<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 30, 2000
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 1, 2000
was 100 shares.
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
QUARTERLY REPORT ON FORM 10-Q
MARCH 30, 2000
(UNAUDITED)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NUMBER
-----------
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
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 ..............................................17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...........................................................................26
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................................................27
</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
APPRECIATION FUND II, AND THE DEPENDENCE OF UATC ON KEY PERSONNEL, AMONG OTHERS.
ADDITIONALLY, UATC'S ABILITY TO SUCCESSFULLY IMPLEMENT ITS BUSINESS AND
OPERATING STRATEGY MAY BE DEPENDENT UPON REORGANIZING ITS CAPITAL STRUCTURE AS
DISCUSSED HEREIN.
THE FOREGOING CAUTIONARY STATEMENT EXPRESSLY QUALIFIES ALL WRITTEN OR ORAL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO UATC.
3
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
March 30, December 30,
ASSETS 2000 1999
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents.......................................... $ 7.7 16.0
Receivables, net .................................................. 7.2 6.6
Prepaid expenses and concession inventory.......................... 20.2 16.4
Other assets....................................................... 0.3 2.3
------ -----
Total current assets............................................ 35.4 41.3
Investments and related receivables.................................. 3.3 3.5
Property and equipment, at cost:
Land............................................................... 16.6 16.8
Theatre buildings, equipment and other............................. 583.8 576.8
----- -----
600.4 593.6
Less accumulated depreciation and amortization..................... (248.2) (240.4)
------- -------
352.2 353.2
Intangible assets, net............................................... 56.5 57.8
Other assets, net (note 7)........................................... 80.1 78.5
------ -------
$ 527.5 534.3
===== =====
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................... $ 75.0 78.5
Accrued and other liabilities...................................... 67.6 56.0
Current portion of long-term debt (note 5)......................... 441.7 442.0
------- ------
Total current liabilities....................................... 584.3 576.5
Other liabilities.................................................... 39.5 40.8
Debt (notes 5)....................................................... 4.5 4.6
Liabilities related to discontinued operations (note 9).............. 2.4 2.4
------- -------
Total liabilities............................................... 630.7 624.3
Minority interests in equity of consolidated
subsidiaries.................................................... 5.9 5.8
Stockholder's equity:
Common stock....................................................... - -
Additional paid-in capital......................................... 289.9 291.2
Accumulated deficit................................................ (398.0) (387.6)
Unrealized holding gain............................................ - 1.6
Intercompany account............................................... (1.0) (1.0)
-------- -------
Total stockholder's equity....................................... (109.1) (95.8)
-------- --------
$ 527.5 534.3
===== =====
</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 Ended
March 30, 2000 April 1, 1999
-------------- -------------
Revenue:
<S> <C> <C>
Admissions........................................................ $ 85.3 93.4
Concession sales.................................................. 35.1 37.0
Other............................................................. 5.0 4.3
------- ------
125.4 134.7
----- -----
Costs and expenses:
Film rental and advertising expenses.............................. 45.1 52.1
Direct concession costs........................................... 4.2 4.7
Occupancy expense (note 3)........................................ 21.8 23.9
Other operating expenses.......................................... 41.9 44.8
Affiliate lease rentals (note 7).................................. 0.1 0.6
General and administrative........................................ 5.3 6.0
Depreciation and amortization..................................... 11.1 13.1
Impairment and lease exit costs (note 8).......................... 1.8 0.2
------- -------
131.3 145.4
----- -----
Operating loss from continuing operations......................... (5.9) (10.7)
Other income (expense):
Interest, net (notes 5 and 7)..................................... (10.6) (7.4)
Gain on disposition of assets..................................... 5.6 0.7
Minority interests in earnings of consolidated subsidiaries....... (0.5) (0.1)
Other, net........................................................ 0.9 (0.2)
--- ------
(4.6) (7.0)
----- -----
Loss from continuing operations before income
tax expense................................................... (10.5) (17.7)
Income tax benefit (expense) (note 10)................................. 0.1 (0.2)
--- ------
Net loss available to common stockholder.......................... $ (10.4) (17.9)
====== ======
</TABLE>
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 Unrealized
Common paid-in Accumulated holding Intercompany
stock capital deficit gain account
----- ------- ------- ---- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999.... $ - 291.2 (387.6) 1.6 (1.0)
Dividend to Parent.............. - (1.3)
Unrealized holding gain......... - (1.6)
Net loss........................ - - (10.4) - -
----- ------- ------- ------ -------
Balance at March 30, 2000....... $ - 289.9 (398.0) - (1.0)
===== ======= ======= ====== =======
<CAPTION>
Total
stockholder's
equity
------
<S> <C>
Balance at December 31, 1999.... (95.8)
Dividend to Parent.............. (1.3)
Unrealized holding gain......... (1.6)
Net loss........................ (10.4)
------
Balance at March 30, 2000....... (109.1)
=======
</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 Ended
March 30, 2000 April 1,1999
-------------- ------------
<S> <C> <C>
Net cash provided by (used in) operating activities.......................... $ 4.4 (18.9)
----- ------
Cash flow from investing activities:
Capital expenditures.................................................... (10.6) (20.7)
Proceeds from disposition of assets, net................................ 7.4 4.4
Other, net.............................................................. 0.2 1.5
--- -----
Net cash used in investing activities................................ (3.0) (14.8)
----- ------
Cash flow from financing activities:
Debt borrowings......................................................... - 53.0
Debt repayments......................................................... (0.4) (11.7)
Dividend to Parent...................................................... (1.3) (1.3)
Increase in intercompany receivable..................................... (1.2) (2.1)
Increase (decrease) in cash overdraft................................... (6.4) (4.4)
Other, net.............................................................. (0.4) (1.4)
---- -----
Net cash provided (used) by financing activities..................... (9.7) 32.1
------ -----
Net decrease in cash................................................. (8.3) (1.6)
Cash and cash equivalents:
Beginning of period..................................................... 16.0 7.9
---- ---
End of period........................................................... $ 7.7 6.3
=== ===
Reconciliation of net income (loss) to net cash used in operating activities:
Net income (loss)............................................................ $ (10.4) (17.9)
Discontinued operations...................................................... - (0.6)
Effect of leases with escalating minimum annual rentals...................... 1.2 1.2
Depreciation and amortization................................................ 11.1 13.3
Gain on disposition of assets................................................ (5.6) (0.7)
Minority interests in earnings of consolidated subsidiaries.................. 0.5 0.1
Change in assets and liabilities:
Receivables............................................................. 0.2 (0.1)
Prepaid expenses and concession inventory............................... (3.8) (5.4)
Other assets............................................................ (0.5) 0.4
Accounts payable........................................................ 5.7 (7.1)
Accrued and other liabilities........................................... 6.0 (2.1)
--- -----
Net cash provided by (used in) operating activities.................. $ 4.4 (18.9)
=== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 30, 2000
(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"). The
Parent is owned by an investment fund managed by Merrill Lynch Capital
Appreciation Fund II ("ML Fund II"), 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 2000 presentation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) have been made in the accompanying interim condensed
consolidated financial statements that 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 30, 1999 consolidated financial
statements and notes thereto included as part of UATC's Form 10-K.
