 57.34%, respectively. The Partnership's capital contributions have been fully invested. Operating cash flows over the life of the Partnership's four films have been insufficient to repay liabilities. There is no intention to invest in additional films. The Partnership Agreement provides for allocations of net income and distributions of 49.5% to the Limited Partners, 1% to the Special Limited Partner and 49.5% to the Managing General Partner, except with respect to THE MORNING AFTER, for which such allocations are 42.66% to the Limited Partners and 57.34% to the Managing General Partner. Generally, net loss is allocated 50% to the Limited Partners and 50% to the Managing General Partner. In addition, the Partnership is obligated to the General Partners for the following: a. A management fee equal to 3% of the Partnership's share of gross receipts (2% to the Managing General Partner and 1% to the Co-General Partner) through March 22, 1996 (the date the Co-General Partner withdrew from the Partnership and became a Special Limited Partner. See Note 1) and a management fee equal to 2% of the Partnership's share of gross receipts to the Managing General Partner thereafter. 8 b. Mandatory distributions that are payable to the partners to the extent minimum guarantees are received in excess of estimated general and administrative expenses and management fees. c. Reimbursement of other costs and expenses. With respect to POWER, pursuant to a distribution agreement with Lorimar Distribution International, Inc. ("LDI") for domestic distribution rights (as amended, the "LDI Domestic Distribution Agreement"), an affiliate of the Managing General Partner was obligated to pay to the Partnership on January 30, 1996, an amount generally equal to the amount by which as of January 30, 1996 (i) the sum of the Partnership's Acquisition Cost (as defined in said agreement) and the Partnership's share of the Distribution Expenses (as defined in said agreement) incurred in connection with the film exceeded (ii) the Partnership's Gross Receipts (as defined in said agreement) from the film (the "Power Guarantee"). For this purpose, Gross Receipts consisted of all sums actually received with respect to POWER by the Partnership pursuant to all applicable distribution agreements. The amounts payable to the Partnership with respect to the Power Guarantee are Partnership revenues which were used for Partnership purposes in accordance with the Partnership Agreement. Accordingly, all amounts payable under the Power Guarantee were used to satisfy the Partnership's obligations due to affiliates of the Managing General Partner. Payment in full of the Power Guarantee in the amount of $9,840,486 was paid on January 30, 1996. In full satisfaction of the Power Guarantee, on that date the following obligations of the Partnership were offset: the full amount of the then outstanding balance of the P&A Note of $5,952,350, plus outstanding principal on the P&A Advances of $176,500 and accrued but unpaid interest on the P&A Advances of $3,711,636. As a result, as of January 30, 1996 the Power Guarantee and the P&A Note were each paid in full and the remaining principal balance of the P&A Advances was $7,151,604. Foreign distribution in all media and domestic home video distribution of Partnership Films were originally licensed to LDI pursuant to a distribution agreement with LDI (the "Foreign Distribution Agreement") and Karl Lorimar Home Video, Inc. pursuant to a license agreement (the "Home Video Agreement"), respectively, both affiliates of the Managing General Partner. The licenses were for minimum guaranteed payments equal to 30% and 20%, respectively, of the Partnership's contribution to each film's budget or cost of production, whichever is less. The foreign distribution and domestic home video distribution arrangements were assigned to other affiliates of the Managing General Partner in January 1989 and June 1988, respectively. As a result of various transactions, the foreign distribution and domestic home video distribution rights are now held by TWE. All minimum guarantees related to foreign distribution and domestic home video distribution have been recorded and received by the Partnership. Under the Partnership Agreement, these minimum guarantees were required to be distributed to the partners as mandatory distributions after deduction 9 for management fees and general and administrative expenses. All mandatory distributions relating to minimum guarantees have been made and there will be no mandatory distributions attributable to minimum guarantees in the future. Pursuant to three separate Amendments to Distribution Agreements dated as of January 26, 1996, between the Partnership and Warner Bros., a division of TWE, on behalf of Lorimar, (collectively, the "Amendments"), the Partnership extended the term of its domestic distribution agreement, its foreign distribution agreement, and its license agreement regarding domestic home video. In each case, subject to earlier termination as summarized below, the term was extended from January 30, 1996 to July 31, 1996, subject in the event of the exercise during the extended Term of the MGP Option (See discussion of MGP Option below) to further extension automatically to the