<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1999
- ------------------------------------------------------------------------------
REGISTRATION NO. 333-56985
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
UNITED ARTISTS THEATRE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7832 84-1198391
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
CODE NUMBER)
</TABLE>
9110 EAST NICHOLS AVENUE, SUITE 200
ENGLEWOOD, COLORADO 80112
(303) 792-3600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
COPIES OF ALL COMMUNICATION TO:
TRENT CARMAN
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
UNITED ARTISTS THEATRE CIRCUIT, INC.
9110 EAST NICHOLS AVENUE, SUITE 200
ENGLEWOOD, COLORADO 80112
(303) 792-3600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS
SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
----------------------
If any of the securities being registered on this form are to be
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. / /
<PAGE>
UNITED ARTISTS THEATRE COMPANY
FLOATING RATE SERIES B SENIOR SUBORDINATED NOTES DUE 2007
------------------
The Floating Rate Series B Senior Subordinated Notes due 2007 (the "Notes"
or the "Floating Rate Notes"), which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to a Registration
Statement of which this Prospectus (the "Prospectus") is a part, were issued in
exchange (the "Exchange Offer") for the Floating Rate Senior Subordinated Notes
due 2007 by United Artists Theatre Company ("United Artists"), a Delaware
corporation (formerly named Oscar I Corporation).
The Notes are unsecured senior subordinated obligations of United
Artists, rank PARI PASSU with the Fixed Rate Notes (as defined), and are
subordinated in right of payment to all existing and future Senior
indebtedness (as defined) of United Artists, including Indebtedness (as
defined) under the Senior Credit Facilities (as defined). At June 1, 1999,
United Artists and its subsidiaries had approximately $717.8 million of
indebtedness (excluding trade payables) outstanding, consisting of $431.3
million of Senior Indebtedness of United Artists (guaranteed by certain of
United Artists' subsidiaries), $11.5 million of other indebtedness of United
Artists' subsidiaries, $225.0 million representing the Fixed Rate Notes and
$50.0 million representing the Floating Rate Notes. In addition, on June 1,
1999, United Artists had revolving credit availability of $12.9 million under
the Senior Credit Facilities, all of which would be Senior Indebtedness, if
borrowed. Additional Senior Indebtedness may be incurred by United Artists
and additional indebtedness may be incurred by United Artists and its
subsidiaries, in each case from time to time, subject to certain
restrictions. See "The Transaction" and "Capitalization."
The Notes bear interest at a rate per annum determined quarterly, equal to
the Applicable LIBOR Rate (437.5 basis points over the LIBOR Rate). Interest on
the Notes will be payable quarterly on January 15, April 15, July 15 and October
15 of each year, commencing October 15, 1998. The Notes are redeemable at the
option of United Artists, in whole or in part, on any Interest Payment Date on
or after April 15, 1999, at the redemption prices set forth herein, together
with accrued and unpaid interest, if any, to the date of redemption. See
"Description of the Notes."
Upon the occurrence of a Change of Control (as defined), each holder of the
Notes shall have the right to require United Artists to purchase all or any
portion of such holder's Notes at a purchase price equal to 101% of the
principal amount thereof together with accrued and unpaid interest, if any, to
the date of purchase. See "Risk Factors -- Purchase of Notes Upon a Change of
Control" and "Description of the Notes."
United Artists has also registered under the Securities Act its 9 3/4%
Series B Senior Subordinated Notes due 2008 (the "Other Notes" or "Fixed Rate
Notes") that were issued in exchange (the "Other Exchange Offer") for the 9 3/4%
Senior Subordinated Notes due 2008. The Exchange Offer and the Other Exchange
Offer satisfied certain obligations of United Artists under the Registration
Rights Agreement of United Artists dated as of April 21, 1998 (the "Registration
Rights Agreement") relating to the Notes and the Other Notes.
SEE "RISK FACTORS," FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY INVESTORS IN EVALUATING AN INVESTMENT IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is to be used by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") in connection with offers and sales of the Notes
in market-making transactions at negotiated prices related to prevailing market
prices at the time of sale. Merrill Lynch may act as principal or as agent in
such transactions. United Artists receives no proceeds from the sales of Notes.
MERRILL LYNCH & CO.
The date of this Prospectus is July 15, 1999.
<PAGE>
No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by United Artists or Merrill Lynch. This
Prospectus does not constitute an offer to sell or the solicitation of an offer
to buy any security nor does it constitute an offer to sell or the solicitation
of an offer to buy any of the Notes to any person in any jurisdiction in which
it is unlawful to make such an offer or solicitation to such person. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.
AVAILABLE INFORMATION
United Artists has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 under the Securities Act for
the registration of the Notes (the "Registration Statement"). This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain items of which
are contained in exhibits and schedules to the Registration Statement as
permitted by the rules and regulations of the Commission. For further
information with respect to United Artists or the Notes, reference is made to
the Registration Statement, including the exhibits and financial statement
schedules thereto. With respect to each such document filed with the Commission
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
United Artists and UATC are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports and other information with the Commission.
The Registration Statement, such reports and other information can be inspected
and copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; the
Chicago Regional Office, Suite 1400, 500 West Madison Street, Citicorp Center,
Chicago, Illinois 60661; and the New York Regional Office, Suite 1300, 7 World
Trade Center, New York, New York 10048. Copies of such material also can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site on the Internet that contains reports and other information
regarding registrants that file electronically with the Commission. The address
of this site on the Internet is http://www.sec.gov.
United Artists will send to each Holder of Notes copies of annual reports
and quarterly reports containing the information required to be filed under the
Exchange Act. So long as United Artists is subject to the periodic reporting
requirements of the Exchange Act, it is required to furnish the information
required to be filed with the Commission to the Trustee and the Holders of the
Notes. United Artists has agreed that, even if it is not required under the
Exchange Act to furnish such information to the Commission, it will nonetheless
continue to furnish information that would be required to be furnished by United
Artists by Section 13 of the Exchange Act to the Trustee and the Holders of the
Notes as if it were subject to such periodic reporting requirements.
ii
<PAGE>
CAUTIONARY NOTICE REGARDING
FORWARD-LOOKING STATEMENTS
CERTAIN OF THE MATTERS DISCUSSED IN THIS PROSPECTUS MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SECURITIES ACT AND THE EXCHANGE
ACT. SUCH FORWARD-LOOKING STATEMENTS INVOLVE UNCERTAINTIES AND OTHER FACTORS AND
THE ACTUAL RESULTS AND PERFORMANCE OF UNITED ARTISTS 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 "RISK
FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK" AND "BUSINESS." CERTAIN OF SUCH RISKS AND UNCERTAINTIES RELATE TO THE
HIGHLY LEVERAGED NATURE OF UNITED ARTISTS, THE HOLDING COMPANY STRUCTURE, THE
RESTRICTIONS IMPOSED ON UNITED ARTISTS BY CERTAIN INDEBTEDNESS, THE SENSITIVITY
OF UNITED ARTISTS TO ADVERSE TRENDS IN THE GENERAL ECONOMY, THE HIGH DEGREE OF
COMPETITION IN UNITED ARTISTS' INDUSTRY, THE VOLATILITY OF UNITED ARTISTS'
QUARTERLY RESULTS AND UNITED ARTISTS' SEASONALITY, THE DEPENDENCE OF UNITED
ARTISTS ON FILMS AND DISTRIBUTORS AND ON ITS ABILITY TO OBTAIN POPULAR MOTION
PICTURES, THE CONTROL OF UNITED ARTISTS BY THE MERRILL LYNCH GROUP (AS DEFINED)
AND THE DEPENDENCE OF UNITED ARTISTS ON KEY PERSONNEL, AMONG OTHERS.
ALL WRITTEN FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO UNITED ARTISTS ARE
EXPRESSLY QUALIFIED BY THE FOREGOING CAUTIONARY STATEMENTS.
iii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE
READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT REQUIRES
OTHERWISE: (i) ALL REFERENCES HEREIN TO "UNITED ARTISTS" MEAN UNITED ARTISTS
THEATRE COMPANY (FORMERLY NAMED OSCAR I CORPORATION), UNITED ARTISTS THEATRE
CIRCUIT, INC. AND UNITED ARTISTS REALTY COMPANY, ON A CONSOLIDATED BASIS WITH
THEIR SUBSIDIARIES; (ii) ALL REFERENCES HEREIN TO "UATC" MEAN UNITED ARTISTS
THEATRE CIRCUIT, INC., A WHOLLY OWNED SUBSIDIARY OF UNITED ARTISTS; AND (iii)
ALL REFERENCES HEREIN TO "UAR" MEAN UNITED ARTISTS REALTY COMPANY, A WHOLLY
OWNED SUBSIDIARY OF UNITED ARTISTS. UNITED ARTISTS IS A HOLDING COMPANY THAT
CONDUCTS VIRTUALLY ALL OF ITS BUSINESS THROUGH SUBSIDIARIES. THE UNITED
ARTISTS' SUBSIDIARIES, INCLUDING UATC AND UAR AND THEIR RESPECTIVE
SUBSIDIARIES, WILL HAVE NO OBLIGATION TO PAY AMOUNTS DUE ON THE NOTES AND
WILL NOT GUARANTEE THE NOTES. SEE "RISK FACTORS--HOLDING COMPANY
STRUCTURE--SOURCE OF REPAYMENT OF NOTES; EFFECTIVE SUBORDINATION OF NOTES TO
INDEBTEDNESS OF SUBSIDIARIES." UNLESS THE CONTEXT REQUIRES OTHERWISE, ALL
THEATRE AND SCREEN INFORMATION CONTAINED HEREIN IS AS OF APRIL 1, 1999, AND
RELATES ONLY TO THEATRES IN WHICH UNITED ARTISTS OWNS MORE THAN A 50.0%
EQUITY INTEREST.
UNITED ARTISTS
OVERVIEW
United Artists is a leading motion picture exhibitor in North America
and, in the United States, operates 2,158 screens at 313 theatres located in
23 states. United Artists licenses films from all major and substantially all
independent film distributors and derives revenues primarily from theatre
admissions and concession sales. United Artists operates screens in eight of
the ten largest demographic market areas ("DMAs") in the United States and
approximately 45.3% of United Artists' screens are located in the top 20
DMAs. In addition, approximately 31.5% of United Artists' screens (680
screens) have been constructed since January 1, 1992. United Artists believes
that it is one of the largest single exhibitor, based on number of screens,
in many of its core areas of operation and this market position provides
several operating benefits. Theatre operations in six states (California, New
York, Pennsylvania, Florida, Texas and Colorado) accounted for approximately
58.5% and 56.9% of United Artists' total theatres and screens, respectively,
at April 1, 1999 and 61.7% and 61.8% of United Artists' theatrical revenue
and theatrical EBITDA (as defined herein), respectively, for the twelve
months ended April 1, 1999.
In December 1996, United Artists implemented a corporate restructuring and
refocused its investment strategy on its core U.S. business. Since that time,
United Artists has: (i) reduced its corporate general and administrative
expenses; (ii) improved its operations in its core areas of operation through
the development of new theatres and the refurbishing or expansion of certain
existing key theatres; (iii) implemented operational improvements; and (iv)
accelerated the divestitures of underperforming and non-strategic theatres.
United Artists has invested more than $477.1 million since January 1,
1992 toward improving the quality of its asset base by, among other things,
renovating existing theatres and constructing new state-of-the-art theatres.
Approximately 31.5% of United Artists screens have been constructed since
January 1, 1992. Virtually all of the theatres United Artists has built since
1997 are state-of-the-art, 10 to 16 screen multiplex theatres with stadium
seating, high-backed rocking seats, digital sound, expanded concession areas
and other state-of-the-art design features and amenities. All new theatres
currently planned will also include these state-of-the-art amenities and many
existing theatres are being, or will be, upgraded with stadium seating and
other state-of-the-art features. As compared to the prior generation of
non-stadium theatres, United Artists believes that these theatres provide a
higher quality entertainment experience for patrons and significant operating
efficiencies and improved economics for United Artists. At April 1, 1999,
United Artists operated 24 theatres (245 screens) which offered stadium
seating. At April 1, 1999, approximately 88.1% of United Artists' screens
were located in theatres with five or more screens. United Artists' average
number of screens per theatre has increased 43.8% from 4.8 at January 1, 1992
to 6.9 at April 1, 1999.
1
<PAGE>
Although ownership of movie exhibition theatres has become more
concentrated in the last ten years, with the top ten exhibitors operating
approximately 53.0% of the over 34,000 screens in North America, the industry is
still largely fragmented, with approximately 520 exhibitors operating the
remaining 47.0% of screens.
United Artists believes that movies are attractively priced compared to
certain other forms of entertainment such as sporting events, concerts, and live
theatre. During the five year period ended December 31, 1998, according to
industry update sources, industry-wide theatre attendance increased at a
compound annual growth rate ("CAGR") of 3.7%, and industry-wide admissions
revenue for the year ended December 31, 1998 increased approximately 9.1% as
compared to the year ended December 31, 1997.
In addition, management expects that the number of motion pictures rated by
the Classification and Rating Administration, which increased approximately 8.6%
over the past four years, will continue to increase in part as a result of the
increase in the number of major studios and reissues of films as well as an
increased popularity of films made by independent producers (although no
assurance exists concerning any such increase). In addition, the number of large
budget films and the level of marketing support provided by the production
companies has risen, as evidenced by the increase in average production costs
and average advertising costs per film of 53.7% and 57.5%, respectively, from
1994 to 1998. See "Risk Factors--Dependence on Films and Distributors."
BUSINESS AND OPERATING STRATEGY
United Artists' operating and capital investment strategy is to continue
focusing on improving on the quality of its key operating theatres and the
quality of its daily operations. Key elements include:
REFOCUS OVERHEAD AND CAPITAL INVESTMENT STRATEGY. In December 1996, United
Artists implemented a corporate restructuring and refocused its investment
strategy on its core U.S. business. United Artists' core business strategy
focuses management's attention and capital resources on those geographic areas
where United Artists intends to strengthen and defend its current position.
United Artists has also implemented operational improvements and overhead
reductions intended to increase United Artists' result of operations and has
sold or closed several underperforming or non-strategic theatres. The corporate
restructuring plan resulted in a higher level of focus by United Artists on its
domestic theatrical business and a reduction of corporate general and
administrative expenses of 35.1% from a running rate of $37.0 million for the
year ended December 31, 1996 to $24.0 million for the twelve months ended April
1, 1999. These savings were achieved primarily through headcount reductions and
a consolidation of regional administrative offices.
REBUILD OR EXPAND EXISTING KEY THEATRE LOCATIONS AND DEVELOP NEW
THEATRES. United Artists plans to continue increasing its number of screens
and operating margins by focusing its capital investment activities on the
renovation or expansion of existing theatres in its core areas of operation.
All currently planned theatre renovations and expansions will include, among
other things, the addition of stadium seating. The theatres selected for
renovation and expansion will be those that have favorable historical
operating results and for which a renovation or expansion will provide the
theatre with a competitive advantage.
United Artists will also build several new state-of-the-art theatres
within its core areas of operation. United Artists is developing higher
margin multiplexes of 12 to 18 screens and is seeking to increase concession
sales through, among other things, more efficient theatre design. United
Artists is also constructing its new theatres with stadium seating, digital
sound, more comfortable seats and other popular design features and
amenities. United Artists believes that these theatres will have an optimal
relationship between the number of screens (12 to 18) and the size of the
auditoriums (125 to 400 seats). These theatres are designed to increase the
revenue per square foot generated by the facility and reduce the cost per
square foot of constructing and operating the theatres. This multiplex
strategy, in combination with an emphasis on concession sales, is designed to
improve revenue and profitability by enhancing attendance and concession
sales, theatre utilization and operating efficiencies while providing more
efficient clustering around regional and district management centers. United
Artists believes that theatres which are larger than 18 screens tend to have
a higher level of return risk because they require a larger capital
investment and require a larger drawing area (thus, more potential
competition) to be successful, generally resulting in a diminishing return on
capital investment for the incremental screens.
During 1998, United Artists opened 13 new theatres (150 screens), added
stadium seating to two theatres (22 screens), and renovated two additional
theatres. Seven of the new theatres (83 screens) opened were expansions,
rebuilds or
2
<PAGE>
replacements of existing theatres, containing 30 screens. During 1999, United
Artists plans to open four new theatres (53 screens) and renovate and add
stadium seating to four existing theatres (51 screens).
MANAGE INDIVIDUAL THEATRE CAPITAL REQUIREMENTS. Even though United
Artists plans to continue to develop several new state-of-the-art theatres
each year, it intends to reduce individual theatre financial leverage and
capital requirements by focusing on expanding, renovating and rebuilding many
of its key locations. In many cases, these existing key locations can be
transformed into state-of-the-art multiplex stadium seating theatres without
competing against other operators for the location and incurring higher rent
and excessive preconstruction costs. Furthermore, existing structures can be
utilized while being refurbished, helping reduce overall construction costs.
United Artists' renovation of theatres in successful locations eliminates
much of the geographic risk related to a project's success.
In order to reduce the overall investment in new theatres, United
Artists has entered into "build to suit" and other landlord leasing
arrangements, including sale and leaseback transactions. United Artists also
intends to continue selling non-strategic and underperforming assets and
expects to redeploy capital to its core U.S. business. This strategy is
intended to provide increased liquidity from the disposal of non-cash flow
producing investments and theatres with limited growth potential.
DIVEST OR FIND ALTERNATIVE USES FOR UNDERPERFORMING THEATRES. United
Artists' 1996 corporate restructuring was also designed to rationalize
underperforming or non-strategic assets by: (i) terminating leases for
underperforming theatres; (ii) selling real estate underlying non-strategic
or underperforming theatres; (iii) divesting theatres in non-core areas; (iv)
exchanging theatres in non-core areas for theatres in core areas; and (v)
finding new operating techniques or alternative uses for underperforming
theatres. During the thirteen weeks ended April 1, 1999, United Artists
closed or sold six theatres (26 screens). During 1998, United Artists sold
the majority of its remaining international theatrical exhibition assets for
$3.0 million of cash, $0.5 million of stock of the acquiring company and a
$3.0 million note. In addition, United Artists sold certain non-operating
real estate assets and closed or sold 32 underperforming or non-strategic
theatres (138 screens) for which net cash proceeds of $16.0 million were
received. Many of the theatres closed or sold were not profitable or were
located in areas that are not part of United Artists' long-term strategic
plans. United Artists has identified 49 operating theatres and owned real
estate (321 screens) that are not considered strategically important or are
underperforming. United Artists plans to sell or close these theatres during
the next several years, although there can be no assurance that United
Artists will be able to accomplish such divestitures or closings.
IMPLEMENT OPERATIONAL IMPROVEMENTS. United Artists has recognized theatre
and concession operating efficiencies through heightened focus on increasing
concession sales, managing theatre payrolls and variable costs and increased
staff training. Concession sales per capita increased by approximately 5.5% for
the twelve months ended April 1, 1999 versus the twelve months ended March 31,
1998 and 5.6% annually on average from 1993 to 1998. Management believes that
there are opportunities to achieve additional operating efficiencies by
disposing of underperforming theatres, renovating and expanding certain existing
theatres, developing new multiplex stadium theatres and continuing to control
theatre level operating expenses. The area of focus for 1999 for those theatres
identified as underperforming or non-strategic will primarily be to implement
operating techniques to improve operating results as a theatre, find other uses
or divestiture.
ENHANCE STUDIO/DISTRIBUTOR RELATIONSHIPS. Management intends to continue to
enhance and balance its studio relationships to obtain the optimal number of
marketable motion pictures at film rental percentages that are consistent with
prior results. United Artists believes that it will continue to increase the
number of prints it obtains from each studio as it increases the number of its
screens in select locations. This can be accomplished by leveraging attractive
existing theatre locations through renovation and expansion and through the
development of new, larger (in terms of screens), higher margin theatres. To the
extent that theatrical exhibition remains the primary distribution channel for
new motion picture releases and the overall number of movies produced continues
to increase, management believes that United Artists' focus on its core business
will provide it with access to more prints of each motion picture.
DEVELOP ANCILLARY REVENUE OPPORTUNITIES. United Artists believes that there
are opportunities to increase its ancillary revenue from its Satellite Theatre
Network-TM- by renting theatres on a networked and non-networked basis for
corporate meetings, seminars, product and customer research and other
entertainment uses. Through its VIP/Premier program, United Artists seeks to
enhance theatre attendance by selling large groups of tickets to businesses and
groups through coupon books as well as gift certificates. On-screen advertising
provides an additional opportunity to increase revenue and profitability.
3
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REFINANCING TRANSACTIONS
On April 21, 1998, United Artists issued the Fixed Rate Notes; (ii)
issued the Floating Rate Notes; and (iii) entered into $450.0 million of
senior secured credit facilities consisting of $350.0 million of term loans
and a $100.0 million senior secured revolving credit facility (collectively,
the "Senior Credit Facilities"). On April 21, 1998, United Artists caused
UATC to repay UATC's then existing credit facilities (the "Prior Credit
Facilities"). On May 1, 1998, United Artists redeemed all of its outstanding
preferred stock (the "Preferred Stock") and on May 21, 1998, United Artists
caused UATC to redeem UATC's 11 1/2% Senior Secured Notes due 2002 (the
"Senior Secured Notes"). (The transactions described in this paragraph are
collectively referred to herein as the "Transactions.")
SOURCES AND USES
The following table sets forth the actual sources and uses of funds in
connection with the Transactions. The proceeds to United Artists from the
issuances of the Fixed Rate Notes, the Floating Rate Notes and the borrowings
under the Senior Credit Facilities were used: (i) to redeem all of the
outstanding Preferred Stock of United Artists; (ii) to repay UATC's Prior
Credit Facilities; (iii) to redeem UATC's Senior Secured Notes; and (iv) to
pay related fees and expenses. See "Use of Proceeds."
<TABLE>
<CAPTION>
AMOUNT
------
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Senior Credit Facilities.................................................... $303.5
Fixed Rate Notes............................................................ 225.0
Floating Rate Notes......................................................... 50.0
------
Total.................................................................. $578.5
------
------
USES OF FUNDS:
Redemption of Preferred Stock............................................... $159.2
Repayment of Prior Credit Facilities........................................ 272.9
Redemption of Senior Secured Notes.......................................... 129.4
Transaction fees and expenses............................................... 17.0
------
Total $578.5
------
------
</TABLE>
4
<PAGE>
SUMMARY OF TERMS OF THE NOTES
Maturity.......................... October 15, 2007.
Interest Rate..................... A rate per annum, determined quarterly,
equal to the Applicable LIBOR Rate (437.5
basis points over the LIBOR Rate). See
"Description of the Notes--Maturity,
Interest and Principal."
Interest Payment Dates............ Interest on the Notes is payable quarterly
on January 15, April 15, July 15 and October
15 of each year, commencing October 15,
1998.
Optional Redemption............... The Notes are redeemable at the option of
United Artists, in whole or in part, on any
Interest Payment Date on or after April 15,
1999 at the redemption prices set forth
herein, together with accrued and unpaid
interest, if any, to the date of redemption.
See "Description of the Notes--Optional
Redemption."
Change of Control................. Upon the occurrence of a Change of Control
(as defined), each holder of the Notes shall
have the right to require United Artists to
purchase all or any portion of such holder's
Notes at a purchase price equal to 101% of
the principal amount thereof, together with
accrued and unpaid interest, if any, to the
date of purchase. See "Description of the
Notes--Repurchase of Notes upon a Change of
Control."
Ranking........................... The Notes are unsecured, senior subordinated
obligations of United Artists, will rank
PARI PASSU with the Fixed Rate Notes and are
subordinated in right of payment to all
existing and future Senior Indebtedness of
United Artists, including Indebtedness under
the Senior Credit Facilities. The Notes rank
PARI PASSU in right of payment with any
future senior subordinated indebtedness of
United Artists and are senior in right of
payment to Subordinated Indebtedness (as
defined), if any, of United Artists. In
addition, the Notes are effectively
subordinated to all liabilities of United
Artists' subsidiaries, including trade
payables. By reason of such subordination,
holders of Senior Indebtedness must be paid
in full before holders of the Notes may be
paid in the event of a liquidation,
dissolution or other winding up of United
Artists, whether voluntary or involuntary
and whether or not involving insolvency or
bankruptcy. At June 1, 1999, United Artists
and its subsidiaries had approximately
$717.8 million of indebtedness (excluding
trade payables) outstanding, consisting of
$431.3 million of Senior Indebtedness of
United Artists (guaranteed by certain of
United Artists' subsidiaries), $11.5 million
of other indebtedness of United Artists'
subsidiaries, $50.0 million representing the
Floating Rate Notes and $225.0 million
representing the Fixed Rate Notes. In
addition, on June 1, 1999 United Artists
had revolving credit availability of $12.9
million under the Senior Credit Facilities,
all of which would be Senior Indebtedness,
if borrowed. Additional Senior Indebtedness
may be incurred by United Artists and
additional indebtedness may be incurred by
United Artists and its subsidiaries, in each
case from time to time, subject to certain
restrictions. See "Risk Factors--Ability to
Service Debt; Substantial Indebtedness,"
"--Restrictions Imposed by the 1995 Sale
Leaseback," "--Holding Company Structure;
Source of Repayment of Notes; Effective
Subordination of Notes to Indebtedness of
Subsidiaries," "--Subordination of Notes"
and "Description of the Notes--Ranking and
Subordination."
5
<PAGE>
Certain Covenants................. The Indenture contains certain covenants,
including, among others, covenants limiting
the incurrence of additional indebtedness by
United Artists and any of its subsidiaries,
the payment of dividends, the redemption of
capital stock, the making of investments,
the issuance of capital stock of
subsidiaries, the creation of dividend and
other restrictions affecting subsidiaries,
transactions with affiliates, asset sales
and certain mergers and consolidations.
However, these limitations will be subject
to a number of important qualifications and
exceptions. See "Description of the
Notes--Certain Covenants."
Absence of a Public Market........ United Artists has been advised by Merrill
Lynch that it intends to make a market in
the Notes, as permitted by applicable laws
and regulations; however, Merrill Lynch is
not obligated to do so and any such market
making activities may be discontinued at any
time without notice. In addition, such
market making activities are subject to the
limits imposed by the Securities Act and the
Exchange Act. Therefore, there can be no
assurance that an active market for the
Notes will develop. There can be no
assurance regarding the future development
of a market for the Notes or the liquidity
of any such market. The Notes will not be
listed on any securities exchange but are
expected to be eligible for trading in the
PORTAL market. If the Notes are traded after
their initial issuance, they made trade at a
discount from their initial offering price
for many reasons, including prevailing
interest rates, the market for similar
securities, general economic conditions and
the financial condition and performance of,
and prospects for, United Artists and other
factors. See "Risk Factors--Absence of a
Public Market for the Notes."
6
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The summary historical consolidated financial information presented below
for each of the years ended December 31, 1994, 1995, 1996, 1997 and 1998 have
been derived from, and should be read in conjunction with, the consolidated
financial statements of United Artists and notes thereto which are included
elsewhere in this Prospectus. The summary historical financial information for
the three months ended March 31, 1998 and the thirteen weeks ended April 1, 1999
(unaudited) have been derived from, and should be read in conjunction with, the
consolidated financial statements of United Artists and the notes thereto which
are included elsewhere in this Prospectus. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included in the unaudited
consolidated and combined financial statements of United Artists. Results for
the thirteen weeks ended April 1, 1999 and the three months ended March 31, 1998
are not necessarily indicative of results that can be expected for an entire
year.
The information set forth below should be read in conjunction with "The
Transactions," "Use of Proceeds," "Selected Historical Consolidated Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Consolidated and Condensed Consolidated
Financial Statements of United Artists, including the notes thereto, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE THIRTEEN
MONTHS WEEKS
ENDED ENDED
YEAR ENDED DECEMBER 31, MARCH 31, APRIL 1,
--------------------------------------------- --------- --------
1994 1995* 1996* 1997* 1998 1998* 1999(10)
---- ----- ----- ----- ---- ----- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Admissions................................... $447.6 $457.1 $466.5 $473.9 $454.4 $113.4 $93.4
Concession sales............................. 166.7 178.2 185.1 189.6 188.5 46.6 37.0
Other........................................ 9.7 13.8 25.5 20.3 19.2 4.3 4.5
------ ------ ------ ------ ------ ------ ------
Total revenue............................. 624.0 649.1 677.1 683.8 662.1 164.3 134.9
------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Operating expenses:
Film rental and advertising............... 239.6 248.6 257.2 262.5 248.5 60.9 52.1
Direct concession......................... 27.2 29.5 29.3 30.2 28.0 6.5 4.7
Occupancy................................. 55.0 58.8 64.6 67.8 70.2 17.0 18.8
Sales and leaseback rental................ -- 0.5 11.0 12.8 14.5 3.5 4.2
Other operating........................... 172.7 187.0 193.0 189.8 189.6 45.3 45.5
General and administrative................... 33.4 35.5 35.1 24.3 23.4 5.4 6.0
Depreciation and amortization................ 66.7 69.2 74.2 59.0 53.9 13.5 14.2
Provision for impairment(1).................. -- 21.0 9.5 35.0 36.3 -- --
Restructuring charge......................... -- -- 1.9 0.8 -- -- --
------ ------ ------ ------ ------ ------ ------
Operating income (loss)
from continuing operations........... 29.4 (1.0) 1.3 1.6 (2.3) 12.2 (10.6)
Interest expense, net............................. 45.3 53.1 44.6 44.3 55.6 10.0 15.4
Loss (gain) on disposition of assets, net......... 9.8 5.7 (2.7) (28.0) (1.0) (0.2) (0.7)
Other expense, net................................ 2.8 2.6 2.7 5.4 3.3 0.9 0.3
------ ------ ------ ------ ------ ------ ------
Income (loss) from continuing operations
before income tax expense and
discontinued operations.............. (28.5) (62.4) (43.3) (20.1) (60.2) 1.5 (25.6)
Income tax expense................................ 1.4 1.8 1.0 1.5 0.6 0.3 0.2
------ ------ ------ ------ ------ ------ ------
Income (loss) from continuing operations.. (29.9) (64.2) (44.3) (21.6) (60.8) 1.2 (25.8)
Discontinued operations (2)....................... -- 0.6 1.5 5.4 20.3 1.2 --
------ ------ ------ ------ ------ ------ ------
Loss before extraordinary item............ (29.9) (64.8) (45.8) (27.0) (81.1) -- (25.8)
Extraordinary Item - loss on early extinguishment
of debt............................... -- -- -- -- 7.9 -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss)................................. $(29.9) $(64.8) $(45.8) $(27.0) $(89.0) $ -- $(25.8)
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THREE THIRTEEN
MONTHS WEEKS
ENDED ENDED
YEAR ENDED DECEMBER 31, MARCH 31, APRIL 1,
-------------------------------------------- --------- --------
1994 1995* 1996* 1997* 1998 1998* 1999(10)
---- ----- ----- ----- ---- ----- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(3)......................................... $ 96.1 $ 89.2 $ 85.0 $ 95.6 $ 87.9 $ 25.7 $ 3.6
EBITDAR(3)........................................ 151.1 148.5 160.6 176.2 172.6 46.2 26.6
Adjusted EBITDA(4)................................ 97.6 91.2 90.0 100.1 91.9 26.6 4.8
Adjusted EBITDAR(4)............................... 151.1 148.5 162.5 177.0 172.6 46.2 26.6
Adjusted EBITDA margin(5)......................... 15.6% 14.1% 13.3% 14.6% 13.9% 16.2% 3.6%
Adjusted EBITDAR margin(5)........................ 24.2% 22.9% 24.0% 25.9% 26.1% 28.1% 19.7%
Ratio of EBITDA to interest expense(6)............ 2.18x 1.73x 1.99x 2.24x 1.61x 2.57x 0.24x
Ratio of EBITDAR to interest and rent
expense(6)..................................... 1.53x 1.34x 1.50x 1.60x 1.38x 1.71x 0.78x
Ratio of Adjusted EBITDA to interest
expense(6)..................................... 2.22x 1.76x 2.11x 2.35x 1.69x 2.66x 0.32x
Ratio of Adjusted EBITDAR to interest and
rent expense(6)................................ 1.53x 1.34x 1.51x 1.60x 1.38x 1.71x 0.78x
Statement of cash flow information(7):
Net cash provided by (used in) operating
activities................................ $ 49.7 $ 40.7 $ 30.8 $ 51.0 $ 43.7 $ (0.6) (21.0)
Net cash used in investing activities........ (54.4) (1.6) (55.9) (4.6) (114.5) (20.2) (15.4)
Net cash provided by (used in) financing
activities................................ 1.1 (19.4) 2.7 (45.7) 68.2 17.3 34.2
------ ------ ------ ------ ------ ------ ------
Net cash flow................................ $ (3.6) $ 19.7 $(22.4) $ 0.7 $ (2.6) $ (3.5) $ (2.2)
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Ratio of earnings to fixed charges(8)............. -- -- -- -- -- 1.1x --
OPERATING DATA:
Adjusted EBITDAR:
Per weighted average theatre................. $365.0 $363.1 $411.4 $500.0 $527.8 $139.2 $ 84.4
Per weighted average screen.................. 68.6 65.4 70.7 80.3 79.9 21.4 12.3
Admissions per weighted average screen............ 203.3 201.4 202.9 215.0 210.4 52.6 43.1
Weighted average(9):
Operating theatres...................... 414 409 395 354 327 332 315
Operating screens....................... 2,202 2,270 2,299 2,204 2,160 2,154 2,167
Screens per operating theatre........... 5.3 5.6 5.8 6.2 6.6 6.5 6.9
Screens added..................................... 90 137 138 139 150 23 --
Screens divested.................................. 28 81 245 170 138 24 26
</TABLE>
*restated
<TABLE>
<CAPTION>
DECEMBER 31, 1998 APRIL 1, 1999 (10)
----------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 8.2 $ 6.0
Total assets........................................................................ 579.1 577.1
Total debt.......................................................................... 653.9 694.1
Total stockholders' deficit......................................................... (268.2) (294.1)
</TABLE>
- ----------
(1) Reflects non-cash charges for the impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" which United Artists adopted in 1995.