(2) GOING CONCERN
The accompanying financial statements have been prepared assuming UATC
will continue as a going concern. UATC has incurred recurring losses
from operations and has an accumulated deficit of $398.0 million as of
March 30, 2000, which raises substantial doubt about its ability to
continue as a going concern. As more fully discussed in Note 5, the
Parent has a secured credit facility which provides for term loans and
a revolving loan (the "Bank Credit Facility"), which aggregated $437.7
million as of March 30, 2000. The Parent was in default under certain
covenants of the Bank Credit Facility as of March 30, 2000. The Bank
Credit Facility is guaranteed, on a joint and several basis, by UATC
and by certain of the Parent's other subsidiaries. Under the terms of
the Bank Credit Facility, the lenders may exercise such remedies as are
permitted by the credit agreement, including, without limitation,
acceleration of the outstanding principal balance.
In addition to the Bank Credit Facility, the Parent has a $275.0
million subordinated credit facility (the "Senior Subordinated Notes").
On April 15, 2000, an interest payment of $12.3 million was due from
the Parent to the holders of the Senior Subordinated Notes. On or about
April 12, 2000, the senior secured lenders under the Bank Credit
Facility notified the holders of the Senior Subordinated Notes of a
default under the Bank Credit Facility and blocked payment of the
Senior Subordinated Notes for up to 180 days (the "Block Period"). As a
result, the Parent did not make that payment when due.
8
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(2) GOING CONCERN, CONTINUED
The Parent is currently in negotiations with its Bank Credit Facility
lenders regarding a debt/equity recapitalization plan. Should a plan be
successfully negotiated with the senior secured lenders, the Parent
will present that plan to the holders of the Senior Subordinated Notes.
There can be no assurance that the senior secured lenders and the
holders of the Senior Subordinated Notes will agree to such a
recapitalization plan. If the holders of the Senior Subordinated Notes
have not consented to a recapitalization plan prior to the expiration
of the Block Period, the holders of the Senior Subordinated Notes may
then attempt to exercise any remedies available to them, including,
without limitation, acceleration of the indebtedness. A financial and
corporate reorganization of UATC is likely whether or not a consensual
debt restructuring agreement can be reached with the lenders under the
Bank Credit Facility and the holders of the Senior Subordinated Notes.
(3) 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 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. The lease has a term of
22 years with options to extend for an additional 10 years.
During 1999, UATC and UAR entered into two separate sale and leaseback
transactions. Proceeds of $5.4 million were received by UAR for the
sale of one existing theatre. The lease has a term of 20 years, with
options to extend for up to 20 additional years. A $4.0 million
transaction on a theatre that opened in September 1999 is still
pending.
(4) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest were $11.8 million and $8.6 million for the
thirteen weeks ended March 30, 2000 and April 1, 1999, respectively.
9
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(5) DEBT
In March 1999 and September 1999, the Parent finalized the second and
third amendments to its Bank Credit Facility with its lenders,
including an advancement of the maturity date for part of the
agreement, an increase in the LIBOR borrowing spread and additional
loan security through mortgages on certain of UATC and UAR's
properties. As of March 30, 2000, the Parent was in default of certain
covenants of its Bank Credit Facility. In addition, the senior secured
lenders under the Bank Credit Facility notified the holders of the
Senior Subordinated Notes of a default under the Bank Credit Facility
on or about April 12, 2000 and blocked payment of the Senior
Subordinated Notes for up to 180 days. As a result, the Parent did not
make the interest payments of approximately $12.3 million due April 15,
2000 on its Senior Subordinated Notes. After the expiration of any
applicable 30-day grace period, the Parent will be in default of its
obligations to the holders of the Senior Subordinated Notes. As a
result of the existing default under the Bank Credit Facility (and
certain cross-default provisions in UATC's other debt), UATC has
classified its Bank Credit Facility and Senior Subordinated Notes
outstanding at March 30, 2000 and December 30, 1999, as current.