completion of the purchases upon such exercise. Either party to any of the distribution agreements or the license agreement may terminate any of those agreements on 60 days notice given to the other. The Amendments limit the right of the distributor or licensee, as the case may be, to use certain revenues derived after January 30, 1996 to recoup various distribution expenses and advances incurred prior to January 30, 1996. The Managing General Partner, the Special Limited Partner and their affiliates have charged to the Partnership the following Partnership expenses (excluding management fees) incurred by them: THREE MONTHS ENDED JUNE 30, 1996 ---------------------------------- MANAGING SPECIAL GENERAL LIMITED PARTNER PARTNER TOTAL ---------- --------- --------- Interest $ 152,010 $ - $ 152,010 General and administrative 15,000 - 15,000 ---------- --------- --------- $ 167,010 $ - $ 167,010 ========== ========= ========= THREE MONTHS ENDED JUNE 30, 1995 ---------------------------------- MANAGING SPECIAL GENERAL LIMITED PARTNER PARTNER TOTAL ---------- --------- --------- Interest $ 362,506 $ - $ 362,506 General and administrative 15,000 22,000 37,000 ---------- --------- --------- $ 377,506 $ 22,000 $ 399,506 ========== ========= ========= 10 SIX MONTHS ENDED JUNE 30, 1996 ---------------------------------- MANAGING SPECIAL GENERAL LIMITED PARTNER PARTNER TOTAL ---------- --------- --------- Interest $ 371,932 $ - $ 371,932 General and administrative 30,000 13,037 43,037 ---------- --------- --------- $ 401,932 $ 13,037 $ 414,969 ========== ========= ========= SIX MONTHS ENDED JUNE 30, 1995 ---------------------------------- MANAGING SPECIAL GENERAL LIMITED PARTNER PARTNER TOTAL ---------- --------- --------- Interest $ 706,951 $ - $ 706,951 General and administrative 30,000 44,000 74,000 ---------- --------- --------- $ 736,951 $ 44,000 $ 780,951 ========== ========= ========= Amounts due on demand (or past due) to the Managing General Partner and affiliates and to the Special Limited Partner are comprised of the following:
JUNE 30, 1996 DECEMBER 31, 1995 ----------------------- ----------------------- MANAGING SPECIAL MANAGING SPECIAL GENERAL LIMITED GENERAL LIMITED PARTNER PARTNER PARTNER PARTNER ----------- -------- ----------- -------- Notes and advances for prints & advertising, including interest $ 7,390,764 $ 0 $16,872,576 $ 0 Management fee and other 476,724 247,324 501,442 249,315 ----------- --------- ----------- --------- $ 7,867,488 $ 247,324 $17,374,018 $ 249,315 =========== ========= =========== =========
Interest paid to an affiliate of the Managing General Partner was: THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS ENDED ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1996 1995 1996 1995 ------------ ------------ ---------- ---------- Interest paid $12,004 $33,371 $4,692,340 $56,873 ============ ============ ========== ========== 11 Under a Credit, Guaranty and Security Agreement dated as of June 6, 1986 (the "Credit Agreement"), the Partnership obtained a revolving credit facility in the amount of up to $30,000,000 from a group of banks to finance print and advertising costs for the Partnership Films. The terms of the Credit Agreement provide for the payment of interest quarterly at a rate equal to 1-1/2% (2-1/2% in the case of default) over Chemical Bank's prime rate plus commitment fees and agency fees. Lorimar made a payment to the banks on July 31, 1987 of approximately $11,753,000, which was the then outstanding balance of the principal and interest plus fees under the Credit Agreement, and, pursuant to an agreement dated November 1, 1988, in consideration of such payment and certain indemnities by Lorimar, the banks assigned to Lorimar all of their interest in the Credit Agreement, the Partnership's notes made thereunder (collectively, the "P&A Note"), the related agreements and, with certain exceptions, the Collateral (as defined in the Credit Agreement). Lorimar has not charged the Partnership any commitment fees or agency fees and charges interest to the Partnership on the P&A Note at Chemical Bank's prime rate. The P & A Note and related accrued but unpaid interest became due and payable on December 31, 1990. As of June 30, 1996, the principal balance owed with respect to the P&A Note and the related accrued interest was paid in full. In addition to the P&A Note, the Partnership is obligated to reimburse Lorimar for print and advertising costs and other distribution expenses advanced pursuant to the Partnership Agreement on behalf of the Partnership by LDI (the "P&A Advances"). As of June 30, 1996, the outstanding balance of the P&A Advances owed to Lorimar was $7,151,604 and related accrued but unpaid interest, computed at Chemical Bank's prime rate, was $239,160. Lorimar has the right to declare the P&A Advances, and related interest, to be immediately due and payable. To date, Lorimar has not made demand for payment in full of such amounts; however, Lorimar has the right to make such a demand at any time in the future. The Partnership does not have sufficient liquid assets to pay the principal of the P&A Advances and interest thereon in full. All amounts due to the Managing General Partner and its affiliates have been classified as current liabilities. Neither currently nor at any time over the remaining term of the Partnership is it anticipated that the Partnership will have sufficient assets to pay the principal plus interest on the P&A Advances. The Partnership maintains a checking account and an interest-earning mutual fund account. The interest-earning account is managed by an affiliate of the Managing General Partner. The interest rate earned on funds fluctuates daily and approximated 4.8% during the three months ended June 30, 1996. Interest earned on this account was $11,252 and $18,295 for the three months ended June 30, 1996 and 1995, respectively, and $25,913 and $36,166 for the six months ended June 30, 1996 and 1995, respectively. 