-----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, Qkh7F3J9zycL+eC5xXU4JUp/z62bzgjqhcTV+Bq8ZSGfjyYVnGpnB4mmQ7hjJDMC ihnJ6/8I4fbvnZo+rslZbw== 0000771978-97-000003.txt : 19970329 0000771978-97-000003.hdr.sgml : 19970329 ACCESSION NUMBER: 0000771978-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINEMA PLUS LP CENTRAL INDEX KEY: 0000822368 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 133437795 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17469 FILM NUMBER: 97565939 BUSINESS ADDRESS: STREET 1: C/O MAGERA MANAGEMENT CORP STREET 2: 666 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125121000 MAIL ADDRESS: STREET 1: C/O MAGERA MANAGEMENT CORP STREET 2: 666 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: TAKE ONE PREFERRED PARTNERS LP DATE OF NAME CHANGE: 19871117 10-K 1 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 [FEE REQUIRED] OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For Fiscal Year Ended Commission File December 31, 1996 Number 0-17469 CINEMA PLUS, L.P. (Exact name of registrant as specified in its certificate of limited partnership) Delaware 13-3437795 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1100 Avenue of the Americas, New York, New York 10036 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 512 1000 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 Interests Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] As of March 15, 1997, there were 43,286 units of limited partnership interests outstanding, all held by non-affiliates. The aggregate market value of those interests is not determinable because there is no active public trading market for the units. PART I. Item 1. Business. Formation. Cinema Plus, L.P. (the "Partnership") is a Delaware limited partnership which was formed to finance, own and exploit through various distribution arrangements English language feature-length theatrical motion pictures ("Films" or "Partnership Films"). The Partnership was organized under the laws of the State of Delaware on September 10, 1987. HBO Film Management, Inc., a Delaware corporation wholly owned by Time Warner Operations Inc. ("Time Warner"), is the managing general partner (the "Managing General Partner") of the Partnership. Entertainment Finance Services, Inc., a Delaware corporation, is the administrative general partner (the "Administrative General Partner") of the Partnership. The Managing General Partner and the Administrative General Partner are sometimes collectively referred to as the "General Partners." A public offering (the "Offering") of limited partnership interests was completed over the course of two closings, the first of which took place on August 5, 1988 and the second of which took place on September 30, 1988. 36,028 units and 7,398 units, respectively, of limited partnership interests were sold at the closings, at a price of $1,000 per unit. Pursuant to section 6.4 of the limited partnership agreement, 140 limited partnership units were redeemed in October 1989. Accordingly, the Partnership received gross proceeds in the amount of $43,286,000 (the "Gross Proceeds") and net proceeds in the amount of $37,341,000 (the "Net Proceeds") after adjusting for the 140 units that were redeemed. Subscriptions were accepted by the Partnership from taxable as well as tax-exempt investors and from United States citizens and foreign investors. In the event that the Partnership terminates or is dissolved prior to the time that an Assured Return of Film Investment Payment is to be made, provision will be made in accordance with the limited partnership agreement for payment of such Assured Return of Film Investment Payment. Such provision may include the appointment of a liquidating trustee to receive such payments and transmit them to the former limited partners. As is required by its limited partnership agreement, the Partnership will dissolve at the expiration of its term on September 30, 1997, and the Partnership Assets shall thereupon be liquidated and distributed in accordance with such agreement. Provisions shall be made, as necessary, prior to such date for the establishment of a trust for the purpose, among others, of receiving and distributing the Assured Return of Film Investment Payments in accordance with the limited partnership agreement at the time, and to the limited partners to whom, they would otherwise become due. Business Plan. The Partnership invested in the production of four Films which had production costs (including contingency reserves, the production and overhead fees payable to the General Partners, and completion bond fees) ranging from approximately $11 million to approximately $22 million per Film, with an average production cost of approximately $16.5 million. The dollar amounts set forth in the preceding sentence are higher than those anticipated at the time of the Offering and included in the Offering prospectus (the "Prospectus"); however, the aggregate Partnership Investment (as defined below) and ownership interest in Films has remained unchanged. As of December 31, 1996, an aggregate of $98,383,000 (including the HBO Commitment, as defined below) had been incurred toward the production and theatrical release of Partnership Films. Each Partnership Film was produced by an experienced independent producer and was distributed theatrically by Warner Bros. ("Warner"), a division of Time Warner Entertainment Company, L.P., as assignee of Warner Bros., Inc., in the United States and Canada. In addition, Warner has the right to distribute the Partnership's Films on network television in the United States and Canada. Distribution rights in all other domestic television and consumer video media have been licensed on an exclusive basis in perpetuity to Home Box Office ("HBO"), a division of Time Warner Entertainment Company, L.P., as assignee of Home Box Office, Inc. All other distribution rights have been licensed to distributors selected by the Managing General Partner. See "Film Distribution." The Partnership will not produce any additional Films. Film Selection. As of December 31, 1996, all of the Partnership's Films had been released in domestic theatres. The title and domestic theatrical release date for the Films are set forth below: Title Release Date Switch May 1991 Don't Tell Mom The Babysitter's Dead ("Don't Tell Mom") June 1991 Ricochet October 1991 Mom and Dad Save The World July 1992 As of March l5, 1997, all of the Partnership Films had been released in foreign markets and have been made available domestically on video cassette. In addition, as of March 15, 1997, "Don't Tell Mom" and "Ricochet" have been exhibited on network television; and "Switch" has been exhibited on syndicated television. Film Production. The Partnership monitored all phases of production and administered all Partnership funds invested in Films. Negotiation of production agreements was undertaken by the Managing General Partner. Subject to the Partnership's approval rights exercised through the Managing General Partner, the independent producer, in consultation with creative personnel, made all determinations concerning creative and artistic matters and conducted all day-to-day operations concerning the production of a Film. The agreement with each independent producer provided HBO, the Partnership and the theatrical distributor the right of approval regarding the subject matter, story-line and screenplay of each Film. The Partnership also had certain approval rights concerning artistic personnel (such as principal cast and director). In addition, each agreement with an independent producer provided a maximum budget for each Film, and the Partnership also exercised certain approval rights over line items in each budget. Furthermore, each such agreement provides that the Partnership will control in perpetuity all rights (including copyright) in the Films throughout the world. Production Costs. The "Budgeted Negative Cost of a Film" represents its budgeted production cost which includes the following elements: o the estimated direct production costs of a Film, including all costs incurred in connection with the acquisition of rights, the development of the project, the anticipated costs of principal photography and post-production (including interest on development and production expenditures advanced by HBO prior to commitment of funds by the Partnership, and all other costs associated with delivering a Film and complying with negotiated delivery requirements), and a fee payable to the independent producers of a Film (the "Direct Costs"); o a net bonding fee paid to the completion guarantor in an amount which did not exceed 6% of the Direct Costs; o a production contingency fund in an amount equal to 10% of the Direct Costs (the "Contingency"); and o a fee payable to the General Partners (the "Production and Overhead Fee") equal to 12.5% of the total of the Direct Costs, the bonding fee and the Contingency, as compensation to the General Partners for negotiating and administering production, financing and distribution agreements, reviewing and approving Film budgets, monitoring expenditures of Partnership funds, monitoring and auditing Film revenues and accounting and reporting to investors. See "Executive Compensation." The full amount actually paid by the Partnership directly in connection with a Film's production and delivery to the Partnership (including deferments, bonuses and participations, if any, in gross receipts payable to creative personnel before the Partnership has recouped its investment in such Film), after taking into account any rebates provided to the Partnership by the completion guarantor or any other party and any portion of the Contingency which was not expended, is the "Partnership Investment," which is the amount upon which the Assured Return of Film Investment Payment (as defined below) is based. See "Film Distribution - Domestic Cable and Other Non-Standard Television and ThirdParty Participations." The Partnership Investment does not include the HBO Commitment, the Shortfall Production Advance (as defined below), or certain interest which has been capitalized for purposes of the financial statements that accompany this report. See "HBO Commitment." All costs and expenses relating to the production of a Film to be paid by the Partnership were advanced in accordance with budget, production and cash flow schedules approved by the Partnership and HBO. The Administrative General Partner monitored the compliance with such schedules. Shortfall Production Advance. HBO loaned to the Partnership, on a non-recourse basis to the general and limited partners, the additional funds necessary to complete the production of the Partnership's last Film to commence principal photography, entitled "Ricochet" (the "Shortfall Production Advance"). HBO is entitled to recoup this loan with interest at the Prime Rate from funds remitted to the Partnership (other than the Foreign Distribution Advance used to repay the HBO Commitment) from the exploitation of such Film. See Note 4(b) of the Financial Statements for financial information relating to the Shortfall Production Advance. HBO Commitment. Pursuant to the terms of the HBO License Agreement, HBO advanced to the Partnership, for investment in each Partnership Film, approximately 30% of the aggregate production costs of such Film (the "HBO Commitment"). On a per Film basis, the amount so advanced approximated the advance payable to the Partnership for foreign distribution rights (the "Foreign Distribution Advance") discounted by an amount attributable to interest at the Prime Rate. For each Partnership Film, HBO is entitled to recoup the HBO Commitment, plus interest, from the Foreign Distribution Advance as it is paid. See Note 4(a) of the Financial Statements for financial information relating to the HBO Commitment. Film Distribution. The Managing General Partner has negotiated and entered into agreements on behalf of the Partnership for the worldwide distribution of its Films in all media in which HBO does not distribute directly. Each Partnership Film has been distributed theatrically by Warner in the United States and Canada. In addition, Warner has the right to distribute the Partnership's Films on network television in the United States and Canada. Distribution rights in all other domestic television and consumer video media have been licensed on an exclusive basis in perpetuity to HBO. Domestic Theatrical Distribution. The Partnership was party to an agreement with Metro-Goldwyn-Mayer Pictures, Inc. ("MGM") which granted MGM the exclusive right to distribute certain of the Partnership's Mercury/Douglas Films in the domestic theatrical and non-theatrical media and in the foreign media. By its terms, the MGM agreement is no longer in effect. On October 2, 1989, the Partnership entered into an agreement with Warner granting Warner the right to distribute each of the Partnership's Films in the domestic theatrical and network television media (hereinafter referred to as the "Warner Agreement"). HBO agreed to provide for the expenditure of not less than $5 million in print and advertising costs in connection with each Film's domestic theatrical release. HBO is entitled to recoup that portion of such expenditure which is in excess of the HBO P&A Advance (as defined below), plus interest at the Prime Rate, from domestic theatrical revenues ("Rentals") and Non- Theatrical Revenues (as defined below) remitted to the Partnership with respect to such Film. "Non-Theatrical Revenues" has the meaning commonly given to such term in the motion picture industry, which does not include television or home video revenues. HBO is entitled to recoup the lesser of $5,000,000 or 50% of such expenditures (the "HBO P&A Advance") for a Film, plus interest at the Prime Rate, in a priority position from all the funds remitted to the Partnership from the exploitation of such Film (excluding the Foreign Distribution Advance which will be used to repay the HBO Commitment). Print and advertising costs incurred in connection with the domestic theatrical distribution of each Film in excess of those funded by HBO were paid by Warner; Warner is entitled to recoup such amounts from Rentals and Non-Theatrical Revenues. In addition, Warner received a distribution fee equal to 15% of each Film's Rentals and Non- Theatrical Revenues. Rentals and Non-Theatrical Revenue less Warner's distribution fees and expenses and amounts recoupable by HBO were remitted to the Partnership. Revenues from each Film are accounted for separately. See Note 4(c) of the Financial Statements for financial information relating to Print and Advertising Expenses. Domestic Consumer Video. Domestic consumer video distribution rights in the Films have been licensed to HBO. The Partnership receives 100% of domestic consumer video revenues (after the deduction of direct manufacturing, marketing, advertising and distribution costs, and guild residuals as well as any amounts recoupable by HBO) from each Film until the Partnership has received sufficient funds from domestic consumer video and all prior sources to recoup its Investment in the Film. Thereafter, the Partnership receives 35% of domestic consumer video revenues (after deduction of direct manufacturing, marketing, advertising and distribution costs and guild residuals). See Note 3(b) of the Financial Statements for financial information relating to the Net Domestic Video Receivable. Domestic Cable and Other Non-Standard Television. All domestic cable and other non-standard television rights and all English-language foreign cable and other non- standard television rights in the Films have been licensed to HBO. For each Film, the Partnership receives a license fee from HBO for these rights based on a percentage of the Rentals earned by a Film. License fees are payable within 90 days after a Film first becomes available for non- standard television exhibition on a subscription basis by HBO, which has been generally six to thirteen months after a Film's initial theatrical release. The Partnership receives an amount equal to 20% of Rentals between $10 million and $20 million, plus 10% of Rentals between $20 million and $40 million, plus 5% of Rentals between $40 million and $60 million. HBO is entitled to retain amounts recoupable by it from amounts otherwise payable to the Partnership with respect to this source of revenue. In the aggregate, as of December 31, 1996 the Partnership had recorded $ 29,000 for non-standard television net revenues related to "Don't Tell Mom." The Partnership does not anticipate any other significant domestic cable or non-standard television revenue. Under the HBO License Agreement, if net proceeds from all sources to the Partnership are less than 115% of the Partnership Investment in any Film, HBO will pay to the Partnership on the seventh anniversary of the theatrical release of that Film an additional license fee sufficient to assure an aggregate return to the Partnership of 115% of the Partnership Investment in that Film (the "Assured Return of Film Investment Payment" or "ARFIP"). In return for HBO's agreement to make the Assured Return of Film Investment Payment, the Partnership has agreed to pay HBO 10% of the Partnership's subsequent revenues from each Film after the Partnership has received from all sources 115% of its Investment in the Film. Based on the anticipated performance of the Partnership's Films at December 31, 1996, it is expected that HBO will be required to make an Assured Return on Film Investment Payment with respect to each of these Films. Accordingly, $21,540,000 (amount present valued) was recorded by the Partnership as a receivable in the accompanying financial statements as of December 31, 1996. ARFIP payments will be payable to the Partnership in 1998 and 1999. With respect to any Film for which an ARFIP is made, HBO will thereafter be entitled to receive from the Partnership any additional revenues received by the Partnership with respect to that Film until the entire amount of such ARFIP has been recouped by HBO. If HBO has not recouped this ARFIP for a Film by July l999, the Partnership will be required to pay to HBO at that time an amount (the "HBO Interest Recoupment") equal to the lesser of: (a) the sum of the unrecouped ARFIP and the non-standard television residuals for such Film or (b) the Per Film Interest. "Per Film Interest" represents the interest income earned on