Debt is summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
March 30, 2000 December 30, 1999
--------------- ------------------
<S> <C> <C>
Bank Credit Facility (a).......................$ 437.7 437.7
Other (b)....................................... 8.5 8.9
----- -------
446.2 446.6
Less current portion............................ (441.7) (442.0)
-------- ----------
$ 4.5 4.6
=== ===
</TABLE>
(a) The 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 aggregate term loan balance at
March 30, 2000 was $437.7 million. 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 and Tranche C
Term Loan require semi-annual principal payments commencing
December 31, 1998 through December 30, 2004 of 1/2% of the
December 31, 1998 outstanding balance and a final payment of
93 1/2 % of the December 31, 1998 outstanding balance on April
21, 2005. There is no credit available to UATC under the Bank
Credit Facility.
10
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(5) DEBT, CONTINUED
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 Parent, but no less frequently than once
each 90 days. The weighted average interest rate at March 30,
2000 was 10.4%.
The 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 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.
The 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. Additionally, the Bank Credit
Facility is secured by mortgages on certain of UATC's and Prop
I's properties.
(b) Other debt at March 30, 2000, 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 March 30, 2000, UATC was party to 7.5% interest rate cap agreements
on $150.0 million of floating rate debt, expiring at December 31,
2000. Prior to February 25, 2000, UATC was party to interest rate
collar agreements on $150.0 million of floating rate debt which
provided for a LIBOR interest rate cap of 6% and LIBOR interest rate
floors of approximately 5 1/2%. UATC sold that collar for $1.4 million
and reset the cap agreements. The $1.4 million gain has been deferred
and will be recorded as a reduction to interest expense over the
original term of the interest rate collar agreement. 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 and interest rate cap 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 March 30, 2000, the Parent had approximately $2.7 million of
Revolving Facility commitments, all of which has been used for the
issuance of letters of credit. The Parent pays commitment fees of 5/8%
per annum on the average unused commitments.
The primary source of principal and interest payments related to the
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.
Interest, net includes amortization of deferred loan costs of $0.4
million and $0.2 million for the thirteen weeks ended March 30, 2000
and April 1, 1999, respectively. Additionally, interest, net includes
interest income of $1.4 million and $1.5 million for the thirteen weeks
ended March 30, 2000 and April 1, 1999, respectively.
11
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(6) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of UATC's financial
instruments at March 30, 2000 are summarized as follows (amounts in
millions):
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
------- -----------
<S> <C> <C>
Bank Credit Facility and Other Debt............................... $ 446.2 304.0
===== ======
</TABLE>
Bank Credit Facility and Other Debt: The fair value of UATC's
borrowings under the Bank Credit Facility is estimated based upon
dealer quotes at March 30, 2000. Other debt approximates fair value.
Interest Rate Cap Agreements: The fair value of UATC's interest rate cap
agreements were reset in February 2000, and has a nominal fair market
value.
(7) RELATED PARTY TRANSACTIONS
UATC leases certain of its theatres from UAR and Prop I in accordance
with two master leases. The leases provide for basic monthly or
quarterly rentals and may require additional rentals, based on the
revenue of the underlying theatre. The lease arrangement with Prop I was
entered into in conjunction with the placement of mortgage debt
financing in 1988. 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 $1.4 million and $1.3
million for the thirteen weeks ended March 30, 2000 and April 1, 1999,
respectively.
(8) IMPAIRMENTS AND LEASE EXIT COSTS
The following table shows the detailed components of the expenses in
the impairments and lease exit costs:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
March 30, 2000 April 1, 1999
--------------- --------------
<S> <C> <C>
Asset impairments.................................. $ 0.4 0.2
Lease exit costs................................... 1.4 -
---
$ 1.8 0.2
=== ===
</TABLE>
IMPAIRMENTS
UATC accounts for its long lived assets in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." For the thirteen weeks ended
March 30, 2000 and April 1, 1999, UATC recorded non-cash charges for
the impairment of its long-lived assets of $0.4 million and $0.2
million, respectively. These non-cash charges relate to the difference
between the historical book value of the individual theatres (in some
cases groups of theatres) and the undiscounted cash flow expected to be
received from the operation or future sale of the individual theatres
(or groups of theatres).
12
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(8) IMPAIRMENTS, LEASE EXIT COSTS AND OTHER, CONTINUED
EXIT COSTS
During 2000 and 1999, UATC continued to implement a strategy intended
to identify and divest of under-performing and non-strategic theatres
and properties. In December 1999, management formalized a plan to
dispose of 55 operating theatres (371 screens) and five properties and
exit leases covering 18 closed theatres. The exit plan is focused on
lease termination negotiations and there are no other significant
actions necessary to complete the plan. In December 1999, UATC hired a
consultant to facilitate negotiations of lease terminations with
landlords. As a result, UATC recorded estimated lease termination costs
of $17.9 million in fourth quarter of 1999. During the thirteen weeks
ended March 30, 2000, UATC added 18 theatres (93 screens), closed 16
theatres (110 screens), terminated leases on two properties and sold
one parcel of real estate. Set forth below is a summary of the plan
activity during the 13 weeks ended March 30, 2000:
<TABLE>
<CAPTION>
OPERATING NON-THEATRE TOTAL
THEATRES PROPERTIES CLOSED THEATRES PROPERTIES
-------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Balance at 12/30/99 55 5 18 78
Properties added to plan 18 - - 18
Theatre closures (16) - 16 -
Lease terminations/asset sales - (1) (2) (3)
--- --- --- ---
Balance at 03/30/00 57 4 32 93
=== === === ===
</TABLE>
Activity in the reserve account for the thirteen weeks ended March 30,
2000 is summarized as follows:
<TABLE>
<CAPTION>
RESERVE FOR LEASE TERMINATION COSTS OPERATING THEATRES CLOSED THEATRES
----------------------------------- ------------------ ---------------
<S> <C> <C>
Balance at December 30, 1999 $17.9 $ 6.2
Payments (0.2) (0.6)
Adjustment of estimates (0.7) (0.7)
Theatre closures (8.4) 8.4
Additional reserve 1.8 1.8
----- ---
Balance at March 30, 2000 $10.4 $15.1
==== ====
</TABLE>
(9) DISCONTINUED OPERATIONS
During 1998, UATC established a plan to dispose of its entertainment
center business operations. Liabilities of the discontinued operations
were $2.4 million at March 30, 2000, related to estimated costs
necessary to terminate three remaining leases and settle remaining
litigation related to the entertainment centers.