12 As of June 30, 1996, Prudential Securities Incorporated, an affiliate of the Special Limited Partner, owned 113 Units. On June 26, 1996, the tenth anniversary of the final closing of the sale of Units, the Managing General Partner exercised its right (the "MGP Option") to cause one of its affiliates to purchase the Limited Partnership Interests, the Units and the interest of the Special Limited Partner in the Partnership. The purchase price is the amount that would have been distributed to the Unitholders, the Limited Partners and the Special Limited Partner if the Partnership Films and related rights had been purchased by the Managing General Partner for their appraised value and the Partnership liquidated after payment of the debts, liabilities and loans of the Partnership. However, in light of the Partnership's financial condition, the Managing General Partner believes that in such event no amounts would be distributable to the Unitholders, the Limited Partners or the Special Limited Partner, and thus the Managing General Partner believes that the purchase price for the Units, Limited Partnership Interests and the interest of the Special Limited Partner will be zero. On May 2, 1996, Prudential Securities Group Inc. notified the Managing General Partner of its intent to resign as the Depository for the Partnership to be effective no later than 180 days from the date of notification (October 29, 1996). NOTE 4. LITIGATION: A purported class action lawsuit on behalf of a class of all persons who are or have been holders of limited partnership interests was filed on May 22, 1991 in the Superior Court of California for Los Angeles County. Named as defendants are Lorimar Motion Picture Management, Inc.; Lorimar Telepictures Corporation; Prudential Securities Incorporated; and Prudential-Bache Properties, Inc. (TILLMAN, ET AL. V. LORIMAR MOTION PICTURE MANAGEMENT, INC., ET AL., Case No. BC 028964, L.A. Co. Sup. Ct.). The original complaint charged defendants with fraud, negligence, and breach of fiduciary duty in connection with the offering of the Units and breach of fiduciary duty in connection with the operation of the Partnership. The plaintiffs sought compensatory and punitive damages in an unspecified amount and an accounting. The General Partners had advised the Partnership that they intended to defend the case vigorously. Certain of the charges made in the complaint were similar to charges made in litigation entitled GALLOWAY V. LORIMAR MOTION PICTURE MANAGEMENT, INC., ET AL., filed in the courts of the State of Ohio. Certain of those charges were dismissed on the merits and the dismissal was affirmed on appeal. A demurrer seeking dismissal of the complaint was filed by the defendants in 1991 and, on May 3, 1994, the TILLMAN court sustained this demurrer. The court ruled that the complaint was insufficient as a matter of law with respect to all claims arising from the public offering of the Units in 1985 and 1986. The court did not permit amendment of those claims. The court also sustained the demurrer challenging the sufficiency of plaintiffs' claims that the General Partners breached certain fiduciary duties under the Partnership Agreement in connection with their operation of the Partnership, but granted plaintiffs' counsel an opportunity to amend those claims to attempt to state a cause of action. An amended complaint for breach of fiduciary duty was filed on June 2, 1994, naming only the General 13 Partners as defendants. The General Partners filed a demurrer to the amended complaint, together with a motion for summary adjudication that the specific conduct challenged in the amended complaint was undertaken by the General Partners in conformance with the terms and requirements of the Partnership Agreement. A hearing on these matters was held on August 3, 1994, and on November 1, 1994, the court sustained the General Partners' demurrer on the basis that the amended complaint failed to state a claim upon which relief may be granted. The court gave plaintiffs leave to file an amended complaint for breach of fiduciary duty and, for this reason, defendants' motion for summary judgment was denied without prejudice. On January 18, 1995, plaintiffs served their second amended complaint on the defendants. The second amended complaint asserts claims for alleged breaches of the Partnership Agreement and breaches of fiduciary duty by defendants. Plaintiffs seek damages in an unspecified amount but in excess of $500,000. On March 24, 1995, defendants filed an answer to the second amended