<PAGE>
UNITED STATES
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 March 31, 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 33-49598
UNITED ARTISTS THEATRE CIRCUIT, INC.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 13-1424080
- ---------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9110 East Nichols Avenue, Suite 200
Englewood, CO 80112
- ----------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 792-3600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No__________
----------
The number of shares outstanding of $1.00 par value common stock at May 13, 1996
was 100 shares.
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 1996
(UNAUDITED)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C>
Item 1. Financial Statements
------- --------------------
UNITED ARTISTS THEATRE CIRCUIT, INC.
Condensed Consolidated Balance Sheets.................................................................. 3
Condensed Consolidated Statements of Operations........................................................ 4
Condensed Consolidated Statement of Stockholder's Equity............................................... 5
Condensed Consolidated Statements of Cash Flow......................................................... 6
Notes to Condensed Consolidated Financial Statements................................................... 7
GUARANTOR - OSCAR I CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets................................................................. 14
Condensed Consolidated Statements of Operations....................................................... 15
Condensed Consolidated Statement of Stockholders' Equity.............................................. 16
Condensed Consolidated Statements of Cash Flow........................................................ 17
Notes to Condensed Consolidated Financial Statements.................................................. 18
Item 2. Management's Discussion and Analysis of
------- ---------------------------------------
Financial Condition and Results of Operations.................................................... 24
---------------------------------------------
</TABLE>
2
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
----------------- ------------------
Assets
------
<S> <C> <C>
Cash and cash equivalents.......................... $ 9.6 32.4
Notes and other receivables, net................... 39.1 35.0
Prepaid expenses and concession inventory.......... 19.2 20.3
Investments and related receivables................ 17.3 14.1
Property and equipment, at cost:
Land............................................ 35.0 35.0
Theatre buildings, equipment and other.......... 381.1 370.3
------ ------
416.1 405.3
Less accumulated depreciation and amortization.. (105.8) (99.0)
------ ------
310.3 306.3
------ ------
Intangible assets, net............................. 157.9 165.8
Other assets, net.................................. 19.2 20.3
------ ------
$ 572.6 594.2
====== ======
Liabilities and Stockholder's Equity
------------------------------------
Accounts payable................................... $ 76.9 88.5
Accrued liabilities................................ 23.9 27.0
Other liabilities.................................. 21.8 21.4
Debt (note 5)...................................... 388.6 383.2
------ ------
Total liabilities................................ 511.2 520.1
------ ------
Minority interests in equity of consolidated
subsidiaries..................................... 7.0 7.0
Stockholder's equity:
Preferred stock (note 7)......................... 154.4 149.2
Common stock..................................... - -
Additional paid-in capital....................... 68.3 73.5
Accumulated deficit.............................. (168.7) (155.9)
Cumulative foreign currency
translation adjustment......................... (0.2) (0.1)
Intercompany account............................. 0.6 0.4
------ ------
54.4 67.1
------ ------
$ 572.6 594.2
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995*
---- -----
<S> <C> <C>
Revenue:
Admissions................................................... $ 107.3 92.9
Concession sales............................................. 41.3 34.6
Other........................................................ 4.8 2.5
----- -----
153.4 130.0
----- -----
Costs and expenses:
Direct exhibitions expenses.................................. 59.1 48.9
Direct concession costs...................................... 6.6 5.6
Other operating expenses (note 8)............................ 63.0 55.9
Affiliate lease rentals (note 8)............................. 2.7 3.6
General and administrative (note 8).......................... 8.3 7.9
Depreciation and amortization................................ 16.5 15.8
----- -----
156.2 137.7
------ -----
Operating loss............................................... (2.8) (7.7)
Other income (expense):
Interest, net (notes 5 and 8)................................ (8.3) (8.9)
Loss on disposition of assets, net........................... - (0.1)
Share of earnings of affiliates, net......................... - 0.2
Minority interests in earnings of consolidated subsidiaries.. (0.2) -
Other, net................................................... (1.1) (0.7)
----- -----
(9.6) (9.5)
----- -----
Loss before income tax expense............................... (12.4) (17.2)
Income tax expense (note 9)..................................... (0.4) (0.3)
------ ------
Net loss..................................................... (12.8) (17.5)
Dividends on preferred stock (note 7)........................... (5.2) (4.6)
------ -----
Net loss available to common stockholder..................... $ (18.0) (22.1)
======= ======
</TABLE>
*Restated
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholder's Equity
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Preferred Common Additional Accumulated
stock stock paid-in capital deficit
----------- -------- --------------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996............................ $ 149.2 - 73.5 (155.9)
Accretion of dividends on
preferred stock..................................... 5.2 - (5.2) -
Net increase in intercompany account.................. - - - -
Foreign currency translation adjustment............... - - - -
Net loss.............................................. - - - (12.8)
-------- -------- --------------- -------------
Balance at March 31, 1996............................. $ 154.4 - 68.3 (168.7)
======== ======== =============== =============
<CAPTION>
Cumulative
foreign currency Total
translation Intercompany stockholder's
adjustment account equity
---------------- ------------ -----------
<S> <C> <C> <C>
Balance at January 1, 1996............................. (0.1) 0.4 67.1
Accretion of dividends on
preferred stock...................................... - - -
Net increase in intercompany account................... - 0.2 0.2
Foreign currency translation adjustment................ (0.1) - (0.1)
Net loss............................................... - - (12.8)
-------- -------- ---------
Balance at March 31, 1996.............................. (0.2) 0.6 54.4
======== ======== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995*
---- -----
<S> <C> <C>
Net cash used in operating activities........................... $ (11.3) (10.5)
------ -----
Cash flow from investing activities:
Capital expenditures......................................... (19.2) (18.4)
Decrease in construction in progress, net.................... 0.7 1.0
Increase in receivable from sale and leaseback escrow funds.. (5.0) -
Cash paid for minority interest holdings..................... - (10.0)
Other, net................................................... (3.7) (0.6)
------ -----
Net cash used in investing activities........................ (27.2) (28.0)
------ -----
Cash flow from financing activities:
Debt borrowings.............................................. 15.9 51.0
Debt repayments.............................................. (10.7) (13.7)
Increase (decrease) in cash overdraft........................ 11.0 (3.7)
Other, net................................................... (0.5) (1.6)
------ -----
Net cash provided by financing activities.................... 15.7 32.0
------ -----
Net decrease in cash......................................... (22.8) (6.5)
Cash and cash equivalents:
Beginning of period.......................................... 32.4 12.7
----- -----
End of period................................................ $ 9.6 6.2
===== =====
Reconciliation of net loss to net cash used in
operating activities:
Net loss........................................................ $(12.8) (17.5)
Effect of leases with escalating minimum annual rentals......... 0.7 0.4
Depreciation and amortization................................... 16.5 15.8
Loss on disposition of assets, net.............................. - 0.1
Share of earnings of affiliates, net............................ - (0.2)
Minority interests in earnings of consolidated subsidiaries..... 0.2 -
(Increase) decrease in receivables, prepaid expenses and
other assets, net.............................................. (0.7) 0.6
Decrease in account payables, accrued liabilities
and other liabilities, net..................................... (15.2) (9.7)
------ -----
Net cash used in operating activities........................ $(11.3) (10.5)
====== ======
</TABLE>
*Restated
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1996
(Unaudited)
(1) General Information
-------------------
On May 12, 1992, United Artists Theatre Circuit, Inc. and substantially
all of its then existing subsidiaries (the "Company") were acquired (the
"Acquisition") by OSCAR I Corporation ("OSCAR I") from an indirect
subsidiary of Tele-Communications, Inc. ("TCI"). OSCAR I is owned by an
investment fund managed by affiliates of Merrill Lynch Capital Partners,
Inc. ("MLCP") and certain institutional investors (collectively the "Non-
Management Investors"), Mr. Stewart D. Blair (Chairman and Chief Executive
Officer of the Company), and certain other members of the Company's
management. The purchase price, including the assumption of certain
liabilities, was approximately $544 million.