Partnership Funds awaiting investment in Films divided by the four Partnership Films. $283,000, $218,000, and $246,000 was recorded by the Partnership as an expense relating to Per Film Interest for the years ended December 31, 1996, 1995 and 1994, respectively. $4,251,000 (amount present valued) has been recorded by the Partnership and included in the Payable to HBO in the accompanying financial statements as of December 31, l996. This expense does not have any effect on the Partnership's entitlement to receive 115% of the Partnership Investment in Films. Domestic Standard Broadcast Television-Network. Pursuant to the Warner Agreement, the Partnership has granted domestic network television rights in the Films to Warner. HBO and Warner will receive a distribution fee aggregating no more than 20% of the gross receipts from such license. The remaining revenues, less distribution expenses and guild residuals, are being remitted to the Partnership. HBO will be entitled to retain amounts recoupable by it from amounts otherwise payable to the Partnership with respect to this source of revenue. "Ricochet" aired on network television during the first quarter of 1995 and the third quarter of 1996. See Note 3(a) of the Financial Statements for financial information relating to the Network Receivable from HBO. Domestic Standard Broadcast Television-Syndication. Domestic syndicated television rights in the Films may be licensed by HBO (or a subdistributor designated by HBO) on behalf of the Partnership. HBO and its subdistributor, if any, will receive distribution fees aggregating no more than 37.5% of the gross receipts from such license. Gross receipts less distribution fees and expenses and guild residuals will be remitted to the Partnership. HBO will be entitled to retain amounts recoupable by it from amounts otherwise payable to the Partnership with respect to this source of revenue. Through an arrangement in which Warner acted as subdistributor, "Switch" aired on syndicated television during the third quarter of l994. Foreign Distribution-All Media. The Partnership has an agreement with The Odyssey/Regency Switch Company ("Odyssey"), a joint venture between Odyssey Distributors, B.V. and Regency International Pictures, B.V., which grants to Odyssey foreign distribution rights with respect to the Partnership Film "Switch" in media other than foreign English- language cable and other non-standard television which rights are licensed to HBO. Pursuant to the terms of the Odyssey agreement, during 1991 the Partnership received approximately $7,925,000 representing 47% of the production cost of "Switch." The advance was paid to HBO in reimbursement of the HBO Commitment for "Switch" together with interest thereon at the Prime Rate. With respect to the remaining three Films, the Partnership has an agreement with The Summit Group (MEV) N.V. ("Summit") which appoints Summit as the Partnership's exclusive sales agent for these three Films in foreign territories. As such, Summit is entitled to receive distribution fees calculated upon, and recoup its distribution expenses out of, the gross proceeds of these Films from foreign territories. See Note 4(a) of the Financial Statements for financial information relating to the HBO Commitment. Worldwide Music, Merchandising and Publication. To the extent not otherwise acquired by the domestic or foreign distributors of the Partnership Films, all music, merchandising and publication rights in the Partnership Films may be licensed by HBO on behalf of the Partnership. HBO will be entitled to a fee not to exceed 20% of the revenues to the Partnership from the exploitation of these rights. Soundtrack album agreements have been entered into for certain of the Partnership's Films. All revenues (other than album advances offset by music production costs), less fees payable to HBO and to third parties from the exploitation of music, merchandising and publication rights, were paid to the Partnership. HBO will be entitled to retain amounts recoupable by it from amounts otherwise payable to the Partnership with respect to this source of revenue. The Partnership does not anticipate receiving any additional revenue from this source of income. Remakes, Sequels, Television Movies and Television Series. The Partnership will receive fixed payments and, in certain circumstances, revenue participations in the event that a remake, sequel, television movie or television series is produced based on a Partnership Film. HBO will be entitled to retain amounts recoupable by it from amounts otherwise payable to the Partnership with respect to this source of revenue. The Partnership does not anticipate that a remake, sequel, television movie or television series will be produced based on any of the Partnership Films. Third Party Participations. The Partnership's agreements with independent producers generally provide that third party profit participations (i) will not be payable until after the Partnership recoups 110% of the Partnership Investment in the relevant Film and (ii) will generally not exceed 45% of Partnership revenues on that Film thereafter. Based on estimates of ultimate net revenue as of December 31, 1996, additional profit participations will be paid only with respect to "Don't Tell Mom." Competition. The Partnership must compete with other filmmakers for the services of a limited number of distribution companies, including distribution companies which engage in the production of their own motion pictures. Competition for distribution in other media is as intense as the competition for theatrical distribution. Employees. The Partnership has no employees; its business is conducted by the Managing General Partner and the Administrative General Partner. The Administrative General Partner has retained Magera Management Corporation ("Magera") to provide operational and financial services as well as certain supervisory services for the Partnership. See Item l0, "Directors and Executive Officers of the Partnership." Magera has seven employees who perform services for the Administrative General Partner and for the general partners of other private and public limited partnerships. Item 2. Properties. The executive offices of the Partnership and the General Partners are located at 1100 Avenue of the Americas, New York, New York 10036. The Partnership pays no rent; all charges for leased space and administrative facilities are borne by the General Partners. Item 3. Legal Proceedings. On August 14, 1995, a lawsuit styled as a class action was filed by two holders of Cinema Plus limited partnership units in the United States District Court of the Western District of Pennsylvania against HBO Film Management, Inc. and Entertainment Finance Services, Inc., the general partners of Cinema Plus, Home Box Office, Inc., and Kidder, Peabody & Co., Incorporated and Smith Barney Inc., two of the underwriters of the original sale of limited partnership units of Cinema Plus. Cinema Plus has not been named as a defendant in the lawsuit. The lawsuit alleged various violations of law by the defendants in connection with the original sale of limited partnership units of Cinema Plus and the subsequent operation of Cinema Plus. The action was dismissed on March 4, 1996. On March 20, 1996, the plaintiffs filed a Notice of Appeal in the Third Circuit Court of Appeals. Oral argument before the Third Circuit Court of Appeals was heard on October 3, 1996. The defendants believe the lawsuit to be without merit and are vigorously defending it. Item 4. Submission of Matters to a Vote of Security Holders. None. PART II. Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters. The Partnership is a limited partnership; there is no public market for limited partnership units of the Partnership. As of March 15, 1997, there were approximately 4,000 holders of record of limited partnership units of the Partnership. Cash Distributions. The Partnership commenced making cash distributions in November 1988. The following chart sets forth the cash distributions made by the Partnership to the limited partners through March 15, 1997: Year Amount Per Unit 1988 $ 22.50 1989 95.00 1990 130.15 1991 97.50 l992 20.00 1993 30.00 1994 0 1995 10.00 1996 15.00 1997 (through March l5th) 0 Total $420.15 Accordingly, as of March 15, 1997, limited partners had received distributions aggregating 42% of their original investment in the Partnership. These distributions were attributable primarily to Minimum Distribution Advances received from HBO (which have been fully repaid from net domestic consumer video revenues) and to interest received on Partnership funds. Future cash distributions will be dependent upon the revenue generated by the Partnership's Films once advances and distribution expenses have been recouped. It is not anticipated that significant cash distributions will be made until the Partnership receives the Assured Return of Film Interest Payments from HBO in l998 and l999. Item 6. Selected Financial Data. (000's omitted except for per unit information)
