<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 April 1, 1999
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 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 13,
1999 was 100 shares.
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
QUARTERLY REPORT ON FORM 10-Q
APRIL 1, 1999
(UNAUDITED)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NUMBER
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets......................... 4
Condensed Consolidated Statements of Operations............... 5
Condensed Consolidated Statement of Stockholder's Equity...... 6
Condensed Consolidated Statements of Cash Flow................ 7
Notes to Condensed Consolidated Financial Statements.......... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............. 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK........................................... 22
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 23
</TABLE>
2
<PAGE>
CAUTIONARY STATEMENT REGARDING
FORWARD LOOKING STATEMENTS
CERTAIN OF THE MATTERS DISCUSSED IN THIS FORM 10-Q MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SECURITIES ACT OF 1933, AS
AMENDED AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE UNCERTAINTIES AND OTHER FACTORS AND THE
ACTUAL RESULTS AND PERFORMANCE OF UATC MAY BE MATERIALLY DIFFERENT FROM
FUTURE RESULTS OR PERFORMANCE EXPRESSED OR IMPLIED BY SUCH STATEMENTS.
CAUTIONARY STATEMENTS REGARDING THE RISKS ASSOCIATED WITH SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, THOSE STATEMENTS
INCLUDED UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND "QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK." CERTAIN OF SUCH RISKS AND UNCERTAINTIES RELATE TO THE
HIGHLY LEVERAGED NATURE OF UATC, THE RESTRICTIONS IMPOSED ON UATC BY CERTAIN
INDEBTEDNESS, THE SENSITIVITY OF UATC TO ADVERSE TRENDS IN THE GENERAL
ECONOMY, THE HIGH DEGREE OF COMPETITION IN UATC'S INDUSTRY, THE VOLATILITY OF
UATC'S QUARTERLY RESULTS AND UATC'S SEASONALITY, THE DEPENDENCE OF UATC ON
FILMS AND DISTRIBUTORS AND ON ITS ABILITY TO OBTAIN POPULAR MOTION PICTURES,
THE CONTROL OF UATC BY THE MERRILL LYNCH CAPITAL PARTNERS, INC. ("MLCP") AND
THE DEPENDENCE OF UATC ON KEY PERSONNEL, AMONG OTHERS.
ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO UATC ARE
EXPRESSLY QUALIFIED BY THE FOREGOING CAUTIONARY STATEMENTS.
3
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
April 1, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 6.3 7.9
Receivables, net .................................................. 19.1 19.4
Prepaid expenses and concession inventory.......................... 20.4 15.0
Other assets....................................................... 0.5 0.6
------ -----
Total current assets............................................ 46.3 42.9
Investments and related receivables.................................. 6.7 8.3
Property and equipment, at cost:
Land............................................................... 18.5 20.6
Theatre buildings, equipment and other............................. 545.9 538.2
------ -----
564.4 558.8
Less accumulated depreciation and amortization..................... (206.9) (200.1)
------ -----
357.5 358.7
Intangible assets, net............................................... 78.9 81.3
Net assets of discontinued operations (note 9)....................... 3.1 3.1
Other assets, net (notes 3 and 8).................................... 76.8 73.9
------ -----
$ 569.3 568.2
------ -----
------ -----
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................... $ 73.5 93.7
Accrued and other liabilities...................................... 33.4 34.7
Current portion of long-term debt (notes 3 and 6).................. 6.4 6.2
------ -----
Total current liabilities....................................... 113.3 134.6
Other liabilities.................................................... 34.9 33.5
Debt (notes 3 and 6)................................................. 411.4 370.3
Liabilities related to discontinued operations (note 9).............. 4.3 4.9
------ -----
Total liabilities............................................... 563.9 543.3
Minority interests in equity of consolidated
subsidiaries.................................................... 5.3 5.6
Stockholder's equity (note 3):
Common stock....................................................... - -
Additional paid-in capital......................................... 316.7 318.0
Accumulated deficit................................................ (313.2) (295.3)
Intercompany account............................................... (3.4) (3.4)
------ -----
Total stockholder's equity....................................... 0.1 19.3
------ -----
$ 569.3 568.2
------ -----
------ -----
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Three Months
Ended Ended
April 1,1999 March 31, 1998*
-------------- ---------------
<S> <C> <C>
Revenue:
Admissions........................................................ $ 93.4 113.4
Concession sales.................................................. 37.0 46.6
Other............................................................. 4.3 4.1
-------- ------
134.7 164.1
-------- ------
Costs and expenses:
Film rental and advertising expenses.............................. 52.1 60.9
Direct concession costs........................................... 4.7 6.5
Occupancy expense (note 4)........................................ 23.9 22.8
Other operating expenses.......................................... 44.8 43.1
Affiliate lease rentals (note 8).................................. 0.6 2.1
General and administrative........................................ 6.0 5.3
Depreciation and amortization..................................... 13.3 12.8
-------- ------
145.4 153.5
-------- ------
Operating income (loss) from continuing operations..................... (10.7) 10.6
Other income (expense):
Interest, net (notes 3, 6 and 8).................................. (7.4) (8.2)
Gain on disposition of assets..................................... 0.7 0.2
Minority interests in earnings of consolidated subsidiaries....... (0.1) (0.4)
Other, net........................................................ (0.2) (0.5)
-------- ------
(7.0) (8.9)
-------- ------
Income (loss) from continuing operations before income
tax expense and discontinued operations....................... (17.7) 1.7
Income tax expense (note 10)........................................... (0.2) (0.3)
-------- ------
Income (loss) from continuing operations.......................... (17.9) 1.4
Discontinued operations (note 9)....................................... - (1.1)
-------- ------
Net income (loss)................................................. (17.9) 0.3
Dividends on preferred stock (note 3).................................. - (6.7)
-------- ------
Net loss available to common stockholder.......................... $ (17.9) (6.4)
-------- ------
-------- ------
</TABLE>
*Restated