Simultaneously with the Acquisition, the Non-Management Investors formed
OSCAR II Corporation, a Delaware corporation ("OSCAR II") and acquired
from an affiliate of TCI all of the outstanding capital stock of United
Artists Realty Company, a Delaware corporation ("UAR") and its
subsidiaries, United Artists Properties I Corp. ("Prop I") and United
Artists Properties II Corp. ("Prop II"). UAR, Prop I and Prop II were the
owners and lessors of certain operating theatre properties leased to and
operated by the Company and its subsidiaries. Certain mortgage debt of
UAR, Prop I and Prop II, which was secured by their theatre properties,
remained outstanding after the acquisition by OSCAR II. On February 28,
1995, OSCAR II was merged into OSCAR I effected by a one-for-one share
exchange.
Certain prior period amounts have been reclassified for comparability with
the 1996 presentation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) have been made in the accompanying interim condensed
consolidated financial statements which are necessary to present fairly
the financial position of the Company and the results of its operations.
Interim results are not necessarily indicative of the results for the
entire year because of fluctuations of revenue and related expenses
resulting from the seasonality of attendance and the availability of
popular motion pictures. These financial statements should be read in
conjunction with the audited December 31, 1995 consolidated financial
statements and notes thereto included as part of the Company's Form 10-K.
(2) Sale and Leaseback
------------------
On December 13, 1995, the Company entered into a sale and leaseback
transaction (the "Sale and Leaseback") whereby the buildings and land
underlying ten of its operating theatres and four theatres under
development were sold to, and leased back from, the 1995-A United Artists
Pass Through Trust (the "Pass Through Trust"), an unaffiliated third
party. The proceeds related to the four theatres under development
(approximately $22.0 million) were deposited into an escrow account and
will be used by the Company to fund substantially all of the construction
costs associated with the four theatres. In addition, 17 theatres owned by
Prop II were sold to the Pass Through Trust and leased back to the
Company.
7
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(2) Sale and Leaseback, continued
-----------------------------
The Sale and Leaseback requires the Company to lease the underlying
theatres for a period of 21 years and one month, with the option to extend
for up to an additional 10 years. The Company accounts for the lease as an
operating lease. The Sale and Leaseback requires the maintenance of
certain financial covenants by the Company.
(3) Restatement
-----------
During December 1995, the remaining 11 theatres owned by Prop II
subsequent to the Sale and Leaseback were contributed to the Company, the
Prop II master lease was terminated and the $12.5 million of letters of
credit established by the Company to support the Prop II debt were
canceled. The contribution of these theatres has been accounted for in a
manner similar to a pooling of interests, and accordingly, the
accompanying financial statements have been restated to include these
theatres. Separate revenue and net income (loss) amounts for the Company
and the 11 remaining Prop II theatres for the three months ended March 31,
1995 are presented in the following table (amounts in millions):
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1995
------------------
<S> <C>
Revenue:
Company................................. $129.9
Eleven Prop II Theatres................. 0.1
------
Combined................................ $130.0
======
Net income (loss):
Company................................. (18.0)
Eleven Prop II Theatres................. 0.5
------
Total................................... $(17.5)
=======
</TABLE>
In addition to the contribution of the remaining theatres, the equipment
in the Prop II theatres included in the Sale and Leaseback was transferred
to the Company during December 1995.
(4) Supplemental Disclosure of Cash Flow Information
------------------------------------------------
Cash payments for interest were $5.9 million and $6.6 million for the
three months ended March 31, 1996 and 1995, respectively.
The Company accrued $5.2 million and $4.6 million of dividends during the
three months ended March 31, 1996 and 1995, respectively, on its preferred
stock.
8
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(5) Debt
----
Debt is summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Bank Credit Facility (a).......... $ 255.0 250.0
Senior Secured Notes (b).......... 125.0 125.0
Other (c)......................... 8.6 8.2
----- -----
$ 388.6 383.2
===== =====
</TABLE>
(a) On May 1, 1995, the Company restated its existing bank credit
facility to principally provide for additional term and revolving
loan commitments, to extend the final maturity of the facility and
reduce interest rate borrowing spreads. The restated bank credit
facility (the "Bank Credit Facility") provides for term loans
aggregating $250.0 million (the "Term Loans"), a reducing revolving
loan with commitments aggregating $87.5 million (the "Revolving
Facility") and standby letters of credit aggregating $12.5 million
(the "Standby Letters of Credit"). Principal on the Term Loans is
payable in escalating semi-annual installments commencing December
31, 1996, with a final installment due March 31, 2002. The aggregate
commitments available for borrowing under the Revolving Facility
decline each year commencing December 31, 1997 through March 31,
2002. Borrowings under the Bank Credit Facility provide for interest
to be accrued at varying rates depending on the ratio of
indebtedness to annualized operating cash flow, as defined. Interest
is payable at varying dates depending on the type of rate selected
by the Company, but no less frequently than once each quarter. The
Bank Credit Facility contains certain provisions that require the
maintenance of certain financial ratios and place limitations on
additional indebtedness, disposition of assets, capital expenditures
and payment of dividends. The Bank Credit Facility is secured by the
stock of the Company, substantially all of the Company's
subsidiaries and UAR, and is guaranteed by OSCAR I and substantially
all of the Company's subsidiaries.
(b) The senior secured notes (the "Senior Secured Notes") are due May 1,
2002 and require repayments prior to maturity of $31.25 million on
May 1, 2000 and on May 1, 2001. The Senior Secured Notes accrue
interest at 11 1/2% per annum, which is payable semi-annually. The
Senior Secured Notes place limitations on, among other things,
additional indebtedness, disposition of assets and payment of
dividends. The Senior Secured Notes are secured on a pari-passu
----------
basis with the Bank Credit Facility by the stock of the Company,
substantially all of the Company's subsidiaries and UAR, and are
guaranteed on a pari-passu basis with the Bank Credit Facility by
----------
OSCAR I and substantially all of the Company's subsidiaries.
(c) Other debt at March 31, 1996, consists of various term loans,
mortgage notes, capital leases and other borrowings. This other debt
carries interest rates ranging from 7% to 12%. Principal and
interest are payable at various dates through March 1, 2006.
9
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(5) Debt, continued
---------------
At March 31, 1996, the Company was party to interest rate cap agreements
on $125.0 million of floating rate debt which provide for a LIBOR interest
rate cap ranging between 6 1/2% and 7 1/2% and expire at various dates
through 1997. The Company is subject to credit risk exposure from non-
performance of the counterparties to the interest rate cap agreements. As
the Company has historically received payments relating to its interest
rate cap agreements, it does not anticipate such non-performance in the
future. The Company amortizes the cost of its interest rate cap agreements
to interest expense over the life of the underlying agreement. Amounts
received from the counterparties to the interest rate cap agreements are
recorded as a reduction of interest expense.
At March 31, 1996, the Company had approximately $82.5 million of unused
revolving loan commitments pursuant to the Bank Credit Facility, $2.0
million of which has been used for the issuance of letters of credit. The
Company pays commitment fees of 1/2% per annum on the average unused
revolver commitments.
(6) Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
At March 31, 1996 the fair value of the Company's cash and cash
equivalents, outstanding borrowings under the Bank Credit Facility and
interest rate cap agreements approximated their carrying amount and the
fair value of the Senior Secured Notes was approximately $130.4 million.