Year Ended December 31, 1996 1995 1994 1993 1992 Net revenues from motion pictures: $ 1,893$ 2,023 $ 3,844 $ 8,045 $ 27,088 Interest Income: $ 304 $ 210 $ 79 $ 88 $ 77 Other (Expense) Income, net: $ (267) $ 237 $ 861 $ (130) $ 8,493 Operating Expenses: $ (612)$ (1,377) $(3,281) $ (6,892) $(37,773) Net income (loss): $ 1,318 $ 1,093 $ l,503 $ 1,111 $ (2,115) Net income (loss) per limited partner unit: $ 30.15 $ 25.00 $ 34.38 $ 25.41 $ (48.36) Total assets: $ 26,405 $25,938 $26,778 $27,554 $ 33,732 Total liabilities: $ 5,505 $ 5,700 $ 7,196 $ 9,475 $ 15,452 Accrued and paid cash distributions per unit: $ 15.00 $ 10.00 $ 0 $ 30.00 $ 20.00
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 1. Liquidity and Capital Resources. As of December 31, 1996, the Partnership held cash and cash equivalents of $176,000 and short-term investments of $2,275,000. The Partnership invested in the production of four Films. The production costs (including contingency reserves, the production and overhead fee payable to the General Partners and completion bond fees) of Partnership Films ranged from approximately $11 million to approximately $22 million per Film, with an average production cost of approximately $16.5 million. As of December 31, 1996, an aggregate of $98,383,000 (including the HBO Commitments) had been incurred toward the production and theatrical release of the Partnership's four Films. Prior to the receipt of the ARFIP receivable, no significant cash outlays are expected to be made by the Partnership other than its operating expenses and the satisfaction of the Partnership's payables to HBO (except for the HBO Interest Recoupment). Subsequent to the receipt of the ARFIP in 1998 and 1999, additional cash outlays are expected to be made to HBO for payment of the HBO Interest Recoupment, as well as to pay the Partnership's operating expenses and to make distributions to partners. As of December 31, 1996, the Partnership's net payable to HBO totaled $4,805,000. Of this amount $4,251,000 relates to the HBO Interest Recoupment which is not payable until one month after the last ARFIP proceeds are received from HBO. Based on current estimates of ultimate net revenues, it is anticipated that the remainder of the payable to HBO at December 31, 1996 will be substantially repaid to HBO within the next two years. During the year ended December 31, 1996, the Partnership recognized net revenue in the amounts of $1,000, $300,000, $757,000 and $882,000 with respect to the domestic theatrical, foreign, domestic video and network television markets, respectively, for its Films. In addition, third party participations expense related to "Don't Tell Mom," was $47,000 thereby decreasing the Partnership's Net Revenue from Motion Pictures for the year ended December 31, 1996. Since the Partnership is not anticipating significant future revenue (other than those used to repay HBO) until the Assured Return of Film Investment Payments are received from HBO in 1998 and 1999, the Partnership's future operating expenses are expected to be met from current cash and shortterm investments. Management believes that the cash and short-term investments held at December 31, 1996 are sufficient to meet its liquidity needs without the need to obtain external financing from a third party or its General Partners. Cash distributions will be made only as significant cash becomes available from the exploitation of the Films in excess of the payables due to HBO or as the Assured Return of Film Investment Payments are received from HBO. As is required by its limited partnership agreement, the Partnership will dissolve at the expiration of its term on September 30, 1997, and the Partnership Assets shall thereupon be liquidated and distributed in accordance with such agreement. Provisions shall be made, as necessary, prior to such date for the establishment of a trust for the purpose, among others, of receiving and distributing the Assured Return of Film Investment Payments in accordance with the limited partnership agreement at the time, and to the limited partners to whom, they would otherwise become due. 2. Results of Operations For the year ended December 31, 1996, the Partnership recorded net income of $1,318,000 due primarily to the performance of its Films in the foreign markets, domestic consumer video and "Ricochet" in the domestic television network market as well as the resolution of audits of domestic consumer video and domestic theatrical distribution activity. For the year ended December 31, 1995, the Partnership recorded net income of $1,093,000 due primarily to the performance of its Films in the foreign markets, domestic consumer video and "Ricochet" in the domestic television network market. For the year ended December 31, 1994, the Partnership recorded net income of $1,503,000 due primarily to the performance of its Films in the foreign markets and "Don't Tell Mom" in the domestic television network market. The decrease in operating expenses during the period ended December 31, 1996 and 1995 as compared, respectively, with the corresponding periods in 1995 and 1994 is due primarily to a decrease in amortization of Motion Picture Production Costs. The decrease in amortization of Motion Picture Production Costs is due primarily to a decrease in Net Revenue from Motion Pictures. There was a decrease in interest expense, included in Other Income (Expense), net, during the periods ended December 31, l996 and 1995 as compared, respectively, with the corresponding periods in l995 and l994. This decrease is due primarily to the decline in outstanding payables to HBO. Item 8. Financial Statements and Supplementary Data. See the financial statements set forth 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 Partnership. The Partnership is managed by HBO Film Management, Inc., the Managing General Partner, and by Entertainment Finance Services, Inc., the Administrative General Partner. Both of the General Partners were incorporated in Delaware in September 1987. The Managing General Partner is primarily responsible for negotiating production and distribution agreements. The Administrative General Partner is primarily responsible for reviewing Film budgets, monitoring expenditures of Partnership funds, administering financing, production and distribution agreements, monitoring and auditing Partnership revenues, and accounting and reporting to the limited partners. The Managing General Partner The executive officers and directors of the Managing General Partner are set forth below. Each of these individuals has served as an officer or director of the Managing General Partner since the Managing General Partner was incorporated, except that in March 1989 John B. Newton resigned as Executive Vice President and Director of the Managing General Partner and was replaced in such position by Leslie H. Jacobson, and in November 1995, Michael J. Fuchs left his position as Chairman. Mr. Fuchs was succeeded as Chairman by Jeffrey L. Bewkes and Bill Nelson assumed the position of Director, Executive Vice President and Chief Financial Officer. Name Age Positions Held Jeffrey L. Bewkes 44 Chairman Stephen J. Scheffer 58 President, Director Leslie H. Jacobson 49 Executive Vice President, Director Bill Nelson 48 Executive Vice President, Chief Financial Officer, Director John S. Redpath, Jr. 52 Vice President, General Counsel Secretary, Director Perry L. Schneider 41 Vice President, Treasurer, Director George A. Cooke, Jr. 49 Vice President Glenn Whitehead 42 Vice President Jeffrey L. Bewkes, Chairman, has been Chairman, President and Chief Executive Officer of HBO since November 1995. As such, he exercises authority for the overall management, planning and administration of the nation's oldest and largest pay television company. Mr. Bewkes joined HBO in 1979 and since that time has held positions in the areas of sales, marketing, finance and strategic planning as well as served as its Treasurer, Chief Financial Officer, Executive Vice President and Chief Operating Officer. He serves on the boards of the National Cable Television Association and Comedy Central. A graduate of Yale University and Stanford Graduate School of Business, Mr. Bewkes previously was employed as a lending officer for Citibank, N.A. and as operations director for Sonoma Vineyards. Stephen J. Scheffer, President, has been President, Film Programming, Home Video and Enterprises, for HBO since June 1995, having been Executive Vice President, Film Programming and Home Video since February 1983 and head of its consumer video activities since May 1984. He is responsible for overseeing the acquisition of all motion pictures for HBO, is Chairman of HBO Video and heads HBO Enterprises. A graduate of the U.S. Naval Academy and recipient of an M.B.A. degree from Harvard Business School, Mr. Scheffer joined HBO in 1980 after having held executive positions with Time-Life Films, Allied Artists, Polydor Records, MGM/UA and Columbia Pictures. Leslie H. Jacobson, Executive Vice President, has been Senior Vice President, Film Programming, for HBO since March 1989. From October 1987 until March 1989, Ms. Jacobson was Senior Vice President, Business Affairs and Administration for HBO. Her responsibilities in her current position include the selection and licensing of feature films for exhibition on the HBO program services and for distribution by HBO Video as