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholder's Equity
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
Common paid-in Accumulated Intercompany stockholder's
stock capital deficit account equity
------ ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999................................ $ - 318.0 (295.3) (3.4) 19.3
Dividend to Parent ....................................... - (1.3) - - (1.3)
Net loss................................................. - - (17.9) - (17.9)
----- ----- ------ ---- -----
Balance at April 1, 1999 ................................. $ - 316.7 (313.2) (3.4) 0.1
----- ----- ------ ---- -----
----- ----- ------ ---- -----
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Three Months
Ended Ended
April 1,1999 March 31, 1998*
-------------- ---------------
<S> <C> <C>
Net cash used in operating activities........................................ $ (18.9) (0.7)
-------- -----
Cash flow from investing activities:
Capital expenditures.................................................... (20.7) (16.8)
Increase in receivable from sale and leaseback escrow................... - (0.8)
Proceeds from disposition of assets, net................................ 4.4 -
Change in investments and receivables from
theatre joint ventures, net.......................................... 1.9 (1.0)
Other, net.............................................................. (0.4) (1.0)
-------- -----
Net cash used in investing activities................................ (14.8) (19.6)
-------- -----
Cash flow from financing activities:
Debt borrowings......................................................... 53.0 42.0
Debt repayments......................................................... (11.7) (25.2)
Dividend to Parent...................................................... (1.3) -
Increase in intercompany receivable..................................... (2.1) (1.8)
Increase (decrease) in cash overdraft................................... (4.4) 1.8
Other, net.............................................................. (1.4) -
-------- -----
Net cash provided by financing activities............................ 32.1 16.8
-------- -----
Net decrease in cash................................................. (1.6) (3.5)
Cash and cash equivalents:
Beginning of period..................................................... 7.9 10.6
-------- -----
End of period........................................................... $ 6.3 7.1
-------- -----
-------- -----
Reconciliation of net income (loss) to net cash used in operating activities:
Net income (loss)............................................................ $ (17.9) 0.3
Discontinued operations...................................................... (0.6) 0.4
Effect of leases with escalating minimum annual rentals...................... 1.2 0.9
Depreciation and amortization................................................ 13.3 12.8
Gain on disposition of assets................................................ (0.7) (0.2)
Minority interests in earnings of consolidated subsidiaries.................. 0.1 0.4
Change in assets and liabilities:
Receivables............................................................. (0.1) 0.2
Prepaid expenses and concession inventory............................... (5.4) (3.8)
Other assets............................................................ 0.4 0.3
Accounts payable........................................................ (7.1) (7.9)
Accrued and other liabilities........................................... (2.1) (4.1)
-------- -----
Net cash used in operating activities................................ $ (18.9) (0.7)
-------- -----
-------- -----
</TABLE>
*Restated
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
April 1, 1999
(Unaudited)
(1) GENERAL INFORMATION
On May 12, 1992, United Artists Theatre Circuit, Inc. and substantially all
of its then existing subsidiaries ("UATC") were acquired (the
"Acquisition") by United Artists Theatre Company (the "Parent") (formerly
known as Oscar I Corporation). The Parent is owned by an investment fund
managed by affiliates of Merrill Lynch Capital Partners, Inc. ("MLCP"),
certain institutional investors, and certain members of UATC's management.
In addition to owning all of the outstanding capital stock of UATC, the
Parent also owns all of the outstanding capital stock of United Artists
Realty Company ("UAR"). UAR and its subsidiary United Artists Properties I
Corp. ("Prop I") are the owners and lessors of certain operating theatre
properties leased to and operated by UATC.
Certain prior period amounts have been reclassified for comparability with
the 1999 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 UATC 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, 1998 consolidated financial statements and notes thereto
included as part of UATC's Form 10-K.
(2) CHANGE IN REPORTING PERIOD
During 1999, UATC changed its reporting period from the traditional
calendar quarter and year presentation ending on March 31, June 30,
September 30 and December 31 to a presentation ending on the Thursday
closest to the calendar quarter or year. This change was made to more
accurately reflect UATC's natural business cycle. The periods presented in
these financial statements are for the thirteen weeks ended April 1, 1999
and the quarter ended March 31, 1998.
(3) RECAPITALIZATION
On April 21, 1998, the Parent completed the offering of $225.0 million of
its 9.75% senior subordinated notes due April 15, 2008 (the "Fixed Rate
Subordinated Notes") and the offering of $50.0 million of its floating rate
senior subordinated notes due October 15, 2007 (the "Floating Rate
Subordinated Notes") (collectively, the "Senior Subordinated Notes"), and
entered into a $450.0 million bank credit facility (the "New Bank Credit
Facility") with a final maturity of April 2007.
The proceeds from the offerings of the Senior Subordinated Notes and a
portion of the borrowings under the New Bank Credit Facility were used to
repay the outstanding borrowings under UATC's existing bank credit facility
(the "Bank Credit Facility")
8
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(3) RECAPITALIZATION, CONTINUED
(approximately $272.5 million), and fund the redemption of the Parent's
preferred stock (approximately $159.2 million) and the redemption of UATC's
$125.0 million senior secured notes (the "Senior Secured Notes") at
102.875% plus accrued but unpaid interest of $0.8 million. Included in the
New Bank Credit Facility was a delayed draw term loan that was used to
repay and retire all of the Prop I mortgage notes outstanding
(approximately $45.7 million on November 1, 1998).
The Parent contributed the net proceeds from the Senior Subordinated Notes
in excess of the redemption value of the Parent's preferred stock
(approximately $108.1 million) to UATC as additional common equity.
Additionally, UATC's preferred stock (which was held by the Parent) was
converted into additional common equity.
