<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 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, 1997
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
333-1024
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 7, 1997
was 100 shares.
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 1997
(UNAUDITED)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I FINANCIAL INFORMATION NUMBER
------
<S> <C> <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.......................12
Condensed Consolidated Statements of Operations.............13
Condensed Consolidated Statement of Stockholders' Equity....14
Condensed Consolidated Statements of Cash Flow..............15
Notes to Condensed Consolidated Financial Statements........16
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations..........21
---------------------------------------------
</TABLE>
2
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------- ------------------
<S> <C> <C>
Assets
------
Cash and cash equivalents................................. $ 10.9 9.6
Notes and other receivables, net.......................... 33.4 46.5
Prepaid expenses and concession inventory................. 19.5 15.4
Investments and related receivables (note 11)............. 35.6 30.2
Property and equipment, at cost:
Land.................................................... 34.0 31.6
Theatre buildings, equipment and other.................. 416.1 395.1
------- ------
450.1 426.7
------- ------
Less accumulated depreciation and amortization.......... (127.6) (119.8)
------- ------
322.5 306.9
------- ------
Intangible assets, net.................................... 119.8 127.5
Other assets, net......................................... 10.6 12.0
------- ------
$ 552.3 548.1
======= ======
Liabilities and Stockholder's Equity
------------------------------------
Accounts payable.......................................... $ 77.7 79.9
Accrued liabilities....................................... 24.8 27.3
Other liabilities......................................... 25.4 24.4
Debt (note 4)............................................. 398.9 389.0
------- ------
Total liabilities....................................... 526.8 520.6
------- ------
Minority interests in equity of consolidated
subsidiaries............................................ 7.3 7.0
Stockholder's equity:
Preferred stock (note 6)................................ 176.0 170.1
Common stock............................................ - -
Additional paid-in capital.............................. 46.9 52.8
Accumulated deficit..................................... (204.8) (202.5)
Cumulative foreign currency translation adjustment...... (0.5) (0.5)
Intercompany account.................................... 0.6 0.6
------- ------
18.2 20.5
------- ------
$ 552.3 548.1
======= ======
</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,
--------------------
1997 1996
---------- --------
<S> <C> <C>
Revenue:
Admissions................................................... $121.7 107.3
Concession sales............................................. 47.7 41.3
Other........................................................ 4.8 4.8
------ -----
174.2 153.4
------ -----
Costs and expenses:
Film rental and advertising expenses......................... 65.8 58.6
Direct concession costs...................................... 7.4 6.6
Other operating expenses..................................... 65.6 63.5
Affiliate lease rentals (note 7)............................. 2.5 2.7
General and administrative (note 10)......................... 6.4 8.3
Depreciation and amortization................................ 17.7 16.5
------ -----
165.4 156.2
------ -----
Operating income (loss)...................................... 8.8 (2.8)
Other income (expense) (note 11):
Interest, net (notes 4)...................................... (9.3) (8.3)
Share of losses of affiliates, net........................... (0.5) -
Minority interests in earnings of consolidated subsidiaries.. (0.3) (0.2)
Other, net................................................... (0.6) (1.1)
------ -----
(10.7) (9.6)
------ -----
Loss before income tax expense............................... (1.9) (12.4)
Income tax expense (note 8).................................... (0.4) (0.4)
------ -----
Net loss..................................................... (2.3) (12.8)
Dividends on preferred stock (note 6).......................... (5.9) (5.2)
------ -----
Net loss available to common stockholder..................... $ (8.2) (18.0)
====== =====
</TABLE>
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>
Cumulative
foreign currency Total
Preferred Common Additional Accumulated translation Intercompany stockholder's
stock stock paid-in capital deficit adjustment account equity
--------- ------ --------------- ----------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997.. $170.1 - 52.8 (202.5) (0.5) 0.6 20.5
Accretion of dividends on
preferred stock........... 5.9 - (5.9) - - - -
Net loss.................... - - - (2.3) - - (2.3)
--------- ------ --------------- ----------- ---------------- ------------ -------------
Balance at March 31, 1997... $176.0 - 46.9 (204.8) (0.5) 0.6 18.2
========= ====== =============== =========== ================ ============ =============
</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,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Net cash provided by (used in) operating activities................ $ 19.8 (11.3)
------ -----
Cash flow from investing activities:
Capital expenditures............................................. (19.4) (19.2)
(Increase) decrease in construction in progress, net............. (2.3) 0.7
Increase in receivable from sale and leaseback escrow............ (2.1) (5.0)
Proceeds from sale and leaseback escrow.......................... 7.8 -
Investments in and receivables from theatre joint ventures, net.. (5.9) (3.2)
Other, net....................................................... (0.2) (0.5)
------ -----