well as the supervision of relationships with independent filmmakers. A former general counsel and executive vice president of Tri-Star Pictures, Inc. from April 1983 to October 1987, Ms. Jacobson holds degrees from Georgetown University and Cornell University Law School. Bill Nelson, Executive Vice President and Chief Financial Officer, has been Executive Vice President and Chief Financial Officer for HBO since April 1994. Mr. Nelson holds responsibility for all of HBO's financial matters and information and systems technology. He also oversees HBO's business affairs department. Prior to joining HBO as Vice President and Assistant Controller, in May 1984, Mr. Nelson was an executive at Time Inc. A graduate of Pace University, he also holds an M.B.A. from that institution. John S. Redpath, Jr., Executive Vice President, General Counsel and Secretary, is responsible for all legal aspects of HBO's operations. Mr. Redpath became a member of HBO's legal department in June 1978, initially specializing in the film programming area. He became HBO's General Counsel in January 1981. A graduate of Princeton University, he holds a J.D. from the University of Michigan and an L.L.M. in taxation from New York University. Perry L. Schneider, Vice President and Treasurer, has been Vice President, Film Programming for HBO since September 1988. Mr. Schneider's responsibilities include licensing programming for exhibition on the HBO program services in the United States and abroad, as well as overseeing HBO's investment oriented film activities. Since joining HBO in 1983, he has held a series of programming and finance positions. Prior to joining HBO, Mr. Schneider was a vice president in the entertainment and media group at the European American Bank in New York. He is a graduate of the State University of New York at Stony Brook and holds an M.B.A. from New York University. George A. Cooke, Jr., Vice President, has been Vice President and Chief Counsel, Film Programming for HBO since September 1995. Mr. Cooke oversees the legal aspects of HBO's film licensing and financing arrangements and is responsible for matters in the areas of corporate and securities law. Prior to joining HBO as associate counsel, film programming, in April 1983, Mr. Cooke was an associate at the law firm of Ropes & Gray. A graduate of Dartmouth College, he holds an M.A. from Cambridge University and a law degree from Harvard Law School. Glenn Whitehead, Vice President, has been Vice President, Business Affairs and Production for HBO since January 1992. Based in Los Angeles, he is responsible for all contract negotiations and physical production regarding television motion pictures and West Coast original programming. He joined HBO in September 1983 as an associate counsel, shifting to business affairs in 1985. He is a graduate of the University of California at Riverside and holds a law degree from the University of California at Los Angeles. The Managing General Partner was incorporated under the laws of the State of Delaware in September 1987. All of the outstanding capital stock of the Managing General Partner is owned by Time Warner. The Administrative General Partner. Bradley J. Wechsler, age 45, is the sole director and officer of the Administrative General Partner. Mr. Wechsler has served in these positions since the Administrative General Partner was incorporated in 1987. Mr. Wechsler is also the sole director and officer of Bedford Capital Advisors, Inc., which provides financial and advisory services in the entertainment and media industries. Mr. Wechsler is also a Chairman and Co-Chief Executive Officer of Imax Corporation. All of the outstanding capital stock of the Administrative General Partner is owned by Mr. Wechsler. Operational and Financial Services. To assist it in the performance of its duties, the Administrative General Partner has engaged Magera Management Corporation to provide operational and financial services to the Partnership. Magera is owned by Richard M. Mason and Aaron German. Magera also provides operational and financial services to the general partners of other private and public limited partnerships and serves as a consultant to others engaged in the entertainment industry. Item 11. Executive Compensation. The following table sets forth the fees, income, distributions and other amounts payable to the General Partners in connection with the management of the Partnership. Except as set forth below, the General Partners will receive no other remuneration of any type whatsoever from the Partnership in connection with the administration of Partnership affairs. Type of Compensation and Entity Receiving Method of Compensation Aggregate Amount Production and Overhead Fee 5.0% of the Budgeted $2,965,000 Payable to the Managing Negative Cost of each General Partner Film (excluding the Production and Overhead Fee), payable at the time principal photography commences on the Film Production and Overhead Fee 5.0% of the Budgeted $2,965,000, plus Payable to the Administrative Negative Cost of each interest General Partner Film (excluding the Production and Overhead Fee), payable at the time principal photography commences on the Film, plus interest to the extent payment is deferred (1) Production and Overhead Fee 2.5% of the Budgeted $1,483,000, plus Payable to the General Negative Cost of each interest Partners, to be allocated Film (excluding the between the General Partners Production and Overhead based upon the deduction of Fee), payable at the time certain expenses incurred principal photography in operating the Partnership commences on the Film, plus interest to the extent payment is deferred (1) General Partners' Share of l% of all income, profits Actual amounts depend Cash Available for Distribu- losses and cash distribu- upon the results of tion and Profits and Losses tions will generally be Partnership operations. allocated to the Adminis- trative General Partner until the Limited Partners have received a return of their Adjusted Capital Contributions (as defined in the partnership agree ment) plus a l2.5% cumula tive (but not compounded) annual return on their Adjusted Capital Contribu tion. Thereafter, 20% of all income, profits, losses and cash distributions will be allocated to the General Partners (l0% to the Managing General Partner and l0% to the Administrative General Partner) - ----------------------------------- (1) The Partnership has established a reserve in the amount of the Production and Overhead Fee payable to the Administrative General Partner as it accrues. Amounts are being paid to the Administrative General Partner from the reserve from time to time in accordance with a set schedule. Interest is accruing on the amounts included in the reserve at a rate equal to the interest rate earned by the Partnership on the short-term investment of its funds. The partnership agreement provides that all Partnership expenses, including, among other things, expenses for financial statement preparation, tax preparation, auditing and accounting fees, compliance with government regulations and legal expenses, will be billed to and paid by the Partnership. Subject to the restrictions set forth in the partnership agreement, the Administrative General Partner may be reimbursed by the Partnership for certain administrative services including, among other things, the cost of goods, materials and services obtained from entities unaffiliated with the General Partners. As of December 31, l996, the General Partners had received $7,284,000 attributable to the Production and Overhead Fee. A portion of the Production and Overhead Fee to the Administrative General Partner is paid in accordance with a set schedule and, as such, $484,000 (inclusive of interest) remains payable to the Administrative General Partner as of December 31, 1996. In addition, the Administrative General Partner has received $7,000, $4,000, and $0, representing its 1% share of cash distributed to partners during 1996, 1995 and 1994, respectively. No portion of such cash distributions was paid to the Managing General Partner. Item 12. Security Ownership of Certain Beneficial Owners and Management. To the best knowledge of the General Partners, no person beneficially owns in excess of 5% of the limited partnership units of the Partnership. Item 13. Certain Relationships and Related Transactions. The Partnership's operations relating to the ownership and exploitation of films involve HBO. See "Business." The General Partners are entitled to receive a Production and Overhead Fee and to an interest in cash distributions. See "Executive Compensation." PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)(1) Financial Statements: Report of Independent Auditors Balance Sheets at December 31, 1996 and 1995 Statements of Operations for the years ended December 31, 1996, 1995 and 1994 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Statements of Changes in Partners' Capital for the years ended December 31, 1996, 1995 and 1994 Notes to Financial Statements (a)(2) Financial Statement Schedules: No financial statement schedules have been filed as part of this report as none are required.