(2) During 1998, United Artists 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 as discontinued operations.
(3) EBITDA represents operating income (loss) before depreciation,
amortization, and provision for impairment. EBITDAR represents operating
income (loss) before depreciation, amortization, provision for impairment,
and rent
8
<PAGE>
expense. While EBITDA and EBITDAR are not intended to represent cash
flow from operations as defined by GAAP and should not be considered
as an indicator of operating performance or an alternative to cash flow (as
measured by GAAP) as a measure of liquidity, they are included herein to
provide additional information with respect to the ability of United
Artists to meet its future debt service, capital expenditures, rental
obligations, and working capital requirements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(4) Adjusted EBITDA represents EBITDA before the effects of restructuring
charges, which are not expected to recur, and non-cash rent expense, which
is excluded from Consolidated EBITDA as defined by the Indenture. Adjusted
EBITDAR represents EBITDAR before the effects of restructuring charges.
While Adjusted EBITDA and Adjusted EBITDAR are not intended to represent
cash flow from operations as defined by GAAP and should not be considered
as an indicator of operating performance or an alternative to cash flow (as
measured by GAAP) as a measure of liquidity, they are included herein to
provide additional information with respect to the ability of United
Artists to meet its future debt service, capital expenditures, rental
obligations, and working capital requirements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The ability
of United Artists to use Adjusted EBITDA and Adjusted EBITDAR to meet
future debt service, capital expenditures, rental obligations and working
capital requirements may be limited by law, covenants contained in the
Indenture or the Bank Credit Agreement or for other reasons. See
"Description of Certain Indebtedness" and "Description of the Notes". Other
companies may use measures other than Adjusted EBITDA and Adjusted EBITDAR
to reflect their ability to meet future debt service, capital expenditures,
rental obligations and working capital requirements.
(5) Defined as Adjusted EBITDA and Adjusted EBITDAR as a percentage of total
revenue.
(6) "Interest expense" means interest expense recorded during the related
period excluding interest income and amortization of deferred financing
fees.
(7) Amounts derived from United Artists' statements of cash flow.
(8) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component of
rental expense believed by United Artists to be representative of the
interest factor thereon. Earnings were insufficient to cover fixed charges
for each of the years ended December 31, 1994, 1995, 1996, 1997 and 1998,
and for the thirteen weeks ended April 1, 1999 by $27.7 million, $61.2
million, $42.5 million, $18.8 million, $58.9 million and $25.5 million,
respectively.
(9) Weighted average operating theatres and screens represent the number of
theatres and screens operated weighted by the number of days operated
during the period.
(10) During 1999, United Artists 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.
9
<PAGE>
RISK FACTORS
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AS WELL AS THE
OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
INABILITY TO COVER FIXED CHARGES; SUBSTANTIAL INDEBTEDNESS
United Artists has substantial indebtedness and, as a result, significant
debt service obligations. At June 1, 1999, United Artists and its subsidiaries
had approximately $717.8 million of indebtedness (excluding trade payables)
outstanding. In addition, on June 1, 1999 United Artists had revolving credit
availability of $12.9 million under the Senior Credit Facilities. For the
thirteen weeks ended April 1, 1999 and the year ended December 31, 1998, United
Artists' earnings were insufficient to cover its fixed charges by $25.5 million
and $58.9 million, respectively, and EBITDA was insufficient to cover United
Artists' capital expenditures and interest expense by $32.9 million and $83.5
million, respectively. United Artists' leveraged financial position poses
substantial risks to holders of the Notes, including the risks that: (i) a
substantial portion of United Artists' cash flow from operations will be
dedicated to the payment of interest and principal on its indebtedness; (ii)
United Artists' ability to obtain financing in the future for working capital,
capital expenditures, acquisitions and general corporate purposes may be
impeded; (iii) United Artists may be more vulnerable to economic downturns,
which may limit its ability to withstand competitive pressures; (iv) most of
United Artists' other indebtedness, including the Senior Credit Facilities,
matures prior to the Notes, and the Floating Rate Notes mature prior to the
Fixed Rate Notes; (v) the indebtedness under the Senior Credit Facilities is
secured by a pledge of the stock of UATC, UAR and certain of the United Artists'
other subsidiaries and by certain intercompany notes; (vi) the indebtedness
under the Senior Credit Facilities is guaranteed by certain of United Artists'
subsidiaries, including UATC and UAR; and (vii) certain indebtedness under the
Senior Credit Facilities and the Floating Rate Notes bears interest at floating
rates, causing United Artists to be sensitive to increases in interest rates.
There can be no assurance that the future cash flow of United Artists will be
sufficient to meet United Artists' obligations and commitments or that United
Artists will have access to sufficient capital to enable it to pay the Notes.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of the Other Notes"
and "Description of Certain Indebtedness."
During the twelve months ended April 1, 1999, the thirteen weeks ended
April 1, 1999 and the year ended December 31, 1998, United Artists' interest
expense was approximately $62.5 million, $15.2 million and $54.5 million,
respectively. One of the effects of the Transactions was to increase United
Artists' interest expense.
HISTORICAL NET LOSSES
For each of the last five fiscal years, United Artists has reported net
losses and earnings have not been sufficient to cover fixed charges. United
Artists reported a net loss of $89.0 million for the year ended December 31,
1998 compared to a net loss of $27.0 million for the year ended December 31,
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated and Condensed Consolidated Financial
Statements of United Artists, and the notes thereto, appearing elsewhere in this
Prospectus.
DEPENDENCE ON FILMS AND DISTRIBUTORS
United Artists' business depends upon the availability and appeal of motion
pictures and on United Artists' ability to license motion pictures. Any
significant disruption in the production of popular motion pictures by major
film producers or independent producers, the failure of United Artists to obtain
popular films or the poor performance of motion pictures licensed by United
Artists may have a material adverse effect on United Artists' business and
results of operations.
United Artists' business also depends to a significant degree on
maintaining good relations with the major film distributors which allocate films
to United Artists' theatres. Although United Artists obtains films from all
major film distributors, because of the relatively small number of such
distributors, if United Artists' relationship with any one or more of the major
film distributors were to deteriorate or if United Artists were unable to obtain
films from any one or more of the major motion picture distributors, it could
have a material adverse effect on United Artists' business and results of
operations. See "Business--Film Licensing."
10
<PAGE>
COMPETITION
United Artists competes for the public's leisure time and disposable income
with all forms of entertainment including sporting events, concerts, live
theatre, and restaurants. United Artists also is subject to varying degrees of
competition from other theatre circuits and independent theatres, some of which
may have greater access to capital resources. The motion picture exhibition
industry is highly competitive, particularly with respect to film licensing,
attracting patrons and acquiring or leasing new theatre sites. Some of United
Artists' competitors may be better established in certain areas where United
Artists' theatres are located. Competition for patrons occurs locally and
depends upon factors such as: (i) which films a particular theatre is showing;
(ii) location of theatres; (iii) comfort and quality of theatres; and (iv)
ticket prices. Film patrons are not "brand" conscious and generally choose a
theatre because of film selection, location and quality of the theatre.
Competition among theatre circuits for licensing popular films occurs
locally and is based on the prestige and location of an exhibitor's theatres,
quality of the theatres (especially projection and sound quality), seating
capacity, and the exhibitor's ability and willingness to promote the films.
United Artists believes that promoting good relations with film distribution and
production companies is important to consistently obtain the best mix of
available films.
Where real estate is readily available there are few barriers preventing
competitors from opening theatres near one of United Artists' theatres, which
may have a material adverse effect on United Artists' theatre. In addition,
"megaplexes" (theatres with 14 or more screens) have been built or are planned
to be built by competitors in certain areas in which United Artists operates,
which may result in excess capacity and adversely affect attendance and pricing
at other theatres in such areas.
Alternative motion picture exhibition delivery systems, including cable
television, video cassettes, satellite and pay per view, also exhibit filmed
entertainment after its theatrical release. While the further expansion of such
delivery systems (such as video on demand) could have a material adverse effect
upon United Artists' business and results of operations, no such adverse effect
has yet been experienced.
Recent consolidation in the industry has included the merger of Sony
Corp.'s Loews Theatres Exhibit Group with Cineplex Odeon Corp. and the merger of
Act III Cinemas Inc. with Regal Cinemas Inc. Such consolidation could increase
the level of competition for the industry.
SUBSTANTIAL CAPITAL EXPENDITURES
United Artists' strategy involves the development (either on owned land or
through leases) of new theatres. United Artists developed and opened 13 new
theatres (150 screens) during the year ended December 31, 1998. At April 1,
1999, United Artists had entered into construction or lease agreements for four
new theatres (53 screens) and renovate and add stadium seating to four existing
theatres (51 screens) that United Artists intends to open or renovate during the
remainder of 1999. United Artists estimates that capital expenditures associated
with these theatres 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 United Artists has executed a definitive lease and all
significant lease contingencies have been satisfied. United Artists expects
additional capital expenditures to be made as United Artists' internally
generated available cash from improved operating results and proceeds from
various asset sales becomes available. Because a significant portion of United
Artists' 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. There can be no assurance, however, that these sources of funds will
be sufficient to enable United Artists to make its anticipated capital
expenditures. United Artists intends to continue its expansion over the next
several years. Future theatre development may require additional financing.
There can be no assurance that such additional financing will be available to
United Artists on favorable terms, if at all.
The development of new theatres involves certain risks, including the
possibility of construction cost overruns and delays, uncertainty of site
acquisition costs and availability, uncertainties as to market potential,
market deterioration after commencement of development, increased competition
and lower than anticipated financial performance of new theatres. If new
theatres perform below United Artists' expectations, United Artists may not
be able to service the debt incurred to finance such expansion. Although
United Artists attempts to minimize these risks through its theatre
development process, United Artists may determine not to proceed with its
planned theatre development projects. No assurance can be given
11
<PAGE>
therefore that any of the projected new theatre developments will open or
that such developments will perform in accordance with United Artists'
expectations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Competition."
United Artists plans to continue increasing the number of screens and operating
margins by focusing its capital investment activities on the renovation or
expansion of existing theatres in its core areas of operation. United Artists
believes that it will be able to improve operating margins while avoiding or
reducing many of the risks associated with the development of new theatres.
POTENTIAL VOLATILITY OF FUTURE OPERATING RESULTS
United Artists' operating results may fluctuate because of a number of
factors, including the availability of popular major motion pictures.
Historically, the most marketable 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 or the failure to release marketable motion pictures during
these periods could alter the traditional trend. Fluctuations in results could
affect the market price of the Notes in a manner unrelated to the long-term
operating performance of United Artists. In addition, United Artists competes
with other forms of entertainment for the public's disposable income. A general
economic downturn that decreases disposable income could therefore have a
material adverse effect upon United Artists and the price of the Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RESTRICTIONS IMPOSED BY THE 1995 SALE LEASEBACK
In connection with a sale leaseback transaction that occurred in December
1995 (the "1995 Sale Leaseback"), certain restrictions were imposed on the
ability of UATC and its subsidiaries to incur indebtedness, pay dividends or
make distributions and transfer assets. Generally, with certain exceptions, UATC
may not incur additional indebtedness (or permit its subsidiaries to incur
additional indebtedness) unless its "consolidated fixed charge coverage ratio"
(as defined in the Participation Agreement (as defined)), which includes
"consolidated operating rental expense" (as defined in the Participation
Agreement) for the preceding four fiscal quarters is at least 1.40 to 1 after
giving effect to the incurrence of the additional indebtedness. Such restriction
applies to draws under the Senior Credit Facilities since such indebtedness is
guaranteed by UATC. UATC is also prohibited from making "restricted payments,"
which generally constitute UATC making distributions on its capital stock,
acquiring its stock or the stock of an affiliate or making certain investments
(or permitting its subsidiaries to engage in any of the foregoing activities)
unless UATC could incur additional indebtedness pursuant to the debt incurrence
test described above, the amount of such distributions and payments does not
exceed the amount available under a "basket" and no "default" or "event of
default" exists thereunder. The amount of this basket includes 50.0% of UATC's
"consolidated adjusted net income" (as defined in the Participation Agreement)
accumulated since May 12, 1992 (or if UATC has a loss, less 100.0% of such loss)
and the aggregate net proceeds received by UATC after May 12, 1992 as capital
contributions from United Artists. The amount currently available for
distribution to United Artists under the basket is insufficient to repay the
principal amount of the indebtedness of United Artists. Accordingly, unless the
amount of the basket increases, United Artists will be unable to obtain funds
from UATC to repay the Notes at their maturity and will be required to attempt
to refinance them. In addition, any distributions to United Artists or other
restricted payments by UATC (including distributions, if any, to repay the
Floating Rate Notes which mature six months prior to the Fixed Rate Notes) will
decrease the basket available to permit United Artists to make interest and
principal payments on the Notes or otherwise. For UATC to make distributions to
United Artists after the basket is utilized, UATC will need to generate net
income or receive additional equity contributions. UATC is generally prohibited
from transferring assets to United Artists. To the extent that the 1995 Sale
Leaseback requirements are not met so that UATC cannot distribute amounts to
United Artists to pay the interest and principal payments on the Notes, UATC
will not be able to make such distributions unless the 1995 Sale Leaseback is
amended or unwound, which could be at a substantial cost to United Artists.
There also can be no assurance that United Artists would be able to amend or
unwind the 1995 Sale Leaseback.
The computations of the "consolidated fixed charge coverage ratio" and
the restricted payments basket are based on estimates and interpretations. As
a result of these estimates and interpretations, there can be no assurance
that the United Artists' computations of such ratio and basket will not be
contested. For example, UATC will recognize the interest expense on the
Senior Credit Facilities because UATC will guarantee these facilities, which
will decrease the restricted payments basket. If UATC distributes cash to
United Artists to pay such interest expense, the Participation Agreement
could be
12
<PAGE>
interpreted by a third party as requiring a second decrease to the basket in
the amount of the distribution, resulting in a "double-counting" of the
interest expense when computing the restricted payments basket. United
Artists is currently not aware of any third party contesting the calculation
of the restricted payments basket or the consolidated fixed charge coverage
ratio.
Further, any distributions by UATC to United Artists will be in the form of
dividends. Applicable law requires that the Board of Directors of UATC determine
that any dividend will not render UATC insolvent. If the Board of Directors of
UATC is unable to make such determination, UATC will not be able to pay a
dividend, and United Artists will not have access to the funds of UATC.
If a Lease Event of Default (as defined in the 1995 Sale Leaseback) occurs,
the owner trustee under the 1995 Sale Leaseback may terminate the lease and may
transfer the properties to UATC (in which case UATC would be required to pay
liquidated damages as calculated pursuant to the 1995 Sale Leaseback) or may
repossess or relet the properties. The 1995 Sale Leaseback also contains certain
other restrictive covenants. The Participation Agreement and certain other
agreements related to the 1995 Sale Leaseback have been filed by United Artists
with the Commission and the foregoing discussion of the terms and conditions of
such agreements is qualified in its entirety to reference to the agreements
themselves. See "Restrictions Imposed by the 1995 Sale Leaseback" and "Available
Information."
SUBSTANTIAL OPERATING LEASE COMMITMENTS
United Artists leases many of its theatres pursuant to non-cancelable
operating leases. For the twelve months ended April 1, 1999 the amount paid
under UATC's non-cancelable operating leases was $82.9 million. United Artists
expects to fund payments under these leases from theatre operations, although no
assurance exists that the revenue from such operations will be sufficient to
make these rent payments and pay other theatre operating expenses. In addition,
the lease payments decrease UATC's "consolidated fixed charge coverage ratio"
under the Participation Agreement, which affects the ability of UATC and its
subsidiaries to incur additional indebtedness. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RESTRICTIONS IMPOSED BY THE INDENTURE, THE OTHER INDENTURE AND THE SENIOR CREDIT
FACILITIES
The Senior Credit Facilities require United Artists to maintain specified
financial ratios and to meet certain financial tests, which become more
restrictive over time pursuant to the terms of the Senior Credit Facilities. The
Indenture, the indenture pursuant to which the Other Notes were issued (the
"Other Indenture") (which Other Indenture contains restrictions that are
substantially equivalent to those in the Indenture) and the Senior Credit
Facilities contain additional restrictions on the ability of United Artists to
incur additional indebtedness, make investments, capital expenditures,
acquisitions or asset dispositions, create or incur liens, make certain payments
and dividends or merge or consolidate. There can be no assurance that United
Artists can maintain such ratios or that such covenants will not adversely
affect United Artists' ability to finance its future operations or capital needs
or engage in business activities that may be in the best interests of United
Artists. Failure to comply with the restrictions contained in either the Senior
Credit Facilities or the Other Indenture could lead to an event of default
thereunder, which could result in an acceleration of such indebtedness, or in
the case of the Senior Credit Facilities, a blockage of payments on the Notes
prior to acceleration. There can be no assurance that United Artists would have
access to sufficient resources to pay its obligations under the Senior Credit
Facilities, the Fixed Rate Note, or the Floating Rate Notes if such indebtedness
were to be accelerated. See "Description of Certain Indebtedness--Senior Credit
Facilities."
13
<PAGE>
SUBORDINATION OF THE NOTES
The Notes are general unsecured indebtedness of United Artists,
subordinated in right of payment to all existing and future Senior Indebtedness,
including all obligations under the Senior Credit Facilities. The Notes are also
be effectively subordinated to all existing and future liabilities of United
Artists' subsidiaries, including certain of United Artists' subsidiaries'
(including UATC's and UAR's) guarantees of the Senior Credit Facilities. The
Notes rank PARI PASSU with the Other Notes. At June 1, 1999, United Artists and
its subsidiaries had approximately $717.8 million of indebtedness (excluding
trade payables) outstanding, consisting of $431.3 million of Senior Indebtedness
of United Artists (guaranteed by certain of United Artists subsidiaries), $11.5
million of other indebtedness of United Artists' subsidiaries, and $275.0
million representing the Fixed Rate Notes and Floating Rate Notes. In addition,
on June 1, 1999 United Artists had revolving credit availability of $12.9
million under the Senior Credit Facilities, all of which would be Senior
Indebtedness, if borrowed. Additional Senior Indebtedness may be incurred by
United Artists and additional indebtedness may be incurred by United Artists or
its subsidiaries, in each case from time to time, subject to certain
restrictions. As a result of the subordination provisions contained in the
Indenture and the Other Indenture, in the event of a liquidation or insolvency
of United Artists, the assets of United Artists will be available to pay
obligations on the Notes and Other Notes only after all Senior Indebtedness has
been paid in full, and there may be insufficient assets remaining to pay amounts
due on any or all of the Notes and Other Notes then outstanding. In addition,
the capital stock of UATC, UAR and certain of United Artists' other subsidiaries
and certain intercompany notes are pledged to secure the indebtedness under the
Senior Credit Facilities. Also, the Senior Credit Facilities will be secured by
mortgages on certain of United Artists' properties. Upon any payment or
distribution of assets of United Artists in a total or partial liquidation,
dissolution, reorganization or similar proceeding, the holders of Senior
Indebtedness will be entitled to receive payment in full before the holders of
the Notes are entitled to receive any payment. In addition, under certain
circumstances, no payment of principal or interest may be made on the Notes if a
payment default or certain other defaults exist with respect to certain Senior
Indebtedness. See "Description of the Notes--Ranking and Subordination,"
"Description of the Other Notes" and "Description of Certain
Indebtedness--Senior Credit Facilities."
HOLDING COMPANY STRUCTURE; SOURCE OF REPAYMENT OF NOTES; EFFECTIVE SUBORDINATION
OF NOTES TO INDEBTEDNESS OF SUBSIDIARIES
As a holding company that conducts virtually all of its business through
subsidiaries, United Artists has no source of operating cash flow other than
from dividends and distributions from its subsidiaries. See "Restrictions
Imposed by the 1995 Sale Leaseback." To pay cash interest on the Notes and to
repay the principal amount of the Notes at maturity, or to redeem or repurchase
the Notes, United Artists will be required to obtain dividends or distributions
from its subsidiaries, refinance its indebtedness (including the Floating Rate
Notes, which mature six months prior to the Fixed Rate Notes) or obtain funds in
a public or private equity or debt offering by it. The Indenture, the Other
Indenture and the Senior Credit Facilities will, however, limit United Artists'
ability to incur additional indebtedness.
If United Artists is required to conduct an offering of its capital stock
or to refinance the Notes, its ability to do so on acceptable terms, if at all,
will be affected by several factors, including financial market conditions and
the value and performance of United Artists at the time of such offering or
refinancing, which in turn may be affected by many factors, including economic
and industry cycles. There can be no assurance that an offering of United
Artists' capital stock or a refinancing of the Notes can or will be completed on
satisfactory terms, that such offering or refinancing would be sufficient to
enable United Artists to make any payments with respect to the Notes if required
or that such offering or refinancing would be permitted by the terms of the debt
instruments of United Artists and its subsidiaries then in effect.
United Artists' subsidiaries, including UATC and UAR, have no obligation to
pay amounts due on the Notes and do not guarantee the Notes. Certain of United
Artists' subsidiaries, including UATC and UAR, do, however, guarantee United
Artists' obligations under the Senior Credit Facilities. Therefore, the Notes
will be effectively subordinated to all obligations under the Senior Credit
Facilities and to all existing liabilities of United Artists' subsidiaries,
including trade payables. As of June 1, 1999, the total liabilities of United
Artists' subsidiaries on a consolidated basis was $717.8 million including the
guarantees of United Artists' indebtedness under the Senior Credit Facilities.
Any rights of United Artists and its creditors, including the holders of the
Notes and the Other Notes, to recover on the assets of any of the United
Artists' subsidiaries to satisfy indebtedness upon any liquidation or
reorganization of any such subsidiary will be subject to the prior claims of
that subsidiary's creditors, including the lenders under the Senior Credit
Facilities and trade creditors.
14
<PAGE>
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, United Artists is required to offer to purchase
all outstanding Fixed Rate Notes and Floating Rate Notes at 101% of the
aggregate principal amount thereof plus accrued and unpaid interest to the date
of purchase. The source of funds for any such purchase would be United Artists'
available cash or cash generated from other sources, including dividends from
subsidiaries, borrowings, sales of assets, sales of equity or funds provided by
new controlling persons. A Change of Control would also give the lenders under
the Senior Credit Facilities the right to require United Artists to repay all
indebtedness then outstanding thereunder. There can be no assurance that
sufficient funds will be available at the time of any Change of Control to make
any required purchases of validly tendered Fixed Rate Notes and Floating Rate
Notes and to repay any other indebtedness then in default. See "Description of
the Notes--Repurchase of Notes upon a Change of Control," "Description of the
Other Notes" and "Description of Certain Indebtedness--Senior Credit
Facilities."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
Although Merrill Lynch has informed United Artists that it currently
intends to make a market in the Notes, it is not obligated to do so, and any
such market making may be discontinued at any time without notice. There can be
no assurance that an active trading market for the Notes will develop. If a
market were to develop, the Notes could trade at prices that may be lower than
their initial offering price for many reasons, including prevailing interest
rates, the markets for similar securities, general economic conditions and the
financial condition and performance of, and prospects for, United Artists and
other factors.
Merrill Lynch is affiliated with entities that beneficially own a majority
of the voting power of the capital stock of United Artists. If Merrill Lynch
conducts any market-making activities, it may be required to deliver a
prospectus when effecting offers and sales in the Notes because Merrill Lynch is
affiliated with such entities. Pursuant to the Registration Rights Agreement,
United Artists agreed to file and maintain a registration statement that would
allow Merrill Lynch to engage in market-making transactions in the Notes.
Subject to certain exceptions set forth in the Registration Rights Agreement,
the registration statement will remain effective for as long as Merrill Lynch
may be required to deliver a prospectus in connection with market-making
transactions in the Notes. United Artists has agreed to bear substantially all
the costs and expenses related to such registration statement.
CONTROLLING STOCKHOLDERS
Affiliates of Merrill Lynch Capital Partners, Inc. (the "Merrill Lynch
Group") hold approximately 88.0% of United Artists' outstanding voting stock
and, accordingly, have the power to control all matters submitted to the
stockholders of United Artists, elect all of the directors of United Artists,
appoint new management and approve any action requiring the approval of the
holders of the Common Stock, including adopting amendments to United Artists'
certificate of incorporation and approving mergers or sales of all or
substantially all of United Artists' assets in each case subject to whatever
contractual restrictions apply to United Artists, including the Indenture, the
Other Indenture and the Senior Credit Facilities. The interests of the Merrill
Lynch Group may differ from the interests of holders of the Notes. See
"Management--Directors and Executive Officers of United Artists" and "Certain
Transactions."
RISKS ASSOCIATED WITH FRAUDULENT CONVEYANCE LIABILITY
Management of United Artists believes that the indebtedness represented
by the Fixed Rate Notes and the Floating Rate Notes, was incurred for proper
purposes and in good faith, and that as a result of, and after giving effect
to the Note Offering, based on forecasts, asset valuations and other
financial information, United Artists was and will be solvent, had and will
have sufficient capital for carrying on its business and was and is able to
pay its debts as they mature. See "Risk Factors--Ability to Service Debt;
Substantial Indebtedness." If under relevant federal and state fraudulent
conveyance statutes in a bankruptcy, reorganization or rehabilitation case or
similar proceeding or a lawsuit by or on behalf of unpaid creditors of United
Artists, a court were to find that, at the time of the incurrence of such
indebtedness, (i) United Artists incurred such indebtedness with the intent
of hindering, delaying or defrauding current or future creditors or (ii) (A)
United Artists received less than reasonably equivalent value or fair
consideration for incurring such indebtedness and (B) United
15
<PAGE>
Artists, (1) was insolvent or was rendered insolvent by reason of such
incurrence, (2) was engaged, or about to engage, in a business or transaction
for which its assets constituted unreasonably small capital, (3) intended to
incur, or believed that it would incur, debts beyond its ability to pay as
such debts matured (as all of the foregoing terms are defined in or
interpreted under such fraudulent conveyance statutes) or (4) was a defendant
in an action for money damages, or had a judgment for money damages docketed
against it (if in either case, after final judgment, the judgment is
unsatisfied), such court could avoid or further subordinate the Notes to
presently existing and future indebtedness of United Artists and take other
action detrimental to the holders of the Notes, including under certain
circumstances, invalidating the Notes and requiring the holders of the Notes
to repay amounts previously received thereon.
The measure of insolvency for purposes of the foregoing considerations
varies depending upon the federal or local law that is being applied in any such
proceeding. Generally, however, United Artists would be considered insolvent if,
at the time it issues the Notes, either: (i) the fair market value (or fair
saleable value) of its assets is less than the amount required to pay its total
existing debts and liabilities (including the probable liability on contingent
liabilities) as they become absolute and mature or (ii) it is incurring debts
beyond its ability to pay as such debts mature.
DEPENDENCE ON KEY PERSONNEL
United Artists' success will depend, in large part, on the efforts,
abilities and experience of its executive officers and other key employees. The
loss of the services of one or more of such individuals could have a material
adverse effect on United Artists' business. United Artists has employment
agreements with certain of its executive officers, which expire through December
2000, with subsequent one or two year extensions (absent notice to the contrary
by either United Artists or the employee). United Artists does not maintain
key-man life insurance with respect to any of its executive officers or key
employees.
RISKS OF FUTURE ACQUISITIONS
While United Artists has no immediate acquisition plans, United Artists'
growth strategy may from time to time involve the strategic acquisition of
additional theatres or theatre companies. There is substantial competition for
attractive acquisition candidates. There can be no assurance that United Artists
will be able to acquire suitable acquisition candidates at reasonable prices or
terms or that it will be able to successfully integrate acquired operations into
its existing operations. There also can be no assurance that future acquisitions
will not have an adverse effect upon United Artists' operating results,
particularly in the quarters immediately following the completion of an
acquisition while the operations of an acquired business are being integrated.
Once integrated, acquired theatres may not achieve levels of revenue or
profitability comparable with those achieved by United Artists' existing
theatres, or otherwise perform as expected. Additionally, expansion of United
Artists' theatre circuit involves the risk that United Artists might not
effectively manage such growth and that significant additional debt may be
incurred in connection with acquisitions. See "Business--Business and Operating
Strategy."
16
<PAGE>
THE REFINANCING TRANSACTIONS
On April 21, 1998, United Artists (i) issued the Fixed Rate Notes; (ii)
issued the Floating Rate Notes and (iii) entered into $450.0 million of the
Senior Credit Facilities, consisting of $350.0 million of term loans and a
$100.0 million senior secured revolving credit facility. On April 21, 1998,
United Artists caused UATC to repay the Prior Credit Facilities. On May 1, 1998,
United Artists redeemed all of its outstanding Preferred Stock and on May 21,
1998, United Artists caused UATC to redeem UATC's Senior Secured Notes. See "Use
of Proceeds."
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the Notes by
Merrill Lynch in market making transactions. United Artists will not receive any
of the proceeds from such sales.
17
<PAGE>
CAPITALIZATION
The following table sets forth United Artists' capitalization as of April
1, 1999. The following table should be read in conjunction with "The
Transactions," "Use of Proceeds," "Selected Historical Consolidated Financial
Information" and the Consolidated and Condensed Consolidated Financial
Statements of United Artists, and the notes thereto, appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
APRIL 1, 1999
-------------
(DOLLARS IN
MILLIONS)
<S> <C>
Cash and cash equivalents...................................... $6.0
------
------
Debt:
Senior Credit Facilities.................................. $407.3
Other indebtedness(1)..................................... 11.8
Fixed Rate Notes......................................... 225.0
Floating Rate Notes...................................... 50.0
-----
Total debt......................................... 694.1
Stockholders' deficit:
Common Stock........ ................................... 0.1
Additional paid-in capital.............................. 51.1
Accumulated deficit.................................... (343.3)
Less: Treasury stock................................... (2.0)
------
Total stockholders' deficit...................... (294.1)
------
Total capitalization....................................... $ 400.0
-------
-------
</TABLE>
- ----------
(1) Other indebtedness at April 1, 1999, consists of: (i) $1.2 million of
non-interest bearing promissory notes issued by UAR; and (ii) $10.6 million
of various term loans, mortgage notes, capital leases and other borrowings
of UATC.
18
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated financial information presented below
for each of the years ended December 31, 1994, 1995, 1996, 1997 and 1998 has
been derived from United Artists audited financial statements and notes thereto.