(4) SALE AND LEASEBACK TRANSACTIONS
In December 1995, UATC and UAR entered into a sale and leaseback
transaction (the "1995 Sale and Leaseback") whereby the buildings and land
underlying 27 of their operating theatres and four theatres and a screen
addition under development were sold to, and leased back from, an
unaffiliated third party. The 1995 Sale and Leaseback requires UATC 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 lease of the
properties by UATC required UATC to enter into a Participation Agreement
that requires UATC to comply with certain covenants including limitations
on indebtedness and restrictions on payments.
In November 1996, UATC entered into a 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. The lease has a term of 20 years and nine months
with options to extend for an additional 10 years.
In December 1997, UATC entered into a sale and leaseback transaction
whereby two theatres under development were sold to, and leased back from,
an unaffiliated third party for approximately $18.1 million. At April 1,
1999, approximately $9.1 million of the sales proceeds were held in escrow
and will be paid under the terms of the sale and leaseback to reimburse
UATC for certain of the construction costs associated with the two
theatres. The lease has a term of 22 years with options to extend for an
additional 10 years.
(5) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest were $8.6 million and $5.9 million for the
thirteen weeks ended April 1, 1999 and the three months ended March 31
1998, respectively.
UATC accrued $6.7 million of dividends during the three months ended March
31, 1998 on its preferred stock. The preferred stock was redeemed during
1998 as part of the recapitalization (see Note 3).
9
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(5) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION, CONTINUED
During the three months ended March 31, 1998, UATC exchanged one of its
fee-owned theatre properties with Prop I in exchange for two of Prop I's
fee-owned theatre properties and a $1.1 million note.
(6) DEBT
Debt is summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
April 1, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
New Bank Credit Facility (a)................... $ 407.3 365.3
Other (b)...................................... 10.5 11.2
-------- ------
417.8 376.5
Less current portion........................... (6.4) (6.2)
-------- ------
$ 411.4 370.3
-------- ------
-------- ------
</TABLE>
(a) The New Bank Credit Facility provides for term loans aggregating
$350.0 million (the "Term Loans") and a reducing revolving loan and
standby letters of credit aggregating $100.0 million (the "Revolving
Facility"). The Term Loans consist of the following (i) a $70.0
million term loan (the "Tranche A Term Loan"); (ii) a $118.0 million
term loan (the "Tranche B Term Loan"); and (iii) a $162.0 million term
loan (the "Tranche C Term Loan").
Commitments available for borrowing under the Revolving Facility
reduce semi-annually commencing January 3, 2002 through April 21,
2005. The Tranche A Term Loan requires semi-annual principal payments
commencing December 31, 1998 through June 28, 2001 of 1/2% of the
December 31, 1998 outstanding balance and then in escalating
semi-annual payments through April 21, 2005. The Tranche B Term Loan
requires semi-annual principal payments commencing December 31, 1998
through June 30, 2005 of 1/2% of the December 31, 1998 outstanding
balance and two payments of 46.5% of the December 31, 1998 outstanding
balance on December 29, 2005 and April 21, 2006. The Tranche C Term
Loan requires semi-annual principal payments commencing December 31,
1998 through June 29, 2006 of 1/2% of the December 31, 1998
outstanding balance and two payments of 46% of the December 31, 1998
outstanding balance on December 28, 2006 and April 21, 2007.
Borrowings under the New 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 Parent,
but no less frequently than once each 90 days.
The New Bank Credit Facility is guaranteed, on a joint and several
basis, by UATC and by certain of the Parent's other subsidiaries,
those being UAR and Prop I. The New Bank Credit Facility is secured
by, among other things, the capital stock of UATC, UAR, Prop I and
certain other subsidiaries of the Parent and UATC and by an
intercompany note from UATC to the Parent established with respect to
borrowings by UATC from the Parent.
10
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(6) DEBT, CONTINUED
Additionally, the New Bank Credit Facility will be secured by
mortgages on certain of UATC's and Prop I's properties.
The New Bank Credit Facility contains certain provisions that require
the Parent to maintain certain financial ratios and places limitations
on, among other things, capital expenditures, additional indebtedness,
disposition of assets and restricted payments.
(b) Other debt at April 1, 1999, 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.
At April 1, 1999, UATC was party to interest rate collar agreements on
$225.0 million of floating rate debt which provide for a LIBOR interest
rate cap ranging between 6% and 7 1/2% and LIBOR interest rate floors
ranging between 5 1/4% and 5 1/2% that expire at various dates through
August 2001. 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 its various interest hedge
agreements, it does not anticipate such non-performance in the future.
Amounts paid to the counterparties to the interest collar agreements are
recorded as an increase to interest expense and amounts received from the
counterparties to the interest rate collar agreements are recorded as a
reduction of interest expense.
At April 1, 1999, the Parent had approximately $41.0 million of Revolving
Facility commitments, $4.1 million of which has been used for the issuance
of letters of credit. The Parent pays commitment fees of 1/2% per annum on
the average unused commitments.
The primary source of principal and interest payments related to the New
Bank Credit Facility and the Senior Subordinated Notes will come from
payments by UATC to the Parent. The amount of payments by UATC to the
Parent may be limited from time to time by covenants included in the
Participation Agreement relating to the 1995 Sale and Leaseback. (see Note
4).
Interest, net includes amortization of deferred loan costs of $0.2 million
and $0.5 million for the thirteen weeks ended April 1, 1999 and the three
months ended March 31, 1998, respectively. Additionally, interest, net
includes interest income of $1.4 million and $0.4 million for the thirteen
weeks ended April 1, 1999 and the three months ended March 31, 1998,
respectively.
(7) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
At April 1, 1999, the fair value of UATC's cash and cash equivalents,
outstanding borrowings under the New Bank Credit Facility and other debt
approximated their carrying amount and the fair value of the interest rate
collar agreements was approximately $(0.8) million.
(8) RELATED PARTY TRANSACTIONS
UATC leases certain of its theatres from UAR and Prop I. The leases provide
for basic monthly or quarterly rentals and may require additional rentals,
based on the revenue of the underlying theatre.