(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
13
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(10) INCOME TAXES, CONTINUED
80% or more owned consolidated subsidiaries were separate tax paying
entities within the consolidated group. For the thirteen weeks ended
March 30, 2000 and April 1, 1999, 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.
At March 30, 2000, the Parent had a net operating loss carryforward for
federal income tax purposes of approximately $283.9 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 three business segments: Theatre
Operations, In-Theatre Advertising and the Satellite Theatre
Network-TM- ("STN"). STN 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. In-Theatre Advertising sells various advertising
within its theatres and on its web page.
The following table presents certain information relating to the Theatre
Operations, In-Theatre Advertising and STN segments for the thirteen
weeks ended March 30, 2000 and April 1, 1999 (amounts in millions):
14
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(11) SEGMENT INFORMATION, CONTINUED
<TABLE>
<CAPTION>
THEATRE IN-THEATRE
OPERATIONS ADVERTISING STN TOTAL
---------- ----------- --- -----
<S> <C> <C> <C> <C>
FOR THE THIRTEEN WEEKS ENDED MARCH 30, 2000
Revenue............................ $122.5 2.0 0.9 125.4
Operating income (loss)............ (7.9) 1.7 0.3 (5.9)
Depreciation and amortization...... 11.0 0.1 - 11.1
Assets............................. 522.1 1.5 3.9 527.5
Capital expenditures............... 10.6 - - 10.6
FOR THE THIRTEEN WEEKS ENDED APRIL 1, 1999
Revenue............................ $132.1 1.5 1.1 134.7
Operating income (loss)............ (11.9) 1.2 - (10.7)
Depreciation and amortization...... 12.7 0.1 0.3 13.1
Assets............................. 563.8 1.6 3.9 569.3
Capital expenditures............... 20.7 - - 20.7
</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 unrealized holding gain. For the
thirteen weeks ended March 30, 2000, the change in unrealized holding
gain was $1.6 million.
(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, if UATC's restructuring efforts are unsuccessful and
judgements against UATC are obtained in such proceedings, there could
result a material adverse effect on UATC's financial position, liquidity
and 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.
If
15
<PAGE>
UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(13) COMMITMENTS AND CONTINGENCIES, CONTINUED
UATC is unsuccessful in its efforts to reorganize its capital structure,
it may be unable to comply with the ADA and the settlement agreement in
the CONNIE ARNOLD case. Failure to comply with the ADA and the
settlement agreement in the CONNIE ARNOLD case may have a material
adverse effect on UATC's financial position, liquidity and results of
operations.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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.
UATC continues to face liquidity problems caused by its significant debt burden.
UATC's EBITDA has been, and absent recapitalization and restructuring, its
EBITDA in the future is projected to be insufficient to support the current debt
balances and related interest obligations of the Parent. The Parent's
obligations under its Bank Credit Facility are guaranteed, on a joint and
several bases, by UATC, UAR and certain of their subsidiaries. UATC's
independent public accountants included in their report on UATC's consolidated
financial statements for the fiscal year ended December 30, 1999 an explanatory
paragraph that describes the significant uncertainty about UATC's ability to
continue as a going concern due to recurring losses and insufficient liquidity,
and that UATC's financial statements do not reflect any adjustment that might
result from the outcome of this uncertainty.
Due to a lack of operating liquidity, in February 2000, the Parent initiated
discussions with the senior secured lenders under its Bank Credit Facility
regarding a recapitalization plan. If a recapitalization plan is approved by its
senior secured lenders, the Parent intends to initiate discussions with the
holders of the Senior Subordinated Notes with respect to that recapitalization
plan. There can be no assurance that such negotiations will be successful and
even if successful, implementation of the recapitalization plan may require
additional actions with respect to the reorganization of UATC. The Parent is in
default under its Bank Credit Facility and Senior Subordinated Notes, and in the
absence of forbearance and conclusion of a successful recapitalization and
restructuring, the senior secured lenders and Senior Subordinated Noteholders
may seek to exercise their remedies, including acceleration of indebtedness. In
the absence of a recapitalization and restructuring, management will not be able
to implement its business plan as expressed throughout this document and its
annual report filed on Form 10-K, and UATC will have to explore other
alternatives to reorganize UATC.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MARCH 30, 2000 AND APRIL 1, 1999
The following table summarizes certain operating data of UATC's theatres(1)
(dollars in millions):
<TABLE>
<CAPTION>
Thirteen Weeks Ended % Increase
March 30, 2000 April 1, 1999 (Decrease)
-------------- -------------- ----------
<S> <C> <C> <C>
Revenue:
Admissions...................................... $ 85.3 93.4 (8.7)%
Concession sales................................ 35.1 37.0 (5.1)
Other........................................... 5.0 4.3 16.3
Operating expenses:
Film rental and advertising expenses............ 45.1 52.1 (13.4)
Concession costs................................ 4.2 4.7 (10.6)
Occupancy expense............................... 21.9 24.5 (10.6)
Other operating expenses:
Personnel expense............................ 21.4 23.1 (7.4)
Miscellaneous operating expenses............. 20.5 21.7 (5.5)
</TABLE>
(1) The operating theatres include revenue and expenses of all theatres
operated by UATC that are more than 50% owned.