complaint, denying the allegations therein and asserting several affirmative defenses. Defendants filed a summary judgment motion on April 18, 1995, and a hearing took place on May 24, 1995. On June 12, 1995, the court granted defendants' motion for summary judgment insofar as it sought dismissal of all claims made as a class action on behalf of Unitholders individually. However, the court permitted the action to proceed as a derivative action by plaintiffs on behalf of the Partnership. Pursuant to the court's order, plaintiffs again amended their complaint to seek on behalf of the Partnership recovery from the General Partners of allegedly improperly high fees and interest paid to certain banks which provided P&A Financing to the Partnership. Plaintiffs allege that defendants breached their fiduciary duties by permitting payment of such excess fees and interest and, in the complaint, estimate the allegedly excess fees and interest to exceed $500,000. Defendants continue to assert that their actions were entirely proper under the law and the terms of the Limited Partnership Agreement and that the Partnership did not pay any excess or improper fees or interest to the banks. The Partnership has been advised that the General Partners intend to defend the action vigorously. In December 1995, Prudential-Bache Properties, Inc. was dismissed voluntarily by plaintiffs. Nevertheless, preliminary discussions have been conducted between plaintiff and the Managing General Partner regarding the possibility of presenting to the court for its approval a settlement which would reflect the size of the claim, the relative positions of the parties, and the costs of continued litigation. The terms which have been agreed upon in principle would involve a reduction of certain of the debt owed by the Partnership to the Managing General Partner and affiliates and payment, in part, of certain attorneys' fees to plaintiffs' counsel by the Managing General Partner. That agreement is subject to documentation and court approval. Prudential Securities Incorporated ("PSI"), certain of its present and former employees, the Managing General Partner and the former Co-General Partner, among others, have been named defendants in a putative class action filed in U.S. District Court for the Southern District of New York, entitled IN RE PRUDENTIAL SECURITIES INCORPORATED LIMITED PARTNERSHIPS LITIGATION (MDL 1005). Two former officers and the parent 14 company of the Managing General Partner were also named as defendants, and the Managing General Partner has undertaken their defense. (Hereinafter, these additional defendants and the Managing General Partner are sometimes referred to collectively as "the Lorimar Organization Defendants.") The consolidated complaint, which was filed on June 8, 1994, consolidates complaints previously filed in actions in several federal district courts around the country that were transferred to the Southern District of New York by order of the Judicial Panel on Multidistrict Litigation in April 1994. None of the Lorimar Organization Defendants were named as defendants in any of the transferred actions. The consolidated complaint alleges violations of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO Act"), fraud, negligent misrepresentation, breach of fiduciary duties, breach of third-party beneficiary contracts, breach of implied covenants and violations of New Jersey statutes in connection with the marketing and sales of limited partnership interests. Plaintiffs request relief in the nature of: rescission of the purchase of securities, and recovery of all consideration and expenses in connection therewith, as well as compensation for lost use of money invested, less cash distributions; compensatory damages; consequential damages; treble damages for defendants' alleged RICO violations (both federal and New Jersey); general damages for all alleged injuries resulting from negligence, fraud, breaches of contract, and breaches of duty in an amount to be determined at trial; disgorgement and restitution of all earnings, profits, benefits and compensation received by defendants as a result of their allegedly unlawful acts; costs and disbursements of the action; reasonable attorneys' fees; and such other and further relief as the court deems just and proper. The Partnership is listed in the consolidated complaint as being among the limited partnerships at issue in the case. On September 29, 1994, plaintiffs filed a motion to deem each of the constituent complaints (in which the Lorimar Organization Defendants were not named) amended to conform to the consolidated complaint. The Managing General Partner opposed the motion. A hearing was held on November 21, 1994 and on November 28, 1994, the court granted plaintiffs' motion. As a result, the Lorimar Organization Defendants are deemed to be defendants in each of the constituent actions, as well as in the consolidated action. On October 31, 1994, the Managing General Partner filed a motion to dismiss the consolidated complaint (and each of the constituent actions) with respect to the Lorimar Organization Defendants. The hearing on the motion, originally expected in January 1995, was postponed indefinitely by the court, and the parties are awaiting