The selected historical consolidated financial information for the three months
ended March 31, 1998 and the thirteen weeks ended April 1, 1999 (unaudited) have
been derived from the consolidated financial statements of United Artists and
the notes thereto which are included elsewhere in this Prospectus. Results for
the three months ended March 31, 1998 and the thirteen weeks ended April 1, 1999
are not necessarily indicative of results that can be expected for an entire
year. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated and Condensed Consolidated Financial Statements
of United Artists, including the notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
THREE THIRTEEN
MONTHS WEEKS
ENDED ENDED
MARCH 31, APRIL 1,
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995* 1996* 1997* 1998 1998* 1999(10)
----- ------ ------ ----- ----- ------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Admissions................................... $ 447.6 $457.1 $466.5 $ 473.9 $454.4 $113.4 $93.4
Concession sales............................. 166.7 178.2 185.1 189.6 188.5 46.6 37.0
Other........................................ 9.7 13.8 25.5 20.3 19.2 4.3 4.5
------- ------ ------ ------- ------ ------ -----
Total revenue............................. 624.0 649.1 677.1 683.8 662.1 164.3 134.9
------- ------ ------ ------- ------ ------ -----
Costs and expenses:
Operating expenses:
Film rental and advertising............... 239.6 248.6 257.2 262.5 248.5 60.9 52.1
Direct concession......................... 27.2 29.5 29.3 30.2 28.0 6.5 4.7
Occupancy 55.0 58.8 64.6 67.8 70.2 17.0 18.8
Sales and leaseback rental................ -- 0.5 11.0 12.8 14.5 3.5 4.2
Other operating........................... 172.7 187.0 193.0 189.8 189.6 45.3 45.5
General and administrative................... 33.4 35.5 35.1 24.3 23.4 5.4 6.0
Depreciation and amortization................ 66.7 69.2 74.2 59.0 53.9 13.5 14.2
Provision for impairment(1).................. -- 21.0 9.5 35.0 36.3 -- --
Restructuring charge......................... -- -- 1.9 0.8 -- -- --
------- ------ ------ ------- ------ ------ -----
Operating income (loss)
from continuing operations........... 29.4 (1.0) 1.3 1.6 (2.3) 12.2 (10.6)
Interest expense, net............................. 45.3 53.1 44.6 44.3 55.6 10.0 15.4
Loss (gain) on disposition of assets, net......... 9.8 5.7 (2.7) (28.0) (1.0) (0.2) (0.7)
Other expense, net................................ 2.8 2.6 2.7 5.4 3.3 0.9 0.3
------- ------ ------ ------- ------ ------ -----
Income (loss) from continuing operations
before income tax expense and
discontinued operations.............. (28.5) (62.4) (43.3) (20.1) (60.2) 1.5 (25.6)
Income tax expense................................ 1.4 1.8 1.0 1.5 0.6 0.3 0.2
------- ------ ------ ------- ------ ------ -----
Income (loss) from continuing operations.. (29.9) (64.2) (44.3) (21.6) (60.8) 1.2 (25.8)
------- ------ ------ ------- ------ ------ -----
Discontinued operations (2)....................... -- 0.6 1.5 5.4 20.3 1.2 --
------- ------ ------ ------- ------ ------ -----
Net loss before extraordinary item........ (29.9) (64.8) (45.8) (27.0) (81.1) -- (25.8)
Extraordinary Item - loss on early extinguishment
of debt............................... -- -- -- -- 7.9 -- --
------- ------ ------ ------- ------ ------ -----
Net income (loss) $ (29.9) $ (64.8) $ (45.8) $ (27.0) $(89.0) $ -- $(25.8)
------- ------ ------ ------- ------ ------ -----
------- ------ ------ ------- ------ ------ -----
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
THREE THIRTEEN
MONTHS WEEKS
ENDED ENDED
MARCH 31, APRIL 1,
YEAR ENDED DECEMBER 31,
---------------------------------------------- --------------------
1994 1995* 1996* 1997* 1998 1998* 1999
------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OTHER FINANCIAL DATA:
EBITDA(3)......................................... $ 96.1 $ 89.2 $ 85.0 $ 95.6 $ 87.9 $ 25.7 $ 3.6
EBITDAR(3)........................................ 151.1 148.5 160.6 176.2 172.6 46.2 26.6
Adjusted EBITDA(4)................................ 97.6 91.2 90.0 100.1 91.9 26.6 4.8
Adjusted EBITDAR(4)............................... 151.1 148.5 162.5 177.0 172.6 46.2 26.6
Adjusted EBITDA margin(5)......................... 15.6% 14.1% 13.3% 14.6% 13.9% 16.2% 3.6%
Adjusted EBITDAR margin(5)........................ 24.2% 22.9% 24.0% 25.9% 26.1% 28.1% 19.7%
Ratio of EBITDA to interest expense(6)............ 2.18x 1.73x 1.99x 2.24x 1.61x 2.57x 0.24x
Ratio of EBITDAR to interest and rent
expense(6)..................................... 1.53x 1.34x 1.50x 1.60x 1.38x 1.71x 0.78x
Ratio of Adjusted EBITDA to interest
expense(6)..................................... 2.22x 1.76x 2.11x 2.35x 1.69x 2.66x 0.32x
Ratio of Adjusted EBITDAR to interest and
rent expense(6)................................ 1.53x 1.34x 1.51x 1.60x 1.38x 1.71x 0.78x
Statement of cash flow information(7):
Net cash provided by (used in) operating
activities................................ $ 49.7 $ 40.7 $ 30.8 $ 51.0 $ 43.7 $ (0.6) (21.0)
Net cash used in investing activities........ (54.4) (1.6) (55.9) (4.6) (114.5) (20.2) (15.4)
Net cash provided by (used in) financing
activities................................ 1.1 (19.4) 2.7 (45.7) 68.2 17.3 34.2
------ ------ ------ ------ ------ ------ ------
Net cash flow................................ $ (3.6) $ 19.7 $(22.4) $0.7 $(2.6) $ (3.5) $(2.2)
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Ratio of earnings to fixed charges(8)............. -- -- -- -- -- 1.1x --
OPERATING DATA:
Adjusted EBITDAR:
Per weighted average theatre................. $365.0 $363.1 $ 411.4 $500.0 $527.8 $ 139.2 84.4
Per weighted average screen.................. 68.6 65.4 70.7 80.3 79.9 21.4 12.3
Admissions per weighted average screen............ 203.3 201.4 202.9 215.0 210.4 52.6 43.1
Weighted average(9):
Operating theatres...................... 414 409 395 354 327 332 315
Operating screens....................... 2,202 2,270 2,299 2,204 2,160 2,154 2,167
Screens per operating theatre........... 5.3 5.6 5.8 6.2 6.6 6.5 6.9
Screens added..................................... 90 137 138 139 150 23 --
Screens divested.................................. 28 81 245 170 138 24 26
</TABLE>
*restated
<TABLE>
DECEMBER 31, APRIL 1,
---------------------------------------- --------
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 12.8 $ 32.5 $ 10.1 $ 10.8 $ 8.2 $ 6.0
Total assets........................... 717.6 665.8 612.7 563.0 579.1 577.1
Total debt............................. 451.7 453.7 453.1 414.0 653.9 694.1
Total stockholders' deficit............ 119.5 54.6 8.4 (20.3) (268.2) (294.1)
</TABLE>
- ----------
(1) Reflects non-cash charges for the impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" which United Artists adopted in 1995.
(2) During 1998, United Artists 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 as discontinued operations.
20
<PAGE>
(3) EBITDA represents operating income (loss) before depreciation,
amortization, and provision for impairment. EBITDAR represents operating
income (loss) before depreciation, amortization, provision for impairment,
and rent expense. While EBITDA and EBITDAR are not intended to represent
cash flow from operations as defined by GAAP and should not be considered
as an indicator of operating performance or an alternative to cash flow (as
measured by GAAP) as a measure of liquidity, they are included herein to
provide additional information with respect to the ability of United
Artists to meet its future debt service, capital expenditures, rental
obligations, and working capital requirements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(4) Adjusted EBITDA represents EBITDA before the effects of restructuring
charges, which are not expected to recur, and non-cash rent expense, which
is excluded from Consolidated EBITDA as defined by the Indenture. Adjusted
EBITDAR represents EBITDAR before the effects of restructuring charges.
While Adjusted EBITDA and Adjusted EBITDAR are not intended to represent
cash flow from operations as defined by GAAP and should not be considered
as an indicator of operating performance or an alternative to cash flow (as
measured by GAAP) as a measure of liquidity, they are included herein to
provide additional information with respect to the ability of United
Artists to meet its future debt service, capital expenditures, rental
obligations, and working capital requirements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The ability
of United Artists to use Adjusted EBITDA and Adjusted EBITDAR to meet
future debt service, capital expenditures, rental obligations and working
capital requirements may be limited by law, covenants contained in the
Indenture or the Bank Credit Agreement or for other reasons. See
"Description of Certain Indebtedness" and "Description of the Notes". Other
companies may use measures other than Adjusted EBITDA and Adjusted EBITDAR
to reflect their ability to meet future debt service, capital expenditures,
rental obligations and working capital requirements.
(5) Defined as Adjusted EBITDA and Adjusted EBITDAR as a percentage of total
revenue.
(6) "Interest expense" means interest expense recorded during the related
period excluding interest income and amortization of deferred financing
fees.
(7) Amounts derived from United Artists' statements of cash flow.
(8) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component of
rental expense believed by United Artists to be representative of the
interest factor thereon. Earnings were insufficient to cover fixed charges
for each of the years ended December 31, 1994, 1995, 1996, 1997 and 1998,
and for the thirteen weeks ended April 1, 1999 by $27.7 million, $61.2
million, $42.5 million, $18.8 million, $58.9 million and $25.5 million,
respectively.
(9) Weighted average operating theatres and screens represent the number of
theatres and screens operated weighted by the number of days operated
during the period.
(10) During 1999, United Artists 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.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE CONSOLIDATED AND CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF UNITED ARTISTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
COMPANY BACKGROUND
United Artists' primary operating subsidiary, UATC, was founded in 1926 by
stockholders including Mary Pickford, Douglas Fairbanks, Sam Goldwyn and Joe
Schenck. During the 1980s UATC was acquired by Tele-Communications, Inc. ("TCI")
and subsequently undertook a major acquisition program. By December 31, 1988,
UATC operated 2,677 screens in 686 theatres principally in the south, northeast,
midwest and California.
In 1992, United Artists acquired all of the outstanding stock of UATC (the
"Acquisition") and began to invest internationally, streamline and rejuvenate
UATC by developing new multi-screen theatres in existing and new areas of
operation, renovating existing properties on a limited basis and selling or
closing less productive or non-strategic theatres. In December 1996, United
Artists implemented a corporate restructuring and refocused its investment
strategy on its core U.S. business by, among other things: (i) renovating,
rebuilding, or expanding existing key locations; and (ii) accelerating the sale
or closure of under-performing or non-strategic assets (including its
international investments). Since January 1992, UATC has sold or closed 257
theatres (965 screens) and has added 75 theatres (752 screens), primarily
through new construction. UATC's average number of screens per theatre has
increased 43.8% from 4.8 at January 1, 1992 to 6.9 at April 1, 1999. See
"Business--Business and Operating Strategy."
REVENUE
United Artists' principal sources of revenue from its theatres are
derived from theatrical admissions and concession sales. For the twelve
months ended April 1, 1999, theatrical admissions and concession sales
comprised approximately 68.7% and 28.3%, respectively, of United Artists'
revenue. The remaining 3.0% of revenue for this period was derived primarily
from on-screen advertising, electronic video games located in theatre
lobbies, theatre rentals and other miscellaneous sources. Theatre rental
revenue relates primarily to the Satellite Theatre Network-TM- business unit
that rents theatres on a networked and non-networked basis for corporate
meetings, seminars and other training/educational uses.
ADMISSIONS. United Artists' admissions revenue is based on the level of
theatrical attendance and the mix of tickets sold. Theatre attendance is
dependent primarily upon the ability to license the most popular films.
United Artists' ticket prices vary throughout the circuit depending upon such
things as local competition, whether the theatre is showing first run or
second run movies and the local economy in which the theatre operates.
Reduced ticket prices are typically charged for senior citizens, children and
matinee showings. The mix of tickets sold is primarily related to the types
of movies available to and exhibited by United Artists. Admissions revenue is
recorded net of applicable sales taxes.
CONCESSION SALES. Concession sales are a significant factor in the overall
profitability of a theatre. United Artists' primary concession products are
various sizes of popcorn, soft drinks, candy and certain other products such as
nachos and hot dogs. United Artists also sells specialty items such as pizza,
pretzels, cookies, ice cream, bottled water, and fruit juices in many of its
theatres. Popcorn, soft drinks and packaged candy are generally sold in three or
four (including children's) sizes. Retail prices for concession items vary by
the size of the offering and are generally market sensitive. Concession sales
are recorded net of applicable sales taxes.
To further increase its concession sales, United Artists has introduced new
products and initiated programs intended to increase the percentage of patrons
who purchase concessions and the amount of concessions purchased by each patron.
To achieve these goals United Artists has implemented training programs for all
concession employees, remodeled concession stands at certain existing theatres
to make them more visible, attractive and efficient, constructed new theatres
with increased concession capacity, expanded concession menus in selected
locations, installed bulk candy stands in most theatres and adopted certain
seasonal and event-oriented promotional programs. In addition, theatre managers
and assistant managers are
22
<PAGE>
motivated to increase concession sales through concession commission programs
that represent a significant portion of their total compensation.
OPERATING EXPENSES
United Artists' major operating expenses include film rental and
advertising, concession, personnel, occupancy, miscellaneous, general and
administrative and depreciation and amortization.
FILM RENTAL AND ADVERTISING EXPENSES. Film rental and advertising expense
includes the rental fees paid to film distribution companies as well as local
newspaper advertising expenditures. Film rental fees vary based upon the amount
and timing of admissions revenue for a particular film.
Film licenses typically specify rental fees equal to the higher of a
percentage of (i) gross box office receipts or (ii) adjusted box office
receipts. Under the gross box office receipts formula, the film distributor
receives a specified weekly percentage of the gross box office receipts. Under
the adjusted box office receipts formula, the film distributor receives a
specified percentage of the excess of box office receipts over a periodically
negotiated amount of theatre "house" expenses. In a very limited number of
cases, United Artists may be required to pay a non-refundable guarantee or make
film rental advances to obtain certain film licenses.
The terms of the film licenses (and therefore the film rental costs) with
many film distributors are historically finalized after exhibition of the film
in a process known as "settlement." The settlement process considers, among
other things, the actual success of a film relative to original expectations, an
exhibitor's commitment to the film and the exhibitor's relationship with the
film distributor. United Artists has historically been able to license a
majority of the motion pictures available; however, there is no guarantee that
this will continue.
United Artists relies principally upon newspaper advertisements, newspaper
film schedules and word of mouth to inform its patrons of film titles and
exhibition times. United Artists utilizes local newspaper advertisements to
promote its theatres and inform its patrons of the films being played and show
times. United Artists typically pays for this type of advertisement. In many
areas, multi-media advertisements for upcoming film releases are paid by the
film distributors. In many theatres, there is a "co-op" arrangement whereby the
exhibitors and distributors share in the cost of film advertisement in
newspapers. Film distributors will also typically pay for radio and television
spots to promote certain motion pictures and special events.
Prior to the opening of a new theatre, United Artists typically initiates a
marketing campaign that advertises and promotes the new theatre for several
weeks to several months prior to the theatre's opening date. When a theatre is
performing below management's expectations, United Artists may also a newspaper
marketing campaign with the objective of increasing attendance at the theatre.
CONCESSION COSTS. Concession costs include direct concession product costs
as well as concession promotional expenses. Concession product costs include the
cost of the concession items sold as well as the cost of spoiled or wasted
concession inventory. Concession promotional expenses include all costs
associated with the various concession promotions that United Artists
undertakes, including costs for promotional kiosks and literature and awards
granted to employees.
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. Theatre managers are typically paid a base salary
and a commission that varies based upon the theatre's concession sales and
overall theatre performance. The wages paid to the theatre staff vary to a
certain extent with the level of theatre attendance.
OCCUPANCY EXPENSE. Occupancy expense includes base rentals as prescribed in
the theatre leases, contingency rentals that are a percentage of revenue over a
certain breakpoint and non-cash rent expense associated with "straight-lining"
leases that have escalating lease terms.
MISCELLANEOUS OPERATING EXPENSES. Miscellaneous other expenses include
utilities, repairs and maintenance, insurance, real estate and other taxes and
supplies.
23
<PAGE>
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 United Artists' corporate headquarters, two
film booking and regional operating offices and 14 district theatre operations
offices (generally located in theatres). At the end of 1996, United Artists
initiated a corporate restructuring plan intended to provide a higher level of
focus on United Artists' domestic theatrical business at a lower annual cost. As
a result of this Corporate restructuring plan, which was substantially completed
in January 1997, general and administrative expenses have decreased.
DEPRECIATION AND AMORTIZATION AND PROVISION FOR ASSET IMPAIRMENTS.
Depreciation and amortization expense includes the depreciation of theatre
buildings and equipment, the amortization of theatre lease costs and certain
non-compete agreements and non-cash provisions for asset impairments. The
provision for asset impairments relates to non-cash charges for the difference
between the historical book value of individual theatres (in some cases, groups
of theatres) and the net discounted cash flow expected to be received from the
operation or future sale of the individual theatres (or groups of theatres).
OTHER. As discussed under "Risk Factors--Potential Volatility of Operating
Results," United Artists' operating results may fluctuate because of a number of
factors, including, among others, the availability of popular major motion
pictures. In the first quarter of 1998, United Artists experienced favorable
operating results compared to the current period, principally due to the success
of the film TITANTIC during the three months ended March 31, 1998. See
"--Seasonality."
RESULTS OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED APRIL 1, 1999 AND THE THREE
MONTHS ENDED MARCH 31, 1998
The following table summarizes certain operating data of United Artists'
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 THREE
WEEKS MONTHS %
ENDED ENDED ----------
APRIL 1 MARCH 31, INCREASE
1999 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 ................................................................... 4.5 4.3 4.7
Operating Expenses:
Film rental and advertising expenses....................................... 52.1 60.9 (14.5)
Concession costs........................................................... 4.7 6.5 (27.7)
Occupancy expense.......................................................... 23.0 20.5 12.2
Other Operating Expenses:
Personnel expense..................................................... 23.1 22.8 1.3
Miscellaneous operating expenses...................................... 22.4 22.5 (0.4)
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 United Artists 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
24
<PAGE>
REVENUE FROM OPERATING THEATRES FOR THE THIRTEEN WEEKS ENDED APRIL 1, 1999
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1998
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 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 of 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 4.7% 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 FOR THE THIRTEEN WEEKS ENDED APRIL 1, 1999
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1998
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
admission 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 United Artists' concession products.
OCCUPANCY EXPENSE. United Artists' typical theatre lease arrangement
provides for a base rental as well as contingent rentals that is a function of
the underlying theatre's revenue over an agreed upon breakpoint. Occupancy
expense increased 12.2% 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.
25
<PAGE>
PERSONNEL EXPENSE. Personnel expense includes the salary and wages of the
theatre manager and all theatre staff, commissions on concession sales, payroll
taxes and employee benefits. Personnel expense increased 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 0.4% 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 United Artists' theatres. The other expense discussions below reflect the
combined expenses of corporate, divisional, district and theatre operations.
OTHER EXPENSES FOR THE THIRTEEN WEEKS ENDED APRIL 1, 1999 AND THE THREE MONTHS
ENDED MARCH 31, 1998
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
United Artists' corporate headquarters, two film booking and regional operating
offices and 14 district theatre operations offices (generally located in
theatres). General and administrative expenses increased $0.6 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 $0.7 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 United
Artists' newly opened theatres.
Operating Income
During the thirteen weeks ended April 1, 1999, United Artists incurred an
operating loss of $10.6 million as compared to generating operating income of
$12.2 million for the three months ended March 31, 1998. This decrease in
operating income relates 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 increased $5.4 million for the thirteen weeks ended April 1,
1999 as compared to the three months ended March 31, 1998 due primarily to the
redemption of United Artists' preferred stock with the proceeds from the
issuance of the Senior Subordinated Notes and a portion of the Senior Credit
Facilities.
26
<PAGE>
Discontinued Operations
During 1998, United Artists established a plan to dispose of its
entertainment center business operations. The net loss from the discontinued
operations was $1.2 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 Stockholders
During the thirteen weeks ended April 1, 1999 and the three months ended
March 31, 1998, United Artists incurred net losses available to common
stockholders of $25.8 million and $6.7 million, respectively. This decrease
relates primarily to the decrease in operating income and the increase in
interest, net, partially offset by the loss from discontinued operations and
the dividends on preferred stock.
RESULTS OF OPERATIONS FOR THE YEARS ENDED 1998, 1997 AND 1996
The following table summarizes certain operating data of United Artists'
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>
Years Ended Years Ended
December 31, % December 31, %
----------------------- Increase --------------------- Increase
1998 1997* (Decrease) 1997* 1996* (Decrease)
---------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating theatres (1)
Revenue:
Admissions $ 454.4 473.9 (4.1)% 473.9 466.5 1.6%
Concession sales 188.5 189.6 (0.6) 189.6 185.1 2.4
Other 19.2 20.3 (5.4) 20.3 25.5 (20.4)
Operating expenses:
Film rental and advertising expenses 248.5 262.5 (5.3) 262.5 257.2 2.1
Concession costs 28.0 30.2 (7.3) 30.2 29.3 3.1
Occupancy expense:
Rent excluding sale and leaseback 70.2 67.8 3.5 67.8 64.6 5.0
Sale and leaseback rentals 14.5 12.8 13.3 12.8 11.0 16.4
Other operating expenses:
Personnel expense 96.2 95.5 0.7 95.5 96.4 (0.9)
Misc. operating expenses 93.4 94.3 (1.0) 94.3 96.6 (2.4)
Weighted avg. operating theatres(2) 327 354 (7.6) 354 395 (10.4)
Weighted avg. operating screens(2) 2,160 2,204 (2.0) 2,204 2,299 (4.1)
Weighted avg. screens per
avg. theatre 6.6 6.2 6.1 6.2 5.8 6.9
Admissions per weighted avg.
operating theatre $1,389,602 1,338,701 3.8 1,338,701 1,181,013 13.4
Admissions per weighted avg.
operating screen $ 210,370 215,018 (2.2) 215,018 202,914 6.0
Concession sales per weighted
avg. operating theatre $ 576,453 535,593 7.6 535,593 468,608 14.3
</TABLE>
(1) The operating theatres include revenue and expenses of all theatres
operated by United Artists 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 to reflect the entertainment center business segment as discontinued
operations.
REVENUE FROM OPERATING THEATRES FOR THE YEAR ENDED DECEMBER 31, 1998
COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
ADMISSIONS. Admissions revenue decreased 4.1% during 1998 as compared to
1997. This decrease was primarily due to a 7.2% decline in attendance, partially
offset by a 3.4% increase in the average ticket price. The decrease in
attendance was
27
<PAGE>
primarily due to decreases in the number of weighted average theatres and
screens operated, and the effect of new competitive theatre openings in
certain areas. The increase in the average ticket price was primarily due to
certain selective price increases in late 1997 and the summer of 1998.
Admissions per weighted average operating theatre increased 3.8% during 1998,
while admissions per weighted average operating screen decreased 2.2% during
1998. These admissions fluctuations were due primarily to the opening of
several new theatres which have higher admissions and more screens per
theatre, the sale or closure of several less productive theatres and the
increases in ticket prices, partially offset by a decrease in average screen
size and the increased number of total new screens in certain areas.
CONCESSION SALES. Concession sales revenue decreased 0.6% during 1998 as
compared to 1997. This decrease was primarily due to the decreased attendance
discussed above, partially offset by a 7.2% increase in the average
concession sale per patron. Concession sales per weighted average operating
theatre increased 7.6% during 1998 as compared to 1997. The increases in the
average concession sale per patron and concession sales per weighted average
operating theatre were primarily due to certain selective price increases
during 1998, United Artists' 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.
The following table sets forth the admissions and concession sales
revenue for theatres operated throughout all of 1998 and 1997 (dollars in
millions):
<TABLE>
<CAPTION>
Theatres Screens 1997 1996 % Decrease
-------- ------- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Theatres operated throughout both periods....................... 296 1,914
Admissions...................................................... $389.5 $423.7 (8.1)%
Concession sales................................................ $160.7 $168.5 (4.6)%
</TABLE>
This "same theatre" analysis eliminates the effect of new theatre
openings, sales or closures during 1998 or 1997.
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 decreased 5.4% during 1998 as compared to 1997
primarily as a result of United Artists operating 7.6% fewer theatres and a
2.5% decrease in revenue from on-screen advertising and an 11.4% decrease in
Satellite Theatre Network-TM- revenue.
REVENUE FROM OPERATING THEATRES FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED
TO THE YEAR ENDED DECEMBER 31, 1996
ADMISSIONS. Admissions revenue increased 1.6% during 1997 as compared to
1996, despite a 10.4% decline in the average number of theatres operated.
This increase was primarily due to a 7.0% increase in the average ticket
price, partially offset by a 5.0% decrease in attendance. The increase in the
average ticket price for 1997 was primarily due to an increase in the
percentage of full priced tickets purchased and certain selective increases
in ticket prices during 1997 and late 1996. The decrease in attendance for
1997 was primarily due to decreases in the number of weighted average
theatres and screens operated during the year. Admissions per weighted
average operating theatre and screen increased 13.4% and 6.0%, respectively,
during 1997 as compared to 1996. These admissions increases were primarily
due to an increase in the number of films released, the success of those
films and the opening of several new theatres which have higher admissions
per theatre and screen, the sale or closure of several less productive
theatres, and the 1997 and late 1996 increases in ticket prices, partially
offset by decreased attendance.
CONCESSION SALES. Concession sales revenue increased 2.4% during 1997 as
compared to 1996. This increase was primarily due to a 7.8% increase in the
average concession sale per patron, partially offset by the decreased
attendance discussed above. Concession sales per weighted average operating
theatre increased 14.3% during 1997 as compared to 1996. The increases in the
average concession sale per patron and concession sales per weighted average
operating theatre were primarily due to certain selective price increases
during 1997 and late 1996, United Artists' increased emphasis on sales staff
training, the opening of several new theatres with more efficient concession
operations, the sale or closure of several less productive theatres and the
introduction of new concession menu items at certain theatres.
28
<PAGE>
The following table sets forth the admissions and concession sales
revenue for theatres operated throughout all of 1997 and 1996 (dollars in
millions):
<TABLE>
<CAPTION>
Theatres Screens 1996 1995 % Increase
-------- ------- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Theatres operated throughout both periods.............. 312 1,922
Admissions............................................. $412.1 $410.8 0.3%
Concession sales....................................... $162.0 $160.5 0.9%
</TABLE>
OTHER. Other revenue decreased 20.4% during 1997, as compared to 1996,
primarily as a result of United Artists operating fewer weighted average
operating theatres and a decrease in revenue form on-screen advertising.
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1997
FILM RENTAL AND ADVERTISING EXPENSES. Film rental and advertising
expenses decreased 5.3% during 1998 as compared to 1997 primarily due to the
reduced admissions revenue discussed above. Film rental and advertising
expenses as a percentage of admissions revenue were 54.7% for 1998 and 55.4%
for 1997. The decrease in film rental and advertising expenses as a
percentage of admissions revenue for 1998 was primarily due to the longer run
of several major films released in late 1997 and during 1998. Typically, film
rental as a percentage of admissions revenue increases when a higher
percentage of a film's total admissions is collected in the opening weeks of
a film's run.
CONCESSION COSTS. Concession costs include direct concession product
costs and concession promotional expenses. Such costs decreased 7.3% during
1998 as compared to 1997 primarily due to the reduced concession sales
discussed above. Concession costs as a percentage of concession sales were
14.9% for 1998 and 15.9% for 1997. The decrease in concession costs as a
percentage of concessions revenue for 1998 was primarily due to the rebidding
or restructuring of the product and distribution contracts associated with
many of United Artists' concession supply products and slightly lower
promotional expenses.
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 0.7% during
1998 as compared to 1997. This increase in personnel expense in 1998 was
primarily due to an increase in the Federal (and certain state) minimum wage
in late 1997, which increased the average wage paid to theatre staff by 7.5%
during 1998. This increase in the average wage rate was partially offset by
the decrease in attendance discussed above, fewer weighted average operating
theatres and screens and more efficient theatre staffing. Personnel expense
as a percentage of admissions and concession sales revenue was 15.0% in 1998
and 14.4% for 1997, reflecting the effect of the higher minimum wage rate and
only moderate concession and ticket price increases.
OCCUPANCY EXPENSE. United Artists' typical theatre lease arrangement
provides for a base rental as well as contingent rental that is a function of
the underlying theatre's revenue over an agreed upon breakpoint. Total
occupancy expense increased 5.1% during 1998 as compared to 1997. This
increase in 1998 relates to higher rentals on newly opened theatres,
partially offset by the decrease in the number of weighted average operating
theatres. Occupancy expense includes non-cash charges relating to the effect
of escalating leases which have been "straight lined" for accounting purposes
of $4.0 million and $3.7 million for 1998 and 1997, respectively.
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 1.0% during 1998 as compared to
1997. This decrease in 1998 relates primarily to reductions in utility and
insurance costs and fewer weighted average theatres, partially offset by
slightly higher repairs and maintenance, supplies, and real estate taxes.
OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997
COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
FILM RENTAL AND ADVERTISING EXPENSES. Film rental and advertising
expenses increased 2.1% during 1997 as compared to 1996 primarily due to the
increased admissions revenue discussed above. Film rental and advertising
expenses as a percentage of admissions revenue were 55.4% for 1997 and 55.1%
for 1996. The increase in film rental and advertising expenses as a
29
<PAGE>
percentage of admissions revenue for 1997 was primarily due to the shorter
run of several major films released in the second quarter of 1997, partially
offset by slightly lower advertising expenses. Advertising expenses were
lower as a result of more efficient buying of print advertising by United
Artists and distributors and to fewer number of theatres operated.
DIRECT CONCESSION COSTS. Concession costs increased 3.1% during 1997 as
compared to 1996 primarily due to the increased concession sales discussed
above. Concession costs as a percentage of concession sales were 15.9% for
1997 and 15.8% for 1996. The slight increase in concession costs as a
percentage of concession sales for 1997 was primarily due to an increase in
the cost of certain commodity priced items such as corn seed and oil.
PERSONNEL EXPENSE. Personnel expense decreased 0.9% during 1997 as
compared to 1996. This decrease in personnel expense in 1997 was primarily
due to more efficient theatre staffing and fewer weighted average operating
theatres, partially offset by the increases in the Federal (and certain
state) minimum wage in late 1996 and late 1997. These minimum wage increases
resulted in a 7.4% increase in the average hourly wage paid to theatre staff
in 1997 versus 1996. Despite the increases in the Federal minimum wage in
1997 and 1996, personnel expense as a percentage of admissions and concession
sales revenue decreased to 14.4% in 1997 from 14.8% in 1996. These improved
payroll statistics relate to more efficient staffing and some increases in
ticket and concession sales. United Artists' personnel expense efficiencies
have also been positively impacted by the closure or sale of several less
efficient theatres and the opening of several new larger, more efficient
multiplex theatres and reduced expenses for fringe benefits.
OCCUPANCY EXPENSE. Total occupancy expense increased 6.6% during 1997 as
compared to 1996. This increase in 1997 relates to higher contingent rentals,
rentals on newly opened theatres and rentals related to the sale and
leaseback transaction completed in late 1996, partially offset by the
decrease in the number of weighted average operating theatres. Occupancy
expense includes non-cash charges relating to the effect of escalating leases
which have been "straight lined" for accounting purposes of $3.7 million and
$3.1 million for 1997 and 1996, respectively.
MISCELLANEOUS OPERATING EXPENSES. Miscellaneous operating expenses
decreased 2.4% during 1997 as compared to 1996. This decrease in 1997 relates
primarily to reduced utilities, repairs and maintenance and insurance
associated with fewer weighted average theatres, partially offset by
additional expenses associated with the Satellite Theatre Network-TM-.
OTHER EXPENSES FOR THE YEARS ENDED DECEMBER 1998, 1997 AND 1996
General and Administrative Expense and Restructuring Charge
General and administrative expense consists primarily of costs
associated with corporate theatre administrative and operating personnel,
Satellite Theatre Network-TM- sales and marketing staff and other support
functions located at United Artists' corporate headquarters, two film booking
and regional operating offices and 14 district theatre operations offices
(generally located in theatres). At the end of 1996, United Artists initiated
a corporate restructuring plan intended to provide a higher level of focus on
United Artists' domestic theatrical business at a lower annual cost. As a
result of this corporate restructuring plan which was substantially completed
in January 1997, general and administrative expenses decreased $0.9 million
for 1998 as compared to 1997 and $10.8 million for 1997 as compared to 1996.
During 1997 and 1996, United Artists recorded $0.8 million and $1.9 million,
respectively, of restructuring charges relating to severance and other
expenses related to United Artists' corporate restructuring.
Depreciation and Amortization and Provisions for Impairments
Depreciation and amortization expense includes the depreciation of
theatre buildings and equipment, the amortization of theatre lease costs and
certain non-compete agreements. Depreciation and amortization decreased $5.1
million for 1998 as compared to 1997 and $15.2 million for 1997 as compared
to 1996. These decreases were primarily due to lower amortization from
non-compete agreements which were fully amortized during 1997 and changing
the useful lives of certain assets during 1998, partially offset by increased
depreciation on newly opened theatres. United Artists recorded approximately
$9.0 million and $24.0 million of amortization expense during 1997 and 1996,
respectively, on non-compete agreements and certain other assets acquired as
part of the Acquisition which were fully amortized in May 1997.
Provisions for impairments relates to non-cash charges for the differences
between the historical book value of individual theatres (in some cases
groups of theatres) and the discounted cash flow expected to be received from
the operation or future
30
<PAGE>
sale of the individual theatre (or groups of theatres). United Artists
recorded non-cash provisions for asset impairments of $36.3 million, $35.0
million, and $9.5 million during the years ended December 31, 1998, 1997, and
1996, respectively.
Operating Income (Loss)
United Artists incurred an operating loss of $2.3 million during 1998
versus generating operating income of $1.6 million and $1.3 million during
1997 and 1996, respectively. The decrease in operating income during 1998 was
primarily due to reduced revenue, partially offset by reduced general and
administrative expenses and depreciation and amortization. The increase in
operating income during 1997 was primarily due to increased revenue, reduced
general and administrative expenses and depreciation and amortization,
partially offset by increased provisions for impairments.
Interest, Net
Interest, net increased $11.3 million in 1998 as compared to 1997 and
decreased $0.3 million in 1997 as compared to 1996. The 1998 increase was
primarily due to the redemption of United Artists' preferred stock with the
proceeds from the issuance of the Senior Subordinated Notes and a portion of
the Senior Credit Facilities. The 1997 decrease was primarily due to a
slightly lower average outstanding debt balance. United Artists capitalized
$1.5 million of interest during 1998 to various construction projects.
Gain on Disposition of Assets, Net
In 1998, United Artists sold the majority of its remaining international
theatrical exhibition assets for $3.0 million of cash, $0.5 million of stock
of the acquiring company and a $3.0 million note. In addition, United Artists
sold certain other operating theatres and non-operating real estate for which
net cash proceeds of $16.0 million were received. In conjunction with these
sales, United Artists recognized $1.0 million of gains. During April 1997,
United Artists sold its 50% interest in a Hong Kong theatre company to its
partner for approximately $17.5 million and during September 1997, United
Artists sold its theatre investments in Mexico and the majority of its
theatre assets in Argentina for approximately $25.0 million. In addition,
various non-strategic or underperforming operating theatres and real estate
assets were sold for net cash proceeds of approximately $27.5 million. As a
result of these 1997 sales United Artists recognized $28.0 million of gains.