(7) Preferred Stock
---------------
Concurrent with the Acquisition, the Company issued 92,500 shares of
preferred stock with a liquidation value of $92.5 million to OSCAR I. The
preferred stock is redeemable at any time at the option of the Company at
its stated liquidation value plus accrued and unpaid dividends. Dividends
accrue at a rate of 8% through December 31, 1995, 9% through December 31,
1996 and 14% thereafter, and are payable in cash or in kind through
December 31, 1996. Cash dividends are required for periods subsequent to
December 31, 1996, provided that no provisions exist in any senior debt
facility which restricts such cash payments. Currently, such restrictions
exist. Due to the perpetual nature of the preferred stock and the
escalating terms of the required dividend rates, for financial reporting
purposes, dividends have been accrued at a 14% per annum rate for all
periods since issuance. At March 31, 1996, the actual redemption value in
accordance with the terms of the preferred stock was approximately $125.2
million.
(8) Related Party Transactions
--------------------------
The Company leases certain of its theatres from UAR, Prop I and Prop II
(through December 13, 1995) in accordance with three master leases. The
master leases provide for basic monthly or quarterly rentals and may
require additional rentals, based on the revenue of the underlying
theatre. In conjunction with the Sale and Leaseback, the Prop II master
lease was cancelled.
10
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(8) Related Party Transactions, continued
-------------------------------------
In order to fund the cost of additions and/or renovations to the theatres
leased by the Company from UAR or Prop I, the Company has periodically
made advances to UAR. Interest on the advances accrues at the prime rate
and amounted to $0.3 million and $0.6 million for the months ended March
31, 1996 and 1995, respectively.
The Company is a party to a management agreement with UAR. Such management
agreement provides for a fee to be paid to the Company in return for
certain accounting and management services. These fees are recorded as a
reduction of general and administrative expenses in the accompanying
condensed consolidated financial statements and approximated $0.1 million
and $0.2 million for the three months ended March 31, 1996 and 1995,
respectively.
(9) Income Taxes
------------
The Company and each of its 80% or more owned subsidiaries are included in
OSCAR I's consolidated federal income tax returns. Pursuant to a tax
sharing agreement with OSCAR I, the Company and each of its 80% or more
owned consolidated subsidiaries are allocated a portion of OSCAR I's
current federal income tax expense (benefit). Such allocations are
determined as if the Company and each of its 80% or more owned
consolidated subsidiaries were separate tax paying entities within the
consolidated group. For the three months ended March 31, 1996 and 1995,
the Company and each of its 80% or more owned consolidated subsidiaries
were allocated no current federal income tax expense (benefit) pursuant to
such tax sharing agreement as a result of the group's overall net loss
position.
Consolidated subsidiaries in which the Company owns less than 80% file
separate federal income tax returns. The current and deferred federal and
state income taxes of such subsidiaries are calculated on a separate
return basis and are included in the accompanying condensed consolidated
financial statements of the Company.
At March 31, 1996 the Company had deferred tax assets and deferred tax
liabilities of approximately $64.3 million and $7.9 million, respectively,
relating primarily to the Company's net operating loss carry-forward and
the difference between the financial statement and income tax basis in the
Company's property and equipment. At March 31, 1996 the Company had
recorded a valuation allowance of approximately $56.4 million against the
net deferred tax asset.
(10) Commitments and Contingencies
-----------------------------
At March 31, 1996, the Company had outstanding approximately $14.5 million
of letters of credit, $12.5 million of which relates to the indebtedness
of Prop I.
11
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(10) Commitments and Contingencies
-----------------------------
There are pending legal proceedings by or against the Company involving
alleged breaches of contracts, torts, violations of antitrust laws, and
miscellaneous other causes of action. In addition, there are various
claims against the Company relating to certain leases held by the Company.
Although it is not possible to predict the outcome of such legal
proceedings, in the opinion of management, such legal proceedings will not
have a material adverse effect on the Company's financial position,
liquidity or results of operations.
The federal American With Disabilities Act ("ADA") and certain state
statutes among other things, require that places of public accommodation,
including theatres (both existing and newly constructed) be accessible to
and that assistive listening devices be available for use by certain
patrons with disabilities. With respect to access to theatres, the ADA may
require that certain modifications be made to existing theatres in order
to make such theatres accessible to certain theatre patrons and employees
who are disabled. The ADA requires that theatres be constructed in such a
manner that persons with disabilities have full use of the theatre and its
facilities and reasonable access to work stations. The ADA provides for a
private right of action and for reimbursement of plaintiff's attorney's
fees and expenses under certain circumstances. The Company has established
a program to review and evaluate the Company's theatres and to make any
changes which may be required by the ADA. Although the Company's review
and evaluation is ongoing, management believes that the cost of complying
with the ADA will not materially adversely affect the Company's financial
position, liquidity and results of operations.
Connie Arnold and Annette Cupolo vs. United Artists Theatre Circuit, Inc.
This action was originally filed in the Superior Court, Alameda County,
California on July 31, 1991, case number 683090-4. The complaint
originally alleged that the Company violated various California statutes
and engaged in actions which violated plaintiffs' civil rights by
allegedly constructing a theatre which is not lawfully accessible to
certain disabled persons. The relief sought included injunctive relief and
damages (including statutory damages pursuant to California law). The
action was certified by the state court as a class action, although the
size of the class was not determined. The amount of statutory damages
sought would depend upon the size of the putative class. In February 1993,
the defendant removed the case to U. S. District Court for the Northern
District of California (Connie Arnold and Annette Cupolo vs. United
Artists Theatre Circuit, Inc. d/b/a/ U.A. Emery Bay; and Does 1 through
20, inclusive, case number C 93 0079 TEH). The plaintiffs then amended
their complaint to include claims similar to those made in the state court
with respect to all of the Company's owned or operated theatres in
California. The plaintiffs also added a cause of action alleging violation
of the ADA relating to accessibility for certain persons in the theatres
in California. The Company then sued, as third-party defendants, various
architects who had participated in the design or construction of certain
of the Company's theatres located in California.
In 1994 the plaintiffs and the Company, along with several other parties
named as third-party and fourth-party defendants, began a formal mediation
process supervised by the court. During the process plaintiffs and the
Company agreed to expand the ADA claims to cover all of the Company's
theatres throughout the United States and to attempt to involve the United
States Department of Justice ("DOJ") in the mediation process and any
settlement which might result. The DOJ has consented to joining as a party
to the litigation and the settlement agreement.
12
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(10) Commitments and Contingencies
-----------------------------
The plaintiffs, the Company, the DOJ and the third and fourth-party
defendants have reached agreement as to the terms and conditions of a
settlement agreement, the effectiveness of which is subject to a number of
conditions, including approval thereof by the court after conducting one
or more hearings. The proposed settlement agreement requires, among other
things, that the Company pay certain amounts as damages and for
plaintiffs' attorneys' fees, as well as make certain physical
modifications to its theatres over a six year period. Such damages and
attorneys' fees had previously been accrued by the Company. The third-
party defendant architects have agreed to pay a certain amount to the
Company as damages.