Net cash used in investing activities............................ (22.1) (27.2)
------ -----
Cash flow from financing activities:
Debt borrowings.................................................. 35.0 15.9
Debt repayments.................................................. (25.2) (10.7)
Increase (decrease) in cash overdraft............................ (6.3) 11.0
Other, net....................................................... 0.1 (0.5)
------ -----
Net cash provided by financing activities........................ 3.6 15.7
------ -----
Net increase (decrease) in cash.................................. 1.3 (22.8)
Cash and cash equivalents:
Beginning of period.............................................. 9.6 32.4
------ -----
End of period.................................................... $ 10.9 9.6
====== =====
Reconciliation of net loss to net cash provided by (used in)
operating activities:
Net loss........................................................... $ (2.3) (12.8)
Effect of leases with escalating minimum annual rentals............ 0.8 0.7
Depreciation and amortization...................................... 17.7 16.5
Share of losses of affiliates, net................................. 0.5 -
Minority interests in earnings of consolidated subsidiaries........ 0.3 0.2
Increase in receivables, prepaid expenses and
other assets, net................................................ (1.6) (0.7)
Increase (decrease) in account payables, accrued liabilities
and other liabilities, net....................................... 4.4 (15.2)
------ -----
Net cash provided by (used in) operating activities.............. $ 19.8 (11.3)
====== =====
</TABLE>
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, 1997
(Unaudited)
(1) General Information
-------------------
United Artists Theatre Circuit, Inc. (the "Company") was acquired (the
"Acquisition") on May 12, 1992 by OSCAR I Corporation ("OSCAR I"). OSCAR I
is owned by an investment fund managed by affiliates of Merrill Lynch
Capital Partners, Inc. ("MLCP"), certain institutional investors and certain
members of the Company's management. The Company's principle line of
business is the exhibition of motion pictures in the United States.
Certain prior period amounts have been reclassified for comparability with
the 1997 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, 1996 consolidated financial statements and notes
thereto included as part of the Company's Form 10-K.
(2) Sale and Leaseback
------------------
In December 1995, the Company entered into a sale and leaseback transaction
whereby the buildings and land underlying ten of its operating theatres and
four theatres and a screen addition under development were sold to, and
leased back from, an unaffiliated third party. At December 31, 1996,
approximately $7.8 million of sales proceeds were held in escrow for the
remaining theatre and the screen addition under construction. The proceeds
held in escrow were paid to the Company during March 1997 after
construction of the remaining theatre and the screen addition was
completed.
In November 1996, the Company entered into another sale and leaseback
transaction whereby the buildings and land underlying three of its
operating theatres and two theatres under development were sold to, and
leased back from, an unaffiliated third party. At March 31, 1997,
approximately $12.3 million of sales proceeds were held in escrow and will
be used to fund substantially all of the land and construction costs
associated with the two theatres under development.
(3) Supplemental Disclosure of Cash Flow Information
------------------------------------------------
Cash payments for interest were $6.5 million and $5.9 million for the three
months ended March 31, 1997 and 1996, respectively.
The Company accrued $5.9 million and $5.2 million of dividends during the
three months ended March 31, 1997 and 1996, respectively, on its preferred
stock.
7
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(4) Debt
----
Debt is summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Bank Credit Facility (a).. $266.6 255.6
Senior Secured Notes (b).. 125.0 125.0
Other (c)................. 7.3 8.4
------ -----
$398.9 389.0
====== =====
</TABLE>
(a) The 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 $8.75 million at December 31, 1997 and 1998, $13.125
million at December 31, 1999 and 2000 and $21.875 million at December
31, 2001 and 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 United Artists Realty Company ("UAR"), a
separate wholly-owned subsidiary of OSCAR I, 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, 1997 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.
8
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(4) Debt, continued
---------------
At March 31, 1997, 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 1998. 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, 1997, the Company had approximately $58.5 million of unused
revolving loan commitments pursuant to the Bank Credit Facility, $3.3
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.
For the three months ended March 31, 1997 and 1996, interest, net includes
$0.5 million of amortization of deferred loan costs and $0.4 million of
interest income.
(5) Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
At March 31, 1997, the fair value of the Company's cash and cash
equivalents, outstanding borrowings under the Bank Credit Facility and
other debt, and interest rate cap agreements approximated their carrying
amount and the fair value of the Senior Secured Notes was approximately
$130.0 million.
(6) Preferred Stock
---------------
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. Dividends subsequent to December 31, 1996 are
required to be paid in cash unless any senior debt facility 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, 1997, the actual redemption value in accordance with the terms of the
preferred stock was approximately $138.1 million, or approximately $37.9
million less than the carrying amount at March 31, 1997.