(a)(3) Exhibits Exhibit No. Amended and Restated Agreement of Limited Partnership dated as of December 9, 1987 (1) 4 Amendment to Amended and Restated Agreement of Limited Partnership dated as of April 22, 1988 (1) 4.1 Amendment to Amended and Restated Agreement of Limited Partnership dated as of June 2, 1988 (1) 4.2 Amendment to Amended and Restated Agreement of Limited Partnership dated as of August 17, 1988 (1) 4.3 License, Co-financing and Distribution Agree- ment between the Registrant and Home Box Office, Inc. dated December 4, 1987 (1) 10(b) Amendment to License, Co-financing and Distribution Agreement dated April 22, 1988 (1) 10(b).1 Amendment to License, Co-financing and Distribution Agreement dated August 17, 1988 (1) 10(b).2 Amendment to License, Co-financing and Distribution Agreement dated as of June 28, 1991 (4) 10(b).3 Master Letter Agreement dated as of September 8, 1987 between Mercury/Douglas Films and Home Box Office, Inc. (1) 10(c) Distribution Agreement dated November 13, 1987 between Metro-Goldwyn-Mayer Pictures, Inc., Home Box Office, Inc. and Mercury/Douglas Films (1) 10(d) Agreement dated October 2, 1989 between Home Box Office, Inc. and Warner Bros., including the letter dated March 27, 1990 from Warner Bros. to Home Box Office, Inc. setting forth certain clarifications (2) 10(e) Distribution Agreement dated February 26, 1990 between Cinema Plus, L.P. and the Odyssey/Regency Switch Company (3) 10(f) Credit Agreement dated as of June 28, 1991 between Cinema Plus, Inc. and Home Box Office (4) 10(g) Memorandum of Agreement dated February 1, 1991 between Cinema Plus, L.P. and Summit Group (MEV) N.V. (5) 10(h) Financial Data Schedule 27
(1) Incorporated by reference to the Partnership's registration statement No. 33-17318, as amended, on file with the Securities and Exchange Commission. (2) Incorporated by reference to the Partnership's Form 10-K for the year ended December 31, 1989 on file with the Securities and Exchange Commission. (3) Incorporated by reference to the Partnership's Form 10-K for the year ended December 31, 1990 on file with the Securities and Exchange Commission. (4) Incorporated by reference to the Partnership's Form 10-Q for the quarter ended June 30, 1991 on file with the Securities and Exchange Commission. (5) Incorporated by reference to the Partnership's Form 10-K for the year ended December 31, 1991 on file with the Securities and Exchange Commission. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of the Partnership's fiscal year ended December 31, 1996. (c) Exhibits. The Exhibits required by Item 601 of Regulation S-K are submitted as a separate section following the Partnership's financial statements. (d) Financial Statement Schedules. No financial statement schedules have been filed as part of this report as none are required. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Cinema Plus, L.P., a Delaware limited partnership (the "Registrant"), has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CINEMA PLUS, L.P. (a Delaware limited partnership) Dated: March 26, 1997 By:Entertainment Finance Services, Inc., Administrative General Partner By: /s/ Bradley J. Wechsler Bradley J. Wechsler President and sole Director EXHIBIT INDEX Page Reference in Sequentially Numbered Copy 4 Amended and Restated Agreement of Limited Partnership dated as of December 9, 1987 * 4.1 Amendment to Amended and Restated Agreement of Limited Partnership dated as of April 22, 1988 * 4.2 Amendment to Amended and Restated Agreement of Limited Partnership dated as of June 2, 1988 * 4.3 Amendment to Amended and Restated Agreement of Limited Partnership dated as of August 17, 1988 * 10(b) License, Co-financing and Distribution Agreement between the Registrant and Home Box Office, Inc. dated December 4, 1987 * 10(b).1Amendment to License, Co-financing and Distribution Agreement dated April 22, 1988 * 10(b).2Amendment to License, Co-financing and Distribution Agreement dated August 17, 1988 * 10(b).3Amendment to License, Co-financing and Distribution Agreement dated as of June 28, 1991 * 10(c) Master Letter Agreement dated as of September 8, 1987 between Mercury/Douglas Films and Home Box Office, Inc. * 10 (d) Distribution Agreement dated November 13, 1987 between Metro-Goldwyn-Mayer Pictures, Inc., Home Box Office, Inc. and Mercury/Dougla s Films * 10 (e) Agreement dated October 2, 1989 between Home Box Office, Inc. and Warner Bros., including the letter dated March 27, 1990 from Warner Bros. to Home Box Office, Inc. setting forth certain clarifications * 10(f) Distribution Agreement dated February 26, 1990 between Cinema Plus, L.P. and the Odyssey/Regency Switch Company * 10(g) Credit Agreement dated as of June 28, 1991 between Cinema Plus, L.P. and Home Box Office * 10(h) Memorandum of Agreement dated February 1, 1991 between Cinema Plus, L.P. and Summit Group (MEV), N.V.* 27 Financial Data Schedule *Incorporated by reference Report of Independent Auditors To the Partners of Cinema Plus, L.P. We have audited the accompanying balance sheets of Cinema Plus, L.P. as of December 31, 1996 and 1995, and the related statements of operations, cash flows and changes in partners' capital for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cinema Plus, L.P. at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP New York, New York March 21, 1997 CINEMA PLUS, L.P. (A Delaware Limited Partnership) BALANCE SHEETS (000's omitted)
December 31, 1 1 996 995 ASSETS Cash and Cash Equivalents (Note $ $ 2) 176 192 Short-Term Investments (Note 2) 2,275 2,306 Receivable from HBO (Note 3) 2,098 1,334 Assured Return of Film Investment Payment Receivable (Note 5) 21,540 21,355 Motion Picture Production Costs, net of accumulated amortization of $98,067 and $97,780, respectively (Notes 2, 4 & 7) 316 751 Total $ $ Assets 26,405 25,938 LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accrued Expenses and Accounts $ $ Payable 216 205 Payable to General Partners 484 718 (Note 2) Deferred Revenue (Note 2) 0 177 Payable to HBO (Notes 4, 5 & 7) 4,805 4,600 Total $ $ Liabilities 5,505 5,700 Partners' Capital (Note 7): General Partners $ $ (167) (173) Limited Partners 21,067 20,411 Total $ $ Partners' Capital 20,900 20,238 Total Liabilities and Partners' $ $ Capital 26,405 25,938 See accompanying notes to the financial statements.
CINEMA PLUS, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (000's omitted, except net income per unit)
For the Year Ended December 31, 1996 1995 1994 Net Revenue from Motion Pictures $ $ $ (Notes 2 & 7) 1,893 2,023 3,844 Expenses: Motion Picture Production 287 966 2,884 Costs (Notes 2 & 7) Professional and Other Fees 325 411 397 612 1,377 3,281 Income from Operations 1,281 646 563 Assured Return of Film Investment Payment (Note 5) 185 671 1,413 HBO Interest Recoupment (Note 5) (283) (218) (246) Interest Expense (Notes 4 & 6) (169) (216) (306) Interest Income 304 210 79 Net Income $ $ $ 1,318 1,093 1,503 Net Income Attributable to General Partners $ $ $ 13 11 15 Net Income Attributable to $ $ $ Limited Partners 1,305 1,082 1,488 Net Income Per Unit of Limited Partnership Interest (43,286 units) $ $ $ 30.15 25.00 34.38 See accompanying notes to the financial statements.
CINEMA PLUS, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (000's omitted)
For the Year Ended December 31, 1996 1995 1994 Operating Activities: Net Income $ $ $ 1,318 1,093 1,503 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: (Increase) Decrease in (764) 46 (1,031) Receivable from HBO Increase in Assured Return of Film Investment Payment Receivable (185) (671) (1,413) Decrease (Increase) in Motion Picture Production Costs 148 (108) 216 Amortization of Motion Picture Production Costs 287 966 2,884 Increase (Decrease) in Accrued Expenses and Accounts Payable 11 (2) (86) Decrease in Payable to (234) (211) (216) General Partners (Decrease) Increase in Deferred Revenue (177) 117 (808) Net Cash Provided by Operating Activities 404 1,230 1,049 Investing Activities: Purchase of Short-Term (4,508) (5,610) (6,437) Investments Redemption of Short-Term Investments 4,539 6,050 6,513 Net Cash Provided by Investing Activities 31 440 76 Financing Activities: Increase (Decrease) in Payable to 205 (1,169) HBO (1,400) Distributions Paid to Partners (656) (437) 0 Net Cash Used in Financing Activities (451) (1,837) (1,169) (Decrease) Increase In Cash and (16) (167) (44) Cash Equivalents Cash and Cash Equivalents at beginning of year 192 359 403 Cash and Cash Equivalents at end $ $ $ of year 176 192 359 See accompanying notes to the financial statements.
CINEMA PLUS, L.P. (A Delaware Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (000's omitted)
General Limited Total Balance January 1, 1994 $ $ $ (195) 18,274 18,079 Net Income for the year ended December 3l, 1994 15 1,488 1,503 Balance December 31, 1994 $ $ $ (180) 19,762 19,582 Net Income for the year ended December 31, 1995 11 1,082 1,093 Distributions to Partners ($10 per limited partnership unit) (4) (433) (437) Balance December 31, 1995 $ $ $ (173) 20,411 20,238 Net Income for the year ended December 3l, 1996 13 1,305 1,318 Distributions to Partners ($15 per limited partnership unit) (7) (649) (656) Balance December 31, 1996 $ $ $ (167) 21,067 20,900 See accompanying notes to the financial statements.