13
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
Assets
------
<S> <C> <C>
Cash and cash equivalents.......................... $ 10.8 32.5
Notes and other receivables, net................... 28.2 25.1
Prepaid expenses and concession inventory.......... 19.3 20.3
Investments and related receivables................ 17.3 14.1
Property and equipment, at cost:
Land............................................ 66.2 65.8
Theatre buildings, equipment and other.......... 438.9 428.2
----- -----
505.1 494.0
Less accumulated depreciation and amortization.. (114.4) (107.0)
------- -------
390.7 387.0
----- -----
Intangible assets, net............................. 157.9 165.8
Other assets, net.................................. 19.8 21.0
----- -----
$ 644.0 665.8
===== =====
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable................................... $ 77.0 88.5
Accrued liabilities................................ 25.1 28.3
Other liabilities (note 2)......................... 33.9 33.7
Debt (note 4)...................................... 459.0 453.7
----- -----
Total liabilities................................ 595.0 604.2
----- -----
Minority interests in equity of consolidated
subsidiaries..................................... 7.0 7.0
Stockholders' equity:
Preferred stock (note 6)......................... 154.4 149.2
Common stock:
Class A........................................ 0.1 0.1
Class B........................................ - -
Class C........................................ - -
Additional paid-in capital....................... 55.9 61.1
Accumulated deficit.............................. (168.2) (155.7)
Cumulative foreign currency
translation adjustment......................... (0.2) (0.1)
---- -----
42.0 54.6
---- ----
$ 644.0 665.8
===== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
14
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Admissions................................................... $107.3 92.9
Concession sales............................................. 41.3 34.6
Other........................................................ 5.2 2.8
------ -----
153.8 130.3
------ -----
Costs and expenses:
Direct exhibitions expenses.................................. 59.1 48.9
Direct concession costs...................................... 6.6 5.6
Other operating expenses..................................... 63.0 55.9
General and administrative................................... 8.5 8.1
Depreciation and amortization................................ 17.2 17.0
----- -----
154.4 135.5
----- -----
Operating loss............................................... (0.6) (5.2)
Other income (expense):
Interest, net (note 4)....................................... (10.2) (12.7)
Loss on disposition of assets, net........................... - (0.1)
Share of earnings of affiliates, net......................... - 0.2
Minority interests in earnings of consolidated subsidiaries.. (0.2) -
Other, net................................................... (1.1) (0.7)
----- -----
(11.5) (13.3)
------ ------
Loss before income tax expense.............................. (12.1) (18.5)
Income tax expense (note 7)..................................... (0.4) (0.3)
----- ----
Net loss..................................................... (12.5) (18.8)
Dividends on preferred stock (note 6)........................... (5.2) (4.6)
----- -----
Net loss available to common stockholders.................... $(17.7) (23.4)
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
15
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Common Common Common
Preferred stock stock stock
stock Class A Class B Class C
----------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance at January 1, 1996............................ $ 149.2 0.1 - -
Accretion of dividends on
preferred stock..................................... 5.2 - - -
Foreign currency translation adjustment............... - - - -
Net loss.............................................. - - - -
---------- ------- ------- -------
Balance at March 31, 1996............................. $ 154.4 0.1 - -
========== ======= ======= =======
<CAPTION>
Cumulative
Additional foreign currency Total
paid-in Accumulated translation stockholders'
capital deficit adjustment equity
---------- ------------- ---------------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1996............................ 61.1 (155.7) (0.1) 54.6
Accretion of dividends on
preferred stock..................................... (5.2) - - -
Foreign currency translation adjustment............... - - (0.1) (0.1)
Net loss.............................................. - (12.5) - (12.5)
------- ------------- -------- ----------
Balance at March 31, 1996............................. 55.9 (168.2) (0.2) 42.0
======= ============= ======== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
16
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Net cash used in operating activities........................... $(10.1) (9.1)
------ ----
Cash flow from investing activities:
Capital expenditures......................................... (19.6) (19.9)
Decrease in construction in progress, net.................... 0.7 1.0
Increase in receivable from sale and leaseback escrow funds.. (5.0) -
Cash paid for minority interest holdings..................... - (10.0)
Other, net................................................... (3.7) (0.7)
------ -----
Net cash used in investing activities........................ (27.6) (29.6)
------ ------
Cash flow from financing activities:
Debt borrowings.............................................. 15.9 51.0
Debt repayments.............................................. (10.8) (15.1)
Increase (decrease) in cash overdraft........................ 11.0 (3.7)
Other, net................................................... (0.1) (0.1)
------ -----
Net cash provided by financing activities.................... 16.0 32.1
------ ----
Net decrease in cash......................................... (21.7) (6.6)
Cash and cash equivalents:
Beginning of period........................................ 32.5 12.8
------ ----
End of period.............................................. $ 10.8 6.2
===== ====
Reconciliation of net loss to net cash used in
operating activities:
Net loss...................................................... $(12.5) (18.8)
Effect of leases with escalating minimum annual rentals....... 0.7 0.4
Depreciation and amortization................................. 17.2 17.0
Loss on disposition of assets, net............................ - 0.1
Share of earnings of affiliates, net.......................... - (0.2)
Minority interests in earnings of consolidated subsidiaries... 0.2 -
(Increase) decrease in receivables, prepaid expenses and
other assets, net............................................ (0.3) 1.7
Decrease in accounts payable, accrued liabilities
and other liabilities, net................................... (15.4) (9.3)
------ ----
Net cash used in operating activities...................... $(10.1) (9.1)
====== ====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
17
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1996
(Unaudited)
(1) General Information
-------------------
Oscar I Corporation, a Delaware Corporation ("OSCAR I") was formed in
February 1992 for the purpose of purchasing United Artists Theatre
Circuit, Inc. ("UATC") from an affiliate of Tele-Communications, Inc.
("TCI"). OSCAR I is owned by an investment fund managed by affiliates of
Merrill Lynch Capital Partners, Inc. ("MLCP") and certain institutional
investors (collectively, the "Non-Management Investors"), Mr. Stewart D.
Blair (Chairman and Chief Executive Officer of UATC) and certain other
members of UATC's management. On May 12, 1992, OSCAR I purchased all of
the outstanding common stock of UATC from an affiliate of TCI (the
"Acquisition") for approximately $544.0 million.
Simultaneously with the Acquisition, the Non-Management Investors formed
OSCAR II Corporation, a Delaware corporation ("OSCAR II") and acquired
from an affiliate of TCI all of the outstanding capital stock of United
Artists Realty Company, a Delaware corporation ("UAR") and its
subsidiaries, United Artists Properties I Corp. ("Prop I") and United
Artists Properties II Corp. ("Prop II"). UAR, Prop I and Prop II were the
owners and lessors of certain operating theatre properties leased to and
operated by UATC and its subsidiaries. Certain mortgage debt of UAR, Prop
I and Prop II, which was secured by their theatre properties, remained
outstanding after the acquisition by OSCAR II. On February 28, 1995, OSCAR
I merged with OSCAR II. A total of 104,933 shares of OSCAR I's common
stock were exchanged for all of the outstanding shares of OSCAR II.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) have been made in the accompanying interim condensed
consolidated financial statements which are necessary to present fairly
the financial position of OSCAR I and the results of its operations.
Interim results are not necessarily indicative of the results for the
entire year. These financial statements should be read in conjunction with
the audited December 31, 1995 consolidated financial statements and notes
thereto included as part of UATC's Form 10-K.
(2) Sale and Leaseback
------------------
On December 13, 1995, OSCAR I entered into a sale and leaseback
transaction (the "Sale and Leaseback") whereby the buildings and land
underlying 31 of its operating theatres and four theatres currently under
development were sold to, and leased back from, the 1995-A United Artists
Pass Through Trust (the "Pass Through Trust"), an unaffiliated third
party. The proceeds related to the four theatres under development
(approximately $22.0 million) were deposited into an escrow account and
will be used by OSCAR I to fund substantially all of the construction
costs associated with the four theatres.
OSCAR I realized a net gain of approximately $12.1 million as a result of
the Sale and Leaseback. For financial statement purposes, this gain has
been deferred and will be recognized over the term of the lease as a
reduction of rent expense.
18
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(3) Supplemental Disclosure of Cash Flow Information
------------------------------------------------
Cash payments for interest were $7.8 million and $9.8 million for the
three months March 31, 1996 and 1995, respectively.
OSCAR I accrued $5.2 million and $4.6 million of dividends during the
three months ended March 31, 1996 and 1995, respectively, on its preferred
stock.