9
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(7) Related Party Transactions
--------------------------
The Company leases certain of its theatres from UAR and UAR's wholly-owned
subsidiary, United Artists Properties I Corporation ("Prop I"). The 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 Acquisition, the Company issued $12.5 million of
standby letters of credit as part of the Bank Credit Facility to support
certain indebtedness of Prop I.
(8) 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, 1997 and 1996, 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, 1997, the Company had deferred tax assets and deferred tax
liabilities of approximately $74.4 million and $8.7 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, 1997, the Company had
recorded a valuation allowance of approximately $65.7 million against the
net deferred tax asset.
(9) Commitments and Contingencies
-----------------------------
At March 31, 1997, the Company had outstanding approximately $15.8 million
of letters of credit, $12.5 million of which relates to the indebtedness of
Prop I.
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.
10
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(9) Commitments and Contingencies, continued
----------------------------------------
The federal American With Disabilities Act of 1990 ("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.
(10) Corporate Restructuring
-----------------------
At the end of 1996, the Company initiated a corporate restructuring plan
intended to provide a higher level of focus on the Company's domestic
theatrical business at a lower annual cost. The corporate restructuring was
completed in January 1997. A restructuring charge was recorded in 1996 for
severance and other related expenses associated with the corporate
restructuring.
(11) Subsequent Event
----------------
On April 30, 1997, the Company sold its Hong Kong theatre investment to its
partners for $17.5 million. This sale will result in a gain during the
second quarter of 1997 of approximately $11.0 million for financial
reporting purposes.
11
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------- ------------------
<S> <C> <C>
Assets
------
Cash and cash equivalents............................ $ 11.2 10.1
Notes and other receivables, net..................... 18.6 32.0
Prepaid expenses and concession inventory............ 19.5 15.4
Investments and related receivables (note 10)........ 35.6 30.2
Property and equipment, at cost:
Land................................................ 64.6 62.2
Theatre buildings, equipment and other.............. 474.4 453.2
------- ------
539.0 515.4
------- ------
Less accumulated depreciation and amortization...... (139.0) (130.4)
------- ------
400.0 385.0
------- ------
Intangible assets, net............................... 119.8 127.5
Other assets, net.................................... 10.9 12.5
------- ------
$615.6 612.7
======= ======
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable..................................... $ 77.7 79.9
Accrued liabilities.................................. 25.6 28.1
Other liabilities (note 2)........................... 37.0 36.2
Debt (note 4)........................................ 461.8 453.1
------- ------
Total liabilities................................... 602.1 597.3
------- ------
Minority interests in equity of consolidated
subsidiaries........................................ 7.3 7.0
Stockholders' equity:
Preferred stock (note 6)............................ 176.0 170.1
Common stock:
Class A............................................ 0.1 0.1
Class B............................................ - -
Class C............................................ - -
Additional paid-in capital.......................... 34.3 40.2
Accumulated deficit................................. (203.7) (201.5)
Cumulative foreign currency translation adjustment.. (0.5) (0.5)
------- ------
6.2 8.4
------- ------
$615.6 612.7
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
12
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
---------- --------
<S> <C> <C>
Revenue:
Admissions................................................... $121.7 107.3
Concession sales............................................. 47.7 41.3
Other........................................................ 5.1 5.2
------ -----
174.5 153.8
------ -----
Costs and expenses:
Film rental and advertising expenses......................... 65.8 58.6
Direct concession costs...................................... 7.4 6.6
Other operating expenses..................................... 65.5 63.5
General and administrative (note 9).......................... 6.6 8.5
Depreciation and amortization................................ 18.4 17.2
------ -----
163.7 154.4
------ -----
Operating income (loss)...................................... 10.8 (0.6)
Other income (expense) (note 10):
Interest, net (note 4)....................................... (11.4) (10.2)
Share of losses of affiliates, net........................... (0.5) -
Minority interests in earnings of consolidated subsidiaries.. (0.3) (0.2)
Other, net................................................... (0.4) (1.1)
------ -----
(12.6) (11.5)
------ -----
Loss before income tax expense............................... (1.8) (12.1)
Income tax expense (note 7).................................... (0.4) (0.4)
------ -----
Net loss..................................................... (2.2) (12.5)
Dividends on preferred stock (note 6).......................... (5.9) (5.2)
------ -----
Net loss available to common stockholders.................... $ (8.1) (17.7)
====== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
13
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Common Common Common Additional foreign currency Total