11
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(8) RELATED PARTY TRANSACTIONS, CONTINUED
The lease arrangement with Prop I was entered into in conjunction with the
placement of mortgage debt financing in 1988. On November 1, 1998, the
mortgage debt was repaid via a term loan borrowing under the New Bank
Credit Facility (see Note 3). UATC has reflected this additional borrowing
as a long-term receivable from an affiliate. In order to fund the cost of
additions and/or renovations to the theatres leased by UATC from UAR or
Prop I, UATC has periodically made advances to UAR. Interest on the
advances accrues at the prime rate and amounted to $1.3 million for the
thirteen weeks ended April 1, 1999 and $0.4 million for the three months
ended March 31 1998.
(9) DISCONTINUED OPERATIONS
During 1998, UATC established a plan to dispose of its entertainment center
business operations. Current and prior period results for the entertainment
center business operations have been classified separately in the
accompanying statements of operations as discontinued operations.
Net assets of the discontinued operations were $3.1 million at April 1,
1999 and December 31, 1998. Liabilities related to the discontinued
operations were $4.3 million and $4.9 million at April 1, 1999 and December
31, 1998, respectively. The net loss from discontinued operations was $1.1
million for the three months ended March 31, 1998. Revenue generated by the
discontinued operations was $0.1 million for the thirteen weeks ended April
1, 1999 and $0.4 million for the three months ended and March 31, 1998.
Included in the net loss from discontinued operations was interest expense
of $0.4 million for the three months ended March 31, 1998. Interest expense
was allocated to the discontinued operations based upon the average fixed
asset balance and UATC's average borrowing rate.
(10) INCOME TAXES
UATC and each of its 80% or more owned subsidiaries are included in the
Parent's consolidated federal income tax returns. Pursuant to a tax sharing
agreement with the Parent's, UATC and each of its 80% or more owned
consolidated subsidiaries are allocated a portion of the Parent's current
federal income tax expense (benefit). Such allocations are determined as if
UATC and each of its 80% or more owned consolidated subsidiaries were
separate tax paying entities within the consolidated group. For the
thirteen weeks ended April 1, 1999 and the three months ended March 31,
1998, UATC 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 UATC 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 UATC.
12
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(10) INCOME TAXES, CONTINUED
At April 1, 1999, the Parent had a net operating loss carryforward for
federal income tax purposes of approximately $183.0 million.
The Parent's income tax returns for the years ended December 31, 1995, 1996
and 1997 are currently being audited by the IRS. The outcome of this audit
may reduce the amount of the Parent's and UATC's net operating loss
carryforward and/or change the basis (and thus future tax depreciation)
related to certain assets. The Parent and UATC believe that the result of
the audit will not have a material adverse effect on the financial
condition or results of operation.
(11) SEGMENT INFORMATION
UATC's operations are classified into two business segments; theater
operations and the Satellite Theatre Network-TM-. The Satellite Theatre
Network-TM- rents theatre auditoriums for seminars, corporate training,
business meetings and other educational or communication uses product and
consumer research and other entertainment uses. Theatre auditoriums are
rented individually or on networked basis.
The following table presents certain information relating to the theatre
operations and Satellite Theatre Network-TM- segments for the thirteen
weeks ended April 1, 1999 and the three months ended March 31, 1998
(amounts in millions):
<TABLE>
<CAPTION>
Theatre Satellite
Operations Theatre Network Total
---------- --------------- -------
<S> <C> <C> <C>
FOR THE THIRTEEN WEEKS ENDED APRIL 1, 1999
Revenue............................................ $ 133.6 1.1 134.7
Operating income (loss)............................ (10.7) - (10.7)
Depreciation and amortization...................... 13.0 0.3 13.3
Assets............................................. 565.4 3.9 569.3
Capital expenditures............................... 20.7 - 20.7
FOR THE THREE MONTHS ENDED MARCH 31, 1998
Revenue............................................ 162.7 1.4 164.1
Operating income (loss)............................ 10.8 (0.2) 10.6
Depreciation and amortization...................... 12.5 0.3 12.8
Assets............................................. 501.2 3.9 505.1
Capital expenditures............................... 16.8 - 16.8
</TABLE>
(12) COMPREHENSIVE INCOME
Separate statements of comprehensive income have not been presented in
these financial statements as the only reconciling item between net loss as
reflected in the statements of operations and comprehensive income would be
the change in UATC's cumulative foreign currency translation adjustment.
For the three months ended March 31, 1998, the change in the cumulative
foreign currency translation adjustment was $0.1 million.
13
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(13) COMMITMENTS AND CONTINGENCIES
UATC is involved in various pending and threatened legal proceedings
involving allegations concerning contract breaches, torts, employment
matters, environmental issues, anti-trust violations, local tax disputes,
and miscellaneous other matters. In addition, there are various claims
against UATC relating to certain of the leases held by UATC. Although it is
not possible to predict the outcome of these proceedings, UATC believes
that such legal proceedings will not have a material adverse effect on
UATC's financial position, liquidity or results of operations.