During 1996, United Artists sold certain theatres for which cash proceeds of
$23.5 million were received and $2.7 million of gains were recognized.
Income Tax Expense
Income tax expense consists of current state and Federal income taxes from
United Artists less than 80%-owned consolidated subsidiaries. On February 10,
1998, United Artists filed a private letter ruling with the Internal Revenue
Service (the "IRS") requesting an extension of time to file a Section 197
election. This election allows for the amortization of various intangible
assets over 15 years. On June 8, 1998, the IRS granted United Artists'
request and, on August 6, 1998, United Artists filed a Section 197 election
along with its amended 1993 income tax return. As United Artists had
previously been amortizing certain intangible assets acquired as part of the
Acquisition over a five year period, the effect of the Section 197 election
was to reduce United Artists' net operating loss carryforward and increase
the basis of certain intangible assets, which will be amortized, and provide
for future tax deductions. The Section 197 election also enabled United
Artists to conclude the IRS audit for the years ending December 31, 1992,
1993 and 1994. As a result of the audit the net operating loss was reduced
further by various items which were reclassified as Section 197 assets. These
items will be amortized and will provide United Artists with additional
future deductions. As United Artists had fully reserved the deferred tax
asset associated with its net operating loss carryforward, there is no
financial statement impact associated with the reduction in its net operating
loss carryforward. At December 31, 1998, United Artists has a net operating
loss carryforward of approximately $183.0 million. United Artists' 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
United Artists' net operating loss carryforward and/or change the basis (and
thus future tax depreciation) related to certain assets. United Artists
believes that the result of the audit will not have a material adverse effect
on its financial condition or results of operation.
31
<PAGE>
Discontinued Operations
During 1998, United Artists established a plan to dispose of its
entertainment center business operations. The net loss from the discontinued
operations was $14.2 million, $5.4 million, and $1.5 million for 1998, 1997,
and 1996, respectively. Included in the net loss from discontinued operations
was interest expense of $1.1 million, $1.3 million, and $0.7 million for
1998, 1997, and 1996, respectively. The anticipated loss from disposition was
$6.1 million during 1998 which represents future losses. Additionally, the
net loss from discontinued operations included non-cash provisions for asset
impairments is $10.7 million and $1.0 million for 1998 and 1997 respectively.
Extraordinary Item
As a result of the repayment of United Artists' Prior Credit Facilities
and Senior Secured Notes during 1998, United Artists recognized an
extraordinary loss on the early extinguishment of debt of $7.9 million,
consisting of a $3.6 million prepayment premium on the Senior Secured Notes
and approximately $4.3 million of unamortized deferred loan costs.
Net Loss Available to Common Stockholders
United Artists incurred a net loss available to common stockholders of
$98.0 million compared to net losses available to common stockholders of
$50.8 million and $66.7 million for 1997 and 1996, respectively. The increase
in the 1998 net loss relates primarily to charges for the discontinuance of
the entertainment center operations, the extraordinary expense for the early
extinguishment of debt, and the gain on the disposition of assets during
1997. The decrease in the 1997 net loss relates primarily to the gain on the
disposition of assets during 1997, partially offset by increased non-cash
provisions for asset impairments and reduced operating results for the
discontinued operations. Excluding these unusual items, the net losses
available to common stockholders for 1998, 1997 and 1996 would have been as
follows (dollars in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Net loss available to common stockholders.......... $(98.0) (50.8) (66.7)
Provisions for impairment.......................... 36.3 35.0 9.5
Gain on disposition of assets...................... (1.0) (28.0) (2.7)
Discontinued operations............................ 20.3 5.4 1.5
Loss on early extinguishment of debt............... 7.9 - -
------ ----- -----
$(34.5) (38.4) (58.4)
------ ----- -----
------ ----- -----
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
For the thirteen weeks ended April 1, 1999, $21.0 million of cash was
used in United Artists' operating activities. This operating use of cash, in
addition to $15.4 million of cash used for capital expenditures and other
investing activities, was provided by $34.2 million of financing activities
and $2.2 million of cash balances available at December 31, 1998. For the
year ended December 31, 1998, net cash provided by United Artists' operating
activities was $43.7 million. This net cash provided by operating activities
in addition to $68.2 million of cash provided by financing activities, $2.4
million provided by other investing activities and $2.6 million of cash on
hand was used to fund $116.9 million of capital expenditures for 1997 and
1998 theatre openings and future projects and on-going maintenance
expenditures.
Substantially all of United Artists' admissions and concession sales
revenue are collected in cash. Due to the unfavorable interest rate spread
between bank facility borrowings and cash investments, United Artists seeks
to use all of its available cash to repay its revolving bank borrowings and
borrow under those facilities as cash is required. United Artists 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, United Artists 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 Senior 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 Senior Credit Facilities were used to
repay the outstanding borrowings of $272.5 million under UATC's Prior Credit
Facilities and to fund the redemption of United Artists' 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.
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<PAGE>
As part of its strategic plan, United Artists 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, United Artists closed or sold six theatres (27 screens).
During the year ended December 31, 1998, United Artists closed or sold 32
theatres (137 screens). The theatres that were closed were primarily smaller,
older theatres that were not part of United Artists' long term strategic
plans or were underperforming.
In an effort to limit the amount of investment exposure on any one
project, United Artists typically develops theatre projects where both the
land and building are leased through long-term operating leases. Where such
lease transactions are unavailable, however, United Artists 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 United Artists. For the thirteen weeks ended
April 1, 1999, United Artists invested $10.2 million on eight theatres (101
screens) which opened during 1998 and approximately $11.1 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. For
the year ended December 31, 1998, United Artists invested approximately $7.1
million on five theatres (52 screens) which opened in 1997, $87.7 million on
the development of 13 new theatres (150 screens) that opened in 1998, the
addition of stadium seating to two theatres (22 screens) and the renovation
of two existing theatres which opened during the period, and $1.0 million on
construction of five new theatres (68 screens) and the renovation of three
theatres (36 screens) expected to open during 1999 and $21.1 million on
theatre point-of-sale systems, corporate computers and systems and recurring
maintenance on 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, United Artists 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 United Artists
intends to open during 1999. United Artists 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
United Artists had executed a definitive lease and all significant lease
contingencies have been satisfied. United Artists expects additional capital
expenditures, primarily with regard to the renovation or expansion of
existing key locations. Because a significant portion of United Artists'
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 and other sources of capital.
United Artists 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 Senior Bank Credit Facilities require United Artists
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.
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<PAGE>
The level of continued investing activities by United Artists is
dependent on, among other factors, its on-going operating liquidity and other
sources of liquidity. One measure commonly used in the theatrical industry to
measure operating liquidity is referred to as "Interest Coverage." Interest
Coverage is the ratio of Operating Cash Flow (defined as EBITDA - earnings
before interest, taxes, depreciation, amortization - plus other non-recurring
or non-cash operating credits or charges) to interest expense (excluding
amortization of deferred loan costs). Following is a calculation of Operating
Cash Flow and Interest Coverage for each of the last three years and the
thirteen weeks ended April 1, 1999 and the three months ended March 31, 1998,
including a reconciliation of Operating Income to Operating Cash Flow.
Additionally, information from the statements of cash flow is presented for
each of the last three years in the following table (dollars in millions):
<TABLE>
<CAPTION>
THIRTEEN THREE
WEEKS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, APRIL 1, MARCH 31,
1998 1997* 1996* 1999 1998*
------- ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Operating income (loss) from continuing operations............. $ (2.3) $ 1.6 $ 1.3 (10.6) $ 12.2
Depreciation and amortization.................................. 53.9 59.0 74.2 14.2 13.5
Provision for asset impairments................................ 36.3 35.0 9.5 -- --
Non-cash rent.................................................. 4.0 3.7 3.1 1.2 0.9
Severance, litigation and restructuring charges................ 0.3 0.8 1.9 -- --
------- ------ ------ ------ ------
Operating cash flow.......................................... $ 92.2 $100.1 $ 90.0 $ 4.8 $ 26.6
------- ------ ------ ------ ------
------- ------ ------ ------ ------
Interest expense............................................... $ 54.5 $ 42.6 $ 42.7 15.4 $ 10.0
------- ------ ------ ------ ------
------- ------ ------ ------ ------
Interest coverage ratio........................................ 1.7x 2.4x 2.1x 0.3x 2.6x
------- ------ ------ ------ ------
------- ------ ------ ------ ------
Statement of cash flow information:
Net cash provided by (used in) operating activities....... $ 43.7 $ 51.0 $ 30.8 $(21.0) $ (0.6)
Net cash used in investing activities..................... (114.5) (4.6) (55.9) (15.4) (20.2)
Net cash provided by (used in) financing activities....... 68.2 (45.7) 2.7 34.2 17.3
------- ------ ------ ------ ------
Net cash flow............................................. $ (2.6) $ 0.7 $(22.4) $ (2.2) $ (3.5)
------- ------ ------ ------ ------
------- ------ ------ ------ ------
Ratio of earnings to fixed charges (1).................... -- -- -- -- 1.1x
</TABLE>
- --------------
(1) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component of
rental expense believed by United Artists to be representative of the
interest factor thereon. Earnings were insufficient to cover fixed charges
for each of the years ended December 31, 1998, 1997 and 1996 and the
thirteen weeks ended April 1, 1999 by $58.9 million, $18.8 million, $42.5
million, and $25.5 million, respectively.
*Restated
Operating Cash Flow is one measure of value and borrowing capacity
commonly used in the theatrical exhibition industry and is not intended to be
a substitute for Operating Cash Flow as defined in United Artists' debt
agreements or for cash flows provided by operating activities, a measure of
performance provided herein in accordance with generally accepted accounting
principles, and should not be relied upon as such. The Operating Cash Flow as
set forth above does not take into consideration certain costs of doing
business, and as such, should not be considered in isolation to other
measures of performance.
Another measure of liquidity is net cash provided by operating
activities as reflected in the accompanying Consolidated Statements of Cash
Flow. For the thirteen weeks ended April 1, 1999 and the three months ended
March 31, 1998, $10.6 million, and $0.6 million of net cash was used in
United Artists' operating activities, respectively. Net cash provided by
operating activities was $43.7 million, $51.0 million and $30.8 million for
the years ended December 31, 1998, 1997 and
34
<PAGE>
1996, respectively. This measurement sets forth the net cash from the
operations of United Artists which was available for United Artists'
liquidity needs after taking into consideration certain additional costs of
doing business which are not reflected in the Operating Cash Flow
calculations discussed above.
United Artists believes that the net cash provided by operations in
future periods and borrowings available under the Senior Credit Facilities
will be sufficient to fund its future cash requirements. United Artists
expects the future cash requirements will principally be for repayments of
indebtedness, working capital requirements and capital expenditures. United
Artists' 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 United Artists' control.
Additionally, United Artists' ability to incur additional indebtedness may be
limited by covenants contained in the Participation Agreement relating to the
1995 Sale and Leaseback discussed above.
SEASONALITY
United Artists' 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 United Artists' 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
United Artists 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. United Artists' review encompasses this
type of equipment, segmented into three broad areas: computer based systems
in United Artists' theatres; computer based systems at United Artists'
administrative offices; and products and services provided by outside vendors.
COMPUTER BASED SYSTEMS IN UNITED ARTISTS' THEATRES: United Artists'
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 United Artists' corporate computer system. United
Artists 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 United Artists' POS system was approximately
70% complete. United Artists 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.
Most all of the United Artists' theatres are equipped with projection
and sound systems and energy management systems which 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 UNITED ARTISTS' ADMINISTRATIVE OFFICES: United
Artists' 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 United Artists 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 United Artists 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 United Artists 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: United Artists 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
United Artists. The major products and services that United Artists is
dependent upon vendors for are film supply, concessions
35
<PAGE>
inventory and utilities. If any of these vendors were to experience year 2000
problems, United Artists could experience material and adverse consequences.
United Artists has been advised by its major vendors that they expect to be
year 2000 compliant.
United Artists is very dependent upon the banking industry for
depositing daily cash receipts and making vendor and payroll disbursements.
United Artists 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, United
Artists could experience material and adverse consequences.
Although this review is still in progress, United Artists believes that
conversion requirements will not result in significant disruption of United
Artists' business operations or have a material adverse effect on its future
liquidity or results of operations. United Artists' 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, United Artists
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 United Artists include elements that are considered to
be structural in nature as defined by Issue No. 97-10. As a result, United
Artists 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 United Artists changes the manner in
which it contracts for the construction of theatres, United Artists believes
that Issue No. 97-10 will require certain of its future operating leases to
be recorded as lease financing obligations. United Artists 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 United
Artists is a party include borrowings under the Senior 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. United Artists 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 United Artists' consolidated financial position,
results of operation or cash flow.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
United Artists is subject to market risk associated with changes in interest
rates on its debt obligations. United Artists 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 United
Artists' financial instruments that are sensitive to changes in interest
rates (amounts in millions):
36
<PAGE>
<TABLE>
<CAPTION>
Expected 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 $ 4.7 3.0 0.5 0.4 0.4 228.3 236.8 203.1
Avg. Interest Rate 9.0% 9.4 7.9 7.8 7.8 9.7 9.7
Floating Rate $ 3.5 3.5 5.6 15.8 27.8 401.1 457.3 457.3
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 8.84%.
(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.
37
<PAGE>
BUSINESS
OVERVIEW
United Artists is a leading motion picture exhibitor in North America
and, in the United States, operates 2,158 screens at 313 theatres located in
23 states. United Artists licenses films from all major and substantially all
independent film distributors and derives revenues primarily from theatre
admissions and concession sales. United Artists operates screens in eight of
the ten largest demographic market areas ("DMAs") in the United States and
approximately 45.3% of United Artists' screens are located in the top 20
DMAs. In addition, approximately 31.5% of United Artists' screens (680
screens) have been constructed since January 1, 1992. United Artists believes
that it is one of the largest single exhibitor, based on number of screens,
in many of its core areas of operation and this market position provides
several operating benefits. Theatre operations in six states (California, New
York, Pennsylvania, Florida, Texas and Colorado) accounted for approximately
58.5% and 56.9% of United Artists' total theatres and screens, respectively,
at April 1, 1999 and 61.7% and 61.8% of United Artists' theatrical revenue,
and theatrical EBITDA, respectively, for the twelve months ended April 1,
1999.
In December 1996, United Artists implemented a corporate restructuring and
refocused its investment strategy on its core U.S. business. Since that time,
United Artists has: (i) reduced its corporate general and administrative
expenses; (ii) improved its operations in its core areas of operation through
the development of new theatres and the refurbishing or expansion of certain
existing key theatres; (iii) implemented operational improvements; and (iv)
accelerated the divestitures of underperforming and non-strategic theatres.
United Artists has invested more than $477.1 million since January 1,
1992 toward improving the quality of its asset base by, among other things,
renovating existing theatres and constructing new state-of-the-art theatres.
Approximately 31.5% of United Artists screens have been constructed since
January 1, 1992. Virtually all of the theatres United Artists has built since
1997 are state-of-the-art, 10 to 16 screen multiplex theatres with stadium
seating, high-backed rocking seats, digital sound, expanded concession areas
and other state-of-the-art design features and amenities. All new theatres
currently planned will also include these state-of-the-art amenities and many
existing theatres are being, or will be, upgraded with stadium seating and
other state-of-the-art features. As compared to the prior generation of
non-stadium theatres, United Artists believes that these theatres provide a
higher quality entertainment experience for patrons and significant operating
efficiencies and improved economics for United Artists. At April 1, 1999,
United Artists operated 24 theatres (245 screens) which offered stadium
seating. At April 1, 1999, approximately 88.1% of United Artists' screens
were located in theatres with five or more screens. United Artists' average
number of screens per theatre has increased 43.8% from 4.8 at January 1, 1992
to 6.9 at April 1, 1999.
United Artists was incorporated in the State of Delaware in May 1992.
United Artists' executive offices are located at 9110 E. Nichols Avenue,
Suite 200, Englewood, Colorado 80112-3405. United Artists' telephone number
at its executive offices is (303) 792-3600.
INDUSTRY OVERVIEW
More than 530 participants in the domestic motion picture theatre
exhibition business operate approximately 34,000 screens in North America. In
1998 the top ten companies operated approximately 53.0% of the total screens as
compared to 31.0% in 1986. The remainder of the domestic motion picture theatre
exhibition industry is highly fragmented, with the remaining 47.0% of the
screens being operated by approximately 520 exhibitors. United Artists has one
of the largest shares of total screens with approximately 6.4% of all screens in
North America.
Exhibitors have generally turned to multi-screen formats with smaller
auditoriums. Typically, multi-screen theatres ("multiplexes") have six or more
screens per theatre, although in some instances multiplexes may have as many as
30 screens in a single theatre. The multiplex format provides numerous benefits
for theatre operators, including allowing facilities (concession stands and
restrooms) and operating costs (lease rentals, utilities and personnel) to be
allocated over a larger base of screens and patrons. Multiplexes have varying
seating capacities (typically from 100 to 500 seats) that allow for multiple
showtimes of the same film and a variety of films with differing audience appeal
to be shown. They also provide the flexibility to shift films to larger or
smaller auditoriums depending on their popularity. To limit crowd congestion and
maximize the efficiency of floor and concession staff, the starting times of
films at multiplexes are staggered.
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The growth in the number of screens operated nationally has accelerated
significantly over the past two years with a 7.2% increase in each of 1997
and 1998. In contrast, the annual average rate of increase since 1978 was
only approximately 4.9%. Because auditorium size is generally smaller in a
multi-plex theatre, the number of seats has increased at a much slower rate
than screens.
Certain trends in the theatre exhibition industry favor larger, better
capitalized companies, creating an environment for new construction and
consolidation. Foremost among these trends is larger exhibitors actively
seeking and building multiplexes or megaplexes. Moreover, many smaller
theatre owners who operate older cinemas without state-of-the art stadium
seating and projection and sound equipment may not have the capital required
to maintain or upgrade their circuits. The growth of the number of screens,
strong domestic consumer demand, and growing foreign theatrical and domestic
and foreign ancillary revenue opportunities have led to an increase in the
volume of major film releases. The greater number of screens has allowed
films to be produced for and marketed to specific audience segments (e.g.,
horror films for teenagers) without using capacity required for mainstream
product.
The greater number of screens has also prompted distributors to increase
promotion of new films. Not only are there more films in the market at any given
time, but the multiplex format allows for much larger simultaneous national
theatrical release. In prior years a studio might have released 1,000 prints of
a major film, initially releasing the film only in major metropolitan areas,
then gradually releasing it in smaller cities and towns nationwide. Today
studios might release over 3,000 prints of a major film and open it nationally
in one weekend. These national openings have made up-front promotion of films
critical to attract audiences and stimulate word-of-mouth advertising.
Motion pictures are generally made available through various
distribution methods at various dates after the theatrical release date. The
release dates of motion pictures in these other "distribution windows" begin
four to six months after the theatrical release date with video cassette
rentals, followed generally by off-air or cable television programming
including pay-per-view, pay television, other basic cable and broadcast
network syndicated programming. These new distribution windows have given
producers the ability to generate a greater portion of a film's revenues
through channels other than theatrical release. This increased revenue
potential after a film's initial domestic release has enabled major studios
and certain independent producers to increase film production and theatrical
advertising. The additional non-theatrical revenue has also allowed for
higher individual film production and marketing costs. The total cost of
producing and distributing a picture averaged approximately $52.7 million in
1998 compared with approximately $17.5 million in 1986. The average cost to
advertise and promote a picture averaged approximately $25.3 million in 1998
as compared with $6.7 million in 1986.
These higher costs have made a large successful theatrical release more
important. Distributors strive for a successful opening run at the theatre to
establish a film and substantiate the film's revenue potential both
internationally and through other release windows. The value of home video
and pay cable distribution agreements frequently depends on the success of a
film's theatrical release. Furthermore, the studios' revenue-sharing
percentage and ability to control who views the product within each of the
distribution windows generally declines as one moves farther from the
theatrical release window. Because theatrical distribution remains the
cornerstone of a film's financial success, it is the focal distribution
window for the public's evaluation of films and motion picture promotion.
Although it cannot provide any assurances, management expects that the
overall supply of films will continue to increase. Over the past four years
there has been an increase of approximately 8.6% in the number of motion
pictures rated by the Classification and Rating Administration. There has
also been an increase in the number of major studios and reissues of films as
well as an increased popularity of films made by independent producers.
During the past four years the number of large budget films and the level of
marketing support provided by the production companies has risen, as
evidenced by the increase in average production costs and average advertising
costs per film of 53.7% and 57.5%, respectively from 1994 to 1998.
BUSINESS AND OPERATING STRATEGY
United Artists' operating and capital investment strategy is to continue
focusing on improving on the quality of its key operating theatres and the
quality of its daily operations. Key elements include:
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REFOCUS OVERHEAD AND CAPITAL INVESTMENT STRATEGY. In December 1996,
United Artists implemented a corporate restructuring and refocused its
investment strategy on its core U.S. business. United Artists' core business
strategy focuses management's attention and capital resources on those
geographic areas where United Artists intends to strengthen and defend its
current position. United Artists has also implemented operational
improvements and overhead reductions intended to increase United Artists'
result of operations and has sold or closed several underperforming or
non-strategic theatres. The corporate restructuring plan resulted in a higher
level of focus by United Artists on its domestic theatrical business. It also
resulted in a 35.1% reduction in corporate general and administrative
expenses, from a running rate of $37.0 million for the year ended December
31, 1996 to $24.0 for the twelve months ended April 1, 1999. These savings
were achieved primarily through headcount reductions and a consolidation of
regional administrative offices.
REBUILD OR EXPAND EXISTING KEY THEATRE LOCATIONS AND DEVELOP NEW THEATRES.
United Artists plans to continue increasing its number of screens and operating
margins by focusing its capital investment activities on the renovation or
expansion of existing theatres in its core areas of operation. All currently
planned theatre renovations and expansions will include, among other things, the
addition of stadium seating. The theatres selected for renovation and expansion
will be those with favorable historical operating results for which a renovation
or expansion will provide the theatre with a competitive advantage.
United Artists will also build several new state-of-the-art theatres
within its core areas of operation. United Artists is developing higher
margin multiplexes of 12 to 18 screens and is seeking to increase concession
sales through, among other things, more efficient theatre design. United
Artists is also constructing its new theatres with stadium seating, digital
sound, more comfortable seats and other popular design features and
amenities. United Artists believes that these theatres will have an optimal
relationship between the number of screens (12 to 18) and the size of the
auditoriums (125 to 400 seats). These theatres are designed to increase the
revenue per square foot generated by the facility and reduce the cost per
square foot of constructing and operating the theatres. This multiplex
strategy, in combination with an emphasis on concession sales, is designed to
improve revenue and profitability by enhancing attendance and concession
sales, theatre utilization and operating efficiencies, and provide more
efficient clustering around regional and district management centers. United
Artists believes that theatres which are larger than 18 screens tend to have
a higher level of return risk because they require a larger capital
investment and require a larger drawing area (thus, more potential
competition) to be successful, generally resulting in a diminishing return on
capital investment for the incremental screens.
During 1998, United Artists opened 13 new theatres (150 screens), added
stadium seating to two theatres (22 screens), and renovated two additional
theatres. Seven of its new theatres (83 screens) opened were expansions,
rebuilds or replacements of existing theatres, containing 30 screens. During
1999, United Artists plans to open four new theatres (53 screens) and renovate
and add stadium seating to four existing theatres (51 screens).
MANAGE INDIVIDUAL THEATRE CAPITAL REQUIREMENTS. Even though United
Artists plans to continue to develop several new state-of-the-art theatres
each year, it intends to reduce individual theatre financial leverage and
capital requirements by focusing on expanding, renovating and rebuilding many
of its key locations. In many cases, these existing key locations can be
transformed into state-of-the-art multiplex stadium seating theatres without
competing against other operators for the location and incurring higher rent
and excessive preconstruction costs. Furthermore, existing structures can be
utilized while being refurbished, helping reduce overall construction costs.
United Artists' renovation of theatres in successful locations eliminates
much of the geographic risk related to a project's success.
In order to reduce the overall investment in new theatres, United
Artists has entered into "build to suit" and other landlord leasing
arrangements including sale and leaseback transactions. United Artists also
intends to continue to sell non-strategic and underperforming assets and
expects to redeploy capital to its core U.S. business. This strategy is
intended to provide increased liquidity from the disposal of non-cash flow
producing investments and theatres with limited growth potential.
DIVEST OR FIND ALTERNATIVE USES FOR UNDERPERFORMING THEATRES. United
Artists' 1996 corporate restructuring was also designed to rationalize
underperforming or non-strategic assets by: (i) terminating leases for
underperforming theatres; (ii) selling real estate underlying non-strategic or
underperforming theatres; (iii) divesting theatres in non-core areas; (iv)
exchanging theatres in non-core areas for theatres in core areas; and (v)
finding new operating techniques or alternative uses for underperforming
theatres. During the thirteen weeks ended April 1, 1999, United Artists closed
or sold six theatres (26 screens). During 1998, United Artists sold the majority
of its remaining international theatrical exhibition assets for $3.0 million of
cash, $0.5 million of stock of the acquiring company and a $3.0 million note. In
addition, United Artists sold
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certain non-operating real estate assets and closed or sold 32
underperforming or non-strategic theatres (138 screens) for which net cash
proceeds of $16.0 million were received. Many of the theatres closed or sold
were not profitable or were located in areas that are not part of United
Artists' long-term strategic plans. United Artists has identified 49
operating theatres and owned real estate (321 screens) that are not
considered strategically important or are underperforming. United Artists
plans to sell or close these theatres during the next several years, although
there can be no assurance that United Artists will be able to accomplish such
divestitures or closings.
IMPLEMENT OPERATIONAL IMPROVEMENTS. United Artists has recognized
theatre and concession operating efficiencies through heightened focus on
increasing concession sales, managing theatre payrolls and variable costs and
increased staff training. Concession sales per capita increased by
approximately 5.5% for the twelve months ended April 1, 1999 versus the
twelve months ended March 31, 1998 and 5.6% annually on average from 1993 to
1998. Management believes that there are opportunities to achieve additional
operating efficiencies by disposing of underperforming theatres, renovating
and expanding certain existing theatres, developing new multiplex stadium
theatres and continuing to control theatre level operating expenses. The area
of focus for 1999 for those theatres identified as underperforming or
non-strategic will primarily be to implement operating techniques to improve
operating results as a theatre, find other uses or divestiture.
ENHANCE STUDIO/DISTRIBUTOR RELATIONSHIPS. Management intends to continue
to enhance and balance its studio relationships to obtain the optimal number
of marketable motion pictures at film rental percentages that are consistent
with prior results. United Artists believes that it will continue to increase
the number of prints it obtains from each studio as it increases the number
of its screens in select locations. This can be accomplished by leveraging
attractive existing theatre locations through renovation and expansion and
through the development of new, larger (in terms of screens), higher margin
theatres. To the extent that theatrical exhibition remains the primary
distribution channel for new motion picture releases and the overall number
of movies produced continues to increase, management believes that United
Artists' focus on its core business will provide it with access to more
prints of each motion picture.
DEVELOP ANCILLARY REVENUE OPPORTUNITIES. United Artists believes that
there are opportunities to increase its ancillary revenue from its Satellite
Theatre Network-TM- by renting theatres on a networked and non-networked basis
for corporate meetings, seminars, product and customer research and other
entertainment uses. Through its VIP/Premier program, United Artists seeks to
enhance theatre attendance by selling large groups of tickets to businesses
and groups through coupon books as well as gift certificates. On-screen
advertising provides an additional opportunity to increase revenue and
profitability.
OPERATIONS
OVERVIEW. As of April 1, 1999, United Artists operated 313 theatres with
an aggregate of 2,158 screens in 23 states and, through joint ventures owned
50.0% or less by United Artists, operated 4 theatres with 10 screens in the
United States. Additionally, United Artists had a 10% interest in two Asian
theatre exhibition joint venture companies that operate four theatres (21
screens) in Singapore and Thailand. The table below summarizes the theatres
operated by United Artists and its subsidiaries as of April 1, 1999:
<TABLE>
<CAPTION>
TOTAL NUMBER TOTAL NUMBER
OF THEATRES OF SCREENS
------------ ------------
<S> <C> <C>
Fee-Owned .........................................................,,,,,,,,,,,,,,,,,,,, 37 216
Leased:
From third parties................................................................ 241 1,619
Through sale and leaseback transactions........................................... 35 323
--- -----
Total owned and leased theatres........................................................ 313 2,158
Theatres owned 50.0% or less........................................................... 4 10
--- -----
Total operating theatres..................................................... 317 2,168
--- -----
--- -----
</TABLE>
Almost all of United Artists' theatres are multiplexes with an average of
6.9 screens per theatre. In comparison to a single screen theatre, multiplex
theatres allocate facilities such as concession stands and restroom facilities,
and operating costs such as rent, utilities and personnel, over a larger base of
screens and patrons. Multiplexes allow for a variety of films with different
audience appeal to be shown in the same theatre and permit multiple showtimes of
popular films. Multiplexes also provide the flexibility to shift films to larger
or smaller auditoriums depending on the film's popularity. To limit crowd
congestion and maximize staff efficiency, United Artists' theatres stagger the
starting times of films. United Artists believes that multiplex and "megaplex"
theatres designed with 12 to 18 screens generally provide the optimal balance of
return on
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invested capital and adequate screen numbers for patrons and film
distribution companies, as compared to theatres with more than 18 screens.
As set forth in the following table, although United Artists operates
several smaller theatres (in terms of number of screens), approximately 88.1%
of United Artists' screens as of April 1, 1999 were located in theatres
containing five or more screens.
<TABLE>
<CAPTION>
NUMBER OF SCREENS NUMBER OF % OF % OF
PER THEATRE THEATRES TOTAL SCREENS TOTAL REVENUE
----------------- -------- -------------- -------------
<S> <C> <C> <C>
Greater than 10................................................. 35 20.6% 22.5%
9--10............................................................ 56 25.0 27.3
7--8............................................................. 60 21.4 19.5
5--6............................................................. 79 21.1 19.3
3--4............................................................. 57 10.0 8.8
1--2............................................................. 26 1.9 2.6
</TABLE>
Consistent with its operating strategy, United Artists expects to
rationalize many of its smaller and less productive theatres over the next
several years although there can be no assurance with respect thereto. The
following table sets forth EBITDA, operating margins and other operating
statistics by EBITDA range. Generally, theatres with fewer screens are less
profitable than those with a greater number of screens. Although there can be
no assurance that United Artists will effect such closings or sales, as
reflected in the table below, if theatres with negative EBITDA or with EBITDA
of less than $100,000 are closed or sold, United Artists' EBITDA margins
would be expected to increase.
<TABLE>
<CAPTION>
EBITDA RANGE TOTAL TOTAL
DURING THEATRE REVENUE THEATRE EBITDA THEATRE EBITDA
TWELVE MONTHS DURING DURING MARGIN DURING
ENDED NUMBER NUMBER AVERAGE TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
APRIL 1, OF OF SCREENS PER ENDED ENDED ENDED
1999 THEATRES SCREENS THEATRE APRIL 1, 1999 APRIL 1, 1999 APRIL 1, 1999
----- -------- ------- ------- ------------- -------------- -------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
$1,000,000+............... 21 214 10.2 $119.8 $ 32.5 27.1 %
500,000-999,999.......... 39 344 8.8 128.9 28.1 21.8
250,000-499,999.......... 68 492 7.2 143.7 24.7 17.2
100,000-249,999.......... 60 339 5.7 74.2 10.2 13.7
0-100,000................ 48 240 5.0 49.8 2.5 5.0
0 (Negative)............. 77 529 6.9 93.2 (13.9) (14.9)
--- ----- --- ------ ------
Total................. 313 2,158 6.9 $609.6 $ 84.1 Average 13.8 %
--- ----- --- ------ ------
--- ----- --- ------ ------
</TABLE>
CENTRALIZED MANAGEMENT. United Artists operates its theatres from its
Englewood, Colorado corporate headquarters, two regional operating offices,
fourteen district operating offices and two film booking offices. All of
United Artists' district and regional operating offices are located within
theatres.
There is active communication between the theatres and division management
and corporate management, which allows management to react on a daily basis to
revenue and staffing information. Division management provides guidance in
scheduling, staffing, screen allocation, and other operating decisions.
Management personnel with United Artists' marketing and concessions operations
are also continually involved with theatre management to promote strong
performance in those areas. This structure allows the theatre manager to focus
solely on the daily operations of the theatre. A primary responsibility of the
theatre manager is improving efficiency and managing costs at the local theatre
level.
Corporate and divisional management assists in the daily operations of
United Artists' theatres by booking and settling films, training new and
existing employees, setting admission and concessions pricing policies,
selecting concession products, advertising theatres and showtimes, selecting new
theatre sites and negotiating national purchasing contracts. Corporate
management also assists in theatre development and construction and capital
raising activities and provides cash management, accounting, tax and management
information services.