Preferred stock stock stock paid-in Accumulated translation stockholders'
stock Class A Class B Class C capital deficit adjustment equity
--------- ------- ------- ------- ---------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997.. $170.1 0.1 - - 40.2 (201.5) (0.5) 8.4
Accretion of dividends on
preferred stock........... 5.9 - - - (5.9) - - -
Net loss.................... - - - - - (2.2) - (2.2)
------- ------ ------ ------- ------ ----------- ---------- ---------
Balance at March 31, 1997... $176.0 0.1 - - 34.3 (203.7) (0.5) 6.2
======= ====== ====== ======= ====== =========== ========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
14
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Net cash provided by (used in) operating activities................ $ 20.7 (10.1)
------ -----
Cash flow from investing activities:
Capital expenditures............................................. (19.5) (19.6)
(Increase) decrease in construction in progress, net............. (2.3) 0.7
Increase in receivable from sale and leaseback escrow............ (2.1) (5.0)
Proceeds from sale and leaseback escrow.......................... 7.8 -
Investments in and receivables from theatre joint ventures, net.. (5.9) (3.2)
Other, net....................................................... (0.3) (0.5)
------ -----
Net cash used in investing activities............................ (22.3) (27.6)
------ -----
Cash flow from financing activities:
Debt borrowings.................................................. 35.0 15.9
Debt repayments.................................................. (26.4) (10.8)
Increase (decrease) in cash overdraft............................ (6.3) 11.0
Other, net....................................................... 0.4 (0.1)
------ -----
Net cash provided by financing activities........................ 2.7 16.0
------ -----
Net increase (decrease) in cash.................................. 1.1 (21.7)
Cash and cash equivalents:
Beginning of period.............................................. 10.1 32.5
------ -----
End of period.................................................... $ 11.2 10.8
====== =====
Reconciliation of net loss to net cash provided by (used in)
operating activities:
Net loss........................................................... $ (2.2) (12.5)
Effect of leases with escalating minimum annual rentals............ 0.8 0.7
Depreciation and amortization...................................... 18.4 17.2
Share of losses of affiliates, net................................. 0.5 -
Minority interests in earnings of consolidated subsidiaries........ 0.3 0.2
Increase in receivables, prepaid expenses and
other assets, net................................................ (1.3) (0.3)
Increase (decrease) in accounts payable, accrued liabilities
and other liabilities, net....................................... 4.2 (15.4)
------ -----
Net cash provided by (used in) operating activities.............. $ 20.7 (10.1)
====== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
15
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
(1) General Information
-------------------
Oscar I Corporation ("OSCAR I") was formed in 1992 for the purpose of
purchasing United Artists Theatre Circuit, Inc. ("UATC"). On May 12, 1992,
OSCAR I purchased all of the outstanding common stock of UATC. UATC's
principle line of business is the exhibition of motion pictures in the
United States.
In February 1995, an affiliated company, OSCAR II Corporation ("OSCAR II")
was merged into OSCAR I. Prior to the merger, OSCAR II owned all of the
outstanding capital stock of United Artists Realty ("UAR"). UAR and its
wholly-owned subsidiaries, United Artists Properties I Corp. ("Prop I") and
United Artists Properties II Corp. ("Prop II") were the owners and lessors
of certain operating theatre properties to and operated by UATC.
Certain prior period amounts have been reclassified for comparability with
the 1997 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 OSCAR I 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, 1996 consolidated financial statements and notes thereto
included as part of UATC's Form 10-K.
(2) Sale and Leaseback
------------------
In December 1995, OSCAR I entered into a sale and leaseback transaction
whereby the buildings and land underlying 31 of its operating theatres and
four theatres and a screen addition under development were sold to, and
leased back from, an unaffiliated third party. At December 31, 1996,
approximately $7.8 million of sales proceeds were held in escrow for the
remaining theatre and the screen addition under construction. These proceeds
were paid to OSCAR I during March 1997 after construction of the remaining
theatre and the screen addition was completed.
OSCAR I realized a net gain of approximately $12.1 million as a result of
this sale and leaseback transaction. For financial statement purposes, this
gain has been deferred and is being recognized over the term of the lease as
a reduction of rent expense.
In November 1996, OSCAR I entered into another sale and leaseback
transaction whereby the buildings and land underlying three of its operating
theatres and two theatres under development were sold to, and leased back
from, an unaffiliated third party. At March 31, 1997, approximately $12.3
million of sales proceeds were held in escrow and will be used to fund
substantially all of the land and construction costs associated with the two
theatres under development.
16
<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 $8.2 million and $7.8 million for the three
months March 31, 1997 and 1996, respectively.
OSCAR I accrued $5.9 million and $5.2 million of dividends during the three
months ended March 31, 1997 and 1996, respectively, on its preferred stock.