The 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 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 reimbursement of plaintiff's attorney's fees
and expenses under certain circumstances. UATC has established a program to
review and evaluate UATC's theatres and to make any changes that may be
required by the ADA. UATC believes that the cost of complying with the ADA
will not have a material adverse affect on UATC's financial position,
liquidity or results of operations.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
During 1999, UATC changed its reporting period from the traditional calendar
quarter and year presentation ending on March 31, June 30, September 30, and
December 31 to a presentation ending on the Thursday closest to the calendar
quarter or year end. The periods presented below are for the thirteen weeks
ended April 1, 1999 and the quarter ended March 31, 1998. The following
discussion and analysis of UATC's financial condition and results of
operations should be read in conjunction with UATC's Condensed Consolidated
Financial Statements and related notes thereto. Such financial statements
provide additional information regarding UATC's financial activities and
condition.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 1, 1999 AND THREE MONTHS ENDED MARCH 31, 1998
The following table summarizes certain operating data of UATC'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>
Thirteen Weeks Three Months %
Ended Ended Increase
April 1, 1999 March 31, 1998* (Decrease)
------------- ---------------- ----------
<S> <C> <C> <C>
Operating Theatres(1)
Revenue:
Admissions...................................... $ 93.4 113.4 (17.6)
Concession sales................................ 37.0 46.6 (20.6)
Other........................................... 4.3 4.1 4.9
Operating expenses:
Film rental and advertising expenses............ 52.1 60.9 (14.5)
Concession costs................................ 4.7 6.5 (27.7)
Occupancy expense............................... 23.9 22.8 4.8
Other operating expenses:
Personnel expense............................ 23.1 22.8 1.3
Miscellaneous operating expenses............. 22.3 22.4 (0.5)
Weighted avg. operating theatres(2)............... 315 332 (5.1)
Weighted avg. operating screens(2)................ 2,167 2,154 0.6
Weighted avg. screens per avg. theatre............ 6.9 6.5 6.0
Admissions per weighted avg.
operating theatre............................... $ 296,508 341,566 (13.2)
Admissions per weighted avg.
operating screen................................ $ 43,101 52,646 (18.1)
Concession sales per weighted avg.
operating theatre............................... $ 117,460 140,361 (16.3)
</TABLE>
(1) The operating theatres include revenue and expenses of all theatres
operated by UATC that 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.
*Restated
15
<PAGE>
REVENUE FROM OPERATING THEATRES
ADMISSIONS: Admissions revenue, admission revenue per weighted average
operating theatre and admissions revenue per weighted average operating
screen decreased 17.6%, 13.2% and 18.1%, respectively, during the thirteen
weeks ended April 1, 1999 as compared to the three months ended March 31,
1998. These decreases were primarily the result of a 20.6% decrease in
attendance, partially offset by a 3.7% increase in the average ticket price.
The decrease in attendance was primarily due to the decrease in overall
industry attendance associated with the unprecedented success of the film
TITANTIC during the three months ended March 31, 1998. In addition to the
lower industry attendance, the attendance at certain of United Artists' older
theatres has been adversely impacted by new theatre construction and certain
older theatres have been closed resulting in a decline in the weighted
average operating theatres by 5.1%. The increase in the average ticket price
was primarily due to selective increases in ticket prices during the summer
and holiday periods of 1998.
CONCESSION SALES: Concession sales revenue decreased 20.6% during the
thirteen weeks ended April 1, 1999 as compared to the three months ended
March 31, 1998, as a result of the decreased attendance discussed above.
Concession sales per weighted average operating theatre decreased only 16.3%
during the thirteen weeks ended April 1, 1999 as compared to the three months
ended March 31, 1998 as a result of those concession improvements related to
increased emphasis on sales staff training, the opening of several new
theatres with more efficient concession operations and the sale or closure of
several less productive theatres.
OTHER: Other revenue is derived primarily from on-screen advertising, revenue
generated by the Satellite Theatre Network-TM- , electronic video games
located in theatre lobbies, theatre rentals, and other miscellaneous sources.
Other revenue increased 4.9% for the thirteen weeks ended April 1, 1999 as
compared to the three months ended March 31, 1998, primarily as a result of a
91.6% increase in slide advertising revenue, partially offset by a 21.4%
decrease in Satellite Theatre Network-TM- revenue and a 5.1% decrease in
weighted average operating theatres.
OPERATING EXPENSES FROM OPERATING THEATRES
FILM RENTAL AND ADVERTISING EXPENSES: Film rental and advertising expenses
decreased 14.5% during the thirteen weeks ended April 1, 1999 as compared to
the three months ended March 31, 1998, primarily as a result of the decrease
in admissions revenue discussed above. Film rental and advertising expenses
as a percentage of admissions revenue were 55.8% for the thirteen weeks ended
April 1, 1999 and 53.7% for the three months ended March 31, 1998. The
increase in film rental and advertising expenses as a percentage of
admissions revenue related primarily to the shorter run of the films which
played during the thirteen weeks ended April 1, 1999. Typically, film rental
as a percentage of admissions revenue increases the shorter the run of the
film.
CONCESSION COSTS: Concession costs include direct concession product costs
and concession promotional expenses. Such costs decreased 27.7% during the
thirteen weeks ended April 1, 1999 as compared to the three months ended
March 31, 1998, primarily as a result of the decrease in concession sales
revenue discussed above and a decrease in the cost percentage. Concession
costs as a percentage of concession sales revenue were 12.7% and 14.0% for
the thirteen weeks ended April 1, 1999 and the three months ended March 31,
1998, respectively. The decrease in concession costs as a percent of
concession sales for the thirteen weeks ended April 1, 1999 as compared to
the three months ended March 31, 1998 was primarily due to lower promotional
expenses and the rebidding or restructuring of the product and distribution
contracts associated with many of UATC's concession products.
OCCUPANCY EXPENSE: UATC'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
16
<PAGE>
breakpoint. Occupancy expense increased 4.8% during the thirteen weeks ended
April 1, 1999 as compared to the three months ended March 31, 1998. This
increase related to higher base rentals on newly opened theatres and
additional sale and leaseback rent, partially offset by fewer weighted
average operating theatres. In addition, occupancy expense for the thirteen
weeks ended April 1, 1999 and the three months ended March 31, 1998 includes
$1.2 million and $0.9 million, respectively, of non-cash charges relating to
the effect of escalating leases which have been "straight-lined" for
accounting purposes.
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 1.3% during
the thirteen weeks ended April 1, 1999 as compared to the three months ended
March 31, 1998. This increase in personnel expense was primarily due to an
increase in janitorial and fringe benefit expenses. Personnel expense as a
percentage of admissions and concessions revenue was 17.7% for the thirteen
weeks ended April 1, 1999 and 14.3% for the three months ended March 31,
1998. The increase in personnel expense as a percentage of admissions and
concessions was primarily attributable to the fixed nature of certain of the
personnel expenses (i.e., theatre managers' and assistant managers' salaries)
and the increase in janitorial and fringe benefit expenses, partially offset
by the closure or sale of several less efficient theatres and the opening of
several new larger, more efficient multiplex theatres.