CINEMA PLUS, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS 1. General Cinema Plus, L.P. (the "Partnership") is a Delaware limited partnership which was formed to finance, own and exploit through various distribution arrangements English language feature-length theatrical motion pictures ("Films" or "Partnership Films"). The Partnership was organized under the laws of the State of Delaware on September l0, l987. HBO Film Management, Inc., a Delaware corporation wholly-owned by Time Warner Operations Inc., is the managing general partner (the "Managing General Partner") of the Partnership. Entertainment Finance Services, Inc., a Delaware corporation, is the administrative general partner (the "Administrative General Partner") of the Partnership. The Managing General Partner and the Administrative General Partner are sometimes collectively referred to as the "General Partners." The total number of limited partnership units as of December 31, 1996, 1995 and 1994 was 43,286. The net income per unit of limited partnership interests for the years ended December 31, l996, 1995 and 1994 was $30.15, $25.00 and $34.38, respectively. All terms not otherwise defined herein shall have the meanings set forth in the Partnership's prospectus dated December 9, 1987, as amended. 2. Summary of Significant Accounting Policies (a) General The preparation of financial statements in conformity with generally accepted accounting principles requires the Partnership to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Partnership believes that the estimates utilized in preparing the financial statements are reasonable and prudent; however, actual results could differ from these estimates. (b) Cash Equivalents Cash Equivalents consist of U.S. Government Securities that are readily convertible into cash, and have original maturities of three months or less. All Cash Equivalents are stated at cost plus accrued interest, which approximates market value. (c) Short-Term Investments Short-term Investments consist of U.S. Government Securities which have original maturities of greater than three months and are stated at amortized cost, which approximates market value. The investments held as of December 31, 1996 are due to mature within six months. (d) Income Taxes No provision for Federal and State income taxes has been made in the accompanying financial statements as Cinema Plus, L.P. is a partnership, with all income tax consequences flowing directly to its partners. As of December 31, 1996 and 1995, reported amounts of the Partnership's assets less liabilities were greater than the tax bases by $2,908,000 and $1,838,000, respectively. (e) Payable to General Partners A portion of the Production and Overhead Fee to the General Partners is paid in accordance with a set schedule. Interest accrues on the balance at a rate equal to the interest rate earned by the Partnership on the short-term investment of its funds. Accordingly, as of December 31, 1996 and 1995, $484,000 and $718,000, respectively, is recorded as a payable to the General Partners in the accompanying financial statements. (f) Recognition of Revenues Net revenues from the distribution of the Partnership's Films consist of gross receipts less distribution fees and expenses. A distribution fee of 15% of gross domestic theatrical revenues was paid to Warner Bros., an affiliate of the Managing General Partner, with respect to all four Partnership Films. Films are initially distributed in the theatrical, videocassette and pay television media. Subsequently, Films are made available for U.S. and foreign television network exhibition and/or television syndication. All foreign revenues are received by the Partnership in U.S. dollars. Revenues from the distribution of Films in the theatrical market are recognized as the Films are exhibited. Home video revenues, less a provision for returns, are recognized when the video cassettes are shipped. Revenues from television license agreements are recognized when the respective license period begins pursuant to the terms of the license agreements. Advances received prior to the Film's availability are deferred. (g) Motion Picture Production Costs and Amortization Motion Picture Production Costs represent the amounts expended by the Partnership in connection with the production of the Partnership Films and are stated at the lower of unamortized cost or net realizable value. In addition, interest incurred during production as well as print and advertising expenditures which benefit future periods have been capitalized and included in Motion Picture Production Costs. Motion Picture Production Costs are amortized under the individual film forecast method based on net revenues recognized in proportion to the Partnership's estimate of ultimate net revenues to be received. Unamortized Motion Picture Production Costs are compared quarterly with the net realizable value on a film by film basis, and losses are recognized to the extent of any excess of costs over net realizable value with respect to each Film. Based on estimates of net revenue as of December 31, 1996, approximately 100% of unamortized Motion Picture Production Costs applicable to the released Films will be amortized by December 31, 1998. (h) Deferred Revenue Deferred Revenue represents Foreign Distribution Advances for the Partnership Films "Don't Tell Mom the Babysitter's Dead" ("Don't Tell Mom") and "Mom and Dad Save the World" ("Mom and Dad") that were received during the year ended December 31, 1995 for territories in which the theatrical print or video cassette was not yet delivered or the pay television license period for these Films had not begun at that respective date. The revenue related to these advances along with related costs was recorded after the theatrical print or video cassette is delivered or pay television license period began in each applicable foreign territory. 3. Receivable from HBO The Receivable from HBO at December 31, 1996 and 1995 consists of the following amounts: 1996 1995 Network $1,335,000 $ 453,000 Net Domestic Video 609,000 60,000 Foreign 11,000 821,000 Interest 143,000 0 $2,098,000 $1,334,000 (a) Network Receivable from HBO Pursuant to the HBO License Agreement, the Partnership has granted domestic network television distribution rights in the Films to HBO, and HBO has caused such rights to be licensed to Warner Bros. HBO and Warner Bros. receive in the aggregate a distribution fee of no more than 20% of the gross proceeds received from the exploitation of their network television distribution rights in each Film. The remaining revenues, less distribution expenses and guild residuals, are remitted to the Partnership. During the year ended December 31, 1996, the Partnership recognized net revenue of $882,000 for the film "Ricochet" which was available for airing on network television. (b) Net Domestic Video Receivable From HBO Domestic consumer video distribution rights in the Films have been licensed to HBO. The Partnership receives l00% of domestic consumer video revenues (after the deduction of direct manufacturing, marketing, advertising and distribution costs, and guild residuals as well as any amounts recoupable by HBO) from each Film until the Partnership has received sufficient funds from domestic consumer video and all prior sources to recoup its Investment in the Film ("Video Breakeven"). Thereafter, the Partnership receives 35% of domestic consumer video revenues (after deduction of direct manufacturing, marketing, advertising and distribution costs and guild residuals). During the year ended December 31, l996, the Partnership recognized revenues of $757,000 from net domestic home video distribution of all of its Films (see Note 7). Based upon estimates of ultimate net revenues as of December 31, 1996, the Partnership will not reach Video Breakeven for any Film with the exception of "Don't Tell Mom". During the year ended December 31, l996, the Partnership received $208,000 from the net domestic home video distribution of all of its Films. (c) Foreign Receivable from HBO As the HBO Commitment with respect to "Ricochet" has been fully repaid, any future foreign receipts for this Film are being remitted to the Partnership net of any guild residuals, distribution fees and expenses. During the year ended December 31, 1996, the Partnership received $821,000 (including interest) from the foreign distribution of the Film "Ricochet." (d) Interest Receivable With respect to audits of the Films' domestic consumer video revenues, $143,000 is recorded as an interest receivable from HBO (see Note 7). 4. Payable to HBO The Payable to HBO at December 31, 1996 and l995 (including accrued interest) consists of the following amounts: 1996 1995 HBO Commitment $ 357,000 $ 404,000 Print and Advertising Expenditures 197,000 228,000 HBO Interest Recoupment (See Note 5) 4,251,000 3,968,000 Total $4,805,000 $ 4,600,000 (a) HBO Commitment Pursuant to the HBO License Agreement, HBO advanced to the Partnership, for investment in each Partnership Film, approximately 30% of the aggregate production costs of such Film (the "HBO Commitment"). On a per Film basis, the amount advanced approximated the advance payable to the Partnership for foreign distribution rights (the "Foreign Distribution Advance") discounted by an amount attributed to interest at the Prime Rate. For each Partnership Film, HBO will generally recoup the HBO Commitment, plus interest at the Prime Rate, from the Foreign Distribution Advance as it is paid. A Foreign Distribution Advance in the amount of $7,925,000 for the Partnership Film entitled "Switch" was received during 1991. The entire HBO Commitment related to "Switch" was repaid out of these funds. Through December 31, 1996, the Partnership has received HBO Commitment funds in the amount of $15,816,000 in connection with the production of "Mom and Dad," "Don't Tell Mom" and "Ricochet." During l996 and l995, $68,000 and $1,175,000, respectively, of the HBO Commitments (including interest) were repaid from net Foreign Distribution Advances received with respect to these Films. In addition, interest was accrued in the amount of $169,000 and $195,000 in l996 and l995, respectively. The HBO Commitment with respect to "Ricochet" was fully repaid as of December 31, 1995. Based upon current revised estimates of ultimate net foreign revenues as of December 31, 1996, it is anticipated that HBO will be able to recoup the HBO Commitment with respect to "Don't Tell Mom." Based upon current revised estimates of ultimate net