17
<PAGE>
THEATRE OPERATIONS SEGMENT
THIRTEEN WEEKS ENDED MARCH 30, 2000 AND APRIL 1, 1999
The following table summarizes certain operating data of UATC's Theatres
Operations Segment (1) for the thirteen weeks ended March 30, 2000 and April 1,
1999 (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 Ended % Increase
March 30, 2000 April 1, 1999 (Decrease)
-------------- -------------- ----------
<S> <C> <C> <C>
Revenue:
Admissions...................................... $ 85.3 93.4 (8.7)%
Concession sales................................ 35.1 37.0 (5.1)
Other........................................... 2.1 1.7 23.5
Operating expenses:
Film rental and advertising expenses............ 45.1 52.1 (13.4)
Concession costs................................ 4.2 4.7 (10.6)
Occupancy expense............................... 21.9 24.5 (10.6)
Other operating expenses:
Personnel expense............................ 21.4 23.1 (7.4)
Miscellaneous operating expenses............. 19.8 21.0 (5.7)
Weighted avg. operating theatres(2)............... 272 315 (13.7)
Weighted avg. operating screens(2)................ 1,949 2,167 (10.1)
Weighted avg. screens per avg. theatre............ 7.2 6.9 4.2
Admissions per weighted avg.
operating theatre............................... $ 313,603 296,508 5.8
Admissions per weighted avg.
operating screen................................ $ 43,766 43,101 1.5
Concession sales per weighted avg.
operating theatre............................... $ 129,044 117,460 9.9
</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.
REVENUE FROM OPERATING THEATRES
ADMISSIONS: Admissions revenue decreased 8.7% during the thirteen weeks ended
March 30, 2000 as compared to the thirteen weeks ended April 1, 1999. This
decrease was primarily due to a 13.3% decrease in attendance, partially offset
by a 5.4% increase in the average ticket price. The attendance decline during
the thirteen weeks ended March 30, 2000 was primarily due to the closure and/or
sale of numerous under-performing theatres, partially offset by the opening of
three new theatres, resulting in a 13.7% and 10.1% decline in UATC's weighted
average operating theatres and screens, respectively. In addition, there has
been an adverse impact on attendance at certain of UATC's older theatres due to
the opening of new stadium seating theatres by UATC's competitors in certain
markets. The increase in the average ticket price was primarily due to selective
increases in ticket prices during the summer and holiday periods of 1999.
Admissions revenue per weighted average operating theatre and screen increased
5.8% and 1.5%, respectively, during the thirteen weeks ended March 30, 2000 as
compared to the thirteen weeks ended April 1, 1999 reflecting the closure of
under-performing theatres and price increases.
18
<PAGE>
CONCESSION SALES: Concession sales revenue decreased 5.1% during the thirteen
weeks ended March 30, 2000 as compared to the thirteen weeks ended April 1,
1999, as a result of the decreased attendance discussed above, partially offset
by a 9.5% increase in average concession sales per patron. Concession sales per
weighted average operating theatre increased 9.9% during the thirteen weeks
ended March 30, 2000 as compared to the thirteen weeks ended April 1, 1999. The
increase in concession sales per patron and concession sales per operating
theatre relates primarily to:
* Certain selective price increases during 1999,
* Additional concession menu items,
* Increased emphasis on sales staff training,
* The opening of new theatres with more efficient concession operations
and the closure or sale of older, smaller theatres with less efficient
concession operations.
OTHER: Other theatre operations segment revenue is derived primarily from
electronic video games located in theatre lobbies, theatre screening and
commercial rentals, and other miscellaneous sources. Despite the reduction in
theatres, other revenue increased 23.5% for the thirteen weeks ended March 30,
2000 as compared to the thirteen weeks ended April 1, 1999 primarily due to
$0.3 million received in February 2000 as reimbursement for lost revenues
related to a property condemnation at one theatre.
OPERATING EXPENSES FROM OPERATING THEATRES
FILM RENTAL AND ADVERTISING EXPENSES: Film rental and advertising expenses
decreased 13.4% during the thirteen weeks ended March 30, 2000 as compared to
the thirteen weeks ended April 1, 1999, primarily as a result of the decrease in
admissions revenue discussed above. Film rental and advertising expenses as a
percentage of admissions revenue were 52.9% and 55.8% for the thirteen weeks
ended March 30, 2000 and April 1, 1999, respectively. The decrease in film
rental and advertising expenses as a percentage of admissions revenue related
primarily to the longer run of several films which played during the thirteen
weeks ended March 30, 2000 and the film mix. Typically, film rental as a
percentage of admissions revenue decreases the longer the run of the film.
CONCESSION COSTS: Concession costs include direct concession product costs and
concession promotional expenses. Such costs decreased 10.6% during the thirteen
weeks ended March 30, 2000 as compared to the thirteen weeks ended April 1,
1999, primarily as a result of the decrease in concession sales revenue
discussed above. Concession costs as a percentage of concession sales revenue
decreased to 12.0% from 12.7% for the thirteen weeks ended March 30, 2000 and
April 1, 1999, respectively, due to price reductions from certain concession
vendors, as well as the effects of certain selective concession price increases
discussed above.