a new hearing date. On December 20, 1994, PSI, along with various other defendants, moved to dismiss the entire consolidated complaint. By order dated August 29, 1995, the court granted plaintiffs' motion for temporary class certification, preliminarily approved a settlement entered into between plaintiffs, the former Co-General Partner and PSI, scheduled a fairness hearing for November 17, 1995, approved the form and content of the notice to class members and directed that it be provided to class members. The settlement was approved by the court at the fairness hearing. The full amount due under the settlement agreement has been paid by PSI. 15 Subsequent to the announcement of the Prudential settlement, the Lorimar defendants held settlement negotiations with counsel for the class. Counsel for the class and the Lorimar defendants have agreed in principle to the settlement of all class claims against the Lorimar defendants in exchange for payment by the Lorimar defendants of $400,000, the allocation of which will be provided in the settlement documents. That agreement in principle is subject to agreement on appropriate documentation and to court approval. Upon submission of the agreed upon documentation to the Court, it is expected that the Court would schedule a hearing for approval and direct notice to be given to the class regarding the terms of the settlement and their procedural rights. The Partnership is not aware of any legal proceedings that name the Partnership as a defendant. Neither the TILLMAN nor the MDL litigation described above name the Partnership as a defendant. The Partnership Agreement provides for indemnification of the General Partners and their affiliates under certain circumstances. The indemnification excludes damages assessed against a General Partner for violation of securities laws, the RICO Act or fraud. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION AT JUNE 30, 1996 The Partnership's ability to continue to operate at the present time is due exclusively to Lorimar's forbearance with respect to the Partnership's obligations which are currently due and owing to Lorimar and its affiliates, principally under the P&A Advances. The Partnership has no assurance that Lorimar will not make demand at any time with respect to the P&A Advances. The Partnership has neither sufficient liquid assets nor total assets to pay its current liabilities. As of June 30, 1996 the Partnership's liquid assets are $1,033,496 and its total assets are $1,782,948, while the Partnership's liabilities (all of which are current) are $8,154,747, of which $7,867,488 constitutes the amounts owed with respect to the P&A Advances and other sums to Lorimar and its affiliates. In the event Lorimar demands payment of the P&A Advances and the Partnership does not satisfy payment thereof in full, Lorimar will have all of its rights under applicable agreements and law, including the right ultimately to proceed against the Partnership's assets. In recognition of the Partnership's financial condition, the auditors' report issued in connection with the Partnership's financial statements for the year ended December 31, 1995 contains an explanatory paragraph regarding the substantial doubt of the ability of the Partnership to continue as a going concern. On June 26, 1996, the Managing General Partner exercised its right (the "MGP Option") to cause one of its affiliates to purchase the Limited Partnership Interests, the Units and the interest of the Special Limited Partner in the Partnership for an amount equal to the amount the Unitholders, the Limited Partners and the Special Limited Partner would be entitled to receive if the Partnership Films and related rights had been purchased by the Managing General Partner for their appraised value and the Partnership liquidated after payment of the debts, liabilities and loans of the Partnership. The Managing General Partner and the Special Limited Partner have each engaged independent appraisers (pursuant to the Partnership Agreement) to determine the Fair Market Value of the Partnership Films and Rights. It is anticipated by the Managing General Partner that the fair market value of the Partnership's assets will be less than the amount of the Partnership's current liabilities. Accordingly, the Partnership will be unable to fully satisfy the P&A Advances and the Partnership will be unable to make any further distributions to the Unitholders. Based on the above, the proceeds from a purchase of Depository Units and Limited Partnership Interests under the MGP Option will be insufficient to satisfy all of the Partnership's liabilities. There will be no amounts payable to the Unitholders or the Limited Partners and no amounts payable to them as the purchase price for their units or Limited Partnership Interest since the Managing General Partner 17 estimates the purchase price will not satisfy all the Partnership's liabilities. Unitholders should consult their tax advisors with respect to any tax consequences arising out of the exercise of the MGP Option. As a result, the only distributions that the Unitholders will ever receive are the minimum guarantees, approximately 39% of Unitholders' original capital contributions. All mandatory distributions relating