(4) Debt
----
Debt is summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
March 31,1997 December 31, 1996
------------- -----------------
<S> <C> <C>
UATC Bank Credit Facility (a).. $266.6 255.6
UATC Senior Secured Notes (b).. 125.0 125.0
UATC Other (c)................. 7.3 8.4
UAR Promissory Notes (d)....... 8.9 10.0
Prop I Mortgage Notes (e)...... 54.0 54.1
------ -----
$461.8 453.1
====== =====
</TABLE>
(a) The 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 $8.75 million at December 31, 1997 and 1998, $13.125
million at December 31, 1999 and 2000 and $21.875 million at December
31, 2001 and 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 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 UATC, substantially all of UATC's subsidiaries and UAR, and
is guaranteed by OSCAR I and substantially all of UATC's subsidiaries.
17
<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, 1997 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
1992, 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, 1997, 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
1998. UATC is subject to credit risk exposure from non-performance of the
counterparties to the interest rate cap agreements. As OSCAR I has
historically received payments relating to such interest rate cap
agreements, it does not anticipate such non-performance in the future.
OSCAR I 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.
18
<PAGE>
OSCAR I CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(4) Debt, continued
---------------
At March 31, 1997, UATC I had approximately $58.5 million of unused
revolving loan commitments pursuant to the Bank Credit Facility, $3.3
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.
For the three months ended March 31, 1997 and 1996, interest, net includes
$0.5 million of amortization of deferred loan costs and $0.1 million of
interest income.
(5) Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
At March 31, 1997, the fair value of OSCAR I's cash and cash equivalents,
outstanding borrowings under the Bank Credit Facility, the other debt, the
promissory notes, and the Prop I Notes, and interest rate cap agreements
approximated their carrying amount and the fair value of the Senior Secured
Notes was approximately $130.0 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 reporting purposes, dividends have
been accrued at a 14% per annum rate for all periods since issuance. At
March 31, 1997, the actual redemption value in accordance with the terms of
the preferred stock was approximately $138.1 million, or approximately
$37.9 million less than the carrying amount at March 31, 1997.
(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, 1997, OSCAR I had deferred tax assets and deferred tax
liabilities of approximately $81.4 million and $11.8 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, 1997, OSCAR I had recorded a
valuation allowance of approximately $69.6 million against the net deferred
tax asset.
19
<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.
(9) Corporate Restructuring
-----------------------
At the end of 1996, OSCAR I initiated a corporate restructuring plan
intended to provide a higher level of focus on OSCAR I's domestic
theatrical business at a lower annual cost. The corporate restructuring was
completed in January 1997. A restructuring charge was recorded in 1996 for
severance and other related expenses associated with the corporate
restructuring.
(10) Subsequent Event
----------------
On April 30, 1997, UATC sold its Hong Kong theatre investment to its
partners for $17.5 million. This sale will result in a gain during the
second quarter of 1997 of approximately $11.0 million for financial
reporting purposes.
20
<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. The following discussion contains forward-looking
statements and such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those discussed. The
Company undertakes no obligation to publicly release the result of any revisions
to these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrences of
unanticipated events.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
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
1997 1996 (Decrease)
----------- ----------- ----------
<S> <C> <C> <C>
Operating Theatres/(1)/
Revenue:
Admissions............................. $ 121.7 107.3 13.4%
Concession sales....................... 47.7 41.3 15.5
Other.................................. 4.8 4.8 -
Direct Operating Expenses:
Film rental and advertising expenses... 65.8 58.6 12.3
Concession costs....................... 7.4 6.6 12.1
Other Operating Expenses:
Personnel expense...................... 23.5 23.0 2.2
Occupancy expense...................... 22.3 20.8 7.2
Miscellaneous operating expenses....... 22.3 22.4 (0.4)
Weighted Avg. Operating Theatres/(2)/... 367 408 (10.0)
Weighted Avg. Operating Screens/(2)/.... 2,216 2,326 (4.7)
Weighted Avg. Screens Per Avg. Theatre.. 6.0 5.7 5.3
Admissions Per Weighted Avg. Operating
Theatre................................ $331,608 262,990 26.1
Admissions Per Weighted Avg.
Operating Screen....................... $ 54,919 46,131 19.1
Concession Sales Per Weighted Avg.
Operating Theatre...................... $129,973 101,225 28.4
</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.