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 0.5% during the thirteen weeks ended April 1, 1999 as
compared to the three months ended March 31, 1998, primarily as a result of
reductions in utilities, insurance and Satellite Theatre Network-TM-
operating expenses, partially offset by slightly higher common area
maintenance expenses.
The revenue and operating expenses discussed above are incurred exclusively
within UATC'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, Satellite
Theatre Network-TM- sales and marketing staff and other support functions
located at UATC's corporate headquarters, two film booking and regional
operating offices and 14 district theatre operations offices (generally
located in theatres). General and administrative expenses increased $0.7
million for the thirteen weeks ended April 1, 1999 as compared to the three
months ended March 31, 1998, primarily as a result of normal salary
adjustments and a $0.2 million reduction in management fees from
international theatres previously managed.
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 $0.5
million during the thirteen weeks ended April 1, 1999 as compared to the
three months ended March 31, 1998, primarily due to increased depreciation
charges on UATC's newly opened theatres.
17
<PAGE>
OPERATING INCOME (LOSS)
During the thirteen weeks ended April 1, 1999, UATC incurred a operating loss
of $10.7 million as compared to generating operating income of $10.6 million
for the three months ended March 31, 1998. This decrease in operating income
relates primarily to lower revenue and higher other operating expenses,
partially offset by reduced film rental and advertising expenses and direct
concession costs.
INTEREST, NET
Interest, net decreased $0.8 million for the thirteen weeks ended April 1,
1999 as compared to the three months ended March 31, 1998, due primarily to
lower average debt balances as a result of the 1998 refinancing of UATC's
Senior Secured Notes with the Senior Subordinated Notes issued by the Parent.
DISCONTINUED OPERATIONS
During 1998 UATC established a plan to dispose of its entertainment center
business operations. The net loss from the discontinued operations was $1.1
million for the three months ended March 31, 1998. Included in the net loss
from discontinued operations for the three months ended March 31, 1998 was
interest expense of $0.4 million.
NET LOSS AVAILABLE TO COMMON STOCKHOLDER
During the thirteen weeks ended April 1, 1999 and the three months ended
March 31, 1998, UATC incurred net losses available to common stockholder of
$17.9 million and $6.4 million, respectively. This decrease relates primarily
to the decrease in operating income, partially offset by the reduction in
interest, net, the loss from discontinued operations and the dividends of
preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
For the thirteen weeks ended April 1, 1999, $18.9 million of cash was used in
UATC's operating activities. This operating use of cash, in addition to $14.8
million of cash used for capital expenditures and other investing activities,
was provided by $32.1 million of financing activities and $1.6 million of
cash balances available at December 31, 1998.
Substantially all of UATC's admissions and concession sales revenue are
collected in cash. Due to the unfavorable interest rate spread between bank
facility borrowings and cash investments, UATC seeks to use all of its
available cash to repay its revolving bank borrowings and borrow under those
facilities as cash is required. UATC 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.
During May 1998, the Parent completed the offering of $225.0 million of its
9.75% Fixed Rate Subordinated Notes due April 15, 2008, and the offering of
$50.0 million of its Floating Rate Subordinated Notes due October 15, 2007
and entered into the $450.0 million New Bank Credit Facility with a final
maturity of April 21, 2007.
The proceeds from the offerings of the Senior Subordinated Notes and a
portion of the borrowings under the New Bank Credit Facility were used to
repay the outstanding borrowings of $272.5 million under UATC's Bank Credit
Facility and to fund the redemption of the Parent's preferred stock
(approximately $159.2 million) and the redemption of UATC's $125.0 million
Senior Secured Notes at 102.875% of par value plus accrued but unpaid
interest of $0.8 million.
18
<PAGE>
The net proceeds from the offerings of the Senior Subordinated Notes in
excess of the redemption value of the Parent's preferred stock (approximately
$108.1 million) was contributed to UATC as additional common equity by the
Parent. Additionally, UATC's preferred stock (which was held by the Parent)
was converted into additional common equity.
As part of its strategic plan, UATC intends to continue to dispose of,
through sale or lease terminations, certain of its non-strategic or
underperforming operating theatres and real estate. Net proceeds, if any,
from these increased disposition efforts are expected to be used to repay
existing debt or to be redeployed into the renovation and/or expansion of
existing theatres and new, larger (in terms of screens), higher margin
theatres. While there can be no assurance that such sales or lease
termination efforts will be successful, negotiations are ongoing with respect
to several theatres and parcels of real estate. During the thirteen weeks
ended April 1, 1999, UATC closed or sold six theatres (27 screens). The
theatres that were closed were primarily smaller, older theatres that were
not part of UATC's long term strategic plans or were underperforming.
In an effort to limit the amount of investment exposure on any one project,
UATC typically develops theatre projects where both the land and building are
leased through long-term operating leases. Where such lease transactions are
unavailable, however, UATC 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. Regardless of whether the theatre is leased or
fee-owned, in most cases the equipment and other theatre fixtures are owned
by UATC. For the thirteen weeks ended April 1, 1999, UATC invested
approximately $10.2 million on eight theatres (101 screens) which opened
during 1998 and $10.5 million on the development of three new theatres (41
screens), one theatre (12 screens) on an existing drive-in and renovations,
expansions and the addition of stadium seating to four existing theatres (51
screens) expected to open during the remainder of 1999 and recurring
maintenance to certain existing theatres.