to minimum guarantees have been made and there will be no further distributions to Unitholders. Other than with respect to the domestic theatrical exhibition of the Partnership Films, the Partnership Films have been distributed on behalf of the Partnership pursuant to the Home Video Agreement, the LDI Domestic Distribution Agreement and the Foreign Distribution Agreement. In January 1996, the above distribution agreements were extended (see Note 3. Transactions with General Partners, Special Limited Partner, and Affiliates). Accordingly, receipt of any future distribution or licensing revenue will depend upon the ability of the Managing General Partner, on behalf of the Partnership, to enter into new distribution or licensing agreements with respect to the Partnership Films. Moreover, any revenue received under the existing foreign and home video distribution agreements would be subject to recoupment of the minimum guarantees under the Foreign Distribution Agreement and the Home Video Agreement. The Managing General Partner believes that the Partnership will be unable to enter into distribution or license agreements with respect to the Partnership Films in any media other than worldwide television syndication, to the extent not already licensed. Based on the above analysis by the Managing General Partner, the Managing General Partner does not believe that any such distribution arrangements, after recoupment of fees and expenses, would provide income to the Partnership sufficient to satisfy all of the Partnership's obligations. DISCUSSION OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1995. The results of operations are not necessarily comparable from quarter to quarter since the Partnership's income is determined by exploitation of its four films in the various media of the exploitation cycle (i.e. theatrical, home video, pay television, non-theatrical, network television and domestic syndication). The Partnership's film revenues for the three months ended June 30, 1996 were lower than the comparable period in 1995 due principally to a decrease in domestic syndication income. The Partnership had a net loss of $175,392 for the three months ended June 30, 1996. Film related revenues of $15,095 net of related costs of $9,427 resulted in a gross profit of $5,668, due largely to the syndication licensing of AMERICAN ANTHEM, THE BOY WHO COULD FLY, THE MORNING AFTER AND POWER. However, this was offset by other operating expenses including interest expense of $152,010, general and administrative expenses of $40,000 and management fees of $302 less 18 interest income of $11,252. Interest expense was lower for the three months ended June 30, 1996 than for the three months ended June 30, 1995 principally due to lower average interest rates and lower average borrowings. The Partnership had a net loss of $400,292 for the three months ended June 30, 1995. Film related revenues of $21,377 net of related costs of $19,816 resulted in a gross profit of $1,561, due largely to the syndication licensing of AMERICAN ANTHEM, THE BOY WHO COULD FLY, THE MORNING AFTER and POWER. However, this was offset by other operating expenses including interest expense of $362,506, general and administrative expenses of $57,000 and management fees of $642 less interest income of $18,295. DISCUSSION OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995. The Partnership's film revenues for the six months ended June 30, 1996 were higher than the comparable period in 1995 due principally to the Power Guarantee (see Note 3 to the financial statements). The Partnership had a net loss of $364,491 for the six months ended June 30, 1996. Film related revenues of $9,856,835 net of related costs of $9,755,411 resulted in a gross profit of $101,424 due largely to the Power Guarantee. However, this was offset by other operating expenses including interest expense of $371,932, general and administrative expenses of $119,559 and management fee of $337 less interest income of $25,913. Interest expense was lower for the six months ended June 30, 1996 than for the six months ended June 30, 1995 principally due to lower average interest rates and lower average borrowings. The Partnership had a net loss of $812,454 for the six months ended June 30, 1995. Film related revenues of $45,335 net of related costs of $41,643 resulted in a gross profit of $3,692 due largely to the syndication licensing of AMERICAN ANTHEM, THE BOY WHO COULD FLY, THE MORNING AFTER, AND POWER. However, this was offset by other operating expenses including interest expense of $706,951, general and administrative expenses of $144,000 and management fee of $1,361 less interest income of $36,166. 