OCCUPANCY EXPENSE: UATC's typical theatre lease arrangement provides for a base
rental as well as contingent rentals that are a function of the underlying
theatre's revenue over an agreed upon breakpoint. Occupancy expense decreased
10.6% during the thirteen weeks ended March 30, 2000 as compared to the thirteen
weeks ended April 1, 1999. This decrease is related the closure of several
under-performing operating theatres and a reduction in intercompany rents,
partially offset by higher base rentals on newly opened theatres. Occupancy
expense for the thirteen weeks ended March 30, 2000 and April 1, 1999 includes
$1.2 million 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 decreased 7.4% during the
thirteen weeks ended March 30, 2000 as compared to the thirteen weeks ended
April 1, 1999. This decrease in personnel expense was primarily due to more
19
<PAGE>
efficient staffing, a reduction in the number of operating theatres, partially
offset by a 3.0% increase in hourly wages. The increase in hourly wage related
primarily to wage competition among retailers and the low unemployment rate.
Despite the increase in hourly wage, personnel expense as a percentage of
admissions and concessions revenue increased only slightly to 17.8% from 17.7%
for the thirteen weeks ended March 30, 2000 and April 1, 1999, respectively, due
to increased pricing and closure of under-performing 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 5.7% during the thirteen weeks ended March 30, 2000 as
compared to the thirteen weeks ended April 1, 1999, primarily as a result of
closure of several under-performing theatres and the related decline in repair
and maintenance, supply, insurance, pre-opening advertising and common area
maintenance expenses, partially offset by higher real estate taxes at certain
theatres.
THEATRES TARGETED FOR DISPOSITION
During 1999, UATC continued to implement a strategy intended to identify and
divest of under-performing and non-strategic theatres and properties. In
December 1999, management formalized a plan to dispose of 55 operating theatres
(371 screens) and exit leases covering 18 closed theatres. During the thirteen
weeks ended March 30, 2000, UATC closed 16 of the theatres (110 screens)
identified within the plan of divestiture. Additionally, two leases were
terminated and 18 theatres (93 screens) was added to the plan. Set forth below
is a summary of the plan activity during the thirteen weeks ended
March 30, 2000:
<TABLE>
<CAPTION>
OPERATING NON-THEATRE TOTAL
THEATRES PROPERTIES CLOSED THEATRES PROPERTIES
-------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Balance at 12/30/99 55 5 18 78
Properties added to plan 18 - - 18
Theatre Closures (16) - 16 -
Lease terminations/asset sales - (1) (2) (3)
--- --- --- ---
Balance at 03/30/00 57 4 32 93
=== === === ===
</TABLE>
Set forth below are the revenue and expenses, included within the theatre
operation segment information discussed above, for the theatres and properties
included in the disposition plan at March 30, 2000 and April 1, 1999 (in
millions):
<TABLE>
<CAPTION>
Thirteen Weeks Ended
March 30, 2000 April 1, 1999
-------------- -------------
<S> <C> <C>
Revenue:
Admissions $ 8.9 13.7
Concession sales 3.6 5.5
Other 0.4 0.5
----- -----
Total revenue 12.9 19.7
---- ----
Expenses:
Film rental and advertising expenses 3.9 5.7
Concession costs 0.5 0.8
Occupancy expense 3.2 5.1
Other operating expenses:
Personnel expense 3.4 4.7
Misc. operating expenses 3.9 6.3
----- -----
Total expenses 14.9 22.6
---- ----
Revenue less expenses: $ (2.0) (2.9)
===== =====
</TABLE>
20
<PAGE>
IN-THEATRE ADVERTISING SEGMENT
THIRTEEN WEEKS ENDED MARCH 30, 2000 AND APRIL 1, 1999
The following table summarizes operating revenue and expenses of UATC's
In-Theatre Advertising segment for the thirteen weeks ended March 30, 2000 and
April 1, 1999 (dollars in millions):
<TABLE>
<CAPTION>
Thirteen Weeks Ended % Increase
March 30, 2000 April 1, 1999 (Decrease)
-------------- -------------- -----------
<S> <C> <C> <C>
Revenue:
Other........................................... $ 2.0 1.5 33.3%
Operating expenses:
Other operating expenses:
Miscellaneous operating expenses............. 0.1 0.1 -
</TABLE>
ADVERTISING REVENUE: UATC sells advertising including rolling stock commercials,
intermission slides, intermission music, lobby monitor advertising and
entertainment, coupon distribution and customer sampling. Revenues are primarily
contingent upon the success of the sales efforts, as well as upon the location
of theatres and attendance at the theatres. In-Theatre Advertising revenue
increased 33.3% during the thirteen weeks ended March 30, 2000 as compared to
the thirteen weeks ended April 1, 1999. This increase was primarily due to a 3
1/2 year national advertising contract with one customer which began in November
of 1999.
ADVERTISING EXPENSES: Expenses associated with In-Theatre Advertising include
supplies, professional services, freight, projection repair and other
miscellaneous expenses. These expenses remained constant during the thirteen
weeks ended March 30, 2000 as compared with the thirteen weeks ended April 1,
1999.
SATELLITE THEATRE NETWORK-TM- SEGMENT
THIRTEEN WEEKS ENDED MARCH 30, 2000 AND APRIL 1, 1999
The following table summarizes operating revenue and expenses of UATC's
Satellite Theatre Network-TM- segment for the thirteen weeks ended March 30,
2000 and April 1, 1999 (dollars in millions):
<TABLE>
<CAPTION>
Thirteen Weeks Ended % Increase
March 30, 2000 April 1, 1999 (Decrease)
-------------- -------------- ----------
<S> <C> <C> <C>
Revenue:
Other........................................... $ 0.9 1.1 (18.2)%
Operating expenses:
Other operating expenses:
Miscellaneous operating expenses............. 0.6 0.6 -
</TABLE>
STN REVENUE: The Satellite Theatre Network-TM- ("STN") rents theatre auditoriums
for seminars, corporate training, business meetings, educational or
communication uses, product and customer research and other entertainment uses.