21
<PAGE>
REVENUE FROM OPERATING THEATRES
- -------------------------------
ADMISSIONS: Admissions revenue and admissions revenue per weighted average
operating screen increased 13.4% and 19.1%, respectively, during the three
months ended March 31, 1997 as compared to the three months ended March 31,
1996. These increases were primarily the result of a 5.7% increase in
attendance and a 7.4% increase in the average ticket price. The increase in
attendance was primarily due to the success of several films released during the
quarter, in particular, the re-release of the Star Wars Trilogy, as well as the
success of several films released toward the end of 1996 that carried over into
1997. The increase in the average ticket price was primarily due to an increase
in ticket prices during late 1996 and a favorable mix of films. Admissions per
weighted average operating theatre increased 26.1% during the three months ended
March 31, 1997 as compared to the three months ended March 31, 1996 primarily as
a result of the increased attendance and ticket prices discussed above, the
opening of several new theatres which have higher admissions per theatre and the
sale or closure of several smaller (in terms of screens) less productive
theatres.
CONCESSION SALES: Concession sales revenue increased 15.5% during the three
months ended March 31, 1997 as compared to the three months ended March 31,
1996, primarily as a result of the increased attendance discussed above and to a
9.3% increase in the average concession sale per patron. Concession sales per
weighted average operating theatre increased 28.4% during the three months ended
March 31, 1997 as compared to the three months ended March 31, 1996. The
increases in the average concession sale per patron and concession sales per
weighted average operating theatre were attributable to certain selective price
increases during late 1996, a favorable film mix, the Company's increased
emphasis on training, the renovation of concession stands at certain existing
theatres, the opening of several new theatres with more efficient concession
operations and sale of certain less efficient older, smaller theatres.
OTHER: Other revenue is derived primarily from on-screen advertising,
electronic video games located in theatre lobbies, theatre rentals, the rental
of theatres on a networked and non-networked basis for corporate meetings,
seminars and other training/educational uses by the Proteus Network(TM), non-
theatrical related revenue from the Starport(TM) entertainment centers and other
miscellaneous sources. Other revenue was constant for the three months ended
March 31, 1997 as compared to the three months ended March 31, 1996.
OPERATING EXPENSES FROM OPERATING THEATRES
- ------------------------------------------
FILM RENTAL AND ADVERTISING EXPENSES: Film rental and advertising expenses
increased 12.3% during the three months ended March 31, 1997 as compared to the
three months ended March 31, 1996, primarily as a result of the increase in
admissions discussed above. Film rental and advertising expenses as a
percentage of admissions revenue were 54.1% and 54.6% for the three months ended
March 31, 1997 and 1996, respectively. The slight decrease in film rental and
advertising as a percentage of admissions revenue related primarily to slightly
lower advertising expenses as a percentage of admissions revenue.
CONCESSION COSTS: Concession costs include direct concession product costs and
concession promotional expenses. Such costs increased 12.1% during the three
months ended March 31, 1997 as compared to the three months ended March 31,
1996, primarily as a result of the increase in concession sales revenue
discussed above. Concession costs as a percentage of concession sales revenue
were 15.5% and 16.0% for the three months ended March 31, 1997 and 1996,
respectively. The decrease in concession costs as a percent of concession sales
for the three months ended March 31, 1997 as compared to March 31, 1996 was
primarily due to the sale of advertising on popcorn containers which was offset
against promotional expenses.
22
<PAGE>
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 2.2% during the three
months ended March 31, 1997 as compared to the three months ended March 31,
1996. This increase in personnel expense was primarily attributable to the
increase in the federal minimum wage on October 1, 1996 and to the increased
attendance and concession sales discussed above, offset by more efficient
theatre staffing. Personnel costs as a percentage of total revenue declined to
13.5% in 1997 versus 15.0% in 1996 as a result of the increased revenue, more
efficient staffing and the fixed cost component of payroll costs.
OCCUPANCY EXPENSE: The Company's typical theatre lease arrangement provides for
a base rental as well as contingent rentals that is a function of the underlying
theatre's revenue over an agreed upon breakpoint. Occupancy rent expense
increased 7.2% during the three months ended March 31, 1997 as compared to the
three months ended March 31, 1996, primarily as a result of increased percentage
rent and higher base rentals on newly opened theatres, partially offset by fewer
weighted average operating theatres. In addition, occupancy expense for the
three months ended March 31, 1997 and 1996 includes $0.8 million and $0.7
million, respectively, of non-cash charges relating to the effect of escalating
leases which have been "straight-lined" for accounting purposes.
MISCELLANEOUS OPERATING EXPENSES: Miscellaneous operating expenses consist of
utilities, repairs and maintenance, insurance, real estate and other taxes,
supplies and other miscellaneous operating expenses. Miscellaneous operating
expenses decreased 0.4% during the three months ended March 31, 1997 as compared
to the three months ended March 31, 1996, primarily as a result of reduced
utilities, repairs and maintenance and supplies associated with having fewer
weighted average operating theatres.