In December 1995, UATC and UAR entered into the 1995 Sale and Leaseback
whereby the land and buildings underlying 27 of their operating theatres and
four theatres and a screen addition under development were sold to, and
leased back from an unaffiliated third party. In conjunction with the 1995
Sale and Leaseback, the buyer of the properties issued certain publicly
traded bonds. The lease of the properties by UATC required UATC to enter into
a Participation Agreement that requires UATC to comply with certain covenants
including limitations on indebtedness and restricted payments.
In November 1996, UATC entered into a 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.
In December 1997, UATC entered into a sale and leaseback transaction whereby
two theatres under development were sold to, and leased back from, an
unaffiliated third party for approximately $18.1 million. At April 1, 1999,
approximately $9.1 million of the sales proceeds were held in escrow and will
be paid under the terms of the sale and leaseback to reimburse UATC for
certain of the construction costs associated with the two theatres.
At April 1, 1999, UATC had entered into construction or lease agreements for
three new theatres (41 screens), one theatre (12 screens) on an existing
drive-in and for renovations, expansions and the addition of stadium seating
to four existing theatres (51 screens) that UATC intends to open during 1999.
UATC estimates that capital expenditures associated with these theatres and
ongoing maintenance will aggregate approximately $39.0 million, exclusive of
the cash received from the 1997 sale and leaseback. Such amounts relate only
to projects in which UATC had executed a definitive lease and all significant
lease contingencies have been satisfied. UATC expects additional capital
expenditures, primarily with regard to the renovation or expansion of
existing key
19
<PAGE>
locations. Because a significant portion of UATC's future capital spending
plans relate to the renovation and/or expansion of existing key locations,
the timing of such commitments and expenditures are much more flexible and
thus can be matched to net cash provided by operating activities, asset sales
or other sources of capital.
UATC is party to interest rate collar agreements on $225.0 million of
floating rate debt which provide for a LIBOR interest rate cap ranging
between 6% and 7 1/2% per annum and LIBOR interest rate floors ranging
between 5 1/4% and 5 1/2%, and expire at various dates through August 2001.
The terms of the New Bank Credit Facility require UATC to obtain interest
rate hedges on a certain portion of its indebtedness thereunder. Amounts paid
to the counterparties to the interest rate collar agreements are recorded as
an increase to interest expense and amounts received from the counterparties
to the interest rate collar agreements are recorded as a reduction of
interest expense.
UATC believes that the net cash provided by operations in future periods and
borrowings available under the New Bank Credit Facility will be sufficient to
fund its future cash requirements. UATC expects the future cash requirements
will principally be for repayments of indebtedness, working capital
requirements and capital expenditures. UATC's future operating performance
and ability to service its current indebtedness will be subject to future
economic conditions and to financial, business and other factors, many of
which are beyond UATC's control. Additionally, UATC's ability to incur
additional indebtedness may be limited by convenants contained in the
Participation Agreement relating to the 1995 Sale and Leaseback discussed
above.
OTHER
UATC's revenues have been seasonal, coinciding with the timing of releases of
motion pictures by the major distributors. Generally, the most successful
motion pictures have been released during the summer extending the period
from Memorial Day to Labor Day and the holiday season extending from
Thanksgiving through year-end. The unexpected emergence of a hit film during
other periods can alter this traditional trend. The timing of such film
releases can have a significant effect on UATC's results of operations, and
the results of one quarter are not necessarily indicative of results for the
next quarter or for the same period in the following year.
YEAR 2000
UATC has initiated a review of its internal information systems for potential
year 2000 transition problems. There exists the possibility that some
equipment reliant upon computer chips that have a date sensitive component
will not operate correctly after December 31, 1999 and that system failures
could occur. UATC's review encompasses this type of equipment, segmented into
three broad areas: computer based systems in UATC's theatres; computer based
systems at UATC's administrative offices; and products and services provided
by outside vendors.
COMPUTER BASED SYSTEMS IN UATC'S THEATRES: UATC's theatres utilize a number
of computerized systems that may encounter year 2000 problems. Some of the
systems that may experience year 2000 problems include the point-of-sale
("POS") system, the projection and sound system, the energy management system
and other ancillary systems. The POS system records sales transactions,
issues admission tickets and relays the daily operational information to
UATC's corporate computer system. UATC initiated a plan to replace its
outdated POS system in 1993. The new POS system has been tested and is
expected to be year 2000 compliant. At April 1, 1999, replacement of UATC's
POS system was approximately 70% complete. UATC expects that by December
31, 1999 all of its operating theatres will be equipped with the new POS
system. If the new POS system were to malfunction or fail, manual backup
systems currently in place at the theatres could be utilized.
20
<PAGE>
Most all of the UATC's theatres are equipped with projection and sound
systems and energy management systems that are automated. If either the
projection and sound systems or energy management systems were to malfunction
or fail as a result of a year 2000 problem, manual backup systems currently
in place at the theatres could be utilized.
Certain theatres utilize other systems that may experience a malfunction or
failure as a result of a year 2000 problem. These systems include elevators,
escalators and fire and sprinkler systems. Failure of any of these systems
should not be material to the operations of the theatres taken as a whole.
COMPUTER BASED SYSTEMS AT UATC'S ADMINISTRATIVE OFFICES: UATC's corporate
administrative offices utilize a number of computerized systems that may
encounter year 2000 problems. The most significant of these systems are the
financial information systems (i.e. general ledger, accounts payable, payroll
and management information systems), and the telecommunications systems.
During 1998 UATC purchased and implemented a new general ledger and accounts
payable system. An upgrade to the existing payroll system will be implemented
during 1999. These financial information systems have been tested and appear
to be year 2000 compliant. A failure of any of these systems could impact the
ability of UATC to provide accurate financial information. Such failure or
malfunction could also delay payments to both vendors and employees. While
manual systems of information gathering and monetary disbursements are
available, these backup manual systems would be very expensive to utilize.
The telecommunications systems allow UATC to obtain the daily operational
information for each of its theatres and to communicate with the theatres and
all vendors and suppliers. The telecommunication systems have been tested and
appear to be year 2000 compliant.