Theatre auditoriums are rented individually or on a networked basis. Revenues
decreased 18.2% during the thirteen weeks ended March 30, 2000 as compared to
the thirteen weeks ended April 1, 1999. The reduction in revenue was due
primarily to 14 fewer satellite seminars during the thirteen weeks ended March
30, 2000 as compared to the thirteen weeks ended April 1, 2000. Five events
scheduled for the first quarter of 2000 were rescheduled for later during 2000.
21
<PAGE>
STN EXPENSES: Expenses associated with the STN remained constant for the
thirteen weeks ended March 30, 2000 as compared to the thirteen weeks ended
April 1, 1999, due to the fixed nature of the selling and administrative costs
associated with STN.
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, In-Theatre Advertising personnel and
other support functions located at UATC's corporate headquarters, two film
booking and regional operating offices and 13 district theatre operations
offices (generally located in theatres). General and administrative expenses
decreased $0.7 million, or 11.7%, for the thirteen weeks ended March 30, 2000 as
compared to the thirteen weeks ended April 1, 1999, primarily as a result of the
merger of two operating district offices, a reduction in corporate personnel and
lower travel and entertainment, utility and postage expenses, partially offset
by higher professional fees.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense includes the depreciation of theatre
buildings and equipment and the amortization of theatre lease costs.
Depreciation and amortization decreased $2.0 million during the thirteen weeks
ended March 30, 2000 as compared to the thirteen weeks ended April 1, 1999. This
decrease is primarily due to a large number of theatre closures and the effect
of asset impairments during 1999 and 2000, partially offset by increased
depreciation charges from newly opened theatres.
OPERATING LOSS
During the thirteen weeks ended March 30, 2000 and April 1, 1999, UATC incurred
operating losses of $5.9 million and $10.7 million, respectively. This decrease
in operating loss relates primarily to higher concession and film margins, and
lower operating expenses resulting from the closure of under-performing
operating theatres.
INTEREST, NET
Interest, net increased $3.2 million for the thirteen weeks ended March 30, 2000
as compared to the thirteen weeks ended April 1, 1999 due primarily to a higher
average debt balance and to an increase in the interest rate on the Bank Credit
Facility.
NET LOSS AVAILABLE TO COMMON STOCKHOLDER
During the thirteen weeks ended March 30, 2000 and April 1, 1999 UATC
incurred net losses available to common stockholder of $10.4 million and
$17.9 million, respectively. This decrease in the net loss relates primarily
to increased operating income and gains on sale of assets and investments,
partially offset by higher interest expense. UATC sold various non-strategic
or under-performing theatres and real estate for a gain of $1.9 million.
Additionally, a stock investment was sold at a gain of $3.6 million.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the thirteen weeks ended March 30, 2000 net cash provided by operating
activities was $4.4 million. This net cash provided by operating activities,
and $8.3 million of the cash balances at December 30, 1999, was used to fund
$3.0 million of capital expenditures and other investing activities and
reduce outstanding debt (including cash overdrafts) by $9.7 million. UATC has
no availability under its credit facilities and is not in compliance with
certain covenants of its Bank Credit Facility.
On April 15, 2000, an interest payment of $12.3 million was due from the Parent
to the holders of United Artists $275.0 million of Senior Subordinated Notes. On
or about April 12, 2000, the senior secured lenders under the Bank Credit
Facility notified the holders of the Senior Subordinated Notes of a default
under the Bank Credit Facility and blocked payment of the Senior Subordinated
Notes for up to 180 days. As a result, the Parent did not make that payment when
due.
The Parent is currently in negotiations with its Bank Credit Facility lenders
regarding a debt/equity recapitalization plan. Should a plan be successfully
negotiated with the senior secured lenders, the Parent will present that plan to
the holders of the Senior Subordinated Notes. There can be no assurance that the
senior secured lenders and the holders of the Senior Subordinated Notes will
agree to such a recapitalization plan prior to the expiration of the Block
Period, the holders of the Senior Subordinated Notes may then attempt to
exercise remedies available to them, including, without limitation, acceleration
of the indebtedness. A financial and corporate reorganization of UATC is likely
whether or not a consensual debt restructuring agreement can be reached with the
lenders under the Bank Credit Facility and the holders of the Senior
Subordinated Notes.
Substantially all of UATC's admissions and concession sales revenue is collected
in cash. 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.
In March 1999 and September 1999, the Parent finalized the second and third
amendments to its Bank Credit Facility with its lenders, including an
advancement of the maturity date for part of the agreement, an increase in the
LIBOR borrowing spread and additional loan security through mortgages on certain
of UATC and UAR's owned real estate. For the year ended December 30, 1999, the
Parent was in default of certain covenants of its Bank Credit Facility. As a
result of the existing default under the Bank Credit Facility (and certain
cross-default provisions in UATC's other debt), UATC has classified most of its
debt outstanding at March 30, 2000 and December 30, 1999, as current.
During late 1997, several of UATC's competitors initiated expansion programs to
aggressively build new stadium seating megaplexes in a effort to gain market
share. As a result of this unprecedented increase in capital spending by other
operators, several of UATC's older, smaller non-stadium theatres were adversely
impacted. In response to this market condition, UATC has been aggressively
seeking to defend its key market positions and dispose of those theatres that
were underperforming and could not compete effectively.