(4) Debt
----
Debt is summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
March 31,
---------------
1996 1995
---- ----
<S> <C> <C>
UATC Bank Credit Facility (a).............. $ 255.0 250.0
UATC Senior Secured Notes (b).............. 125.0 125.0
UATC Other (c)............................. 8.6 8.2
UAR Promissory Notes (d)................... 13.8 13.8
------ -----
Prop I Mortgage Notes (e).................. 56.6 56.7
------ -----
$ 459.0 453.7
====== =====
</TABLE>
(a) On May 1, 1995, UATC restated its existing bank credit facility to
principally provide for additional term and revolving loan
commitments, to extend the final maturity of the facility and reduce
interest rate borrowing spreads. The restated bank credit facility
(the "Bank Credit Facility") provides for term loans aggregating
$250.0 million (the "Term Loans), a reducing revolving loan with
commitments aggregating $87.5 million (the "Revolving Facility") and
standby letters of credit aggregating $12.5 million (the "Standby
Letters of Credit"). Principal on the Term Loans is payable in
escalating semi-annual installments commencing December 31, 1996,
with a final installment due March 31, 2002. The aggregate
commitments available for borrowing under the Revolving Facility
decline each year commencing December 31, 1997 through March 31,
2002. Borrowings under the Bank Credit Facility provide for interest
to be accrued at varying rates depending on the ratio of
indebtedness to annualized operating cash flow, as defined. Interest
is payable at varying dates depending on the type of rate selected
by UATC, but no less frequently than once each 90 days. The Bank
Credit Facility contains certain provisions that require the
maintenance of certain financial ratios and place limitations on
additional indebtedness, disposition of assets and payment of
dividends. The Bank Credit Facility is secured by the stock of UATC,
substantially all of UATC's subsidiaries and is guaranteed by OSCAR
I and substantially all of UATC's subsidiaries.
19
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(4) Debt, continued
---------------
(b) The senior secured notes (the "Senior Secured Notes") are due May 1,
2002 and require repayments prior to maturity of $31.25 million on
May 1, 2000 and on May 1, 2001. The Senior Secured Notes accrue
interest at 11 1/2% per annum, which is payable semi-annually. The
Senior Secured Notes place limitations on, among other things,
additional indebtedness, disposition of assets and payment of
dividends. The Senior Secured Notes are secured on a pari-passu
----------
basis with the Bank Credit Facility by the Stock of UATC,
substantially all of the UATC's subsidiaries and UAR, and are
guaranteed on a pari-passu basis with the Bank Credit Facility by
----------
OSCAR I and substantially all of UATC's subsidiaries.
(c) UATC's other debt at March 31, 1996 consists of various term loans,
mortgage notes, capital leases and other borrowings. This other debt
carries interest rates ranging from 7% to 12%. Principal and
interest are payable at various dates through March 1, 2006.
(d) In conjunction with the acquisitions of certain theatres prior to
the Acquisition, UAR issued $51.6 million of non-interest bearing
promissory notes to the sellers. Principal on the promissory notes
is due quarterly through October 1999. For financial statement
purposes, the promissory notes were discounted at UAR's effective
borrowing rate on the date the promissory notes were executed.
(e) The Prop I first mortgage notes (the "Prop I Notes") bear interest
at 11.15% per annum. Principal and interest are payable in monthly
installments, with a lump sum payment of principal and accrued, but
unpaid, interest due on November 1, 1998. The Prop I Notes are
secured by a first mortgage on Prop I's theatre properties, an
assignment of the lease agreement with UATC, and $12.5 million of
bank letters of credit provided by UATC. The Indenture of Mortgage,
among its other provisions, contains limitations on the sale and/or
substitution of properties and a limitation on any additional debt
incurred by Prop I other than intercompany advances.
At March 31, 1996, UATC was party to interest rate cap agreements on
$125.0 million of floating rate debt which provide for a LIBOR interest
rate cap ranging between 6 1/2% and 7 1/2% and expire at various dates
through 1997. UATC is subject to credit risk exposure from non-performance
of the counterparties to the interest rate cap agreements. As UATC has
historically received payments relating to such interest rate cap
agreements, UATC does not anticipate such non-performance in the future.
UATC amortizes the cost of its interest rate cap agreements to interest
expense over the life of the agreement. Amounts received from the
counterparties to the interest rate cap agreements are recorded as a
reduction of interest expense.
20
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(4) Debt, continued
---------------
At March 31, 1996, UATC had approximately $82.5 million of unused
revolving loan commitments pursuant to the Bank Credit Facility, $2.0
million of which has been used for the issuance of letters of credit. UATC
pays commitment fees of 1/2% per annum on the average unused revolver
commitments.
(5) Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
At March 31, 1996 the fair value of OSCAR I's cash and cash equivalents,
outstanding borrowings under the Bank Credit Facility and interest rate
cap agreements approximated their carrying amount and the fair value of
the Senior Secured Notes was approximately $130.4 million.
(6) Preferred Stock
---------------
The OSCAR I preferred stock is redeemable any time at the option of OSCAR
I at its stated liquidation value plus accrued and unpaid dividends.
Dividends accrue at a rate of 8% through December 31, 1995, 9% through
December 31, 1996 and 14% thereafter, and are payable in cash or in kind
through December 31, 1996. Dividends subsequent to December 31, 1996 are
required to be paid in cash unless any senior debt facility of OSCAR I or
UATC restricts payment. Currently, such restrictions exist. The preferred
stock contains certain restrictions on, among other things, the incurrence
of additional indebtedness by OSCAR I or its subsidiaries. Due to the
perpetual nature of the preferred stock and the escalating terms of the
required dividend rates, for financial statement purposes dividends have
been accrued at a 14% per annum rate. At March 31, 1996, the actual
redemption value in accordance with the terms of the preferred stock was
approximately $125.2 million.
(7) Income Taxes
------------
Consolidated subsidiaries in which OSCAR I owns less than 80% file
separate federal income tax returns. The current and deferred federal and
state income taxes of such subsidiaries are calculated on a separate
return basis and are included in the accompanying condensed consolidated
financial statements of OSCAR I.
At March 31, 1996 OSCAR I had deferred tax assets and deferred tax
liabilities of approximately $68.9 million and $11.2 million,
respectively, relating primarily to OSCAR I's net operating loss
carry-forward and the difference between the financial statement and
income tax basis in OSCAR I's property and equipment. At March 31, 1996
OSCAR I had recorded a valuation allowance of approximately $57.7 million
against the net deferred tax asset.
21
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(8) Commitments and Contingencies
-----------------------------
There are pending legal proceedings by or against OSCAR I and/or its
subsidiaries involving alleged breaches of contracts, torts, violations of
antitrust laws, and miscellaneous other causes of action. In addition,
there are various claims against OSCAR I and/or its subsidiaries relating
to certain of the leases held by OSCAR I and/or its subsidiaries. Although
it is not possible to predict the outcome of such legal proceedings, in
the opinion of management, such legal proceedings will not have a material
adverse effect on the OSCAR I's financial position, liquidity or results
of operations.
The federal Americans With Disabilities Act of 1990 (the "ADA"), and
certain state statutes among other things, require that places of public
accommodation, including theatres (both existing and newly constructed) be
accessible to and that assistive listening devices be available for use by
certain patrons with disabilities. With respect to access to theatres, the
ADA may require that certain modifications be made to existing theatres in
order to make such theatres accessible to certain theatre patrons and
employees who are disabled. The ADA requires that theatres be constructed
in such a manner that persons with disabilities have full use of the
theatre and its facilities and reasonable access to work stations. The ADA
provides for a private right of action and for reimbursement of
plaintiff's attorneys' fees and expenses under certain circumstances.
OSCAR I has established a program to review and evaluate OSCAR I's
theatres and to make any changes which may be required by the ADA.
Although OSCAR I's review and evaluation is on-going, management believes
that the cost of complying with the ADA will not materially adversely
affect the Company's financial position, liquidity or results of
operations.
Connie Arnold and Annette Cupolo vs. United Artists Theatre Circuit, Inc.