PRODUCTS AND SERVICES PROVIDED BY OUTSIDE VENDORS: UATC is very dependent
upon products and services provided by outside vendors. Year 2000 compliance
by these vendors is voluntary and outside of the control of UATC. The major
products and services that UATC is dependent upon vendors for are film
supply, concessions inventory and utilities. If any of these vendors were to
experience year 2000 problems, UATC could experience in material and adverse
consequences. UATC has been advised by its major vendors that they expect to
be year 2000 compliant.
UATC is very dependent upon the banking industry for depositing daily cash
receipts and making vendor and payroll disbursements. UATC primarily utilizes
large, national banks and generally anticipates no material and adverse year
2000 problems from them. If, however, the banking industry were to experience
year 2000 problems, UATC could experience material and adverse consequences.
Although this review is still in progress, UATC believes that conversion
requirements will not result in significant disruption of UATC's business
operations or have a material adverse effect on its future liquidity or
results of operations. UATC's cost associated with year 2000 upgrades and
preventative measures is expected to be less than $0.5 million.
NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the Emerging Issues Task Force (EITF) released No. 97-10, "The
Effect of Leasee Involvement in Asset Construction." Issue No. 97-10 is
applicable to entities involved on behalf of an owner-lessor with the
construction of an asset that will be leased to the lessee when construction
of the asset is completed. In certain construction projects, UATC is
responsible for directly paying project costs that are in excess of an agreed
upon amount to be paid for by the owner-lessor. Generally, these project
costs paid by UATC include elements that are considered to be structural in
21
<PAGE>
nature as defined by Issue No. 97-10. As a result, UATC believes it would be
considered the owner of these projects during construction. The consensus
reached in Issue No. 97-10 applies to construction projects committed to
after May 21, 1998 and also to those projects that were committed to on May
21, 1998 if construction does not commence by December 31, 1999. Unless UATC
changes the manner in which it contracts for the construction of theatres,
UATC believes that Issue No. 97-10 will require certain of its future
operating leases to be recorded as lease financing obligations. UATC is in
the process of evaluating the impact of Issue No. 97-10 on its consolidated
financial position, results of operation and cash flows.
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities." The Statement expands the
definition of derivatives and requires that derivative instruments be
recorded at fair market value on the balance sheet and changes in the fair
value be recognized in the calculation of net income unless specific hedge
accounting criteria are met. Qualifying financial instruments to which UATC
is a party include borrowings under the New Bank Credit Facility, interest
rate swap agreements and interest rate collar agreements. The effective date
for SFAS No. 133 is for fiscal years beginning after June 15, 1999. UATC has
not quantified the impact of adopting SFAS No. 133 on its financial position,
results of operation or cash flow and has not determined the timing of
adoption of SFAS No. 133. However, SFAS No. 133 could increase volatility in
net income and comprehensive income.
During 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 ("SOP 98-1"), "Reporting on Internal Use Software"
and Statement of Position 98-5 ("SOP 98-5") "Reporting on Start-up Costs."
SOP 98-1 provides guidance on accounting for the cost of computer software
obtained for internal use and requires that certain costs of internally
generated computer software be capitalized rather than expensed. SOP 98-5
requires that entities expense the costs of start-up activities as they are
incurred. The effective date for SOP 98-1 and SOP 98-5 is for fiscal years
beginning after December 15, 1998. Adoption of SOP 98-1 and SOP 98-5 has not
materially effected UATC's consolidated financial position, results of
operation or cash flow.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
UATC is subject to market risk associated with changes in interest rates on
its debt obligations. UATC manages its interest rate risk through a
combination of fixed and floating rate debt obligations and by selectively
entering into interest rate cap and interest rate collar agreements. The
table presented below provides information about UATC's financial instruments
that are sensitive to changes in interest rates (amounts in millions):
<TABLE>
<CAPTION>
Expecting Maturity Date
April 1, Fair
2000 2001 2002 2003 2004 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt
Fixed Rate $ 2.9 3.0 0.5 0.4 0.4 3.3 10.5 10.5
Avg. Interest Rate 9.4% 9.4 7.9 7.8 7.8 7.8 8.7
Floating Rate $ 3.5 3.5 5.6 15.8 27.8 351.1 407.3 407.3
Avg. Interest Rate (1) (1) (1) (1) (1) (1) (1)
Interest Rate Collars
(notional amount) $75.0 - 150.0 - - - 225.0 (0.8)
Avg. Interest Rate
Interest Rate Cap (2) (2) (2) (2) (2) (2) (2)
Interest Rate Floor (3) (3) (3) (3) (3) (3) (3)
</TABLE>
(1) The weighted average floating interest rate at April 1, 1999 was 8.69%.
(2) The average interest rate cap was 6.5% through July 1999 and 6.0% through
August 2001.
(3) The average interest rate floor was 5.4% through July 1999 and 5.5% through
August 2001.
22
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On April 9, 1999, UATC filed a Form 8-K with the Securities and Exchange
Commission.
23
<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/ Trent J. Carman
------------------------------
BY: Trent J. Carman
Chief Financial Officer
Date: May 13, 1999
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-01-1999
<CASH> 6,300
<SECURITIES> 0
<RECEIVABLES> 19,100
<ALLOWANCES> 0
<INVENTORY> 20,400
<CURRENT-ASSETS> 46,300
<PP&E> 564,400
<DEPRECIATION> (206,900)
<TOTAL-ASSETS> 569,300
<CURRENT-LIABILITIES> 113,300
<BONDS> 411,400
0
0
<COMMON> 0
<OTHER-SE> 100
<TOTAL-LIABILITY-AND-EQUITY> 564,000
<SALES> 37,000
<TOTAL-REVENUES> 134,700
<CGS> 4,700
<TOTAL-COSTS> 145,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,400)
<INCOME-PRETAX> (17,700)
<INCOME-TAX> (200)
<INCOME-CONTINUING> (17,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,900)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