In 1999, as the capital spending by its competitors peaked, UATC continued to
implement a strategy intended to identify and divest of under-performing and
non-strategic theatres and properties. In December 1999, management formalized a
plan to dispose of 55 operating theatres (371 screens) and exit leases covering
18 closed theatres. Eighteen theatres (93 screens) were added to the plan during
the thirteen weeks ended March 30, 2000. For the thirteen weeks ended March 30,
2000 these theatres generated $2.0 million of negative EBITDA (earnings before
interest, taxes, depreciation and amortization plus other non-recurring or
non-cash operating credits or changes). While there can be no assurance that
such sales or lease termination efforts will be successful, or what the final
cost will be, negotiations are ongoing with respect to several theatres. During
the thirteen weeks ended March 30, 2000, UATC closed 16 theatres (110 screens)
and
23
<PAGE>
terminated two leases that were identified in the divestiture plan. UATC has
disbursed approximately $0.2 million in early lease termination payments for
those two theatres leases (14 screens). UATC has reached agreement with
several other landlords with respect to the termination of theatre leases and
is in the process of documenting those agreements. The theatres that were
closed were primarily smaller, older theatres that were under-performing or
not part of UATC's long-term strategic plans.
In response to the increasing competitive environment and limited capital
resources, UATC continued to focus its investment activities on defending its
key market positions and significantly curtailed its capital spending to only
the most strategically important projects. During the thirteen weeks ended March
30, 2000 approximately $6.0 million was invested in one theatre (15 screens plus
an IMAX) in the Philadelphia market. The 15 screens have been opened and the
IMAX is expected to open in May 2000. Additionally, UATC invested approximately
$4.6 million to pay costs associated with three new theatres (37 screens) which
opened in 1999, and for recurring capital maintenance.
A significant portion of UATC's capital expenditures over the past several years
has been funded by sale and leaseback transactions. Following is a summary of
the various 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 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. The lease has a term of 22 years
with options to extend for an additional 10 years.
During 1999, UATC entered into two separate sale and leaseback
transactions. Proceeds of $5.4 million were received for the sale of
one existing theatre. The lease has a term of 20 years, with options to
extend for up to 20 additional years. A $4.0 million transaction on a
theatre that opened in September 1999 is still pending.
At March 30, 2000, UATC had entered into construction or lease agreements for
one new theatre (15 screens plus an IMAX). The majority of this project opened
in April 2000 and capital expenditures during 2000 will aggregate approximately
$8.8 million, including $0.3 million of equipment transferred from closed
theatres. While other projects are at various stages of lease negotiations or
plan development, this is the only project for which UATC has executed a
definitive lease and all significant lease contingencies have been satisfied.
UATC expects additional capital expenditures for ongoing maintenance and with
regard to the renovation, expansion or replacement of existing key locations as
opportunities present themselves and capital resources are available. Because a
significant portion of UATC's future capital spending plans relate to the
renovation
24
<PAGE>
and/or expansion of existing key locations, the timing of such commitments and
expenditures are much more flexible. Therefore, they can be matched to net cash
provided by operating activities, asset sales and other sources of capital.
At March 30, 2000, UATC was party to 7.5% interest rate cap agreements on $150.0
million of floating rate debt, expiring at December 31, 2000. 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 and cap agreements are
recorded as a reduction of interest expense.
UATC believes that unless a recapitalization plan is completed, the net cash
provided by operations and proceeds from asset sales and sale-leaseback
transactions may not be sufficient to fund its future cash requirements. UATC
expects that future cash requirements will principally be for interest and
repayments of indebtedness, operating working capital requirements and capital
expenditures. UATC's future operating performance and ability to service its
indebtedness will be subject to the success of motion pictures which are
released, future economic conditions, the sale of non-core assets 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
covenants 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 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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 established accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000 and earlier
application is encouraged. UATC has not yet quantified the impact, if any, of
adopting SFAS No. 133 on its financial statements and has not determined the
timing of or method of adoption of SFAS No. 133. However, SFAS No. 133 could
increase volatility in earnings and other comprehensive income.
25
<PAGE>
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 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>
Expected Maturity Date
March 30, Fair
2001 2002 2003 2004 2005 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Indebtedness
Fixed Rate $3.4 1.0 0.4 0.4 0.4 2.9 8.5 8.5
Avg. Interest Rate 9.4% 8.9 7.8 7.8 7.8 7.8 8.6
Floating Rate $3.5 10.4 30.7 46.3 58.8 288.0 437.7 295.5
Avg. Interest Rate (1) (1) (1) (1) (1) (1) (1)
Interest Rate Caps
(notional amount) $150.0 - - - - - 150.0 (3)
Avg. Interest Rate
Interest Rate Cap (2) (2) (2) (2) (2) (2) (2)
</TABLE>
(1) The weighted average floating interest rate at March 30, 2000 was 10.4%.
(2) The average interest rate cap was 7.5% through December 31, 2000.
(3) The fair market value of the Interest Rate Cap is nominal.
26
<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
None
27
<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
Chief Financial Officer
Date: May 4, 2000
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-28-2000
<PERIOD-START> DEC-31-1999
<PERIOD-END> MAR-30-2000
<CASH> 7,700
<SECURITIES> 0
<RECEIVABLES> 7,200
<ALLOWANCES> 0
<INVENTORY> 20,200
<CURRENT-ASSETS> 35,400
<PP&E> 600,400
<DEPRECIATION> (248,200)
<TOTAL-ASSETS> 527,500
<CURRENT-LIABILITIES> 584,300
<BONDS> 4,500
0
0
<COMMON> 0
<OTHER-SE> (109,100)
<TOTAL-LIABILITY-AND-EQUITY> 521,600
<SALES> 35,100
<TOTAL-REVENUES> 125,400
<CGS> 4,200
<TOTAL-COSTS> 131,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (10,600)
<INCOME-PRETAX> (10,500)
<INCOME-TAX> 100
<INCOME-CONTINUING> (10,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,400)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