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
corporate theatre administration and operating personnel, international staff,
Proteus Network(TM) sales and marketing staff and other support functions
located at the Company's corporate headquarters, two film booking and three
regional operating offices and 13 district theatre operations offices (generally
located in theatres). At the end of 1996, the Company initiated a corporate
restructuring plan intended to provide a higher level of focus on the Company's
theatrical business at a lower annual cost. This corporate restructuring which
was completed in January 1997 is projected to reduce annual general and
administrative expenses by approximately 20% on an annual basis. General and
administrative expense decreased $1.9 million, or 22.9%, for the three months
ended March 31, 1997 as compared to the three months ended March 31, 1996,
primarily as a result of the corporate restructuring.
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 $1.2 million
during the three months ended March 31, 1997 as compared to the three months
ended March 31, 1996, primarily due to depreciation charges on the Company's
newly opened theatres. Included in depreciation and amortization expense for
the three months ended March 31, 1997 and 1996 is a $6.0 million charge
associated with certain assets acquired as part of the Acquisition which are
being amortized over a five year life. In May 1997, such assets will be fully
amortized and, as a result, no further amortization expense will be recorded
associated with those assets subsequent to May 1997.
23
<PAGE>
OPERATING INCOME
- ----------------
During the three months ended March 31, 1997, the Company had operating income
of $8.8 million versus an operating loss of $2.8 million for the three months
ended March 31, 1996, or an increase of $11.6 million. This increase in
operating income relates to higher revenues and higher operating margins and
lower general and administrative expenses, partially offset by higher
depreciation and amortization expenses.
INTEREST
- --------
Interest expense increased $1.0 million for the three months ended March 31,
1997 as compared to the three months ended March 31, 1996, due to higher market
interests rates on floating rate borrowings and slightly higher average debt
balances.
NET LOSS
- --------
During the three months ended March 31, 1997, the Company incurred a net loss of
$2.3 million compared to a net loss of $12.8 million for the three months ended
March 31, 1996. This decrease in net loss relates primarily to the increase in
operating income discussed above, partially offset by slightly higher interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1997, cash provided by operating activities
increased by $31.1 million as compared to the three months ended March 31, 1996.
Cash provided by operating activities of $19.8 million, in addition to $3.6
million of cash provided by financing activities and $7.8 million of proceeds
from the sale and leaseback escrow were used to fund $21.7 million of net
capital expenditures and $5.9 million of investments in and receivables from
theatre joint ventures and other investments.
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 December 13, 1995, the Company entered into a sale and leaseback transaction
whereby the land and buildings underlying ten of its operating theatres and four
theatres and a screen addition under development were sold to, and leased back
from an unaffiliated third party. At December 31, 1996, approximately $7.8
million of sales proceeds were held in escrow for the final theatre and the
screen addition under construction. These proceeds were paid to the Company
during March 1997 after construction of the remaining theatre and the screen
addition was completed.
24
<PAGE>
In November 1996, the Company entered into another sale and leaseback
transaction whereby the buildings and land underlying three of its operating
theatres and two theatres under development were sold to, and leased back from
an unaffiliated third party. At March 31, 1997, approximately $12.3 million of
sales proceeds were held in escrow and will be used to fund substantially all of
the land and construction costs associated with the two theatres under
development.
During December 1996, the Company initiated a new investment strategy which is
primarily focused on the development of new theatres and renovations to existing
high revenue theatres in markets in the United States where the Company has a
significant operating presence. As part of this increased focus on its U.S.
operations, the Company has restructured and realigned its corporate overhead
functions and is seeking to sell or restructure several of its international
investments. The proceeds received from the sale of international investments
and corporate overhead savings will be redeployed into new theatre developments
or the renovation of existing key theatres in the Company's core markets and/or
used to pay down existing debt.
As part of its strategic plan, the Company intends to continue to dispose of,
through sale or lease terminations, certain of its operating theatres and real
estate which are non-strategic or underperforming. 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, several sales
and lease negotiations have been completed or are under contract and
negotiations are ongoing with respect to several other theatres and parcels of
real estate. During the three months ended March 31, 1997, the Company closed
three theatres (12 screens). The theatres which were closed were unprofitable
and were not considered part of the Company's long-term strategic plans.
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 after the theatre is opened. 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, 1997, the Company invested approximately $21.7 million on the
development of six new theatres (61 screens) which opened during the period,
construction on six theatres (71 screens) expected to open during the remainder
of 1997 or in 1998 and recurring maintenance to certain existing theatres.