19 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. A purported class action lawsuit on behalf of a class of all persons who are or have been holders of limited partnership interests was filed on May 22, 1991 in the Superior Court of California for Los Angeles County. Named as defendants were Lorimar Motion Picture Management, Inc.; Lorimar Telepictures Corporation; Prudential Securities Incorporated; and Prudential-Bache Properties, Inc. (TILLMAN, ET AL. V. LORIMAR MOTION PICTURE MANAGEMENT, INC., ET AL., Case No. BC 028964, L.A. Co. Sup. Ct.). The original complaint charged defendants with fraud, negligence, and breach of fiduciary duty in connection with the offering of the Units and breach of fiduciary duty in connection with the operation of the Partnership. The plaintiffs sought compensatory and punitive damages in an unspecified amount and an accounting. The General Partners had advised the Partnership that they intended to defend the case vigorously. Certain of the charges made in the complaint were similar to charges made in litigation entitled GALLOWAY V. LORIMAR MOTION PICTURE MANAGEMENT, INC., ET AL., filed in the courts of the State of Ohio. Certain of those charges were dismissed on the merits and the dismissal was affirmed on appeal. A demurrer seeking dismissal of the complaint was filed by the defendants in 1991 and, on May 3, 1994, the TILLMAN court sustained this demurrer. The court ruled that the complaint was insufficient as a matter of law with respect to all claims arising from the public offering of the Units in 1985 and 1986. The court did not permit amendment of those claims. The court also sustained the demurrer challenging the sufficiency of plaintiffs' claims that the General Partners breached certain fiduciary duties under the Partnership Agreement in connection with their operation of the Partnership, but granted plaintiffs' counsel an opportunity to amend those claims to attempt to state a cause of action. An amended complaint for breach of fiduciary duty was filed on June 2, 1994, naming only the General Partners as defendants. The General Partners filed a demurrer to the amended complaint, together with a motion for summary adjudication that the specific conduct challenged in the amended complaint was undertaken by the General Partners in conformance with the terms and requirements of the Partnership Agreement. A hearing on these matters was held on August 3, 1994, and on November 1, 1994, the court sustained the General Partners' demurrer on the basis that the amended complaint failed to state a claim upon which relief may be granted. The court gave plaintiffs leave to file an amended complaint for breach of fiduciary duty and, for this reason, defendants' motion for summary judgment was denied without prejudice. On January 18, 1995, plaintiffs served their second amended complaint on the defendants. The second amended complaint asserts claims for alleged breaches of the Partnership Agreement and breaches of fiduciary duty by defendants. Plaintiffs seek damages in an unspecified amount but in excess of $500,000. On March 24, 1995, defendants filed an answer to the second amended complaint, denying the allegations therein and asserting several affirmative 20 defenses. Defendants filed a summary judgment motion on April 18, 1995, and a hearing took place on May 24, 1995. On June 12, 1995, the court granted defendants' motion for summary judgment insofar as it sought dismissal of all claims made as a class action on behalf of Unitholders individually. However, the court permitted the action to proceed as a derivative action by plaintiffs on behalf of the Partnership. Pursuant to the court's order, plaintiffs again amended their complaint to seek on behalf of the Partnership recovery from the General Partners of allegedly improperly high fees and interest paid to certain banks which provided P&A Financing to the Partnership. Plaintiffs allege that defendants breached their fiduciary duties by permitting payment of such excess fees and interest and, in the complaint, estimate the allegedly excess fees and interest to exceed $500,000. Defendants continue to assert that their actions were entirely proper under the law and the terms of the Limited Partnership Agreement and that the Partnership did not pay any excess or improper fees or interest to the banks. The Partnership has been advised that the General Partners intend to defend the action vigorously. In December 1995, Prudential-Bache Properties, Inc. was dismissed voluntarily by plaintiffs. Nevertheless, preliminary discussions have been conducted between plaintiff and the Managing General Partner regarding the possibility of presenting to the court for its approval a settlement which would reflect the size of the claim, the relative positions of the parties, and the costs of continued litigation. The terms which have been agreed upon in principle would involve a reduction of certain of the debt owed by the Partnership to the Managing General Partner and affiliates and payment, in part, of certain attorneys' fees to plaintiffs' counsel by the Managing General Partner. That agreement is subject to documentation and court approval. Prudential Securities Incorporated ("PSI"), certain of its present and former employees, the Managing General Partner and the former Co-General Partner, among others, have been named defendants in a putative class action filed in U.S. District Court for the Southern District of New York, entitled IN RE PRUDENTIAL SECURITIES INCORPORATED LIMITED PARTNERSHIPS LITIGATION (MDL 1005). Two former officers and the parent company of the Managing General Partner were also named as defendants, and the Managing General Partner has undertaken their defense. (Hereinafter, these additional defendants and the Managing General Partner are sometimes referred