This action was originally filed in the Superior Court, Alameda County,
California on July 31, 1991, case number 683090-4. The complaint
originally alleged that UATC violated various California statutes and
engaged in actions which violated plaintiffs' civil rights by allegedly
constructing a theatre which is not lawfully accessible to certain
disabled persons. The relief sought included injunctive relief and damages
(including statutory damages pursuant to California law). The action was
certified by the state court as a class action, although the size of the
class was not determined. The amount of statutory damages sought would
depend upon the size of the putative class. In February 1993, the
defendant removed the case to U. S. District Court for the Northern
District of California (Connie Arnold and Annette Cupolo vs. United
Artists Theatre Circuit, Inc. d/b/a/ U.A. Emery Bay; and Does 1 through
20, inclusive, case number C 93 0079 TEH). The plaintiffs then amended
their complaint to include claims similar to those made in the state court
with respect to all of UATC's owned or operated theatres in California.
The plaintiffs also added a cause of action alleging violation of the ADA
relating to accessibility for certain persons in the theatres in
California. UATC then sued, as third-party defendants, various architects
who had participated in the design or construction of certain of the
Company's theatres located in California.
22
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(8) Commitments and Contingencies
-----------------------------
In 1994 the plaintiffs and UATC, along with several other parties named as
third-party and fourth-party defendants, began a formal mediation process
supervised by the court. During the process plaintiffs and the Company
agreed to expand the ADA claims to cover all of the Company's theatres
throughout the United States and to attempt to involve the United States
Department of Justice ("DOJ") in the mediation process and any settlement
which might result. The DOJ has consented to joining as a party to the
litigation and the settlement agreement.
The plaintiffs, UATC, the DOJ and the third and fourth-party defendants
have reached agreement as to the terms and conditions of a settlement
agreement, the effectiveness of which is subject to a number of
conditions, including approval thereof by the court after conducting one
or more hearings. The proposed settlement agreement requires, among other
things, that UATC pay certain amounts as damages and for plaintiffs'
attorneys' fees, as well as make certain physical modifications to its
theatres over a six year period. Such damages and attorneys' fees had
previously been accrued by UATC. The third-party defendant architects have
agreed to pay a certain amount to UATC as damages.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Company's Condensed
Consolidated Financial Statements and related notes thereto. Such financial
statements provide additional information regarding the Company's financial
activities and condition.
During December 1995, the remaining 11 theatres owned by Prop II subsequent to
the Sale and Leaseback were contributed to the Company. The contribution of
these theatres has been accounted for in a manner similar to a pooling of
interests, and accordingly, the Company's financial statements have been
restated to include these theatres as if they had been owned for all of such
periods. The following discussion of the Company's results of operations takes
into consideration the restatement of the Company's financial statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The following table summarizes certain operating data of the Company's theatres
(dollars in millions, except admissions per weighted average operating theatre,
admissions per weighted average operating screen and concession sales per
weighted average operating theatre):
<TABLE>
<CAPTION>
Three Months %
Ended March 31, Increase
-----------------------
1996 1995 (Decrease)
----- ---- ----------
<S> <C> <C> <C>
Operating Theatres (1)
Revenue:
Admissions............................ $ 107.3 92.9 15.5%
Concession sales...................... 41.3 34.6 19.4
Other................................. 4.8 2.5 92.0
Operating Expenses:
Direct exhibition expenses............ 59.1 48.9 20.9
Direct concession costs............... 6.6 5.6 17.9
Personnel expense..................... 23.0 21.8 5.5
Rent expense.......................... 20.7 17.3 19.2
Other operating expenses.............. 22.0 20.4 7.8
Weighted Avg. Operating Theatres(2)..... 408 414 (1.5)
Weighted Avg. Operating Screens(2)...... 2,325 2,258 3.0
Weighted Avg. Screens Per Theatre....... 5.7 5.5 4.5
Admissions Per Weighted Avg. Operating
Theatre................................ $262,990 224,396 17.2
Admissions Per Weighted Average
Operating Screen....................... $ 46,151 41,143 12.2
Concession Sales Per Weighted Average
Operating Theatre...................... $101,225 83,575 21.1
</TABLE>
(1) The operating theatres include revenue and expenses of all theatres operated
by the Company which are more than 50% owned.
(2) Weighted average operating theatres and screens represent the number of
theatres and screens operated weighted by the number of days operated during
the period.
24
<PAGE>
REVENUE FROM OPERATING THEATRES
- -------------------------------
ADMISSIONS: Admissions revenue and admissions revenue per weighted average
screen increased 15.5% and 12.2%, respectively, during the three months ended
March 31, 1996 as compared to the three months ended March 31, 1995, primarily
as a result of a 13.4% increase in attendance and a 1.8% increase in the average
ticket price. The increase in attendance was primarily due to the success of
several films released during the 1995 holidays which carried over into 1996
such as Toy Story, Waiting to Exhale, Jumanji, Heat and Grumpier Old Men and to
the success of films released during the first quarter of 1996 such as 12
Monkeys, Mr. Holland's Opus, Broken Arrow, Rumble in the Bronx, Up Close and
Personal, Birdcage and Executive Decision versus the general lack of success of
films released during the first quarter of 1995. Admissions per weighted average
operating theatre increased 17.2% primarily as a result of the increased
attendance and average ticket price discussed above and to the new theatres
opened by the Company during the latter part of 1995 and the sale or closure of
several smaller (in terms of screens) theatres.
CONCESSIONS: Concession sales revenue increased 19.4% during the three months
ended March 31, 1996 as compared to the three months ended March 31, 1995,
primarily as a result of the increased attendance discussed above and to a 5.4%
increase in the average concession sale per patron. Concession sales per
weighted average operating theatre increased 21.1% during the three months ended
March 31, 1996 as compared to the three months ended March 31, 1995. The
increases in the average concession sale per patron and concession sales per
weighted average operating theatre were attributable to the Company's increased
emphasis on training, the installation of bulk candy stands in May 1995, the
renovation of concession stands at certain existing theatres, the opening of
several new theatres with more efficient concession operations and the closure
or sale of certain less efficient older theatres.
OTHER: Other revenue is derived primarily from on-screen advertising,
electronic video games located in theatre lobbies, the rental of theatres by the
Company's newly formed Proteus Network(TM) for satellite networked and
non-networked corporate meetings, seminars and other training/educational uses,
non-theatrical related revenue from the Company's Starport(TM) entertainment
centers and other miscellaneous revenue. Other revenue increased 92.0% (or $2.3
million) during the three months ended March 31, 1996 as compared to the three
months ended March 31, 1995 primarily as a result of the Company's circuit-wide
pre-show slide advertising program initiated in the middle of 1995, revenue from
the Company's Starport(TM) entertainment center in Indianapolis which opened in
September 1995 and revenue from the Proteus Network(TM).
OPERATING EXPENSES FROM OPERATING THEATRES
- ------------------------------------------
DIRECT EXHIBITION EXPENSES: Direct exhibition expenses include film rentals and
film and theatre advertising costs. Such expenses increased 20.9% during the
three months ended March 31, 1996 as compared to the three months ended March
31, 1995, primarily as a result of the increase in admissions discussed above.
Direct exhibition expenses as a percentage of admissions revenue were 55.1% and
52.6% for the three months ended March 31, 1996 and 1995, respectively. The
increase in the direct exhibition percentage relates primarily to an increase in
the percentage of revenue from higher cost 1995 holiday films which held over
into the first quarter of 1996 and a greater number of successful films released
during the first quarter of 1996, and to increased pre-opening advertising costs
associated with the theatres opened during the latter part of 1995 and during
1996.