United Artists' reporting systems provide management and each theatre
manager with weekly and monthly operating reports for individual theatres. This
allows management to monitor theatre manager performance and progress in
attaining certain identifiable goals. United Artists' computer system, installed
in all of its theatres, allows United Artists to centralize
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all theatre-level administrative functions at its two regional operating
offices and corporate headquarters. The system allows regional and corporate
management to monitor ticket revenue and concession sales. All accounting,
reporting and management information systems are centralized at corporate
headquarters.
THEATRE PROPERTIES
The majority of United Artists' theatres are located in free-standing
buildings or are "anchor" tenants in regional malls or strip centers.
Typically, United Artists' third-party leases have remaining terms that range
from 10 to 25 years, and provide for options to extend for up to 20
additional years at United Artists' election. The leases provide for annual
base rent and many require additional rent based upon a percentage of the
leased theatres' revenue over a certain breakpoint. Certain of the leases
provide for escalating minimum annual rentals. The leases typically require
United Artists to pay for property taxes, insurance, and certain of the
lessors' overhead costs. United Artists expects that in the normal course of
business, desirable leases that expire will be renewed or replaced by other
leases, although such renewals or replacements may be on materially different
terms. United Artists owns directly or through its subsidiaries substantially
all of the theatre equipment used in all of its theatres.
CONSTRUCTION. United Artists intends to devote significant resources to
adding additional screens to existing theaters and refurbishing or rebuilding
existing theatres to strengthen its position in existing theatres. United
Artists believes that renovating, expanding or completely rebuilding certain
of its existing theatre locations provides it with a significant competitive
advantage in many of the large metropolitan areas where the availability of
suitable theatre sites is limited. The capital costs associated with
renovating or expanding an existing theatre are usually significantly less
than for constructing a new theatre.
United Artists' new theatre construction strategy focuses on selecting
sites in its existing core areas of operation and enhancing the
theatre-goer's experience by building state-of-the-art theatres. Each new
location is selected after considering United Artists' relative strength in
the particular area, the number of existing competitive screens, growth
potential of the area and the minimum threshold population within a certain
radius of the theatre. As part of its construction strategy, United Artists
intends to construct or lease stadium theatres that have a favorable balance
between the number of screens (12 to 18) and the size of the auditoriums (125
to 400 seats). United Artists believes that this balance will allow United
Artists to provide an adequate number of screens for film distributors and
increased entertainment value to patrons afforded by larger auditoriums. In
addition to increasing the number of screens in certain locations, United
Artists is also constructing theatres with stadium seating, more comfortable
seats, analog and digital stereo sound systems and other state-of-the-art
design features and amenities.
As a result of new construction and the sale or closure of older,
smaller theatres, approximately 31.5% of United Artists' screens have been
constructed since January 1, 1992 and approximately 51.9% of theatres
operated on January 1, 1992 have been sold or closed. As a result of this new
construction and the sale or closure of older, smaller theatres, United
Artists' average number of screens per theatre has increased 43.8% from 4.8
screens at January 1, 1992 to 6.9 screens as of April 1, 1999.
United Artists has historically financed, and plans to continue to
finance, a significant portion of the cost of construction of new theatres by
entering into long-term leases or sale and leaseback transactions. United
Artists' long-term leases typically have initial terms of 15 to 25 years with
renewal options and require the landlord to provide a significant portion of
the up-front construction costs. As a result, capital expenditures are often
only required for equipment and certain tenant finishes, thereby reducing the
net capital expenditures.
GEOGRAPHIC POSITIONING. Geographic positioning and operating
efficiencies are key elements of United Artists' operating strategy.
Geographic clustering at both the regional and local level is important in
providing United Artists with access to attractive new theatre development
opportunities and enhancing film buying and operating efficiencies. United
Artists achieves operating efficiencies by concentrating regional corporate
operations around fewer strategic markets and reducing its number of less
profitable, non-strategic theatres.
Theatrical exhibitors depend upon strong geographic positioning to
obtain the most attractive film rental arrangements because film bookings are
negotiated on a theatre-by-theatre basis. Strong geographic positioning in
terms of both number of screens and locations enhances the attractiveness of
a theatre exhibitor to film distributors, in part because of the exhibitor's
ability to influence the local success of a film release.
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United Artists' theatres are located in large and medium sized
metropolitan areas in California, southern New York (primarily New York City
and Long Island), New Jersey, Florida, Texas, eastern Pennsylvania (including
Philadelphia), Louisiana, Colorado (primarily Denver), Georgia and certain
areas in North and South Carolina. United Artists believes that it has strong
positions in many of these major metropolitan areas. The six states that
represent the largest geographic concentration of theatres and screens
operated, accounted for approximately 58.5% and 56.9% of United Artists'
total theatres and screens, respectively, at April 1, 1999 and approximately
61.7% and 61.8% of United Artists' theatrical revenue, and theatrical EBITDA,
respectively, for the twelve months ended April 1, 1999, were as follows:
<TABLE>
<CAPTION>
TOTAL NUMBER TOTAL NUMBER PERCENT OF
OF OF THEATRE
STATE THEATRES SCREENS REVENUE
- ----- -------- ------- -------
<S> <C> <C> <C>
California........................................................ 55 327 18.8%
New York.......................................................... 29 202 14.5
Pennsylvania...................................................... 26 146 7.3
Florida........................................................... 25 217 8.3
Texas............................................................. 23 184 6.8
Colorado.......................................................... 25 151 6.0
</TABLE>
FILM LICENSING
United Artists obtains licenses to exhibit films by directly negotiating
with film distributors on a film-by-film and theatre-by-theatre basis. United
Artists licenses films through its booking offices located in New York and
Los Angeles. Individuals in the booking offices are responsible for booking
films for theatres in their assigned regions. This regional film booking
structure allows United Artists to maintain better relationships with the
film distributors' regional representatives and provides better insight to
the regional film tastes of its patrons. United Artists licenses films from
all of the major and independent film distributors and is not overly
dependent on any one film distributor for film product. See "Risk
Factors--Dependence on Films and Distributors."
United Artists licenses the majority of its first run films from
distributors owned by the major and independent film production companies.
Each film distributor establishes geographic areas known as "film zones," and
typically allocates each of its films to only one theatre within each film
zone. In most cases where there is more than one exhibitor in a film zone
this allocation process is based on long standing relationships between the
distributor and exhibitor with respect to that theatre or is done on an
alternating basis. In certain very limited cases where several exhibitors
operate in a single film zone, films are allocated based on an exhibitor
bidding process. The size of a film zone is based primarily upon population
density. United Artists operates in approximately 263 film zones and believes
that it is the only exhibitor in 119 of these zones, and therefore does not
currently compete with other exhibitors for licensing specific film product
at a given time in such film zones.
Film licenses typically specify rental fees equal to the higher of a
percentage of (i) gross box office receipts or (ii) adjusted box office
receipts. Under the gross box office receipts formula, the film distributor
receives a specified weekly percentage of the gross box office receipts.
Under the adjusted box office receipts formula, the film distributor receives
a specified percentage of the excess of box office receipts over a
periodically negotiated amount of theatre "house" expenses. In a very limited
number of cases, United Artists may be required to pay a non-refundable
guarantee or make film rental advances in order to obtain certain film
licenses.
The terms of the film licenses (and hence the film rental costs) with
many film distributors are historically finalized after exhibition of the
film in a process known as "settlement." The settlement process considers,
among other things, the actual success of a film relative to original
expectations, an exhibitor's commitment to the film and the exhibitor's
relationship with the film distributor. United Artists has historically been
able to license a majority of the motion pictures available; however, there
is no guarantee that this will continue.
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MARKETING AND ADVERTISING
United Artists relies principally upon newspaper advertisements,
newspaper film schedules and word of mouth to inform its patrons of film
titles and exhibition times. United Artists utilizes local newspaper
advertisements to promote its theatres and inform its patrons of the films
being played and show times. United Artists typically pays for this type of
advertisement. In most areas, multi-media advertisements for upcoming film
releases are paid by film distributors. In many areas there is a "co-op"
arrangement whereby the exhibitors and distributors share in the cost of film
advertisements in newspapers. Film distributors will also typically pay for
radio and television spots to promote certain motion pictures and special
events. During the thirteen weeks ended April 1, 1999, the three months ended
March 31, 1998 and each of the years ended December 31, 1998, 1997, 1996, and
1995, United Artists' advertising expenditures were approximately 4.5%, 3.9%,
3.9%, 3.8%, 4.0% and 4.5%, respectively, of admissions revenue.
Prior to the opening of a new theatre, United Artists typically
initiates a marketing campaign that advertises and promotes the new theatre
for several weeks to several months prior to the new theatre's opening date.
When a theatre is performing below management's expectations, United Artists
may initiate a newspaper marketing campaign with the objective of increasing
attendance at the theatre.
COMPETITION
United Artists competes for the public's leisure time and disposable
income with all forms of entertainment including sporting events, concerts,
live theatre, and restaurants. United Artists also is subject to varying
degrees of competition from other theatre circuits and independent theatres,
some of which may have greater access to capital resources. The motion
picture exhibition industry is highly competitive, particularly with respect
to film licensing, attracting patrons and acquiring or leasing new theatre
sites. Some of United Artists' competitors may be better established in
certain areas where United Artists' theatres are located. Competition for
patrons occurs locally and depends upon factors such as: (i) which films a
particular theatre is showing; (ii) location of theatres; (iii) comfort and
quality of theatres; and (iv) ticket prices. Film patrons are not "brand"
conscious and generally choose a theatre because of film selection, location
and quality of the theatre.
Competition among theatre circuits for licensing popular films occurs
locally and is based on the prestige and location of an exhibitor's theatres,
quality of the theatres (especially projection and sound quality), seating
capacity, and the exhibitor's ability and willingness to promote the films.
United Artists believes that promoting good relations with film distribution
and production companies is important to consistently obtain the best mix of
available films.
Where real estate is readily available there are few barriers preventing
competitors from opening theatres near one of United Artists' theatres, which
may have a material adverse effect on United Artists' theatre. In addition,
"megaplexes" (theatres with 14 or more screens) have been built or are
planned to be built by competitors in certain areas in which United Artists
operates, which may result in excess capacity and adversely affect attendance
and pricing at existing theatres in these areas.
Alternative motion picture exhibition delivery systems, including cable
television, video cassettes, satellite and pay per view, also exhibit filmed
entertainment after its theatrical release. While the further expansion of
such delivery systems (such as video on demand) could have a material adverse
effect upon United Artists' business and results of operations, no such
adverse effect has yet been experienced.
Recent consolidation in the industry has included the merger of Sony
Corp.'s Loews Theatres Exhibit Group with Cineplex Odeon Corp. and the merger
of Act III Cinemas Inc., with Regal Cinemas Inc. Such consolidation could
increase the level of competition for the industry.
SATELLITE THEATRE NETWORK-TM-
In an effort to utilize its existing theatres more effectively during
periods of low attendance (such as mornings and weekdays), United Artists has
developed a business unit called 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 customer research and other entertainment uses. Theatre
auditoriums are rented
45
<PAGE>
individually or on a networked basis. To provide the "broadcasting" network
or "teleconferencing" equipment, a network of theatres has been created by
installing high quality (high definition-like) video projection equipment
within theatres that are networked via the combination of satellite delivery
from a single location or multiple locations and telephonic communication.
As of April 1, 1999, the Satellite Theatre Network-TM- included 31
theatres permanently equipped with electronic video capability and additional
282 theatres that were being rented for individual non-networked uses. All of
United Artists' theatres can be "networked" through the use of temporary
equipment. Because the Satellite Theatre Network-TM- utilizes existing
theatre facilities and its operations within the theatre are managed by
existing personnel, very little incremental capital or personnel expenditures
are required. Marketing and Sales of the Satellite Theatre Network-TM-
services is performed on a national basis by staff located in the corporate
headquarters in Englewood, Colorado. United Artists recorded $1.1 million,
$1.4 million, $5.5 million, $6.2 million, $6.0 million of revenue from the
Satellite Theatre Network-TM- for the thirteen weeks ended April 1, 1999, the
three months ended March 31, 1998 and the years ended December 31, 1998,
1997, and 1996, respectively.
TRADEMARKS AND TRADE NAMES
Pursuant to a Trademark Agreement, dated as of May 12, 1992, between
UATC and TCI, UATC's former parent corporation, and certain affiliates of
TCI, UATC was granted the right to use the names "United Artists" and "UA"
and derivatives thereof and other related intellectual property rights
(collectively, the "UA Marks") in connection with the motion picture theatre
business worldwide, except in the United Kingdom. TCI retained the right to
use the UA Marks in connection with any use in the United Kingdom and in
connection with any use other than the motion picture theatre business
worldwide, except in the United Kingdom. TCI is not an issuer or a guarantor
of, or otherwise obligated with respect to, the Notes. Neither UATC nor
United Artists owns any trademark registrations relating to any of the UA
Marks. UATC has used the name "United Artists" and derivatives thereof and
other related intellectual property rights since its formation in 1926.
United Artists Corporation and its affiliates ("MGM"), which is not
affiliated with United Artists, owns trademark registrations covering certain
uses of the "United Artists" name, including but not limited to the
production and distribution of motion pictures. In 1997, MGM and UATC entered
into two agreements regarding the use of the UA Marks. Pursuant to an
agreement relating to the United States, UATC has the exclusive right to use
"United Artists Theatres" in connection with the business of operating motion
picture theatres and the theatrical exhibition of motion pictures, and
operations which are directly incident thereto and ancillary therewith as
well as the business of presenting non-motion picture events, such as
meetings, seminars, training sessions and presentations, including such
programs and interactive events conducted simultaneously at more than one of
UATC's motion picture theatres which are linked together by communication
equipment. Pursuant to the same agreement, UATC has the non-exclusive right
to use "United Artists Theatres" in connection with the operation of
entertainment centers in the nature of interactive arcades located in the
same theatre, or in the same building or complex as a theatre in which UATC
is engaged in the exhibition of motion pictures. The agreement further
provides that MGM has the exclusive right to the name "United Artists" in
connection with all of its present and future activities, including the
business of creating, producing, distributing and exploiting motion pictures,
video tapes and other entertainment goods and services, and operations which
are directly incident thereto and ancillary therewith. MGM also has the right
to use and authorize others to use the "UNITED ARTISTS" mark in connection
with the exhibition of motion pictures in theatres located in theme parks.
This agreement is terminable upon 60 days notice by either party. The
international agreement is for an initial term of 10 years with eight
automatic ten-year renewals. During the initial term, UATC has an exclusive,
royalty-free license to use "United Artists Theatres" outside the United
States in connection with the exhibition of motion pictures in motion picture
theatres and operations which are directly incident thereto and ancillary
therewith, such as the sale of concessions and a non-exclusive, royalty-free
license during each of the renewal terms. During the initial term and each of
the renewal terms, UATC has a non-exclusive royalty-free license to use
"United Artists Theatres" outside the United States in connection with the
operation of entertainment centers in the nature of interactive arcades
located in the same theatre, or in the same building or complex as a theatre
in which UATC is engaged in the exhibition of motion pictures and the
presentation of non-motion picture programs and the interactive events at
UATC's motion picture theatres, such as meetings, seminars, training sessions
and presentations, including such programs and interactive events conducted
simultaneously at more than one of UATC's motion picture theatres which are
linked together by communication equipment.
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<PAGE>
GOVERNMENTAL REGULATIONS
The distribution of motion pictures is in large part regulated by
Federal and state anti-trust laws and has been the subject of numerous
anti-trust cases. The most significant of these cases is UNITED STATES V.
PARAMOUNT PICTURES CORPORATION, ET AL., which was affirmed by the United
States Supreme Court in 1950. Although United Artists was not a party in the
PARAMOUNT case, the consent decrees resulting from that litigation do have a
material impact on United Artists. Those consent decrees bind certain major
film distributors and require the films of such distributors to be offered
and licensed to exhibitors, including United Artists, on a theatre-by-theatre
basis. Consequently, United Artists cannot assure itself of a supply of films
by entering into long-term arrangements with major distributors, but must
compete for its licenses on a film-by-film and theatre-by-theatre basis.
The Americans 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 attorneys' fees and expenses under certain
circumstances. United Artists has established a program to review and
evaluate United Artists' theatres and to make any changes that may be
required by the ADA. In 1995, UATC settled the lawsuit styled CONNIE ARNOLD
ET AL. V. UATC, filed in 1991. This lawsuit involved allegations that certain
of United Artists' theaters lacked accessibility to persons with mobility
disabilities in violation of the ADA. In the settlement agreement, UATC, the
plaintiffs and the Department of Justice established standards of
modification which must be made to United Artists' theatres throughout the
United States to make them more accessible to persons with disabilities.
United Artists believes that the cost of complying with the ADA and the
settlement agreement in the CONNIE ARNOLD case will not have a material
adverse effect on United Artists' financial position or results of operations.
INSURANCE
United Artists' management believes that it maintains insurance coverage
in such amounts, with such deductibles and covering such risks as is
customary for companies engaged in similar businesses as United Artists.
EMPLOYEES
As of April 1, 1999, United Artists employed approximately 9,000
employees, of which approximately 1,200 were full time. Approximately 25.2%
of United Artists' employees (substantially all of whom are part-time
employees who work in the theatres) are paid based on the applicable state
and federal minimum wage regulations. Approximately 100 employees (primarily
consisting of film projectionists) are covered by collective bargaining
agreements. United Artists considers its relations with its employees to be
satisfactory.
LEGAL PROCEEDINGS
United Artists is involved in various pending and threatened legal
proceedings involving allegations concerning contract breaches, torts,
employment matters, environmental issues, antitrust violations, local tax
disputes and miscellaneous other matters. In addition, there are various
claims against United Artists relating to certain of the leases held by
United Artists. Although it is not possible to predict the outcome of these
proceedings, United Artists believes that such legal proceedings will not
have a material adverse effect on United Artists' financial position,
liquidity or results of operations.
47
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF UNITED ARTISTS
The following table sets forth certain information regarding the directors
and executive officers of United Artists:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kurt C. Hall............................. 40 President and Chief Executive Officer and Director
Neal Pinsker............................. 44 Executive Vice President of Theatre Operations
Gene Hardy............................... 48 Executive Vice President and General Counsel
Michael L. Pade.......................... 49 Director and Executive Vice President of Film
Operations
Jim Ruybal............................... 54 Executive Vice President of New Business
Development
Bruce M. Taffet.......................... 52 Executive Vice President of Business Development
Trent J. Carman.......................... 38 Chief Financial Officer
John W. Boyle............................ 70 Director and Chairman of the Board
James J. Burke, Jr. ..................... 47 Director
Albert J. Fitzgibbons, III............... 53 Director
Robert F. End............................ 43 Director
Scott M. Shaw............................ 37 Director
</TABLE>
KURT C. HALL was named President and Chief Executive Officer of United
Artists on March 6, 1998. Mr. Hall was Chief Operating Officer from February
24, 1997 until March 6, 1998 and Executive Vice President, Chief Financial
Officer and a director of United Artists since May 12, 1992. Mr. Hall is also
a director of Showscan Entertainment Inc.
NEAL PINSKER was promoted to Executive Vice President in charge of
theatre operations in January 1999. Mr. Pinsker was previously Vice President
of the western region operations, and has directed the east and central
regional operations of United Artists. He joined United Artists in 1970 and
has four decades of theatre experience.
GENE HARDY has been Executive Vice President and General Counsel of
United Artists since September 1994. From May 1992 to September 1994, Mr.
Hardy was Senior Vice President and General Counsel of United Artists.
MICHAEL L. PADE has been Executive Vice President of Film Operations of
United Artists since February 1997 and was appointed as a director on May 5,
1998. Mr. Pade joined United Artists in October 1994 as a Senior Vice
President of Film Operations. Prior to joining United Artists, Mr. Pade
worked for Mann Theatres as the Senior Vice President in charge of domestic
film booking.
JIM RUYBAL has been Executive Vice President of New Business Development
for United Artists since 1992. Mr. Ruybal's duties include supervision of
United Artists' Satellite Theatre Network-TM-.
BRUCE M. TAFFET has been Executive Vice President of Business
Development since January 1999. Mr. Taffet was Executive Vice President of
Purchasing, Marketing and National Concessions of United Artists from January
1995 until January 1999. Prior to January 1995, Mr. Taffet was the Senior
Vice President in charge of national concession operations of United Artists.
TRENT J. CARMAN was named Chief Financial Officer of United Artists on
March 6, 1998. Mr. Carman was Senior Vice President and Treasurer of United
Artists from September 1997 until March 6, 1998 and was Vice President of
Finance from June 1992 to September 1997. He was previously with KPMG Peat
Marwick for seven years.
JOHN W. BOYLE was named Chairman of the Board of United Artists on March
6, 1998. He has been a director of United Artists since March 5, 1997. Mr.
Boyle was Chief Financial Officer of Eckerd Corporation from 1983 to 1995 and
Vice Chairman from 1992 to 1995. Mr. Boyle is a director of Supermarkets
General Holdings Corp.
JAMES J. BURKE, JR. has been a director of United Artists since May 12,
1992. Mr. Burke is a Partner and Director of Stonington Partners, Inc., a
private investment firm, a position that he has held since 1993, and a
Partner and Director of Stonington Partners, Inc. II since 1994. He has also
been a member of the Board of Directors of Merrill Lynch Capital
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Partners, Inc. ("MLCP"), a private investment firm affiliated with Merrill
Lynch & Co., Inc. since 1985 and a Consultant to MLCP since 1994. He was the
Managing Partner of MLCP from 1993 to July 1994 and President and Chief
Executive Officer of MLCP from 1987 to 1994. Mr. Burke was also a Managing
Director of the Investment Banking Division of Merrill Lynch, Pierce, Fenner
& Smith Incorporated from 1985 to 1994. Mr. Burke is a Director of the
following companies with publicly registered debt and equity securities: Ann
Taylor Stores Corporation, Borg-Warner Security Corporation, Education
Management Corporation, Pathmark Stores, Inc., and Supermarkets General
Holdings Corporation.
ALBERT J. FITZGIBBONS, III has been a director of United Artists since
May 12, 1992. Mr. Fitzgibbons is a Partner and a Director of Stonington
Partners, Inc., a private investment firm, a position that he has held since
1993 and a Partner and a Director of Stonington Partners, Inc. II. He has
also been a Director of MLCP, since 1988 and a Consultant to MLCP since 1994.
He was a Partner of MLCP from 1993 to 1994 and Executive Vice President of
MLCP from 1988 to 1993. Mr. Fitzgibbons was also a Managing Director of the
Investment Banking Division of ML&Co. from 1978 to July 1994. Mr. Fitzgibbons
is a Director of the following companies with public debt or equity
securities: Borg-Warner Security Corporation, Dictaphone Corporation,
Merisel, Inc.
ROBERT F. END has been a director of United Artists since February 17,
1993. Mr. End is a Partner and a Director of Stonington Partners, Inc., a
private investment firm, a position that he has held since 1993 and is a
Partner and Director of Stonington Partners, Inc. II. He has also been a
Director of MLCP, since 1993 and a Consultant to MLCP since 1994. He was a
Partner of MLCP from 1993 to 1994 and Vice President of MLCP from 1989 to
1993. Mr. End was also a Managing Director of the Investment Banking Division
of Merrill Lynch, Pierce, Fenner & Smith Incorporated from 1993 to July 1994
and a Director of the Investment Banking Division of MLPF&S from 1990 to
1993. Mr. End is a Director of the following companies with publicly
registered debt or equity securities: Goss Graphic Systems, Inc. and Packard
BioScience Company.
SCOTT M. SHAW has been a director of United Artists since February 17,
1993. Mr. Shaw has been a Partner and Director of Stonington Partners, Inc.,
a private investment firm, since February 1999 and is a Partner and Director
of Stongington Partners, Inc. II. He has also been Vice President to MLCP,
since 1994, and was formerly an Associate of MLCP from 1991 to July, 1994 and
an Analyst of MLCP from 1986 to 1989. Mr. Shaw was also a Vice President of
the Investment Banking Division of ML&Co. from January to July 1994, an
Associate of the Investment Banking Division of ML&Co. from 1991 to 1994, and
an Analyst of the Investment Banking Division of ML&Co. from 1986 to 1989.
Mr. Shaw is a Director of the following companies with publicly traded debt
securities: Dictaphone Corporation and Goss Graphic Systems, Inc.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the Compensation Committee consisted of Messrs. Burke and
Fitzgibbons, neither of whom has ever been an officer or employee of United
Artists.
COMPENSATION OF DIRECTORS
Mr. Boyle received 25,000 performance options (with a $22.50 strike
price) and $120,000 for his services as a director during 1998 and 10,000
performance options ($12.00 strike price) and $20,000 for his services as a
director during 1997. No other directors of United Artists received any
compensation for their services as directors or committee members.
LIMITATION ON DIRECTORS' LIABILITY
United Artists' certificate of incorporation provides that no director
of United Artists shall be personally liable to United Artists or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
United Artists or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for any unlawful dividend payments or stock redemptions or repurchases
or (iv) for any transaction from which the director derived an improper
personal benefit. The effect of these provisions is to eliminate the rights
of United Artists and its stockholders (through stockholders' derivative
suits on behalf of United Artists) to recover monetary damages against a
director for breach of fiduciary duty as a director (including breaches
resulting from grossly negligent behavior), except in the situations
described above. In addition, United
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<PAGE>
Artists' employment agreements with certain of its executive officers, two of
which are also directors, provide for indemnification of such persons.
COMPENSATION OF CERTAIN EXECUTIVE OFFICERS
The following table sets forth the compensation paid by United Artists
to the Chief Executive Officer and the four next most highly compensated
executive officers who were officers of United Artists on December 31, 1998
(collectively, the "Named Executive Officers") for services rendered in all
capacities during fiscal 1998, 1997 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS/
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING OTHER ANNUAL ALL OTHER
NAME AND SALARY BONUS STOCK COMPENSATION COMPENSATION
PRINCIPAL POSITIONS YEAR ($)(1) ($)(2) OPTIONS (#) ($)(3) ($)(4)
------------------- ---- ------- ------ ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Kurt C. Hall(5) .............................. 1998 304,866 -- 50,000 3,960 4,800
Chief Operating Officer 1997 283,103 -- 80,000 2,877 4,684
1996 220,514 -- -- 920 22,182
Michael L. Pade .............................. 1998 258,998 7,500 20,000 3,795 --
Executive Vice President 1997 253,846 -- 12,000 6,083 41,079
1996 220,080 -- -- 5,426 --
Gene Hardy ................................... 1998 195,154 5,640 12,000 -- 4,800
Executive Vice President and General Counsel 1997 193,361 -- 12,000 -- 4,800
1996 188,136 -- -- 2,222 18,811
Jim Ruybal ................................... 1998 186,314 1,863 10,000 989 4,800
Executive Vice President 1997 193,481 -- 12,000 1,073 4,800
1996 186,300 -- -- -- 18,630
Dennis R. Daniels(5).......................... 1998 207,980 5,925 12,000 3,229 4,800
Executive Vice President 1997 205,130 -- 12,000 2,287 4,800
1996 195,473 -- -- 2,500 14,723
Thomas C. Elliot(6) .......................... 1998 218,462 -- -- 395 --
Executive Vice President 1997 215,029 -- -- 4,603 4,800
1996 204,244 -- 15,300 4,845 20,765
</TABLE>
(1) Represents annual salary, including compensation deferred by the Named
Executive Officer pursuant to the UATC 401(k) Savings Plan and the UATC
Supplemental 401(k) Savings Plan (prior to January 1, 1997).
(2) The executive officers were entitled to receive bonuses depending on United
Artists' achievement of certain performance criteria. Bonus amounts are
reflected in the year paid but relate to the performance of the previous
year.
(3) Other annual compensation consists primarily of reimbursement of membership
dues.
(4) Consists primarily of matching contributions to employee benefit plans
except for amounts attributable to Mr. Pade in 1997 which was related to a
forgiven loan.
(5) Effective January 6, 1999, Mr. Daniels no longer worked for United Artists.
(6) Mr. Elliot resigned from United Artists in 1998. Amounts received by Mr.
Elliot in 1998 are in connection with his severance arrangement with United
Artists.
<PAGE>
The following table sets forth all stock options granted to the Named
Executive Officers during 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
NAME OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------
---- GRANTED 1997 SHARE DATE 5% 10%
------- ---- ----- ---- -- ---
<S> <C> <C> <C> <C> <C>
Kurt C. Hall............................... 50,000 18.1% $22.50 2008 $707,506 $ 1,792,960
Michael L. Pade............................ 20,000 7.2 22.50 2008 283,003 717,184
Gene Hardy................................. 12,000 4.3 22.50 2008 169,802 430,310
Jim Ruybal................................. 10,000 3.6 22.50 2008 141,501 358,592
Dennis R. Daniels(1)....................... 12,000 4.3 22.50 2008 169,802 430,310
</TABLE>
(1) Effective January 1999, Mr. Daniels no longer worked for United Artists.
The following table sets forth the stock options held by the Named
Executive Officers as of December 31, 1998.
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
----------------- --------------------
NAME OPTION TYPE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Kurt C. Hall................................... Incentive 30,250 -- $378,125 --
Performance 75,000 82,500 525,000 $658,750
Premium -- 13,750 -- --
Michael L. Pade................................ Incentive 7,750 -- 90,752 --
Performance 17,500 21,250 78,750 126,292
Premium -- 3,375 -- --
Gene Hardy..................................... Incentive 7,750 -- 96,875 --
Performance 13,500 17,250 78,750 131,625
Premium -- 3,375 -- --
Jim Ruybal..................................... Incentive 13,850 -- 173,125 --
Performance 12,500 22,000 78,750 203,500
Premium -- 6,250 -- --
Dennis R. Daniels(2)........................... Incentive 10,000 -- 125,000 --
Performance 13,500 19,625 78,750 161,312
Premium -- 6,063 -- --
</TABLE>
- ----------
(1) As the Common Stock of United Artists is not publicly held, United Artists
has valued the unexercised stock options using the value attributable to
the stock options granted closest to, but not after, December 31, 1998
($22.50).
(2) Effective January 1999, Mr. Daniels no longer worked for United Artists.
LONG-TERM INCENTIVE AWARDS
No long-term incentive awards were granted to any Named Executive Officers
during 1998.
EMPLOYEE BENEFIT PLANS
United Artists established the United Artists Theatre Circuit, Inc.
401(k) Savings Plan (the "Savings Plan") which allows electing employees to
contribute up to 20.0% of their compensation, subject to certain Internal
Revenue Service (the "IRS") limitations. Depending on the amount of each
employee's level of contribution, the Savings Plan currently matches up to
4.0% of their compensation.
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<PAGE>
Effective January 1, 1993, United Artists established the United Artists
Theatre Circuit, Inc. Supplemental 401(k) Savings Plan (the "Supplemental
Plan") for certain employees who are highly compensated as defined by the IRS
and whose elective contributions to the Savings Plan exceed the IRS
limitations. Through December 31, 1996, such employees were allowed to
contribute to the Supplemental Plan, provided that the aggregate
contributions to the Savings Plan and Supplemental Plan did not exceed 10.0%
of their compensation. Effective January 1, 1997, United Artists suspended
the Supplemental Plan.
Matching contributions to the Savings Plan and the Supplemental Plan for
the Named Executive Officers have been included in the summary compensation
table.
During 1998, United Artists' board established a bonus plan for all
non-commissioned corporate employees that is based upon United Artists achieving
its operating budgets and other financial and operating goals and the employee
achieving certain specified goals.
STOCK OPTION PLAN
In 1997 United Artists established a stock option plan (the "Stock
Option Plan") under which all of the stock options granted during 1997 and
1998 are governed. The Stock Option Plan that permits the grant of: (i)
incentive stock options; (ii) performance stock options; and (iii) premium
stock options. The incentive stock options vest in equal amounts each year
through the fifth anniversary of the date of grant, while the performance and
premium stock Toptions vest based on certain calculations of United Artists'
value or the investment returns received by the Class A common stockholders
of United Artists. Upon the occurrence of certain extraordinary corporate
transactions, the incentive stock options and the premium stock options will
become immediately exercisable. Each vested incentive or performance stock
options may be exercised for one Class B share of Common Stock at an exercise
price equal to the estimated market value of the Class B Common Stock at the
date of grant. Each vested premium stock option may be exercised for one
Class B share of Common Stock at an exercise price that increases from $30.00
to $233.00. All options expire ten years after the date of grant. The Class A
Common Stock and the Class B Common Stock are identical except that the
shares of Class B Common Stock do not have any voting rights. The Class C
Common Stock vests over a four-year period and is identical to the Class B
Common Stock except for a $9.50 per share liquidation preference in favor of
the holders of the Class A and Class B common stockholders.
In July 1998, United Artists adopted a management stock plan (the
"Management Stock Plan") which permits the granting of stock options to
employees and directors of United Artists and certain of its subsidiaries.
Stock options granted under the Management Stock Plan vest according to the
terms and conditions of the applicable option agreement. Certain options
granted during 1998 under the Management Stock Plan vest 25% as of the date
of grant and 18.75% on each of the first and second anniversaries of the date
of grant, with vesting of an additional 18.75% shares on December 31, 1998
and 1999 if United Artists meets certain performance goals as established by
the Board of Directors from time to time; provided that in each case the
option grantee remains an employee of United Artists on such vesting date.