to collectively as "the Lorimar Organization Defendants.") The consolidated complaint, which was filed on June 8, 1994, consolidates complaints previously filed in actions in several federal district courts around the country that were transferred to the Southern District of New York by order of the Judicial Panel on Multidistrict Litigation in April 1994. None of the Lorimar Organization Defendants were named as defendants in any of the transferred actions. The consolidated complaint alleges violations of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO Act"), fraud, negligent misrepresentation, breach of fiduciary duties, breach of third-party beneficiary contracts, breach of implied covenants and violations of New Jersey statutes in connection with the marketing and sales of limited partnership interests. Plaintiffs request relief in the nature of: rescission of the purchase of securities, and 21 recovery of all consideration and expenses in connection therewith, as well as compensation for lost use of money invested, less cash distributions; compensatory damages; consequential damages; treble damages for defendants' alleged RICO violations (both federal and New Jersey); general damages for all alleged injuries resulting from negligence, fraud, breaches of contract, and breaches of duty in an amount to be determined at trial; disgorgement and restitution of all earnings, profits, benefits and compensation received by defendants as a result of their allegedly unlawful acts; costs and disbursements of the action; reasonable attorneys' fees; and such other and further relief as the court deems just and proper. The Partnership is listed in the consolidated complaint as being among the limited partnerships at issue in the case. On September 29, 1994, plaintiffs filed a motion to deem each of the constituent complaints (in which the Lorimar Organization Defendants were not named) amended to conform to the consolidated complaint. The Managing General Partner opposed the motion. A hearing was held on November 21, 1994 and on November 28, 1994, the court granted plaintiffs' motion. As a result, the Lorimar Organization Defendants are deemed to be defendants in each of the constituent actions, as well as in the consolidated action. On October 31, 1994, the Managing General Partner filed a motion to dismiss the consolidated complaint (and each of the constituent actions) with respect to the Lorimar Organization Defendants. The hearing on the motion, originally expected in January 1995, was postponed indefinitely by the court, and the parties are awaiting a new hearing date. On December 20, 1994, PSI, along with various other defendants, moved to dismiss the entire consolidated complaint. By order dated August 29, 1995, the court granted plaintiffs' motion for temporary class certification, preliminarily approved a settlement entered into between plaintiffs, the former Co-General Partner and PSI, scheduled a fairness hearing for November 17, 1995, approved the form and content of the notice to class members and directed that it be provided to class members. The settlement was approved by the court at the fairness hearing. The full amount due under the settlement agreement has been paid by PSI. Subsequent to the announcement of the Prudential settlement, the Lorimar defendants held settlement negotiations with counsel for the class. Counsel for the class and the Lorimar defendants have agreed in principle to the settlement of all class claims against the Lorimar defendants in exchange for payment by the Lorimar defendants of $400,000, the allocation of which will be provided in the settlement documents. That agreement in principle is subject to agreement on appropriate documentation and to court approval. Upon submission of the agreed upon documentation to the Court, it is expected that the Court would schedule a hearing for approval and direct notice to be given to the class regarding the terms of the settlement and their procedural rights. The Partnership is not aware of any legal proceedings that name the Partnership as a defendant. Neither the TILLMAN nor the MDL litigation described above name the Partnership as a defendant. The Partnership 22 Agreement provides for indemnification of the General Partners and their affiliates under certain circumstances. The indemnification excludes damages assessed against a General Partner for violation of securities laws, the RICO Act or fraud. 23 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. None (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Registrant during the period covered by this report. 24 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. Lorimar Film Partners L.P. By: Lorimar Motion Picture Management, Inc. A California Corporation, Managing General Partner By: /s/ EDWARD A. ROMANO Date: August 14, 1996 ------------------------------ Edward A. Romano Vice President, Treasurer (Principal Accounting Officer) EX-27 2 EX-27 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1,033,496 0 0 0 749,452 1,033,496 0 0 1,782,948 8,154,747 0 0 0 0 (6,371,799) 1,782,948 9,882,748 9,882,748 9,755,411 9,755,411 119,896 0 371,932 (364,491) 0 (364,491) 0 0 0 (364,491) (5.39) (5.39)
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