25
<PAGE>
DIRECT CONCESSION COSTS: Direct concession costs include direct concession
product costs and concession promotional expenses. Such costs increased 17.9%
during the three months ended March 31, 1996 as compared to the three months
ended March 31, 1995, primarily as a result of the increased concession sales
revenue discussed above. Direct concession costs as a percentage of concession
sales revenue were 16.0% and 16.2% for the three months ended March 31, 1996 and
1995, respectively. The slight decrease in the concession cost percentage for
the three months ended March 31, 1996 as compared to March 31, 1995 was
primarily due to reduced promotional expenses, partially offset by higher costs
attributable to the sale of bulk candy.
PERSONNEL EXPENSE: Personnel expense includes the salary and wages of the
theatre manager and all theatre staff, commissions on concession sales, payroll
taxes and employee benefits. Personnel expense increased 5.5% during the three
months ended March 31, 1996 as compared to the three months ended March 31,
1995, primarily as a result of the increased attendance and concession sales and
the increase in the number of Proteus Network(TM) events discussed above,
partially offset by a program at the theatre level to focus on more efficient
scheduling of payroll hours. Personnel costs as a percentage of total revenue
declined to 15.0% in 1996 versus 16.8% in 1995.
RENT EXPENSE: Rent expense consists primarily of theatre base rentals as well
as contingent rentals that are a function of the underlying theatre's revenue
over an agreed upon breakpoint. Rent expense increased 19.2% during the three
months ended March 31, 1996 as compared to the three months ended March 31,
1995, primarily as a result of increased percentage rent, higher base rentals on
newly opened theatres and rent associated with the Sale and Leaseback, partially
offset by fewer weighted average operating theatres. Excluding the rent
associated with the Sale and Leaseback, rent expense during the three months
ended March 31, 1996 increased only 13.9% as compared to 1995.
OTHER OPERATING EXPENSES: Other operating expenses consist of utilities,
repairs and maintenance, insurance, real estate and other taxes, supplies and
other miscellaneous operating expenses. Other operating expenses increased 7.8%
during the three months ended March 31, 1996 as compared to the three months
ended March 31, 1995, primarily as a result of the increase in theatre
attendance, normal inflationary increases and an increase in the number of
weighted average operating screens.
The revenue and operating expenses discussed above are incurred exclusively
within the Company's theatres. The other expense discussions below reflect the
combined expenses of corporate, divisional, district and theatre operations.
GENERAL AND ADMINISTRATIVE EXPENSE
- ----------------------------------
General and administrative expense consists primarily of costs associated with
the Company's corporate headquarters, film booking and three general manager and
15 district theatre operations offices (generally located in theatres). Such
expenses increased $0.4 million for the three months ended March 31, 1996 as
compared to the three months ended March 31, 1995, primarily as a result of
normal annual salary adjustments as well increased professional and legal fees
associated with the Connie Arnold settlement discussed below.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization expense includes the depreciation of theatre
buildings and equipment and the amortization of theatre lease costs and certain
non-compete agreements. Depreciation and amortization increased $0.7 million
during the three months ended March 31, 1996 as compared to the three months
ended March 31, 1995, primarily due to depreciation charges on the Company's
theatres opened during the latter part of 1995 and during 1996.
26
<PAGE>
INTEREST
- --------
Interest expense decreased $0.6 million for the three months ended March 31,
1996 as compared to the three months ended March 31, 1995, due to lower market
interests rates on floating rate borrowings, partially offset by slightly higher
average debt balances.
NET LOSS
- --------
During the three months ended March 31, 1996, the Company incurred a net loss of
$12.8 million compared to a net loss of $17.5 million for the three months ended
March 31, 1995. This decrease relates primarily to the increases in theatrical
revenue related to higher attendance and higher concession sales per attendee
and increases in Proteus Network(TM) and on-screen advertising revenue for the
three months ended March 31, 1996 discussed above and to increased theatrical
operating margins.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1996, $11.3 million of cash was used in
operating activities. This operating use of cash in addition to $27.2 million of
cash used for capital expenditures and other investing activities, was provided
by $15.7 million of financing activities and cash balances available at December
31, 1995.
Substantially all of the Company's admissions and concession sales revenue are
collected in cash. Due to the unfavorable interest rate spread between bank
facility borrowings and cash investments, the Company seeks to use all of its
available cash to repay its revolving bank borrowings and borrow under those
facilities as cash is required. The Company benefits from the fact that film
expenses (except for films that require advances or guarantees) are usually paid
15 to 45 days after the admissions revenue is collected.
The Company's results of operations and cash resources provided by operating
activities are subject to seasonal fluctuations in attendance which corresponds
to periods when there is a greater availability of popular motion pictures
during the period from Memorial Day through Labor Day and during the Easter,
Thanksgiving and Christmas holidays. During periods in which there is not an
abundant supply of successful motion pictures, the Company uses availability
under its revolving credit facilities to provide additional funding for its
working capital needs and repays those facilities during periods of higher
attendance.
On February 28, 1995, UAR's parent company, OSCAR II was merged into the
Company's parent company OSCAR I. As a result of this merger, OSCAR II ceased to
exist and OSCAR I became the parent company of both the Company and UAR. In
accordance with the terms of the Bank Credit Facility and Senior Secured Notes,
the stock of UAR was pledged as additional collateral for such borrowings. The
Company estimates the market value of properties (primarily land, building and
equipment associated with operating theatres) owned by UAR and its subsidiaries
is significantly in excess of the mortgage and other debt of UAR and its
subsidiaries.
Effective May 1, 1995, the Company refinanced and restated its Bank Credit
Facility to correspond with the Company's current capital and corporate
structure and its current business plan. The Bank Credit Facility provides for a
$250 million delayed draw term loan, $87.5 million of revolving loan and letters
of credit commitments, and $12.5 million of standby letters of credit. The Bank
Credit Facility has reduced the floating interest rate spreads paid by the
Company and extended the average life of the Company's bank debt by requiring
semi-annual principal payments on term loans commencing December 31, 1996, and
extending the maturity date to March 31, 2002.
27
<PAGE>
On December 13, 1995, the Company entered into the Sale and Leaseback whereby
the land and buildings underlying ten of its operating theatres and four
theatres under development were sold to, and leased back from, the United
Artists Theatre Circuit, Inc. 1995-A Pass Through Trust (the "Pass Through
Trust"), an unaffiliated third party. The sale proceeds relating to the ten
operating theatres were used to pay certain transaction expense and repay
outstanding revolving bank debt of the Company, with the excess being held in
short term cash investments. The proceeds related to the four theatres under
development (approximately $22.0 million) were deposited into an escrow account
and will be used to fund substantially all of the construction costs associated
with the four theatres. In addition, 17 theatres owned by Prop II were sold to
the Pass Through Trust and leased back to the Company. Substantially all of the
proceeds from the Prop II sale were used to retire all of Prop II's mortgage
debt and pay transaction expenses.
During December 1995, the remaining 11 theatres owned by Prop II were
contributed to the Company, the Prop II master lease with the Company was
terminated and the $12.5 million of letters of credit established by the Company
to guarantee the Prop II mortgage debt were canceled. The contribution of these
theatres has been accounted for in a manner similar to a pooling of interests
whereby the historical carrying value of the theatres and related equity was
contributed. In addition to the contribution of the remaining Prop II theatres,
the equipment in the 17 Prop II theatres included in the Sale and Leaseback was
contributed to the Company.
The Company is continuously looking for attractive theatre development
opportunities within the United States and certain countries outside of the
United States which have strategic significance and offer attractive returns and
growth potential. Theatres developed outside of the United States, are generally
developed in conjunction with local strategic partners. In addition, in an
effort to attract additional theatre patrons and increase theatre operating
results, the Company is developing entertainment centers called Starports(TM).
The Starport(TM) entertainment centers will typically consist of a multi-plex
theatre (10 screens or more), a Showscan(TM) motion theatre, one or more virtual
reality attractions and expanded food operations. The Starports(TM) will operate
during the same periods as the theatre and require little incremental management
overhead to operate. In addition, most of the Starport(TM) attractions outside
of the multiplex theatre will be funded, owned and/or developed jointly with the
technology or equipment provider.