Other options vest in equal 25% shares on each of the first and second
anniversaries of the date of grant, with vesting of an additional 25% shares
on December 31, 1998 and 1999 conditioned on the same performance goals,
subject to the same employment condition in each case. Upon the occurrence of
a change of control of United Artists (as defined in the Management Stock
Plan), all options will become fully vested. Each vested option may be
exercised for one Class B share of Common Stock at an exercise price set
forth in the applicable option agreement. United Artists granted
approximately 128,000 options at an exercise price of $12.00 per share and
approximately 104,000 options at an exercise price of $22.50 per share to
certain Named Executive Officers under the Management Stock Plan at the time
of its adoption.
EMPLOYMENT AGREEMENTS
United Artists entered into employment agreements (each an "Employment
Agreement" and collectively, the "Employment Agreements") with each of Kurt C.
Hall, Edward C. Cooper, Gene Hardy, Robert A. McCormick, Michael L. Pade, Jim
Ruybal, Trent J. Carman, Charles Fogel and Darrell C. Taylor.
Under the Employment Agreements, the employee receives a base salary (as
defined in the Employment Agreements) and certain customary benefits, including
health and disability insurance, participation in employee benefit plans and
certain
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<PAGE>
perquisites. Each Employment Agreement provides that the employee will be
eligible to receive annual bonuses during the term of employment, as
determined by the Board of Directors.
In the event that Mr. Hall or Mr. Pade is terminated without cause, such
individual will be entitled to his base salary for two years and annual
bonuses for two years, in an amount based upon the average of the annual
bonuses awarded to him over the preceding two fiscal years.
In the event that Mr. McCormick, Mr. Cooper, Mr. Carman, Mr. Fogel or
Mr. Taylor is terminated without cause, such individual will be entitled to
his base salary for the remainder of the term of his employment agreement
following his termination but not less than 12 months and annual bonuses for
the remainder of the term of his employment agreement but not less than 12
months, in an amount based upon the average bonuses paid to him over the
preceding two fiscal years.
In the event that Mr. Ruybal, Mr. Hardy or Mr. Taffet is terminated
without cause, such individual will be entitled to his base salary for the
lesser of two years or the remainder of the term of his employment agreement
following termination, but not less than 12 months and annual bonuses for the
lesser of two years or the remainder of the term of his employment agreement
following termination, but not less than 12 months, in an amount based upon
the average bonuses paid to him over the preceding two fiscal years.
It is expected that the Employee Agreement will be amended and/or
extended prior to their expansion dates. The terms of the Employment
Agreements, as amended or extended, may be different from those currently in
place.
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<PAGE>
CERTAIN TRANSACTIONS
The descriptions set forth below do not purport to be complete and are
qualified in their entirety by reference to the applicable agreements.
STOCKHOLDERS AGREEMENT
In connection with the Acquisition, United Artists, the Merrill Lynch
Group, the Management Investors and Institutional Investors (as such terms
are defined therein) entered into a Stockholders Agreement, dated as of May
12, 1992 (the "Stockholders' Agreement"). The Stockholders' Agreement
provides, among other things, for certain (a) restrictions on transfers of
shares of Common Stock by the Management Investors and the Institutional
Investors prior to the tenth anniversary of the Acquisition, (b) "puts and
calls" with respect to shares of capital stock of United Artists owned by the
Management Investors upon termination of a Management Investors' employment,
(c) "tag-along and drag-along rights" in the event of certain sales of
capital stock of United Artists by any one or more of the members of the
Merrill Lynch Group, (d) registration rights, (e) rights for the Management
Investors to exchange all or any portion of their Class B Common Stock for an
equal number of shares of Class A Common Stock immediately prior to any
registration and sale of any such Class B Common Stock pursuant to the
incidental registration rights under the Stockholders' Agreement, (f)
preemptive rights in favor of the Institutional Investors and the Management
Investors who are "Accredited Investors" to acquire certain newly issued
equity securities of United Artists which are sold to the Merrill Lynch
Group, and (g) in the case of the Institutional Investors, rights relating to
access to information and the ability to sell their shares of Common Stock
after the fifth anniversary of the Acquisition, subject to compliance with a
right of first offer procedure.
The Stockholders' Agreement will terminate on May 12, 2002; except that the
provisions thereof relating to puts and calls, preemptive rights and certain of
the special provisions relating to the Institutional Investors will terminate
and be of no further force or effect upon the sale of any shares of Common Stock
pursuant to an effective registration statement (other than any registration
with respect to mergers, recapitalizations or other business combinations or
with respect to employee benefit plans) under the Securities Act.
The Merrill Lynch Group owns approximately 88.0% of the outstanding
voting stock of United Artists. Messrs. Burke, Fitzgibbons, End and Shaw
serve as representatives of the Merrill Lynch Group on the Board of Directors
of United Artists and also serve as directors of MLCP and the other companies
in which certain affiliates of the Merrill Lynch Group have equity
investments. Messrs. Burke, Fitzgibbons and End were serving as directors of
MLCP in July 1994. In this connection, each of Messrs. Burke, Fitzgibbons,
End and Shaw entered into a consulting agreement with MLCP which is effective
through December 31, 1999 and provides, among other things, for his continued
availability to serve on the Board of Directors of United Artists and the
respective boards of directors of such other companies for which he was
serving as a director in July 1994 until requested to resign by MLCP, and for
his compensation (directly or indirectly) by MLCP for serving in such
director capacities and for other consulting services. See "Risk
Factors--Controlling Stockholders" and "Management--Directors and Executive
Officers of United Artists."
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<PAGE>
PRINCIPAL STOCK OWNERSHIP
The following table sets forth certain information with respect to the
expected beneficial ownership of the Common Stock as of March 19, 1999 by:
(i) each person known by United Artists to own beneficially more than 5.0% of
the outstanding shares of the Common Stock; (ii) each executive officer and
director of United Artists; and (iii) all executive officers and directors of
United Artists as a group. Unless noted otherwise, the address for each
executive officer is in care of United Artists at 9110 E. Nichols Avenue,
Englewood, Colorado 80112-3405.
<TABLE>
<CAPTION>
NAME AND ADDRESS BENEFICIAL PERCENTAGE OF BENEFICIAL PERCENTAGE OF BENEFICIAL PERCENTAGE OF PERCENTAGE OF
INTEREST INTEREST UNITED ARTISTS INTEREST UNITED ARTIST INTEREST UNITED ARTISTS UNITED ARTISTS
BENEFICIAL OWNER CLASS A SHARES CLASS A SHARES CLASS B SHARES CLASS B SHARES CLASS C SHARES CLASS C SHARES SHARES
- ---------------- -------------- -------------- -------------- -------------- -------------- -------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
MLCP(1)(5)(7)......... 8,409,761 72.8% 0 - 0 - 70.5%
Merrill Lynch &
Co, Inc.(2)(5)...... 2,082,205 18.0% 0 - 0 - 17.5%
Institutional
Investors(8)........ 1,059,417 9.2% 0 - 0 - 8.9%
Kurt C. Hall(3)(6).... 0 - 116,750 31.9% 0 - 1.0%
Michael Pade(3)(6).... 0 - 25,825 7.1% 1,622 15.4% 0.2%
Gene Hardy(3)(6)...... 0 - 23,850 6.5% 0 - 0.2%
Jim Ruybal(3)(6)...... 0 - 33,350 9.1% 0 - 0.3%
James J.
Burke, Jr.(4)(7).... 0 - 0 - 0 - -
Albert J. Fitzgibbons,
III(4)(7)........... 0 - 0 - 0 - -
Robert F. End(4)(7)... 0 - 0 - 0 - -
Scott Shaw(4)......... 0 - 0 - 0 - -
John W. Boyle(9)...... 0 - 18,750 5.1% 0 - 0.2%
Directors and Executive
Officers as a group
(12 persons)(6)..... 0 - 265,575 72.6% 1,622 15.4% 2.2%
</TABLE>
- ------------------------------------------------------
(1) United Artists Theatre Company Class A Shares beneficially owned by
MLCP are held as follows: 5,049,958.2 by Merrill Lynch Capital
Appreciation Partnership No. B-XIX, L.P. ("MLCAP B-XIX"); 46,396.0 by
Merrill Lynch Capital Appreciation Partnership No. B-XX, L.P. ("MLCAP
B-XX"); 3,229,723.5 by Roman Nineteen Offshore Fund N..V. ("Roman
Holdings") and 83,683.3 by MLCP Associates L.P. No. 11. ("MLCP 11").
MLCP is the indirect managing general partner of MLCAP B-XIX and MLCAP
B-XX and the general partner of MLCP 11. Affiliates of MLCP are the
sole stockholders of Roman Holdings. The address of MLCP and each of
the aforementioned record holders is South Tower, World Financial
Center, New York, New York 10080.
(2) United Artists Theatre Company Class A Shares beneficially owned by
Merrill Lynch & Co., Inc. are owned of record as follows: 1,932,204.7
by ML IBK Positions, Inc.; 150,000.0 by Merrill Lynch KECALP L.P. 1991.
The address for ML IBK Positions, Inc. is North Tower, World Financial
Center, New York, New York 10281. The address of Merrill Lynch KECALP
L.P. 1991 is South Tower, World Financial Center, New York, New York
10080.
(3) The address for each of Messrs. Hall, Pade, Hardy, and Ruybal is 9110
East Nichols Avenue, Englewood, Colorado 80112.
(4) The address for each of Messrs. Burke, Fitzgibbons, End and Shaw is c/o
Stonington Partners, Inc., 767 Fifth Avenue, New York, New York 10153.
(5) Entities affiliated with Merrill Lynch & Co., Inc. own approximately
10,491,966 of the outstanding United Artists Theatre Company Shares,
which represents approximately 88.0% of the outstanding United Artists
Theatre Company shares.
(6) Includes vested incentive options and Class C shares that are
exercisable within 60 days.
(7) Each of Messrs. Burke, Fitzgibbons and End are members of the Board of
Directors of MLCP, but each disclaims beneficial ownership of the
United Artists Theatre Company shares.
(8) To the knowledge of United Artists, none of the Institutional Investors
beneficially owns 5% or more of the United Artists Theatre Company
Class A Shares.
(9) The address for Mr. Boyle is 7 North Pine Circle, Belleair, Florida
34616.
55
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITIES
The following description of certain of the material terms of the Senior
Credit Facilities is based upon the Senior Credit Agreement (the "Credit
Agreement") and does not purport to be complete and is qualified in its
entirety to the full text of the Credit Agreement which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
execution of the Senior Credit Facilities and the delivery of the required
documentation thereunder occurred at the time of the closing of the Note
Offering. All capitalized terms used in this section without definition shall
have the meanings assigned to them in the Credit Agreement.
FACILITIES
The Credit Agreement provides that, subject to the terms and conditions
thereof, the Senior Credit Facilities provide for a (i) $70.0 million delayed
draw term loan (the "Tranche A Term Loan"), (ii) $118.0 million delayed draw
term loan (the "Tranche B Term Loan"), (iii) $162.0 million delayed draw term
loan (the "Tranche C Term Loan"), and (iv) $100 million revolving credit
facility (the "Revolving Loans"). Borrowings under the Senior Credit
Facilities are hereinafter referred to as "Loans."
The Senior Credit Facilities provide that United Artists' ability to
borrow thereunder are subject among other things to the requirement that the
representations and warranties contained therein are true and correct in all
material respects on and as of such borrowing date and that no Default or
Event of Default shall exist or result from such borrowing. United Artists'
ability to draw the portions of the Tranche A Term Loan and Tranche C Term
Loan used to redeem the Senior Secured Notes, was subject among other things
to the pledge of the collateral contemplated by the Credit Agreement and the
Loan Documents, to the addition of UAR as a guarantor thereof and to the
absence of a Default or Event of Default thereunder or resulting from such
borrowing and such pledges and guarantees were effected in connection
therewith. Additionally, the Senior Credit Facilities will be secured by
mortgages on certain of United Artists' properties.
GUARANTEES AND COLLATERAL
The Senior Credit Facilities are guaranteed, on a joint and several
basis, by UATC and by certain of United Artists' other subsidiaries,
including UAR and Prop I. The Senior Credit Facilities are secured by among
other things the capital stock of UATC, UAR, Prop I, and certain other
subsidiaries of United Artists and UATC and by an intercompany note of UATC
to United Artists.
MATURITY, AMORTIZATION AND PREPAYMENT
The Revolving Loans and the Tranche A Term Loan have a final maturity
date of seven years from the Closing Date on April 21, 1998. The Tranche A
Term Loan is subject to mandatory amortization in installments aggregating 1%
of the principal amount thereof per annum in the first three years and is
fully amortizing in years four through seven. The maximum amount available in
respect of the Revolving Loans will reduce in years four through seven.
The Tranche B Term Loan has a maturity date of eight years from the
Closing Date (April 21, 1998) and the Tranche C Term Loan has a maturity date
of nine years from the Closing Date. The Tranche B Term Loan and the Tranche
C Term Loan are required to be amortized in installments aggregating 1% of
the principal amount thereof per annum until the final year, with the balance
payable during the final year.
The Credit Agreement provides that United Artists must prepay Loans (or
the Commitments must be reduced) from (i) varying amounts of the proceeds of
sales of assets (with certain exceptions for among other things, certain sale
and leaseback transactions), (ii) from a specified percentage (ranging from
50% to 100% based upon the then applicable Total Leverage Ratio) of the
proceeds of equity offerings (with certain permitted exceptions, including
for up to $50 million of proceeds used to redeem the Notes and the Other
Notes, (iii) 100% of the proceeds of additional debt issuances, with certain
56
<PAGE>
exceptions and (iv) from a specified percentage (ranging from 50% to 75%
based upon the then applicable Total Leverage Ratio) of Excess Cash Flow. If
a Default or Event of Default exists, all of such specified percentages will
be 100%.
INTEREST
At United Artists' option, with certain exceptions, the Loans may be
comprised of either Base Rate Borrowings or LIBOR Borrowings. Loans will bear
interest at LIBOR or the Reference Rate plus in each case an applicable
spread (the "Applicable Spread") determined from time to time by reference to
United Artists' Total Leverage Ratio.
COVENANTS; EVENTS OF DEFAULT; REPRESENTATIONS AND WARRANTIES
The Credit Agreement contains certain representations and warranties and
certain affirmative, negative and financial covenants. Affirmative covenants
include covenants with respect to, among other things, reporting and notices,
preservation of corporate existence, maintenance of properties, insurance,
payment of obligations, compliance with laws, environmental laws, ERISA, use
of proceeds and interest rate protection. Negative covenants include
covenants with respect to, among other things, limitations on indebtedness,
limitations on capital expenditures, liens and Negative Pledges, dispositions
of assets, consolidations and mergers, loans and investments, affiliate
transactions, conduct of business, compliance with ERISA, lease obligations,
capital stock and equity issuances, restricted payments, priority of loan
payments and amendments to certain other agreements.
The Senior Credit Facilities also contain certain financial covenants
including with respect to minimum operating cash flow, a maximum Total
Leverage Ratio and maximum Senior Leverage Ratio, a minimum ratio of
Operating Cash Flow plus Pro Forma Lease Expense to Pro Forma Debt Service
and a minimum ratio of Operating Cash Flow plus Consolidated Lease Expense to
Consolidated Interest Expense plus Consolidated Lease Expense. The Credit
Agreement requires the establishment of an interest rate protection program
(including interest rate protection and/or fixed debt) with respect to at
least 50% of the aggregate Funded Indebtedness, with certain exceptions.
The failure to satisfy any of the covenants constitutes an Event of
Default under the Credit Agreement. The Credit Agreement also includes other
events of default, including, without limitation, nonpayment,
misrepresentation, cross-default to other indebtedness and interest rate
contracts, including without limitation the Notes and the Other Notes,
material adverse change, bankruptcy, ERISA, judgments, collateral,
guarantees, involuntary closings and change of ownership or control.
57
<PAGE>
DESCRIPTION OF THE OTHER SUBORDINATED NOTES
The Fixed Rate Notes, with a principal amount of $225,000,000, rank PARI
PASSU with the Notes described within this prospectus. The terms and
conditions of the Fixed Rate Notes are substantially equivalent to the Notes
in all material respects except for the final maturity, interest rates
thereon, the interest payment dates and the redemption provisions. The Fixed
Rate Notes mature on April 15, 2008. The Fixed Rate Notes bear interest at a
rate of 9 3/4% per annum. Interest on the Fixed Rate Notes is payable
semi-annually on April 15 and October 15 of each year.
The Fixed Rate Notes are redeemable at the option of United Artists, in
whole or in part, on any Interest Payment Date on or after April 15, 2003 at
the redemption prices set forth in the Other Indenture, together with accrued
and unpaid interest, if any, to the date of redemption. In addition, at any
time on or prior to April 15, 2001, United Artists may redeem up to 35% of
the aggregate principal amount of the Fixed Rate Notes with the net proceeds
of one or more Public Equity Offerings (as defined in the Other Indenture),
at a redemption price equal to 109.75% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of redemption; PROVIDED that
at least $146.25 million aggregate principal amount of the Fixed Rate Notes
remains outstanding immediately after such redemption.
58
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes were issued under an Indenture, dated as of April 21, 1998,
between United Artists, as issuer, and State Street Bank and Trust Company of
Missouri, N.A. (the "Trustee"). The following summary of certain provisions
of the Indenture and the Notes does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of
the Indenture (which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part), including the definitions of
certain terms therein and those terms made a part thereof by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Whenever
particular defined terms of the Indenture not otherwise defined herein are
referred to, such defined terms are incorporated herein by reference. For
definitions of certain capitalized terms used in the following summary, see
"--Certain Definitions." For purposes of this section, references to United
Artists mean United Artists Theatre Company (formerly named Oscar I
Corporation), excluding its subsidiaries.
On April 21, 1998, United Artists issued $50.0 million aggregate
principal amount of Notes under the Indenture. On August 13, 1998 United
Artists offered Exchange Notes to replace those offered in April, 1998. The
terms were substantially identical to the Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of
the Notes for the Exchange Notes. The Notes were issued in fully registered
form, without coupons, in denominations of $1,000 of principal amount and any
integral multiple thereof.
As of April 21, 1998, all of United Artists' subsidiaries were
Restricted Subsidiaries. However, under certain circumstances, United Artists
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
Principal of, premium, if any, and interest on the Notes is payable at
the office or agency of United Artists in the Borough of Manhattan, the City
of New York (which initially is the corporate trust office of the Trustee at
61 Broadway, 15th Floor, Corporate Trust Window, New York, New York 10006);
PROVIDED that, at the option of United Artists, payment of interest may be
made by check mailed to the Holders at their addresses as they appear in the
Security Register. The Notes may be exchanged or transferred at the same
address.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on October 15, 2007 and will be unsecured senior
subordinated obligations of United Artists limited in aggregate principal
amount to $50,000,000. The Notes will bear interest from April 21, 1998 or
from the most recent Interest Payment Date to which interest has been paid at
the rate described below.
Interest on the Notes will accrue at a rate equal to the Applicable
LIBOR Rate and will be payable quarterly in arrears on January 15, April 15,
July 15 and October 15 of each year, or if any such day is not a Business
Day, on the next succeeding Business Day, commencing on October 15, 1998
(each an "Interest Payment Date") to holders of record on the immediately
preceding January 1, April 1, July 1 and October 1.
"Applicable LIBOR Rate" means for the Initial Quarterly Period and for
each Quarterly Period during which any Floating Rate Note is outstanding,
437.5 basis points over the "LIBOR Rate", which shall be the rate determined
by United Artists (notice of such rate to be sent to the Trustee by United
Artists on the date of determination thereof) equal to the average (rounded
upwards, if necessary, to the nearest 1/16 of 1%) of the offered rates for
deposits in U.S. dollars for a period of three months, as set forth on the
Reuters Screen LIBO Page as of 11:00 a.m., London time, on the applicable
Interest Rate Determination Date; PROVIDED, HOWEVER, that if only one such
offered rate appears on the Reuters Screen LIBO Page, the LIBOR Rate will
mean such offered rate. If such rate is not available at 11:00 a.m., London
time, on the applicable Interest Rate Determination Date, then the LIBOR Rate
will mean the arithmetic mean (rounded upwards, if necessary, to the nearest
1/16 of 1%) of the interest rates per annum at which deposits in amounts
equal to $1 million in U.S. dollars are offered by the Reference Banks to
leading banks in the London Interbank Market for a period of three months as
of 11:00 a.m., London time, on the applicable Interest Rate Determination
Date. If on any Interest Rate Determination Date, at least two of the
Reference Banks provide such offered quotations, then the LIBOR Rate will be
determined in accordance with the preceding sentence on the basis of the
offered quotations of those Reference Banks providing such quotations;
PROVIDED,
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HOWEVER, that if fewer than two of the Reference Banks are so quoting such
interest rates as mentioned above, (i) the Applicable LIBOR Rate shall be
deemed to be the Applicable LIBOR Rate for the next preceding Quarterly
Period, and (ii) if relevant, in the case of the Quarterly Period next
succeeding the Initial Quarterly Period, the Applicable LIBOR Rate shall be
the Applicable LIBOR Rate for the Initial Quarterly Period.
"Interest Rate Determination Date" means, with respect to the Initial
Quarterly Period, April 17, 1998, and with respect to each Quarterly Period,
the second Working Day prior to the first day of such Quarterly Period.
"Initial Quarterly Period" means the period from and including April 21,
1998 through and including July 14, 1998.
"Quarterly Period" means the period from and including a scheduled
Interest Payment Date through the day next preceding the following scheduled
Interest Payment Date.
"Reference Banks" means each of Bank of America--The Sequor Group, The
Morgan Guaranty Trust Company of New York and Citibank N.A., and any such
replacement bank thereof as listed on the Reuters Screen LIBO Page and their
respective successors, and if any of such banks are not at the applicable
time providing interest rates as contemplated within the definition of the
"Applicable LIBOR Rate," Reference Banks shall mean the remaining bank or
banks so providing such rates. In the event that fewer than two of such banks
are providing such rates, United Artists shall use reasonable efforts to
appoint additional Reference Banks so that there are at least two such banks
providing such rates; PROVIDED, HOWEVER, that such banks appointed by United
Artists shall be London offices of leading banks engaged in the Eurodollar
market (the market in which U.S. currency, which is deposited by corporations
and national governments in banks outside the United States, is used for
settling international transactions).
"Reuters Screen LIBO Page" means the display designated as page "LIBO"
on the Reuter Monitor Money Rates Service (or such other page as may replace
the LIBO page on that service for the purpose of displaying London Interbank
Offered Rates of leading banks).
"Working Day" means any day which is not a Saturday, Sunday or a day on
which banking institutions in New York, New York or London, England are
authorized or obligated by law or executive order to close.
The amount of interest for each day that the Notes are outstanding (the
"Daily Interest Amount") will be calculated by dividing the Applicable LIBOR
Rate for the Quarterly Period with respect to which such interest is to be
calculated by 360 and multiplying the result by the principal amount of the
Notes outstanding on such date. The amount of interest to be paid on the
Notes for each Quarterly Period will be calculated by adding the Daily
Interest Amounts for each day in the Quarterly Period.
OPTIONAL REDEMPTION
The Notes are redeemable, at United Artists' option, in whole or in
part, on any Interest Payment Date on or after April 15, 1999, upon not less
than 30 nor more than 60 days' prior notice mailed by first class mail to
each Holder's last address as it appears in the Security Register, at the
following Redemption Prices (expressed in percentages of principal amount),
plus accrued and unpaid interest, if any, to the Redemption Date (subject to
the right of Holders of record on the relevant Regular Record Date that is on
or prior to the Redemption Date to receive interest due on an Interest
Payment Date), if redeemed during the 12-month period commencing April 15 of
the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1999......................................... 103.000%
2000......................................... 102.000
2001......................................... 101.000
2002 and thereafter.......................... 100.000
</TABLE>
SELECTION AND NOTICE
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are
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<PAGE>
not listed on a national securities exchange, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate;
PROVIDED that no Note of $1,000 in principal amount or less shall be redeemed
in part. If any Note is to be redeemed in part only, the notice of redemption
relating to such Note shall state the portion of the principal amount thereof
to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the Redemption Date, the
Notes or portions thereof called for redemption shall cease to accrue
interest (unless United Artists defaults in the payment of such Notes at the
Redemption Price and accrued interest to the Redemption Date).
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
United Artists must commence, within 30 days of the occurrence of a
Change of Control, and consummate an Offer to Purchase for all Notes then
outstanding, at a purchase price equal to 101% of the principal amount
thereof, plus accrued interest (if any) to the Payment Date.
If an Offer to Purchase is made, there can be no assurance that United
Artists will have available funds sufficient to pay the purchase price for
all Notes delivered by Holders seeking to accept the Offer to Purchase. An
Offer to Purchase might constitute an event of default under the terms of
Senior Indebtedness, including the Credit Agreement. In addition, any
instruments governing Senior Indebtedness may prohibit United Artists from
purchasing any Notes prior to their maturity (including pursuant to an Offer
to Purchase). If on the Payment Date for an Offer to Purchase United Artists
does not have sufficient funds to pay the purchase price or is unable to
obtain the consent of the holders of such Senior Indebtedness or to repay
such Senior Indebtedness, an Event of Default would occur under the Notes. In
the event United Artists is required to purchase outstanding Notes pursuant
to an Offer to Purchase, United Artists expects that it would seek third
party financing to the extent it does not have available funds to meet its
obligations. However, there can be no assurance that United Artists would be
able to obtain such financing.
United Artists will not be required to make an Offer to Purchase
pursuant to this covenant if a third party makes an Offer to Purchase in
compliance with this covenant and repurchases all Notes validly tendered and
not withdrawn under such Offer to Purchase.
The United Artists will comply with any tender offer rules under the
Exchange Act, including Rule 14e-1, in connection with any Offer to Purchase.
To the extent that the provisions of any applicable securities laws or
regulations conflict with the provisions of the Indenture, United Artists
will comply with such securities laws and regulations and shall not be deemed
to have breached its obligations under the Indenture by virtue thereof.
RANKING AND SUBORDINATION
The Notes are senior subordinated Indebtedness of United Artists and
rank PARI PASSU with the Other Notes. The payment of the Senior Subordinated
Obligations is, to the extent set forth in the Indentures, subordinated in
right of payment to the prior payment in full, in cash or cash equivalents,
of all Senior Indebtedness. In addition, the Notes are effectively
subordinated to all existing and future liabilities (including the guarantees
of United Artists' obligations under the Credit Agreement and trade payables)
of the subsidiaries of United Artists. At June 1, 1999, United Artists and
its subsidiaries had approximately $717.8 million of indebtedness (excluding
trade payables) outstanding, consisting of $431.3 million of Senior
Indebtedness of United Artists (guaranteed by certain of United Artists'
subsidiaries), $11.5 million of other indebtedness of United Artists'
subsidiaries, $50.0 million representing the Floating Rate Notes and $225.0
million representing the Fixed Rate Notes. In addition, on June 1, 1999
United Artists had additional revolving credit availability of $12.9 million
under the Senior Credit Facilities, all of which would be Senior
Indebtedness, if borrowed. Additional Senior Indebtedness may be incurred by
United Artists and additional indebtedness may be incurred by United Artists
and its subsidiaries, in each case from time to time, subject to certain
restrictions. The Notes principal amount of $50.0 million rank PARI PASSU
with the Fixed Rate Notes (principal amount of $225.0 million). See
"Capitalization." Although the Indenture contains limitations on the amount
of additional Indebtedness that United Artists and its Restricted
Subsidiaries may incur, the amount of such Indebtedness could be substantial
and such Indebtedness could be Senior Indebtedness. See "Risk
Factors--Subordination of Notes" and "--Holding Company Structure; Source of
Repayment of Notes; Effective Subordination of Notes to Indebtedness of
Subsidiaries."
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Upon any payment or distribution of assets or securities of United
Artists of any kind or character, whether in cash, property or securities,
upon any dissolution or winding up or total or partial liquidation or
reorganization of United Artists, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or
to become due upon all Senior Indebtedness (including any interest accruing
on or after, or which would accrue but for, an event of bankruptcy, whether
or not such interest is an allowed claim enforceable against the debtor under
the United States Bankruptcy Code) shall first be paid in full, in cash or
cash equivalents, before the Holders of the Notes or the Trustee on behalf of
the Holders of the Notes shall be entitled to receive any payment by (or on
behalf of) United Artists on account of Senior Subordinated Obligations or
any payment to acquire any of the Notes for cash, property or securities
(other than any payment in the form of Junior Securities), or any
distribution with respect to the Notes of any cash, property or securities
(other than any payment in the form of Junior Securities). Before any payment
may be made by, or on behalf of, United Artists on any Senior Subordinated
Obligations, upon any such dissolution, winding up, liquidation or
reorganization, any payment or distribution of assets or securities of United
Artists of any kind or character, whether in cash, property or securities
(other than any payment in the form of Junior Securities), to which the
Holders of the Notes or the Trustee on behalf of the Holders of the Notes
would be entitled, but for the subordination provisions of the Indenture,
shall be made by United Artists or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person making such payment or
distribution or by the Holders of the Notes or the Trustee if received by
them or it, directly to the holders of the Senior Indebtedness (pro rata to
such holders on the basis of the respective amounts of Senior Indebtedness
held by such holders) or their representatives or to any trustee or trustees
under any indenture pursuant to which any such Senior Indebtedness may have
been issued, as their respective interests appear, to the extent necessary to
pay all such Senior Indebtedness in full, in cash or cash equivalents after
giving effect to any concurrent payment, distribution or provision therefor
to or for the holders of such Senior Indebtedness.
No direct or indirect payment (other than any payment in the form of
Junior Securities) by or on behalf of United Artists of Senior Subordinated
Obligations, whether pursuant to the terms of the Notes or upon acceleration
or otherwise, shall be made if, at the time of such payment, there exists a
default in the payment of all or any portion of the obligations under or with
respect to any Senior Indebtedness of United Artists and such default shall
not have been cured or waived or the benefits of this sentence waived by or
on behalf of the holders of such Senior Indebtedness. In addition, during the
continuance of any other event of default with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be
accelerated, upon receipt by the Trustee of written notice from the trustee
or other representative for the holders of such Designated Senior
Indebtedness (or the holders of at least a majority in principal amount of
such Designated Senior Indebtedness then outstanding), no payment of Senior
Subordinated Obligations may be made by or on behalf of United Artists upon
or in respect of the Notes for a period (a "Payment Blockage Period")
commencing on the date of receipt of such notice and ending 179 days
thereafter (unless, in each case, such Payment Blockage Period shall be
terminated by written notice to the Trustee from such trustee of, or other
representatives for, such holders or by payment in full in cash or cash
equivalents of such Designated Senior Indebtedness or such event of default
has been cured or waived). Not more than one Payment Blockage Period may be
commenced with respect to the Notes during any period of 360 consecutive
days. Notwithstanding anything in the Indenture to the contrary, there must
be 180 consecutive days in any 360-day period in which no Payment Blockage
Period is in effect. No event of default that existed or was continuing (it
being acknowledged that any subsequent action that would give rise to an
event of default pursuant to any provision under which an event of default
previously existed or was continuing shall constitute a new event of default
for this purpose) on the date of the commencement of any Payment Blockage
Period with respect to the Designated Senior Indebtedness initiating such
Payment Blockage Period shall be, or shall be made, the basis for the
commencement of a second Payment Blockage Period by the representative for,
or the holders of, such Designated Senior Indebtedness, whether or not within
a period of 360 consecutive days, unless such event of default shall have
been cured or waived for a period of not less than 90 consecutive days.
To the extent any payment of Senior Indebtedness (whether by or on
behalf of United Artists, as proceeds of security or enforcement of any right
of setoff or otherwise) is declared to be fraudulent or preferential, set
aside or required to be paid to any receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person under any bankruptcy,
insolvency, receivership, fraudulent conveyance or similar law, then if such
payment is recovered by, or paid over to, such receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person, the Senior
Indebtedness or part thereof originally intended to be satisfied shall be
deemed to be reinstated and outstanding as if such payment had not occurred.
To the extent the obligation to repay any Senior Indebtedness is declared to
be fraudulent, invalid, or otherwise set aside under any bankruptcy,
insolvency, receivership, fraudulent conveyance or similar law, then the
obligation so declared fraudulent, invalid or otherwise set aside (and all
other amounts that would come due with respect thereto had such obligation
not been
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so affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes hereof as if such declaration, invalidity or
setting aside had not occurred.
If United Artists fails to make any payment on the Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provision referred to above, such failure would constitute an Event
of Default under the Indenture and would enable the Holders to accelerate the
maturity thereof. See "--Events of Default."
By reason of the subordination provisions described above, in the event
of liquidation or insolvency, creditors of United Artists who are not holders
of Senior Indebtedness may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than Holders of the Notes.
The subordination provisions described above will cease to be applicable
to the Notes upon any defeasance of the Notes described under "--Defeasance."
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS
(a) United Artists will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and
Indebtedness existing on the Closing Date, including Acquired Indebtedness at
United Artists Realty Company and United Artists Properties I Corp.);
PROVIDED that United Artists may Incur Indebtedness, and any Restricted
Subsidiary may Incur Acquired Indebtedness, if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the
proceeds therefrom, (i) the Consolidated Leverage Ratio would be less than
6:1 and (ii) the Consolidated Fixed Charge Coverage Ratio for the four full
fiscal quarters immediately preceding the incurrence of such Indebtedness for
which internal financial statements are available, taken as one period (and
after giving PRO FORMA effect to (A) the incurrence of such Indebtedness and
(if applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred, and the
application of such proceeds occurred, on the first day of such four-quarter
period, (B) the incurrence, repayment or retirement of any other Indebtedness
by United Artists and its Restricted Subsidiaries since the first day of such
four-quarter period as if such Indebtedness was incurred, repaid or retired
on the first day of such four-quarter period (except that, in making such
computation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average daily balance of such Indebtedness
during such four-quarter period) and (C) the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any company, entity or business acquired or disposed of by
United Artists or its Restricted Subsidiaries, as the case may be, since the
first day of such four-quarter period, as if such acquisition or disposition
occurred on the first day of such four-quarter period), would have been at
least equal to 1.75 to 1.0.