At March 31, 1997, the Company had entered into theatre construction and
equipment commitments aggregating approximately $85.7 million for 19 theatres
which the Company intends to open through December 31, 1998. Such amount
relates only to projects in which the Company had executed a definitive lease
agreement and all significant lease contingencies have been satisfied. Of the
committed amount, approximately $12.3 million will be reimbursed to the Company
or paid directly from proceeds of the sale and leaseback transaction currently
held in escrow.
On April 30, 1997, the Company sold its Hong Kong theatre investment to its
partners for $17.5 million. This sale will result in a gain during the second
quarter of 1997 of approximately $11.0 million for financial reporting purposes.
The level of continued investing activities by the Company is dependent on,
among other factors, its on-going operating liquidity and to other sources of
liquidity. One measure commonly used in the theatrical industry to measure
operating liquidity is referred to as "Interest Coverage." Interest Coverage is
the ratio of Operating Cash Flow (operating income before depreciation,
amortization and other non-recurring or non-cash operating credits or charges)
to interest expense (excluding amortization of deferred loan costs). Following
is a calculation of Operating Cash Flow and Interest Coverage for each of the
three months ended March 31, 1997 and 1996, including a reconciliation of
Operating Income to Operating Cash Flow ($ in millions):
25
<PAGE>
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Operating Income (Loss) $ 8.8 (2.8)
Depreciation and Amortization 17.7 16.5
Non-Cash Rent 0.8 0.7
----- ----
Operating Cash Flow $27.3 14.4
===== ====
Interest Expense $ 9.2 8.2
===== ====
Interest Coverage Ratio 3.0 1.8
===== ====
</TABLE>
As shown above, the Company's Interest Coverage Ratio increased significantly
from 1.8 times for the three months ended March 31, 1996 to 3.0 times for the
three months ended March 31, 1997, primarily as a result of the increased
operating income for the three months ended March 31, 1997, partially offset by
slightly higher interest expense.
Operating Cash Flow set forth above is one measure of value and borrowing
capacity commonly used in the theatrical exhibition industry and is not intended
to be a substitute for Operating Cash Flow as defined in the Company's debt
agreements or for cash flows provided by operating activities, a measure of
performance provided herein in accordance with generally accepted accounting
principles, and should not be relied upon as such. The Operating Cash Flow as
set forth above does not take into consideration certain costs of doing business
and, as such, should not be considered in isolation to other measures of
performance.
Another measure of liquidity is net cash provided by or used in operating
activities as reflected in the accompanying Consolidated Statements of Cash
Flow. For the three months ended March 31, 1997, $19.8 million of net cash was
provided by operating activities. This compares to $11.3 million of net cash
used in operating activities for the three months ended March 31, 1996. This
measurement shows the net cash from the operation of the Company which provided
for the Company's liquidity needs after taking into consideration certain
additional costs of doing business which are not reflected in the Operating Cash
Flow calculations discussed above.
While amounts expended by the Company in its investing activities exceed net
cash provided by operating activities, management believes that its net cash
provided by operating activities, borrowings under its Bank Credit Facility,
contributions made by landlords under long-term lease arrangements, amounts
deposited in escrow as a result of the 1995 and 1996 sale and leaseback
transactions and the proceeds from possible asset sales and additional sale and
leaseback transactions will be sufficient to fund its capital expenditures and
other investments, debt service and other liquidity requirements for the
foreseeable future.
OTHER
The Company's results of operations are subject to seasonal fluctuations in
attendance which corresponds to holiday school vacation periods and a greater
availability of popular motion pictures during the period from Memorial Day
through Labor Day and during the Easter, Thanksgiving and Christmas holidays.
Poorly performing motion pictures and/or any significant disruption in the
production of popular motion pictures by several of the major motion picture
production companies or independent producers may have an adverse effect on the
Company's results of operations.
26
<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
Acting Chief Operating Officer,
Executive Vice President
and Chief Financial Officer
Date: May 7, 1997
27
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,900
<SECURITIES> 0
<RECEIVABLES> 33,400
<ALLOWANCES> 0
<INVENTORY> 7,300
<CURRENT-ASSETS> 0
<PP&E> 450,100
<DEPRECIATION> 127,600
<TOTAL-ASSETS> 552,300
<CURRENT-LIABILITIES> 0
<BONDS> 398,900
0
176,000
<COMMON> 0
<OTHER-SE> (157,800)
<TOTAL-LIABILITY-AND-EQUITY> 545,000
<SALES> 47,700
<TOTAL-REVENUES> 174,200
<CGS> 7,400
<TOTAL-COSTS> 165,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,200
<INCOME-PRETAX> (1,900)
<INCOME-TAX> 400
<INCOME-CONTINUING> (2,300)
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<EXTRAORDINARY> 0
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