In an effort to limit the amount of investment exposure on any one project, the
Company typically develops theatre projects where the land and building is
leased through long-term operating leases. However, where such lease
transactions are not available, the Company will invest in the land and
development of the entire theatre facility (fee-owned) and then seek to enter
into a sale and leaseback transaction subsequent to the opening of the theatre.
Regardless of whether the theatre is fee-owned or leased, in most cases the
equipment and other theatre fixtures are owned by the Company. For the three
months ended March 31, 1996, the Company invested approximately $18.5 million
in: (i) six theatres (53 screens) which opened during 1995, (ii) two theatres
(18 screens) which opened in 1996, (iii) construction on an additional 10
theatres (101 screens) which the Company intends to open during the remainder of
1996, and (iv) renovations and recurring maintenance to certain existing
theatres and corporate capital expenditures. In addition, during the three
months ended March 31, 1996, the Company's 50% owned Hong Kong joint venture
acquired one existing theatre (two screens) with cash held in the venture's Hong
Kong bank accounts.
At March 31, 1996, the Company had entered into theatre construction and
equipment commitments aggregating approximately $69.0 million for theatres which
the Company intends to open during the next two years. Such amount relates only
to projects in which the Company had executed a definitive lease agreement and
for which construction had started. Of the committed amount, approximately $22.0
million will be funded from the Sale and Leaseback proceeds currently held in
escrow.
28
<PAGE>
During March 1996, the Company initiated a plan to increase its efforts to
dispose of, through sale or lease terminations, certain of its operating
theatres and real estate which are not considered part of its long-term
strategic plans. This increased emphasis on the disposal of non-strategic or
underperforming theatres and/or real estate is expected to involve as many as 99
theatres (382 screens). Net proceeds from these increased disposition efforts
will be used to repay existing debt and/or redeployed into new higher margin
theatres. While there can be no assurance that such sales or lease termination
efforts will be successful, negotiations have been initiated with respect to
several theatres.
During the three months ended March 31, 1996, the Company sold two theatres
(five screens) and closed two theatres (nine screens). Subsequent to March 31,
1996, the Company closed three theatres (nine screens) and completed contracts
for the sale of 11 theatres (67 screens) for aggregate proceeds of $5.6 million.
The theatres which were sold and closed were non-strategic and/or unprofitable
and were not considered part of the Company's long-term strategic plans.
Management believes its cash flow from operations, borrowings under its Bank
Credit Facility, the proceeds from asset sales and the proceeds from the Sale
and Leaseback held in escrow will be sufficient to fund its debt service,
capital expenditures and other investments, and other liquidity requirements for
the foreseeable future.
OTHER
The federal government and certain states are currently contemplating
legislation to increase the federal minimum hourly wage over a two year period.
Should legislation be passed into law which covers all hourly wage employees, it
will increase the aggregate average hourly wage paid by the Company. However, as
such increased hourly payroll costs may result in a change in the Company's
theatre staffing levels and/or ticket pricing policies, the effect of such
legislation is not expected to have a material adverse affect on the Company's
results of operations or financial condition.
Due to the Company's current reliance on the supply of successful motion
pictures, any extended period of poorly performing motion pictures and/or any
significant disruption in the production of quality motion pictures by the major
motion picture production companies or independent producers may have an adverse
effect on the Company's results of operations.
The ADA and certain state statutes among other things, require that places of
public accommodation, including theatres (both existing and newly constructed)
be accessible to and that assistive listening devices be available for use by
certain patrons with disabilities. With respect to access to theatres, the ADA
may require that certain modifications be made to existing theatres in order to
make such theatres accessible to certain theatre patrons and employees who are
disabled. The ADA requires that theatres be constructed in such a manner that
persons with disabilities have full use of the theatre and its facilities and
reasonable access to work stations. The ADA provides for a private right of
action and for reimbursement of plaintiff's attorney's fees and expenses under
certain circumstances. The Company has established a program to review and
evaluate the Company's theatres and to make any changes which may be required by
the ADA. Although the Company's review and evaluation is on-going, management
believes that the cost of complying with the ADA will not materially adversely
affect the Company's financial position, liquidity and results of operations.
Connie Arnold and Annette Cupolo vs. United Artists Theatre Circuit, Inc. This
action was originally filed in the Superior Court, Alameda County, California on
July 31, 1991, case number 683090-4. The complaint originally alleged that the
Company violated various California statutes and engaged in actions which
violated plaintiffs' civil rights by allegedly constructing a theatre which is
not lawfully accessible to certain disabled persons. The relief sought included
injunctive
29
<PAGE>
relief and damages (including statutory damages pursuant to California law). The
action was certified by the state court as a class action, although the size of
the class was not determined. The amount of statutory damages sought would
depend upon the size of the putative class. In February 1993, the defendant
removed the case to U. S. District Court for the Northern District of California
(Connie Arnold and Annette Cupolo vs. United Artists Theatre Circuit, Inc.
d/b/a/ U.A. Emery Bay; and Does 1 through 20, inclusive, case number C 93 0079
TEH). The plaintiffs then amended their complaint to include claims similar to
those made in the state court with respect to all of the Company's owned or
operated theatres in California. The plaintiffs also added a cause of action
alleging violation of the ADA relating to accessibility for certain persons in
the theatres in California. The Company then sued, as third-party defendants,
various architects who had participated in the design or construction of certain
of the Company's theatres located in California.
In 1994 the plaintiffs and the Company, along with several other parties named
as third-party and fourth-party defendants, began a formal mediation process
supervised by the court. During the process plaintiffs and the Company agreed to
expand the ADA claims to cover all of the Company's theatres throughout the
United States and to attempt to involve the United States Department of Justice
("DOJ") in the mediation process and any settlement which might result. The DOJ
has consented to joining as a party to the litigation and the settlement
agreement.
The plaintiffs, the Company, the DOJ and the third and fourth-party defendants
have reached agreement as to the terms and conditions of a settlement agreement,
the effectiveness of which is subject to a number of conditions, including
approval thereof by the court after conducting one or more hearings. The
proposed settlement agreement requires, among other things, that the Company pay
certain amounts as damages and for plaintiffs' attorneys' fees, as well as make
certain physical modifications to its theatres over a six year period. Such
damages and attorneys' fees had previously been accrued by the Company. In
addition, the third-party defendant architects have agreed to pay a certain
amount to the Company as damages.
30
<PAGE>
SIGNATURE
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.
UNITED ARTISTS THEATRE CIRCUIT, INC.
(Registrant)
/S/ Kurt C. Hall
----------------------------------------
BY: Kurt C. Hall
Executive Vice President
and Chief Financial Officer
Date: May 14, 1996
31
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,600
<SECURITIES> 0
<RECEIVABLES> 39,100
<ALLOWANCES> 0
<INVENTORY> 8,200
<CURRENT-ASSETS> 0
<PP&E> 416,100
<DEPRECIATION> 105,800
<TOTAL-ASSETS> 572,600
<CURRENT-LIABILITIES> 0
<BONDS> 388,600
0
154,400
<COMMON> 0
<OTHER-SE> (100,000)
<TOTAL-LIABILITY-AND-EQUITY> 565,600
<SALES> 41,300
<TOTAL-REVENUES> 153,400
<CGS> 6,600
<TOTAL-COSTS> 156,200
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 8,300
<INCOME-PRETAX> (12,400)
<INCOME-TAX> 400
<INCOME-CONTINUING> (12,800)
<DISCONTINUED> 0
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<NET-INCOME> (12,800)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0<F1>
<FN>
<F1>Unclassified Balance Sheet
</FN>
</TABLE>