Notwithstanding the foregoing, United Artists and any Restricted
Subsidiary (except as specified below) may Incur each and all of the
following: (i) Indebtedness under the Credit Agreement in an aggregate
principal amount outstanding at any time not to exceed $450 million, less any
amount of such Indebtedness permanently repaid as provided under the
"Limitation on Asset Sales" covenant described below and less any
Indebtedness Incurred in reliance on clause (ix) below; (ii) Indebtedness
owed (A) to United Artists or (B) to any Restricted Subsidiary; PROVIDED that
any event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness (other
than to United Artists or another Restricted Subsidiary) shall be deemed, in
each case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (ii); (iii) Indebtedness issued in exchange for, or the net
proceeds of which are used to refinance or refund, then outstanding
Indebtedness (other than the Prop I Mortgage Notes and Indebtedness Incurred
under clause (i), (ii), (iv), (vi) or (viii) of this paragraph) and any
refinancings thereof in an amount not to exceed the amount so refinanced or
refunded (plus premiums, prepayment penalties, accrued interest, fees and
expenses); PROVIDED that Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness that is PARI PASSU with, or
subordinated in right of payment to, the Notes shall only be permitted under
this clause (iii) if (A) in case the Notes are refinanced in part or the
Indebtedness to be refinanced is PARI PASSU with the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made
PARI PASSU with, or subordinate in right of payment to, the remaining Notes,
(B) in case the Indebtedness to be refinanced is subordinated in right of
payment to the Notes, such new Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such new Indebtedness is issued
or remains outstanding, is expressly made subordinate in right of payment to
the Notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the Notes and (C) such
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new Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and PROVIDED FURTHER that in no
event may Indebtedness of United Artists (other than Indebtedness in the form
of a Guarantee of Indebtedness of a Restricted Subsidiary permitted to be
incurred by such subsidiary, which Guarantee is released upon a subsequent
refinancing of such subsidiary's Indebtedness) be refinanced by means of any
Indebtedness of any Restricted Subsidiary pursuant to this clause (iii); (iv)
Indebtedness (A) in respect of performance, bid, surety or appeal bonds
provided in the ordinary course of business, (B) under Currency Agreements
and Interest Rate Agreements; provided that such agreements (a) are designed
solely to protect United Artists or its Restricted Subsidiaries against
fluctuations in foreign currency exchange rates or interest rates and (b) do
not increase the Indebtedness of the obligor outstanding at any time other
than as a result of fluctuations in foreign currency exchange rates or
interest rates or by reason of fees, indemnities and compensation payable
thereunder; and (C) arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from Guarantees or
letters of credit, surety bonds or bid or performance bonds securing any
obligations of United Artists or any of its Restricted Subsidiaries pursuant
to such agreements, in any case Incurred in connection with the disposition
of any business, assets or Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds actually
received by United Artists or any Restricted Subsidiary in connection with
such disposition; (v) Indebtedness of United Artists, to the extent the net
proceeds thereof are promptly (A) used to purchase Notes tendered in an Offer
to Purchase made as a result of a Change in Control or (B) deposited to
defease the Notes as described below under "Defeasance"; (vi) Guarantees of
the Notes and Guarantees of Indebtedness of United Artists by any Restricted
Subsidiary provided the Guarantee of such Indebtedness is permitted by and
made in accordance with the "Limitation on Issuance of Guarantees by
Restricted Subsidiaries" covenant described below; (vii) Indebtedness
represented by Capitalized Leases, mortgage financings or purchase money
obligations Incurred to finance all or any part of the purchase price or cost
of construction or improvement of property in an aggregate principal amount
outstanding at any time (together with any refinancings thereof) not to
exceed $25 million; (viii) Indebtedness (in addition to Indebtedness
permitted under clauses (i) through (vii) above and clause (ix) below) (A) of
United Artists in an aggregate principal amount outstanding at any time not
to exceed $50 million and (B) of United Artists or any Restricted
Subsidiaries in an aggregate principal amount outstanding at any time not to
exceed $15 million; and (ix) Indebtedness Incurred to extend, renew,
refinance or replace any Indebtedness in respect of the Prop I Mortgage Notes
(outstanding on the Closing Date and subsequently repaid on November 1, 1998)
or any Indebtedness Incurred to extend, renew, refinance or replace any such
Indebtedness so Incurred (including successive extensions, renewals,
refinancings and replacements thereof).
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that United
Artists or a Restricted Subsidiary may Incur pursuant to this "Limitation on
Indebtedness" covenant shall not be deemed to be exceeded, with respect to
any outstanding Indebtedness due solely to the result of fluctuations in the
exchange rates of currencies.
(c) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred
under the Credit Agreement on or prior to the Closing Date shall be treated
as Incurred pursuant to clause (i) of the second paragraph of this
"Limitation on Indebtedness" covenant, (2) Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included
in the determination of such particular amount shall not be included and (3)
any Liens granted pursuant to the equal and ratable provisions referred to in
the "Limitation on Liens" covenant shall not be treated as Indebtedness. For
purposes of determining compliance with this "Limitation on Indebtedness"
covenant, in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described in the above clauses
(other than Indebtedness referred to in clause (1) of the preceding
sentence), United Artists, in its sole discretion, shall classify (and from
time to time may reclassify) such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of such clauses.
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS
United Artists shall not Incur any Indebtedness that is subordinate in
right of payment to any Senior Indebtedness unless such Indebtedness is PARI
PASSU with, or subordinated in right of payment to, the Notes; provided that
the foregoing limitation shall not apply to distinctions between categories
of Senior Indebtedness of United Artists that exist by reason of any Liens or
Guarantees arising or created in respect of some but not all such Senior
Indebtedness.
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LIMITATION ON LIENS
United Artists shall not Incur any Indebtedness secured by a Lien ("Secured
Indebtedness") which is not Senior Indebtedness (or Indebtedness that would
constitute Senior Indebtedness except that it is without recourse to United
Artists) unless contemporaneously therewith effective provision is made to
secure the Notes equally and ratably with (or, if the Secured Indebtedness is
subordinated in right of payment to the Notes, prior to) such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
LIMITATION ON RESTRICTED PAYMENTS
United Artists will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Capital Stock
of Restricted Subsidiaries held by minority stockholders) held by Persons other
than United Artists or any of its Restricted Subsidiaries, (ii) purchase,
redeem, retire or otherwise acquire for value any shares of Capital Stock of (A)
United Artists or an Unrestricted Subsidiary (including options, warrants or
other rights to acquire such shares of Capital Stock) held by any Person (other
than with respect to the Capital Stock of an Unrestricted Subsidiary, Permitted
Investments) or (B) a Restricted Subsidiary (including options, warrants or
other rights to acquire such shares of Capital Stock) held by any Affiliate of
United Artists (other than a Wholly Owned Restricted Subsidiary or a Restricted
Subsidiary in which no Affiliate of United Artists (other than United Artists or
any Restricted Subsidiary) or holder of 5% or more of the aggregate value of the
Capital Stock of United Artists has an interest) or any holder (or any Affiliate
(other than a Wholly Owned Restricted Subsidiary or a Restricted Subsidiary in
which no Affiliate of United Artists (other than United Artists or any
Restricted Subsidiary) or holder of 5% or more of the aggregate value of the
Capital Stock of United Artists has an interest) of such holder) of 5% or more
of the aggregate value of the Capital Stock of United Artists, (iii) make any
voluntary or optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for value, of
Indebtedness of United Artists that is subordinated in right of payment to the
Notes or (iv) make any Investment, other than a Permitted Investment, in any
Person (such payments or any other actions described in clauses (i) through (iv)
above being collectively "Restricted Payments") if, at the time of, and after
giving effect to, the proposed Restricted Payment: (A) a Default or Event of
Default shall have occurred and be continuing, (B) United Artists could not
Incur at least $1.00 of Indebtedness under the first paragraph of the
"Limitation on Indebtedness" covenant or (C) the aggregate amount of all
Restricted Payments (the amount, if other than in cash, to be determined in good
faith by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) made after the Closing Date shall exceed the
sum of (1) Consolidated EBITDA accrued on a cumulative basis during the period
(taken as one accounting period) beginning on the first day of the fiscal
quarter immediately following the Closing Date and ending on the last day of the
last fiscal quarter preceding the Determination Date for which reports have been
filed with the Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant less two times Consolidated Interest
Expense for such period PLUS (2) the aggregate Net Cash Proceeds received by
United Artists after the Closing Date as a capital contribution or from the
issuance and sale of its Capital Stock (other than Disqualified Stock) to a
Person who is not a Subsidiary of United Artists, including an issuance or sale
permitted by the Indenture of Indebtedness of United Artists for cash subsequent
to the Closing Date upon the conversion or exchange of such Indebtedness into
Capital Stock (other than Disqualified Stock) of United Artists, or from the
issuance to a Person who is not a Subsidiary of United Artists of any options,
warrants or other rights to acquire Capital Stock of United Artists (in each
case, exclusive of any Disqualified Stock or any options, warrants or other
rights that are redeemable at the option of the holder, or are required to be
redeemed, prior to the Stated Maturity of the Notes) PLUS (3) an amount equal to
the net reduction in Investments (other than reductions in Permitted
Investments) in any Person resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of assets, in
each case to United Artists or any Restricted Subsidiary or from the Net Cash
Proceeds from the sale of any such Investment (except, in each case, to the
extent any such payment or proceeds are included in the calculation of
Consolidated EBITDA), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in each case, the amount of Investments
previously made by United Artists or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend or other distribution within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would comply
with the foregoing
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paragraph; (ii) the redemption, repurchase, defeasance or other acquisition
or retirement for value of Indebtedness that is subordinated in right of
payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (iii) of the second paragraph of part (a) of the "Limitation on
Indebtedness" covenant; (iii) the repurchase, redemption or other acquisition
of Capital Stock of United Artists or an Unrestricted Subsidiary (or options,
warrants or other rights to acquire such Capital Stock) in exchange for, or
out of the proceeds of a substantially concurrent offering of, shares of
Capital Stock (other than Disqualified Stock) of United Artists (or options,
warrants or other rights to acquire such Capital Stock); (iv) the making of
any principal payment or the repurchase, redemption, retirement, defeasance
or other acquisition for value of Indebtedness of United Artists which is
subordinated in right of payment to the Notes in exchange for, or out of the
proceeds of, a substantially concurrent offering of, shares of the Capital
Stock (other than Disqualified Stock) of United Artists (or options, warrants
or other rights to acquire such Capital Stock); (v) payments or
distributions, to dissenting stockholders pursuant to applicable law,
pursuant to or in connection with a consolidation, merger or transfer of
assets that complies with the provisions of the Indenture applicable to
mergers, consolidations and transfers of all or substantially all of the
property and assets of United Artists; (vi) Investments acquired as a capital
contribution to or in exchange for Capital Stock (other than Disqualified
Stock) of United Artists; (vii) the declaration or payment of dividends on
the Common Stock of United Artists following a Public Equity Offering, of up
to 6% per annum of the Net Cash Proceeds received by United Artists in such
Public Equity Offering; (viii) the purchase, redemption, retirement or other
acquisition for value of shares of Capital Stock of United Artists, options
to purchase such shares or Indebtedness of United Artists that is
subordinated in right of payments to the Notes issued in exchange for any of
the foregoing or issued in lieu of cash interest thereon (the "Junior
Notes"), held by directors, employees, or former directors or employees of
United Artists or any Restricted Subsidiary (or their estates or
beneficiaries under their estates), upon their death, disability, retirement,
termination of employment or pursuant to the terms of any agreement under
which such shares of Capital Stock, options or Junior Notes were issued;
PROVIDED that the aggregate consideration paid (other than in the form of
Junior Notes) for such purchase, redemption, retirement or other acquisition
for value of such shares of Capital Stock, options or Junior Notes after the
Closing Date does not exceed $2 million in any fiscal year, plus the
aggregate Net Cash Proceeds received by United Artists from the reissuance of
such shares during such fiscal year or $10 million in the aggregate, plus the
aggregate Net Cash Proceeds received by United Artists from the reissuance of
such shares (unless such repurchases are made with the proceeds of insurance
policies and the shares of Capital Stock are repurchased from the executors,
administrators, testamentary trustees, heirs, legatees or beneficiaries); or
(ix) the redemption of the Preferred Stock as a result of the Transactions
(conversion date of May 1, 1998); PROVIDED that, except in the case of
clauses (i), (iii) and (ix), no Default or Event of Default shall have
occurred and be continuing or occur as a consequence of the actions or
payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii), and (ix) thereof,
an exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (vi)
thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii), (iv) or (viii) shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments; provided that the payment of any dividend or other
distribution shall not be included in calculating whether the conditions of
clause (C) of the first paragraph of this "Limitation on Restricted Payments"
covenant have been met if the declaration of such dividend or other distribution
has been included in such calculation. In the event the proceeds of an issuance
of Capital Stock of United Artists are used for the redemption, repurchase or
other acquisition of the Notes, or Indebtedness that is PARI PASSU with the
Notes, then the Net Cash Proceeds of such issuance shall be included in clause
(C) of the first paragraph of this "Limitation on Restricted Payments" covenant
only to the extent such proceeds are not used for such redemption, repurchase or
other acquisition of Indebtedness.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
United Artists will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by
United Artists or any other Restricted Subsidiary, (ii) pay any Indebtedness
owed to United Artists or any other Restricted Subsidiary, (iii) make loans or
advances to United Artists or (iv) transfer any of its property or assets to
United Artists.
The foregoing provisions shall not restrict any encumbrances or restrictions:
(i) existing on the Closing Date in the Credit Agreement, the Indenture or any
other agreements in effect on the Closing Date, and any extensions,
refinancings, renewals
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or replacements of such agreements; PROVIDED that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements
are no less favorable in any material respect to the Holders than those
encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced; (ii) existing under or by reason
of applicable law; (iii) existing with respect to any Person or the property
or assets of such Person acquired by United Artists or any Restricted
Subsidiary, existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not applicable
to any Person or the property or assets of any Person other than such Person
or the property or assets of such Person so acquired and any extensions,
refinancings, renewals or replacements thereof; PROVIDED that the
encumbrances and restrictions in any such extensions, refinancings, renewals
or replacements are no less favorable in any material respect to the Holders
than those encumbrances or restrictions that are then in effect and that are
being extended, refinanced, renewed or replaced; (iv) in the case of clause
(iv) of the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict
in a customary manner the subletting, assignment or transfer of any property
or asset that is a lease, license, conveyance or contract or similar property
or asset, (B) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of United
Artists or any Restricted Subsidiary not otherwise prohibited by the
Indenture or (C) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of United Artists or
any Restricted Subsidiary in any manner material to United Artists and the
Restricted Subsidiaries, taken as a whole; (v) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the Capital Stock
of, or property and assets of, such Restricted Subsidiary; or (vi) contained
in the terms of any Indebtedness or any agreement pursuant to which such
Indebtedness was issued if (A) the encumbrance or restriction applies only in
the event of a payment default or a default with respect to a financial
covenant contained in such Indebtedness or agreement, (B) the encumbrance or
restriction is not materially more disadvantageous to the Holders of the
Notes than is customary in comparable financings (as determined by United
Artists) and (C) United Artists determines that any such encumbrance or
restriction will not materially affect United Artists' ability to make
principal or interest payments on the Notes. Nothing contained in this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent United Artists or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of United
Artists or any of its Restricted Subsidiaries that secure Indebtedness of
United Artists or any of its Restricted Subsidiaries.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
United Artists will not sell, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any shares of Capital
Stock of a Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) except (i) to United Artists or a Wholly
Owned Restricted Subsidiary; (ii) issuances of director's qualifying shares or
sales to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been permitted
to be made under the "Limitation on Restricted Payments" covenant if made on the
date of such issuance or sale; or (iv) sales of Common Stock of a Restricted
Subsidiary, PROVIDED that United Artists or such Restricted Subsidiary applies
the Net Cash Proceeds, if any, from any such sale under this clause (iv) in
accordance with clause (A) or (B) of the "Limitation on Asset Sales" covenant
described below.
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
United Artists will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of United Artists which is PARI PASSU
with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the Notes by such Restricted Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against United Artists or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee until such time as the Notes have been paid in
full; provided that this paragraph shall not be applicable to any Guarantee of
any Restricted Subsidiary that existed at the time such Person became a
Restricted Subsidiary and was not Incurred in connection with, or in
contemplation of, such
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Person becoming a Restricted Subsidiary. If the Guaranteed Indebtedness is
(A) PARI PASSU with the Notes, then the Guarantee of such Guaranteed
Indebtedness shall be PARI PASSU with, or subordinated to, the Subsidiary
Guarantee or (B) subordinated to the Notes, then the Guarantee of such
Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee at
least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of United Artists, of all of United
Artists' and each Restricted Subsidiary's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release
or discharge of the Guarantee which resulted in the creation of such
Subsidiary Guarantee, except a discharge or release by or as a result of
payment under such Guarantee.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
United Artists will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of the aggregate value of the Capital
Stock of United Artists or with any Affiliate of United Artists or any
Restricted Subsidiary, except upon fair and reasonable terms no less
favorable to United Artists or such Restricted Subsidiary than could be
obtained, at the time of such transaction or, if such transaction is pursuant
to a written agreement, at the time of the execution of the agreement
providing therefor, in a comparable arm's-length transaction with a Person
that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which United Artists or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized
investment banking firm stating that the transaction is fair to United
Artists or such Restricted Subsidiary from a financial point of view; (ii)
any transaction solely between United Artists and any of its Wholly Owned
Restricted Subsidiaries or solely between Wholly Owned Restricted
Subsidiaries; (iii) the payment of reasonable and customary regular fees to
directors of United Artists who are not employees of United Artists; (iv) any
payments or other transactions pursuant to any tax-sharing agreement between
United Artists and any other Person with which United Artists files a
consolidated tax return or with which United Artists is part of a
consolidated group for tax purposes; (v) the payment of fees to Merrill Lynch
or any of its Affiliates for consulting, investment banking or financial
advisory services rendered by such Person to United Artists or any of its
Subsidiaries; (vi) loans or advances to officers and employees of United
Artists and its Restricted Subsidiaries made in the ordinary course of
business; PROVIDED that the aggregate amount of such loans or advances
outstanding at any time shall not exceed $1 million; (vii) any Restricted
Payments not prohibited by the "Limitation on Restricted Payments" covenant
or (viii) transactions pursuant to agreements in effect on the Closing Date
that are referred to herein or in United Artists' filings with the
Commission. Notwithstanding the foregoing, any transaction or series of
related transactions covered by the first paragraph of this "Limitation on
Transactions with Shareholders and Affiliates" covenant and not covered by
clauses (ii) through (viii) of this paragraph, the aggregate amount of which
exceeds $5 million in value, must be approved or determined to be fair in the
manner provided for in clause (i)(A) or (B) above.
LIMITATION ON ASSET SALES
United Artists will not, and will not permit any Restricted Subsidiary
to, consummate any Asset Sale, unless (i) the consideration received by
United Artists or such Restricted Subsidiary is at least equal to the fair
market value of the assets sold or disposed of and (ii) at least 75% of the
consideration received consists of cash or Temporary Cash Investments or the
assumption of Indebtedness of United Artists or any Restricted Subsidiary,
provided that United Artists or such Subsidiary is irrevocably released from
all liability under such Indebtedness. If United Artists or any Restricted
Subsidiary engages in an Asset Sale, United Artists may use the Net Cash
Proceeds thereof to (i) within twelve months after the date of such Asset
Sale (A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay Senior Indebtedness of United Artists or any Restricted
Subsidiary, in each case owing to a Person other than United Artists or any
of its Restricted Subsidiaries or (B) invest an equal amount, or the amount
not so applied pursuant to clause (A) (or enter into a definitive agreement
committing to so invest within 12 months after the date of such agreement),
in property or assets (other than current assets) of a nature or
type or that are used in a business (or in a company having property and
assets of a nature or
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type, or engaged in a business) similar or related to the nature or type of
the property and assets of, or the business of, United Artists and its
Restricted Subsidiaries existing on the date of such investment and (ii)
apply (no later than the end of the 12-month period referred to in clause
(i)) such excess Net Cash Proceeds (to the extent not applied pursuant to
clause (i)) as provided in the following paragraph of this "Limitation on
Asset Sales" covenant. The amount of such Net Cash Proceeds required to be
applied (or to be committed to be applied) during such 12-month period as set
forth in clause (i) of the preceding sentence and not applied as so required
by the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this "Limitation on Asset Sales" covenant totals at least $10 million, United
Artists must commence, not later than the fifteenth Business Day of such
month, and consummate an Offer to Purchase from the Holders of the Notes and
the Fixed Rate Notes (and if required by the terms of any Indebtedness that
is pari passu with the Notes ("Pari Passu Indebtedness"), from the holders of
such Pari Passu Indebtedness) on a pro rata basis an aggregate principal
amount of Notes, Fixed Rate Notes and Pari Passu Indebtedness equal to the
Excess Proceeds on such date, at a purchase price equal to 100% of the
principal amount thereof, plus, in each case, accrued interest (if any) to
the Payment Date. Upon consummation of an Offer to Purchase, any Excess
Proceeds subject to such Offer to Purchase remaining after all Notes, Fixed
Rate Notes and Pari Passu Indebtedness validly tendered and not withdrawn are
purchased by United Artists shall no longer constitute "Excess Proceeds" and
may be used for general corporate purposes.
United Artists will comply with any tender offer rules under the
Exchange Act, including Rule 14e-1, in connection with any Offer to Purchase
subject to the provisions of this "Limitation on Asset Sales" covenant. To
the extent that the provisions of any applicable securities laws or
regulations conflict with the provisions of the Indenture, United Artists
will comply with such securities laws and regulations and shall not be deemed
to have breached its obligations under the Indenture by virtue thereof.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not United Artists is then required to file reports with the
Commission, United Artists shall file with the Commission all such reports
and other information as it would be required to file with the Commission by
Section 13(a) or 15(d) under the Exchange Act if it were subject thereto
(unless the Commission will not accept such a filing, in which case United
Artists shall provide such documents to the Trustee). United Artists shall
supply the Trustee and each Holder or shall supply to the Trustee for
forwarding to each such Holder, without cost to such Holder, copies of such
reports and other information; PROVIDED, HOWEVER, that copies of such reports
may omit exhibits, which United Artists shall deliver at its cost to any
Holder upon request. In addition, United Artists shall, at its cost, deliver
to each Holder of the Notes quarterly and annual reports substantially
equivalent to those which would be required by the Exchange Act; PROVIDED,
HOWEVER, that copies of such reports may omit exhibits, which United Artists
shall supply at its cost to any Holder upon request. In addition, at all
times prior to the Registration, upon the request of any Holder or any
prospective purchaser of the Notes designated by a Holder, United Artists
shall supply to such Holder or such prospective purchaser the information
required under Rule 144A under the Securities Act.
EVENTS OF DEFAULT
The following events are defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any,
on) any Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise, whether or not such payment is
prohibited by the provisions described above under "--Ranking and
Subordination"; (b) default in the payment of interest on any Note when the
same becomes due and payable, and such default continues for a period of 30
days, whether or not such payment is prohibited by the provisions described
above under "--Ranking and Subordination"; (c) default in the performance or
breach of the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the assets of
United Artists or the failure to make or consummate an Offer to Purchase in
accordance with the "Limitation on Asset Sales" or "Repurchase of Notes upon
a Change of Control" covenant; (d) United Artists defaults in the performance
of or breaches any other covenant or agreement of United Artists in the
Indenture or under the Notes (other than a default specified in clause (a),
(b) or (c) above) and such default or breach continues for a period of 60
consecutive days after written notice by the Trustee or the Holders of 25% or
more in aggregate principal amount of the Notes; (e) there occurs with
respect to any issue or issues of Indebtedness of United Artists or any
Significant Subsidiary having an outstanding principal amount of $10 million
or more in the aggregate
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for all such issues of all such Persons, whether such Indebtedness now exists
or shall hereafter be created, (I) an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not
have been made, waived or extended within 30 days of such payment default;
(f) any final judgment or order (to the extent not covered by insurance) for
the payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against
United Artists or any Significant Subsidiary and shall not be paid,
discharged or vacated, and there shall be any period of 30 consecutive days
following entry of the final judgment or order that causes the aggregate
amount for all such final judgments or orders outstanding and not paid or
discharged against all such Persons to exceed $10 million during which a stay
of enforcement of such final judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect; (g) a court having jurisdiction in the
premises enters a decree or order for (A) relief in respect of United Artists
or any Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of United Artists or any Significant
Subsidiary or for all or substantially all of the property and assets of
United Artists or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of United Artists or any Significant Subsidiary
and, in each case, such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; and (h) United Artists or any
Significant Subsidiary (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of United Artists or any Significant Subsidiary or for all or
substantially all of the property and assets of United Artists or any
Significant Subsidiary or (C) effects any general assignment for the benefit
of creditors.
If an Event of Default (other than an Event of Default specified in
clause (g) or (h) above that occurs with respect to United Artists) occurs
and is continuing under the Indenture, the Trustee or the Holders of at least
25% in aggregate principal amount of the Notes, then outstanding, by written
notice to United Artists (and to the Trustee if such notice is given by the
Holders), may, and the Trustee at the request of such Holders shall, declare
the principal of, premium, if any, and accrued interest on the Notes to be
immediately due and payable. Upon a declaration of acceleration (an
"Acceleration Notice"), such principal of, premium, if any, and accrued
interest shall be immediately due and payable; PROVIDED, HOWEVER, that if
there are any amounts outstanding under the Credit Agreement, such
declaration shall not become effective until the earlier of (i) an
acceleration of the Indebtedness under the Credit Agreement and (ii) 5
Business Days after receipt by United Artists and the Bank Agent of such
Acceleration Notice. In the event of a declaration of acceleration because an
Event of Default set forth in clause (e) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default
pursuant to clause (e) shall be remedied or cured by United Artists or the
relevant Significant Subsidiary or waived by the holders of the relevant
Indebtedness within 60 days after the declaration of acceleration with
respect thereto. If an Event of Default specified in clause (g) or (h) above
occurs with respect to United Artists, the principal of, premium, if any, and
accrued interest on the Notes then outstanding shall IPSO FACTO become and be
immediately due and payable without any declaration or other act on the part
of the Trustee or any Holder. The Holders of at least a majority in aggregate
principal amount of the outstanding Notes by written notice to United Artists
and to the Trustee, may waive all past defaults and rescind and annul a
declaration of acceleration and its consequences if (i) all existing Events
of Default, other than the nonpayment of the principal of, premium, if any,
and interest on the Notes that have become due solely by such declaration of
acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction.
For information as to the waiver of defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
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indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of an Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in
the Notes, which right shall not be impaired or affected without the consent
of the Holder.
The Indenture requires certain officers of United Artists to certify, on or
before a date not more than 120 days after the end of each fiscal year, that
a review has been conducted of the activities of United Artists and its
Restricted Subsidiaries and United Artists' and its Restricted Subsidiaries'
performance under the Indenture and that United Artists has fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof. United Artists will also be obligated to notify the Trustee of any
default or defaults in the performance of any covenants or agreements under
the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
United Artists will not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of
its property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into United Artists unless: (i) United Artists shall
be the continuing Person, or the Person (if other than United Artists) formed
by such consolidation or into which United Artists is merged or that acquired
or leased such property and assets of United Artists shall be a corporation
organized and validly existing under the laws of the United States of America
or any jurisdiction thereof and shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, all of the obligations of
United Artists on all of the Notes and under the Indenture; (ii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; (iii) immediately after giving effect to
such transaction on a pro forma basis United Artists, or any Person becoming
the successor obligor of the Notes, as the case may be, could Incur at least
$1.00 of Indebtedness under clause (i) of the first paragraph of the
"Limitation on Indebtedness" covenant; and (iv) United Artists delivers to
the Trustee an Officers' Certificate (attaching the arithmetic computations
to demonstrate compliance with clause (iii)) and Opinion of Counsel, in each
case stating that such consolidation, merger or transfer and such
supplemental indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with; PROVIDED, HOWEVER, that clause (iii) above does not apply if, in the
good faith determination of the Board of Directors of United Artists, whose
determination shall be evidenced by a Board Resolution, the principal purpose
of such transaction is to change the state of incorporation of United Artists
and any such transaction shall not have as one of its purposes the evasion of
the foregoing limitations.
DEFEASANCE
DEFEASANCE AND DISCHARGE. The Indenture provides that United Artists
will be deemed to have paid and will be discharged from any and all
obligations in respect of the Notes on the 123rd day after the deposit
referred to below, and the provisions of the Indenture will no longer be in
effect with respect to the Notes (except for, among other matters, certain
obligations to register the transfer or exchange of the Notes, to replace
stolen, lost or mutilated Notes, to maintain paying agencies and to hold
monies for payment in trust) if, among other things, (A) United Artists has
deposited with the Trustee, in trust, money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on
the Notes on the Stated Maturity of such payments in accordance with the
terms of the Indenture and the Notes, (B) United Artists has delivered to the
Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will
not recognize income, gain or loss for federal income tax purposes as a
result of United Artists' exercise of its option under this "Defeasance"
provision and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred, which Opinion of Counsel
must be based upon (and accompanied by a copy of) a ruling of the Internal
Revenue Service to the same effect unless there has been a change in
applicable federal income tax law after the Closing Date such that a ruling
is no longer required or (y) a ruling directed to the Trustee received from
the Internal Revenue Service to the same effect as the aforementioned Opinion
of Counsel and (ii) an Opinion of Counsel to the effect that the creation of
the defeasance trust does not violate the Investment Company Act of 1940 and
after the passage of 123 days following the deposit (except with respect to
holders who may be deemed to be insiders), the trust fund will not be subject
to the effect of Section 547 of the
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United States Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law, (C) immediately after giving effect to such deposit on a pro
forma basis, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending on
the 123rd day after the date of such deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, any other
agreement or instrument to which United Artists or any of its Subsidiaries is
a party or by which United Artists or any of its Subsidiaries is bound, (D)
United Artists is not prohibited from making payments in respect of the Notes
by the provisions described under "--Ranking and Subordination" and (E) if at
such time the Notes are listed on a national securities exchange, United
Artists has delivered to the Trustee an Opinion of Counsel to the effect that
the Notes will not be delisted as a result of such deposit, defeasance and
discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clause (iii) under "Consolidation, Merger and Sale
of Assets" and all the covenants described herein under "Repurchase of Notes
Upon a Change of Control" and "Certain Covenants," clause (c) under "Events of
Default," clause (d) under "Events of Default" with respect to such other
covenants and clauses (e) and (f) under "Events of Default" shall be deemed not
to be Events of Default upon, among other things, the deposit with the Trustee,
in trust, of money and/or U.S. Government Obligations that through the payment
of interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the Notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the Notes, the satisfaction of
the provisions described in clauses (B)(ii), (C) (without any requirement
relating to the 123-day period), and (E) of the preceding paragraph and the
delivery by United Artists to the Trustee of an Opinion of Counsel to the effect
that, among other things, the Holders will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and defeasance of
certain covenants and Events of Default and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT. In the event United Artists
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default.
However, United Artists will remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by United
Artists and the Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount of the outstanding Notes; provided,
however, that no such modification or amendment may, without the consent of
each Holder affected thereby, (i) change the Stated Maturity of the principal
of, or any installment of interest on, any Note, or alter the optional
redemption or repurchase provisions of any such Note or the Indenture in a
manner adverse to the Holders, (ii) reduce the principal amount of, or
premium, if any, or interest on, any Note, (iii) change the place or currency
of payment of principal of, or premium, if any, or interest on, any Note,
(iv) impair the right to institute suit for the enforcement of any payment on
or after the Stated Maturity (or, in the case of a redemption, on or after
the Redemption Date) of any Note, (v) reduce the above-stated percentage of
outstanding Notes the consent of whose Holders is necessary to modify or
amend the Indenture, (vi) waive a default in the payment of principal of,
premium, if any, or interest on the Notes, (vii) modify the subordination
provisions in a manner adverse to the Holders, (viii) amend, change or modify
the obligation of United Artists to make and consummate an Excess Proceeds
Offer with respect to any Asset Sale in accordance with the "Limitation on
Sale of Assets" covenant or the obligation of United Artists to make and
consummate a Change of Control Offer in the event of a Change of Control in
accordance with the "Purchase of Notes Upon a Change in Control" covenant,
including, in each case, amending, changing or modifying any definition
relating thereto in any manner materially adverse to the holders of the Notes
affected thereby; or (ix) reduce the percentage or aggregate principal amount
of outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
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NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of United Artists in the Indenture, or in
any of the Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer,
director, employee or controlling person of United Artists or of any
successor Person thereof or of any subsidiary guarantor or of any successor
person as such. Each Holder, by accepting the Notes, waives and releases all
such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as
are specifically set forth in such Indenture. If a Default has occurred and
is continuing, the Trustee will use the same degree of care and skill in its
exercise of the rights and powers vested in it under the Indenture as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of United Artists, to obtain payment of claims in certain
cases or to realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to engage in other
transactions; PROVIDED, HOWEVER, that if it acquires any conflicting
interest, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other
capitalized term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection
with an Asset Acquisition by a Restricted Subsidiary and not Incurred in
connection with, or in anticipation of, such Person becoming a Restricted
Subsidiary or such Asset Acquisition; PROVIDED that Indebtedness of such
Person which is redeemed, defeased, retired or otherwise repaid at the time
of or immediately upon consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such Asset Acquisition shall not be
Acquired Indebtedness.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by United Artists or any of
its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or consolidated
with United Artists or any of its Restricted Subsidiaries; PROVIDED that such
Person's primary business is related, ancillary or complementary to the
businesses of United Artists and its Restricted Subsidiaries on the date of
such investment or (ii) an acquisition by United Artists or any of its
Restricted Subsidiaries of the property and assets of any Person other than
United Artists or any of its Restricted Subsidiaries that constitute
substantially all of a division or line of business of such Person; PROVIDED
that the property and assets acquired are related, ancillary or complementary
to the businesses of United Artists and its Restricted Subsidiaries on the
date of such acquisition.