foreign revenues as of December 31, 1996, it is anticipated that HBO will be unable to recoup the HBO Commitment in the amount of $2,604,000 with respect to "Mom and Dad Save the World." As a result, the Partnership's Payable to HBO has been reduced by $148,000 for "Mom and Dad Save the World" during the year ended December 31, 1996 with a corresponding reduction to the capitalized Motion Picture Production Costs of this Film. (b) Shortfall Production Advance HBO loaned to the Partnership, on a non-recourse basis to the general and limited partners, the additional funds necessary to complete the production of the Partnership's last Film to commence principal photography, entitled "Ricochet" (the "Shortfall Production Advance"). HBO was entitled to recoup this loan with interest at the Prime Rate from funds remitted to the Partnership (other than the Foreign Distribution Advance used to repay the HBO Commitment) from the exploitation of such Film. Through December 31, 1995, the Partnership had received Shortfall Production Advances aggregating $8,019,000. During the year ended December 31, l995, the Partnership repaid $753,000 (including accrued interest of $25,000) of the Shortfall Production Advance to HBO from the net domestic video and network revenue received with respect to the Film "Ricochet." As of December 31, 1995, HBO has fully recouped this loan. (c) Print and Advertising Expenditures As of December 31, 1996, $43,262,000 of domestic print and advertising expenditures and related interest were incurred in connection with the Partnership's four Films. All of these expenditures were advanced by Warner Bros. on behalf of HBO and HBO will reimburse Warner Bros. for all amounts not recouped from domestic theatrical and non- theatrical distribution. Pursuant to the HBO License Agreement, and based upon estimates of ultimate net revenues and ultimate print and advertising expenditures as of December 31, 1996, $31,829,000 of the $43,262,000 is reimbursable (and most of which has been repaid) by the Partnership to HBO with HBO being responsible for the remaining $11,433,000. $32,004,000 of print and advertising expenditures had been capitalized as Motion Picture Production Costs as of December 31, l993. However, based upon estimates of ultimate net revenues of the Film "Mom and Dad Save the World" as of December 31, 1996, it is anticipated that HBO will be unable to fully recoup Print and Advertising Expenditures with respect to this Film. During the years ended December 31, 1996 and l995, the Partnership recognized revenues, net of distribution fees, of $1,000, and $9,000, respectively, from the domestic theatrical distribution of its released Films. All of these revenues were applied toward the recoupment of the print and advertising expenditures described above. During the year ended December 31, 1996, the Partnership increased its payable to HBO for print and advertising expenses incurred for the Film "Mom and Dad Save the World" in the amount of $67,000. During the years ended December 31, 1996 and l995, the Partnership repaid to HBO a portion of the print and advertising expenses incurred for the Film "Mom and Dad Save the World" in the amount of $97,000 and $9,000, respectively (including accrued interest), from the net domestic video revenue received with respect to that Film. 5. Assured Return of Film Investment and the HBO Interest Recoupment Under the HBO License Agreement, if net proceeds from all sources to the Partnership are less than 115% of the Partnership Investment in any Film, HBO will pay to the Partnership on the seventh anniversary of the initial theatrical release of that Film an additional license fee sufficient to assure an aggregate return to the Partnership of ll5% of the Partnership Investment in that Film (the "Assured Return of Film Investment Payment" or "ARFIP"). Based on the anticipated performance of each of the four Films in release at December 31, 1996, it is expected that HBO will be required to make an Assured Return on Film Investment Payment with respect to each of these Films. Accordingly, $21,540,000 and $21,355,000 (amounts present valued at the Prime Rate as of the initial theatrical release of each film) were recorded by the Partnership as a receivable in the accompanying financial statements as of December 31, 1996 and l995, respectively. With respect to any Film for which an ARFIP is made, HBO will be thereafter entitled to receive from the Partnership any additional revenues received by the Partnership with respect to that Film until the entire amount of such ARFIP has been recouped by HBO. If HBO has not recouped this ARFIP for a Film by July l999, the Partnership will be required to pay to HBO at that time an amount (the "HBO Interest Recoupment") equal to the lesser of: (a) the sum of the unrecouped ARFIP and the non-standard television residuals for such Film or (b) the Per Film Interest (as defined below). "Per Film Interest" represents the interest income earned on Partnership Funds awaiting investment in Films divided by the four Partnership Films. $283,000 and $218,000 was recorded by the Partnership as an expense relating to Per Film Interest for the years ended December 31, 1996 and l995, respectively. Accordingly, $4,251,000 and $3,968,000 (amounts present valued) was recorded by the Partnership and included in the Payable to HBO in the accompanying financial statements as of December 31, l996 and l995, respectively. This expense does not have any effect on the Partnership's entitlement to receive 115% of the Partnership Investment in Films. 6. Supplemental Disclosure of Cash Flow Information The Partnership paid $19,000 and $432,000 of interest to HBO in the years ended December 31, 1996 and 1995, respectively. All payables to HBO earned interest at the Prime Rate, which was 8.25% and 8.5% at December 31, l996 and l995, respectively. 7. Current Operations The Partnership has financed four Films. All of these Films have completed their domestic theatrical and video releases and are currently being distributed in various ancillary media. Future revenue is expected to be recorded from distribution in the domestic syndication and the remaining foreign markets. No other films will be financed by the Partnership. During the year ended December 31, 1996, the Partnership recognized net revenue in the amounts of $1,000, $300,000, $757,000, and $882,000 with respect to the domestic theatrical, foreign, domestic video, and network television markets, respectively, for its Films. During the year ended December 31, l996, third party participations expense for "Don't Tell Mom" was $47,000 thereby decreasing the Partnership's net revenue by a corresponding amount. In accordance with the Partnership's rights pursuant to the HBO License Agreement and its theatrical distribution agreement with Warner Bros., and as is customary in the motion picture industry, an audit of the Films' domestic consumer video and domestic theatrical distribution activity has been conducted. This audit covered the period through December 31, 1993, when the major portion of revenue and expense arose from these media. As a result of this audit, adjustments of $696,000 and $75,000 were made in the Films' distribution expenses for domestic consumer video and domestic theatrical distribution, respectively. These adjustments are primarily reflected as an increase in Net Revenue from Motion Pictures. In addition, interest calculated pursuant to the HBO License Agreement, of $159,000 and $25,000 is included in Interest Income with respect to domestic consumer video and domestic theatrical distribution, respectively. Through December 31, 1996, $25,559,000, $22,135,000, $18,723,000 and $31,966,000 (including the HBO Commitment, the Shortfall Production Advance and capitalized Print and Advertising Expenditures which benefit future periods) had been incurred toward the production of "Switch," "Don't Tell Mom," "Mom and Dad" and "Ricochet," respectively. For the years ended December 31, l996, 1995 and l994, Motion Picture Production Costs have been reduced by amortization of $287,000, $966,000 and $2,884,000, respectively. For the purposes of computing the net income per unit and the paid and accrued distributions to partners, income and distributions have been allocated 1% to the Administrative General Partner and 99% to the limited partners. As is required by its limited partnership agreement, the Partnership will dissolve at the expiration of its term on September 30, 1997, and the Partnership Assets shall thereupon be liquidated and distributed in accordance with such agreement. Provisions shall be made, as necessary, prior to such date for the establishment of a trust for the purpose, among others, of receiving and distributing the Assured Return of Film Investment Payments in accordance with the limited partnership agreement at the time, and to the limited partners to whom, they would otherwise become due. 8. Legal Proceedings On August 14, 1995, a lawsuit styled as a class action was filed by two holders of Cinema Plus limited partnership units in the United States District Court of the Western District of Pennsylvania against HBO Film Management, Inc. and Entertainment Finance Services, Inc., the general partners of Cinema Plus, Home Box Office, Inc., and Kidder, Peabody & Co., Incorporated and Smith Barney Inc., two of the underwriters of the original sale of limited partnership units of Cinema Plus. Cinema Plus has not been named as a defendant in the lawsuit. The lawsuit alleged various violations of law by the defendants in connection with the original sale of limited partnership units of Cinema Plus and the subsequent operation of Cinema Plus. The action was dismissed on March 4, 1996. On March 20, 1996 the plaintiffs filed a Notice of Appeal in the Third Circuit Court of Appeals. Oral argument before the Third Circuit Court of Appeals was heard on October 3, 1996. The defendants believe the lawsuit to be without merit and are vigorously defending it. EX-27 2 ART. 5 FDS FOR THE 1996 10-K
5 This schedule contains summary financial information extracted from Balance Sheets and Statements of Operations for the year ended December 31, 1996 Form 10K of Cinema Plus, L.P. and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1996 DEC-31-1996 176,000 2,275,000 23,638,000 0 316,000 0 0 0 26,405,000 0 0 0 0 0 20,900,000 26,405,000 0 2,382,000 0 612,000 283,000 0 169,000 1,318,000 0 1,318,000 0 0 0 1,318,000 30.15 0
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