"Asset Disposition" means the sale or other disposition by United
Artists or any of its Restricted Subsidiaries (other than to United Artists
or another Restricted Subsidiary) of (i) all or substantially all of the
Capital Stock of any Restricted Subsidiary or (ii) all or substantially all
of the assets that constitute a division or line of business of United
Artists or any of its Restricted Subsidiaries.
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"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by United Artists or any of
its Restricted Subsidiaries to any Person other than United Artists or any of
its Restricted Subsidiaries of (i) all or any of the Capital Stock of any
Restricted Subsidiary, (ii) all or substantially all of the property and
assets of an operating unit or business of United Artists or any of its
Restricted Subsidiaries or (iii) any other property and assets (other than
the Capital Stock or other Investment in an Unrestricted Subsidiary) of
United Artists or any of its Restricted Subsidiaries outside the ordinary
course of business of United Artists or such Restricted Subsidiary and, in
each case, that is not governed by the provisions of the Indenture applicable
to mergers, consolidations and sales of assets of United Artists; provided
that "Asset Sale" shall not include (a) sales or other dispositions of
inventory, receivables and other current assets, (b) sales, transfers or
other dispositions of assets constituting a Restricted Payment permitted to
be made under the "Limitation on Restricted Payments" covenant, (c) sales,
transfers or other dispositions of assets with a fair market value not in
excess of $500,000 in any transaction or series of related transactions, (d)
sales, transfers or other dispositions of theatres which are determined in
good faith by the Board of Directors to be nonstrategic and underperforming
("Underperforming Theatres") for consideration at least equal to the fair
market value of the Underperforming Theatre disposed of, (e) sales, transfers
or other dispositions of Temporary Cash Investments in the ordinary course of
business for consideration at least equal to the fair market value of the
Temporary Cash Investments disposed of or (f) sales or other dispositions of
assets for consideration at least equal to the fair market value of the
assets sold or disposed of, to the extent that the consideration received
would satisfy clause (B) of the "Limitation on Asset Sales" covenant.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products
of (a) the number of years from such date of determination to the dates of
each successive scheduled principal payment of such debt security and (b) the
amount of such principal payment by (ii) the sum of all such principal
payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of
the rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) other than the
Permitted Holders becomes the ultimate "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such Person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), of more than a majority of the total voting power
of the Voting Stock of United Artists on a fully diluted basis; (ii) United
Artists consolidates with, or merges with or into, another Person or conveys,
transfers, leases or otherwise disposes of all or substantially all of its
assets to any Person, or any Person consolidates with, or merges with or
into, United Artists, in any such event pursuant to a transaction in which
the outstanding Voting Stock of United Artists is converted into or exchanged
for cash, securities or other property, other than any such transaction (a)
where the outstanding Voting Stock of United Artists is not converted or
exchanged at all (except to the extent necessary to reflect a change in the
jurisdiction of incorporation of United Artists) or is converted into or
exchanged for (x) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation or (y) Voting Stock (other than
Disqualified Stock) of the surviving or transferee corporation and cash,
securities and other property (other than Capital Stock of the surviving or
transferee corporation) in an amount that could be paid by United Artists as
a Restricted Payment as described under the "Limitation on Restricted
Payments" covenant and (b) immediately after such transaction, no "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), other than Permitted Holders, is the ultimate "beneficial owner,"
directly or indirectly, of more than a majority of the total outstanding
Voting Stock of the surviving or transferee corporation; or (iii) individuals
who on the Closing Date constitute the Board of Directors (together with any
new directors whose election by the Board of Directors or whose nomination by
the Board of Directors for election by United Artists' stockholders was
approved (x) by a vote of at least a majority of the members of the Board of
Directors then in office who either were members of the Board of Directors on
the Closing Date or whose election or nomination for election was previously
so
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approved or (y) in writing by the Permitted Holders) cease for any reason to
constitute a majority of the members of the Board of Directors then in office.
"Closing Date" means April 21, 1998, the date of the Indenture.
"Consolidated EBITDA" means, for any period, the operating income of
United Artists and its Restricted Subsidiaries for such period plus, to the
extent such amount was deducted in calculating such operating income (i)
Consolidated Interest Expense, (ii) income taxes (other than income taxes
(either positive or negative) attributable to extraordinary and non-recurring
gains or losses or sales of assets), (iii) depreciation expense, (iv)
amortization expense and (v) all other non-cash items reducing such operating
income, less all non-cash items increasing such operating income, all as
determined on a consolidated basis for United Artists and its Restricted
Subsidiaries in conformity with GAAP; PROVIDED that, (a) Consolidated EBITDA
shall not include (x) the operating income (or operating loss) of any Person
that is not a Restricted Subsidiary, except (I) with respect to operating
income, to the extent the amount of dividends or other distributions actually
paid to United Artists or any of its Restricted Subsidiaries by such Person
during such period and (II) with respect to operating losses, to the extent
of the amount of Investments made by United Artists or any Restricted
Subsidiary in such Person during such period; (y) solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the "Limitation on Restricted Payments"
covenant described below (and in such case, except to the extent includable
pursuant to clause (x) above), the operating income (or operating loss) of
any Person accrued prior to the date it becomes a Restricted Subsidiary or is
merged into or consolidated with United Artists or any of its Restricted
Subsidiaries or all or substantially all of the property and assets of such
Person are acquired by United Artists or any of its Restricted Subsidiaries;
and (z) the operating income of any Restricted Subsidiary to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such operating income is not at the time permitted
by the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable
to such Restricted Subsidiary; and (b) Consolidated EBITDA shall be reduced
(to the extent not otherwise reduced in accordance with GAAP) (I) except for
purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the "Limitation on
Restricted Payments" covenant described above, by any amount paid (but only
to the extent not accrued in a prior period) or accrued as dividends on
preferred stock of United Artists (between the Closing Date and the
conversion of the Preferred Stock on May 1, 1998) (other than dividends
payable in Capital Stock (other than Disqualified Stock and other than
dividends accruing on the outstanding Preferred Stock)) or any Restricted
Subsidiary owned by Persons other than United Artists and any of its
Restricted Subsidiaries and (II) if any Restricted Subsidiary is not a Wholly
Owned Restricted Subsidiary, by an amount equal to (A) the amount of the
operating income attributable to such Restricted Subsidiary multiplied by (B)
the percentage ownership interest in the income of such Restricted Subsidiary
not owned on the last day of such period by United Artists or any of its
Restricted Subsidiaries.
"Consolidated Fixed Charge Coverage Ratio" of United Artists means, for
any period, the ratio of (a) the sum of Consolidated EBITDA for such period
to (b) the Consolidated Interest Expense for such period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements;
and the aggregate amount of interest in respect of Indebtedness that is
Guaranteed or secured by United Artists or any of its Restricted
Subsidiaries) and all but the principal component of rentals in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be
accrued by United Artists and its Restricted Subsidiaries during such period
(other than Capitalized Lease Obligations paid during such period if such
obligations were accrued in a prior period); EXCLUDING, HOWEVER, (i) any
amount of such interest of any Restricted Subsidiary if the operating income
of such Restricted Subsidiary is excluded in the calculation of Consolidated
EBITDA pursuant to clause (z) of the definition thereof (but only in the same
proportion as the operating income of such Restricted Subsidiary is excluded
from the calculation of Consolidated EBITDA pursuant to clause (z) of the
definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) paid in connection with the Transactions, all as
determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Determination Date, the
ratio of (i) the aggregate amount of Indebtedness of United Artists and its
Restricted Subsidiaries on a consolidated basis outstanding on such
Determination Date to (ii) the aggregate amount of Consolidated EBITDA for
the then most recent fiscal quarter for which financial
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statements of United Artists have been filed with the Commission pursuant to
the "Commission Reports and Reports to Holders" covenant described above
(such fiscal quarter being the "Quarter"), multiplied by four; PROVIDED that,
in making the foregoing calculation, (A) PRO FORMA effect shall be given to
any Indebtedness to be Incurred or repaid on the Determination Date; (B) PRO
FORMA effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving PRO FORMA effect to the application of proceeds of any
Asset Disposition) that occur from the beginning of the Quarter through the
Determination Date (the "Reference Period"), as if they had occurred and such
proceeds had been applied on the first day of such Reference Period; and (C)
PRO FORMA effect shall be given to asset dispositions and asset acquisitions
(including giving PRO FORMA effect to the application of proceeds of any
asset disposition) that have been made by any Person that has become a
Restricted Subsidiary or has been merged with or into United Artists or any
Restricted Subsidiary during such Reference Period and that would have
constituted Asset Dispositions or Asset Acquisitions had such transactions
occurred when such Person was a Restricted Subsidiary as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period;
PROVIDED that to the extent that clause (B) or (C) of this sentence requires
that pro forma effect be given to an Asset Acquisition or Asset Disposition,
such PRO FORMA calculation shall be based upon the full fiscal quarter
immediately preceding the Determination Date of the Person, or division or
line of business of the Person, that is acquired or disposed of for which
financial information is available.
"Credit Agreement" means the credit agreement entered into by United
Artists on the Closing Date, together with any agreements, instruments and
documents executed or delivered pursuant to or in connection with such credit
agreement, in each case as such credit agreement or such agreements,
instruments or documents may be amended, supplemented, extended, renewed,
refinanced, replaced or otherwise modified from time to time; PROVIDED, for
purposes of the provisions described under "Ranking and Subordination," that
with respect to any agreement providing for the refinancing or replacement of
Indebtedness under the Credit Agreement, such agreement shall be the Credit
Agreement under the Indenture only if a notice to that effect is delivered by
United Artists to the Trustee and there shall be at any time only one
instrument that is (together with the aforementioned related agreements,
instruments and documents) the Credit Agreement under the Indenture.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means the Indebtedness specified in
clause (i) of the definition of Senior Indebtedness and any other
Indebtedness constituting Senior Indebtedness that, at the date of
determination, has an aggregate principal amount outstanding of at least $25
million and that is specifically designated by United Artists, in the
instrument creating or evidencing such Senior Indebtedness as "Designated
Senior Indebtedness."
"Determination Date" means, with respect to the Incurrence of any
Indebtedness by United Artists or any of its Restricted Subsidiaries, the
date such Indebtedness is to be Incurred and, with respect to any Restricted
Payment, the date such Restricted Payment is to be made.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder
of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Notes; PROVIDED that
any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" occurring prior to the Stated Maturity of the
Notes shall not constitute Disqualified Stock if the "asset sale" or "change
of control" provisions applicable to such Capital Stock are no more favorable
to the holders of such Capital Stock than the provisions contained in
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of
Control" covenants described above and such Capital Stock specifically
provides that such Person will not repurchase or redeem any such stock
pursuant to such provision prior to United Artists' repurchase of such Notes
as are required to be repurchased pursuant to the "Limitation on Asset Sales"
and "Repurchase of Notes upon a Change of Control" covenants described above.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to
buy.
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"Floating Rate Notes" means the $50,000,000 aggregate principal amount
of Floating Rate Senior Subordinated Notes due 2007 of United Artists.
"Fixed Rate Notes" means the $225,000,000 aggregate principal amount of
9 3/4% Senior Subordinated Notes due 2008 of United Artists.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved
by a significant segment of the accounting profession. All ratios and
computations contained or referred to in the Indenture shall be computed in
conformity with GAAP applied on a consistent basis, except that calculations
made for purposes of determining compliance with the terms of the covenants
and with other provisions of the Indenture shall be made without giving
effect to (i) the amortization of any fees, expenses or goodwill incurred in
connection with the Transactions, (ii) losses incurred for the early
extinguishment of debt in connection with the Transactions and (iii) except
as otherwise provided, the amortization of any amounts required or permitted
by Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or
by agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for
purposes of assuring in any other manner the obligee of such Indebtedness of
the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); PROVIDED that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to,
or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Acquired Indebtedness; PROVIDED
that neither the accrual of interest nor the accretion in value of
non-interest bearing or other discount Indebtedness shall be considered an
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto, but excluding
obligations with respect to letters of credit (including trade letters of
credit) securing obligations (other than obligations described in (i) or (ii)
above or (v), (vi) or (vii) below) entered into in the ordinary course of
business of such Person to the extent such letters of credit are not drawn
upon or, if drawn upon, to the extent such drawing is reimbursed no later
than the third Business Day following receipt by such Person of a demand for
reimbursement), (iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, which purchase price is due
more than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services, except
Trade Payables, (v) all Capitalized Lease Obligations, (vi) all Indebtedness
of other Persons secured by a Lien on any asset of such Person, whether or
not such Indebtedness is assumed by such Person; PROVIDED that the amount of
such Indebtedness shall be the lesser of (A) the fair market value of such
asset at such date of determination and (B) the amount of such Indebtedness,
(vii) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person and (viii) to the
extent not otherwise included in this definition, obligations under Currency
Agreements and Interest Rate Agreements. The amount of Indebtedness of any
Person at any date shall be the outstanding principal balance at such date of
all unconditional obligations as described above and, with respect to
contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, PROVIDED (A) that the amount
outstanding at any time of any non-interest bearing or other discount
Indebtedness is the principal amount of such Indebtedness at such time that
would be shown on the balance sheet of such Person prepared in conformity
with GAAP, (B) that money borrowed and set aside at the time of the
Incurrence of any Indebtedness in order to prefund the payment of the
interest on such Indebtedness shall not be deemed to be "Indebtedness" so
long as such money is held to secure the payment of such interest and (C)
that Indebtedness shall not include any liability for federal, state, local
or other taxes.
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"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers, suppliers or
lessors in the ordinary course of business that are, in conformity with GAAP,
recorded as accounts receivable, prepaid expenses or deposits on the balance
sheet of United Artists or its Restricted Subsidiaries and negotiable
instruments held for collection) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued
by, such Person and shall include (i) the designation of a Restricted
Subsidiary as an Unrestricted Subsidiary and (ii) the fair market value of
the Capital Stock (or any other Investment), held by United Artists or any of
its Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (iii) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant; PROVIDED that the
fair market value of the Investment remaining in any Person that has ceased
to be a Restricted Subsidiary shall not exceed the aggregate amount of
Investments previously made in such Person valued at the time such
Investments were made less the net reduction of such Investments. For
purposes of the definition of "Unrestricted Subsidiary" and the "Limitation
on Restricted Payments" covenant described below, (i) "Investment" shall
include the fair market value of the assets (net of liabilities (other than
liabilities to United Artists or any of its Restricted Subsidiaries)) of any
Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary, (ii) the fair market value of the
assets (net of liabilities (other than liabilities to United Artists or any
of its Restricted Subsidiaries)) of any Unrestricted Subsidiary at the time
that such Unrestricted Subsidiary is designated a Restricted Subsidiary, and
the fair market value of the outstanding Investments in any Person other than
an Unrestricted Subsidiary that thereafter becomes a Restricted Subsidiary at
the time such Person becomes a Restricted Subsidiary, shall be considered a
reduction in outstanding Investments and (iii) any property transferred to or
from an Unrestricted Subsidiary shall be valued at its fair market value at
the time of such transfer.
"Junior Securities" means (i) Capital Stock of United Artists (other
than any Capital Stock which, by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the option of the
holder thereof, in whole or in part), (ii) securities of United Artists or
any other corporation authorized by an order or decree giving effect, and
stating in such order or decree that effect is given, to the subordination of
the Notes to the Senior Indebtedness, and made by a court of competent
jurisdiction in a reorganization proceeding under any applicable bankruptcy,
insolvency or other similar law, or (iii) any securities of United Artists
provided for by a plan of reorganization or readjustment that are
subordinated in right of payment to all Senior Indebtedness that may at the
time be outstanding to substantially the same extent as, or to a greater
extent than, the Notes are so subordinated.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof or any
agreement to give any security interest).
"Majority Owned Subsidiary" means any corporation, association or other
business entity that is not a Subsidiary of United Artists but of which 50%
of the voting power of the outstanding Voting Stock is owned, directly or
indirectly, by United Artists or one or more of its Restricted Subsidiaries
as of the Issue Date.
"ML Funds" means Merrill Lynch Capital Appreciation Partnership No.
B-XIX, L.P., Merrill Lynch Capital Appreciation Partnership No. B-XX, L.P.,
Roman Nineteen Offshore Fund Holdings N.V., MLCP Associates L.P. No. II, ML
IBK Positions, Inc., and Merrill Lynch KECALP L.P. 1991 and any Affiliates of
the foregoing and any of their respective successors.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent
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such obligations are financed or sold with recourse to United Artists or any
Restricted Subsidiary) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of
counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes (whether or not such taxes will actually be paid or are
payable) as a result of such Asset Sale without regard to the consolidated
results of operations of United Artists and its Restricted Subsidiaries,
taken as a whole, (iii) payments made to repay Indebtedness or any other
obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be
paid as a result of such sale and (iv) appropriate amounts to be provided by
United Artists or any Restricted Subsidiary as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP
and (b) with respect to any issuance or sale of Capital Stock, the proceeds
of such issuance or sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to United Artists or any
Restricted Subsidiary) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of attorney's fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection
with such issuance or sale and net of taxes paid or payable as a result
thereof.
"Permitted Holders" means any of the ML Funds or any of their respective
Affiliates.
"Permitted Investment" means (i) an Investment in United Artists or a
Restricted Subsidiary or a Majority Owned Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary or be
merged or consolidated with or into or transfer or convey all or
substantially all its assets to, United Artists or a Restricted Subsidiary;
PROVIDED that such person's primary business is related, ancillary or
complementary to the businesses of United Artists and its Restricted
Subsidiaries on the date of such Investment; (ii) Temporary Cash Investments;
(iii) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses in
accordance with GAAP; (iv) loans or advances to officers and employees of
United Artists and its Restricted Subsidiaries made in the ordinary course of
business; provided that the aggregate amount of such loans or advances
outstanding at any time shall not exceed $1 million; (v) Investments in
Interest Rate Agreements and Currency Agreements designed solely to protect
United Artists or its Restricted Subsidiaries against fluctuations in foreign
currency exchange rates or interest rates; (vi) Investments in any Person the
primary business of which is related, ancillary or complementary to the
business of United Artists and its Restricted Subsidiaries on the date of
such Investments; PROVIDED that the aggregate amount of Investments made
pursuant to this clause (vi) does not exceed $25 million; (vii) Investments
received in consideration for sales of Underperforming Theatres; (viii)
stock, obligations or securities received in satisfaction of judgments or in
settlement of debts owing to United Artists or any Restricted Subsidiary that
arose in the ordinary course of business, received pursuant to any plan of
reorganization or similar arrangement in satisfaction of liabilities owing to
United Artists or a Restricted Subsidiary that arose in the ordinary course
of business or received upon the foreclosure or enforcement of a Lien in
favor of United Artists or any Restricted Subsidiary that arose in the
ordinary course of business; and (ix) non-cash proceeds of Asset Sales
conducted in accordance with the provisions of "Certain Covenants--Limitation
on Asset Sales."
"Public Equity Offering" means an underwritten primary public offering
of Capital Stock (other than Disqualified Stock) of United Artists, pursuant
to an effective registration statement under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity
Offering has been consummated and (ii) at least 10% of the total issued and
outstanding aggregate value of the voting Capital Stock of United Artists has
been distributed by means of an effective registration statement under the
Securities Act or sales pursuant to Rule 144 under the Securities Act.
"Restricted Subsidiary" means any Subsidiary of United Artists other
than an Unrestricted Subsidiary.
"Senior Indebtedness" means the following obligations of United Artists,
whether outstanding on the Closing Date or thereafter Incurred: (i) all
Indebtedness and all other monetary obligations (including expenses, fees and
other monetary obligations) of United Artists under the Credit Agreement and
(ii) all other Indebtedness and all other monetary obligations of United
Artists (other than the Notes), including principal and interest on such
Indebtedness, unless such Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such Indebtedness is issued, is
PARI PASSU with, or subordinated in right of payment to, the Notes; PROVIDED
that the term "Senior Indebtedness" shall not include (a) any
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Indebtedness of United Artists that, when Incurred, was without recourse to
United Artists, (b) any Indebtedness of United Artists to a Subsidiary of
United Artists, or to a joint venture in which United Artists has an
interest, (c) any Indebtedness of United Artists, to the extent not permitted
by the "Limitation on Indebtedness" covenant or the "Limitation on Senior
Subordinated Indebtedness" covenant described above (but as to any such
Indebtedness under the Credit Agreement, no such violation shall be deemed to
exist for purposes of this clause (c) if the Bank Agent shall have received a
representation from an Officer of United Artists to the effect that the
issuance of such Indebtedness does not violate such covenants), (d) any
Indebtedness to any employee of United Artists or any of its respective
Subsidiaries, (e) any liability for taxes owed or owing by United Artists or
(f) any Trade Payables. Senior Indebtedness will also include interest
accruing on or after, or which would accrue but for, events of bankruptcy of
United Artists and its respective Subsidiaries at the rate provided for in
the document governing such Senior Indebtedness, whether or not such interest
is an allowed claim enforceable against the debtor in a bankruptcy case under
bankruptcy law.
"Senior Subordinated Obligations" means any principal of, premium, if
any, or interest on the Notes or the Fixed Rate Notes payable pursuant to the
terms of the Notes or the Fixed Rate Notes or upon acceleration, including
any amounts received upon the exercise of rights of rescission or other
rights of action (including claims for damages) or otherwise, to the extent
relating to the purchase price of the Notes or the Fixed Rate Notes or
amounts corresponding to such principal, premium, if any, or interest on the
Notes or the Fixed Rate Notes.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of United Artists, accounted for more than 10% of the
consolidated revenues of United Artists and its Restricted Subsidiaries or
(ii) as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of United Artists and its Restricted Subsidiaries, all as
set forth on the most recently available consolidated financial statements of
United Artists for such fiscal year.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii)
with respect to any scheduled installment of principal of or interest on any
debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting
power of the outstanding Voting Stock is owned, directly or indirectly, by
such Person and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency thereof, (ii) time deposit accounts, certificates of
deposit and money market deposits maturing within 360 days of the date of
acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any state thereof or any
foreign country recognized by the United States of America, and which bank or
trust company has capital, surplus and undivided profits aggregating in
excess of $250 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization
(as defined in Rule 436 under the Securities Act) or any money-market fund
sponsored by a registered broker dealer or mutual fund distributor, (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with a
bank or trust company meeting the qualifications described in clause (ii)
above, (iv) commercial paper, maturing not more than 270 days after the date
of acquisition, issued by a corporation (other than an Affiliate of United
Artists) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or
higher) according to S&P, (v) securities with maturities of six months or
less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and
rated at least "A" by S&P or Moody's and (vi) overnight and demand deposits
in a bank or trust company meeting the qualifications described in clause
(ii) above.
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"Trade Payables" means, with respect to any Person, any accounts payable
or any other indebtedness or monetary obligation to trade creditors
(including film payables) created, assumed or Guaranteed by such Person or
any of its Subsidiaries arising in the ordinary course of business in
connection with the acquisition of goods or services.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case,
are not callable or redeemable at the option of the issuer thereof at any
time prior to the Stated Maturity of the Notes, and shall also include a
depository receipt issued by a bank or trust company as custodian with
respect to any such U.S. Government Obligation or a specific payment of
interest on or principal of any such U.S. Government Obligation held by such
custodian for the account of the holder of a depository receipt; PROVIDED
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of interest on or principal of the U.S.
Government Obligation evidenced by such depository receipt.
"Unrestricted Subsidiary" means (i) any Subsidiary of United Artists
that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below; and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate any Restricted Subsidiary (including any newly acquired or newly
formed Subsidiary of United Artists) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, United Artists or any Restricted Subsidiary; PROVIDED that (A)
any Guarantee by United Artists or any Restricted Subsidiary of any
Indebtedness of the Subsidiary being so designated shall be deemed an
"Incurrence" of such Indebtedness and an "Investment" by United Artists or
such Restricted Subsidiary (or both, if applicable) at the time of such
designation; (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under the "Limitation on
Restricted Payments" covenant described above and (C) if applicable, the
Incurrence of Indebtedness and the Investment referred to in clause (A) of
this proviso would be permitted under the "Limitation on Indebtedness" and
"Limitation on Restricted Payments" covenants described above. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED that (i) no Default or Event of Default shall have
occurred and be continuing at the time of or after giving effect to such
designation and (ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately after such designation would, if Incurred
at such time, have been permitted to be Incurred (and shall be deemed to have
been Incurred) for all purposes of the Indenture. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation
and an Officers' Certificate certifying that such designation complied with
the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
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RESTRICTIONS IMPOSED BY THE 1995 SALE LEASEBACK
In December 1995, the United Artists Theatre Circuit, Inc. 1995-A Pass
Through Trust (the "Trust") issued $116.8 million of Pass Through
Certificates, Series 1995-A (the "Certificates"). In connection with the
issuance of the Certificates, UATC and UAR sold an aggregate of 31 theatre
properties to a trust (the "Owner Trust"). UATC then entered into a lease
with the Owner Trust to lease back these theatres. To finance the purchase
price, the Owner Trust issued a mortgage note to the Trust, which in turn
obtained the funds to loan to the Owner Trust from issuing the Certificates.
UATC and certain other persons then entered into a Participation Agreement
(the "Participation Agreement") to undertake and clarify their obligations
and rights in the transaction.
The Participation Agreement imposes certain restrictions on UATC. Among
other things, these restrictions limit the ability of UATC and its
subsidiaries to incur indebtedness, pay dividends or make distributions, make
investments, enter into transactions with affiliates, guarantee indebtedness,
and transfer assets.
Under the debt incurrence restriction, UATC generally, with certain
exceptions, may not incur additional indebtedness (or permit its subsidiaries
to incur additional indebtedness) unless its "consolidated fixed charge
coverage ratio" (as defined in the Participation Agreement), which includes
"consolidated operating rental expense" (as defined in the Participation
Agreement) for the preceding four fiscal quarters is at least 1.40 to 1 after
giving effect to the incurrence of the additional indebtedness. Such
restriction applies to draws under the Senior Credit Facilities since such
indebtedness is guaranteed by UATC.
Under the distribution restriction, UATC is prohibited from making
"restricted payments," which generally constitute UATC making distributions
on its capital stock, acquiring its stock or the stock of an affiliate or
making certain investments (or permitting its subsidiaries to engage in any
of the foregoing activities) unless UATC could incur additional indebtedness
pursuant to the debt incurrence test described above, the amount of such
distributions and payments does not exceed the amount available under a
"basket" and no "default" or "event of default" exists thereunder. The amount
of this basket includes 50.0% of UATC's "consolidated adjusted net income"
(as defined in the Participation Agreement) accumulated since May 12, 1992
(or if UATC has a loss, less 100.0% of such loss) and the aggregate net
proceeds received by UATC after May 12, 1992 as capital contributions from
United Artists. The amounts currently available for distribution to United
Artists under the basket, therefore, will be initially insufficient to repay
the principal amount of the indebtedness of United Artists. Accordingly,
unless the amount of the basket increases, United Artists will be unable to
obtain funds from UATC to repay the Notes and the at their maturity and will
be required to attempt to refinance them. In addition, any distributions to
United Artists or other restricted payments by UATC (including distributions,
if any, to repay the Floating Rate Notes which mature six months prior to the
Fixed Rate Notes) will decrease the basket available to permit United Artists
to make interest and principal payments on the Notes or otherwise. For UATC
to make distributions to United Artists after the basket is utilized, UATC
will need to generate net income or receive additional equity contributions.
UATC is generally prohibited from transferring assets to United Artists. To
the extent that the 1995 Sale Leaseback requirements are not met so that UATC
cannot distribute amounts to United Artists to pay the interest and principal
payments on the Notes, UATC will not be able to make such distributions
unless the 1995 Sale Leaseback is amended or unwound, which could be at a
substantial cost to United Artists. There also can be no assurance that
United Artists would be able to amend or unwind the 1995 Sale Leaseback.
The computations of the "consolidated fixed charge coverage ratio" and
the restricted payments basket are based on estimates and interpretations. As
a result of these estimates and interpretations, there can be no assurance
that United Artists' computations of such ratio and basket will not be
contested. For example, UATC will recognize the interest expense on the
Senior Credit Facilities because UATC will guarantee these facilities, which
will decrease the restricted payments basket. If UATC distributes cash to
United Artists to pay such interest expense, the Participation Agreement
could be interpreted by a third party as requiring a second decrease to the
basket in the amount of the distribution, resulting in a "double-counting" of
the interest expense when computing the restricted payments basket. United
Artists is currently not aware of any third party contesting the calculation
of the restricted payments basket or the consolidated fixed charge coverage
ratio.
If a Lease Event of Default (as defined in the 1995 Sale Leaseback)
occurs, the owner trustee under the 1995 Sale Leaseback may terminate the
lease and may transfer the properties to UATC (in which case UATC would be
required to pay liquidated damages as calculated pursuant to the 1995 Sale
Leaseback) or may repossess or relet the properties. The 1995 Sale Leaseback
also contains certain other restrictive covenants. The Participation
Agreement and certain other agreements
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related to the 1995 Sale Leaseback have been filed by United Artists with the
Commission and the foregoing discussion of the terms and conditions of such
agreements is qualified in its entirety to reference to the agreements
themselves. See "Available Information."
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DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE NOTES
The following is a summary of certain federal income tax consequences
associated with the acquisition, ownership, and disposition of the Notes by
the holders thereof. The following summary does not discuss all of the
aspects of federal income taxation that may be relevant to such a holder of
the Notes in light of his or her particular circumstances, or to certain
types of holders (including dealers in securities, insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, S
corporations, and except as discussed below, foreign corporations, persons
who are not citizens or residents of the United States and persons who hold
the Notes as part of a hedge, straddle, "synthetic security" or other
integrated investment) which are subject to special treatment under the
federal income tax laws. This discussion also does not address the tax
consequences to nonresident aliens or foreign corporations that are subject
to United States federal income tax on a net basis on income with respect to
a Note because such income is effectively connected with the conduct of a
U.S. trade or business. Such holders generally are taxed in a similar manner
to U.S. Holders (as defined below); however, certain special rules apply. In
addition, this discussion is limited to holders who hold the Notes as capital
assets within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code"). This summary also does not describe any tax
consequences under state, local, or foreign tax laws.
The discussion is based upon the Code, Treasury Regulations, IRS rulings
and pronouncements and judicial decisions all in effect as of the date
hereof, all of which are subject to change at any time by legislative,
judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the Notes.
United Artists has not sought and will not seek any rulings or opinions from
the IRS or counsel with respect to the matters discussed below. There can be
no assurance that the IRS will not take positions concerning the tax
consequences of the purchase, ownership or disposition of the Notes that are
different from those discussed herein.
PERSONS CONSIDERING THE ACQUISITION, OWNERSHIP OR DISPOSITION OF NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL INCOME
TAX CONSEQUENCES THAT MAY APPLY TO THEM, AS WELL AS THE APPLICATION OF STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
A U.S. Holder is any holder who or which is (i) a citizen or resident of
the United States; (ii) a domestic corporation or domestic partnership; (iii)
an estate other than a "foreign estate" as defined in Section 7701(a) (31) of
the Code; or (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust.
TAXATION OF STATED INTEREST. In general, U.S. Holders of the Notes will
be required to include interest received thereon in taxable income as
ordinary income at the time it accrues or is received, in accordance with the
holder's regular method of accounting for federal income tax purposes.
EFFECT OF OPTIONAL REDEMPTION AND REPURCHASE. Under certain
circumstances United Artists may be entitled to redeem a portion of the
Notes. In addition, under certain circumstances, each holder of Notes will
have the right to require United Artists to repurchase all or any part of
such holder's Notes. Treasury Regulations contain special rules for
determining the yield to maturity and maturity on a debt instrument in the
event the debt instrument provides for a contingency that could result in the
acceleration or deferral of one or more payments. United Artists does not
believe that these rules are likely to apply to either United Artists' right
to redeem the Notes or to the holders' rights to require United Artists to
repurchase the Notes. Therefore, United Artists does not intend to treat such
redemption and repurchase provisions of the Notes as affecting the
computation of the yield to maturity or maturity date of the Notes.
SALE OR OTHER TAXABLE DISPOSITION OF THE NOTES. The sale, exchange,
redemption, retirement or other taxable disposition of a Note will result in
the recognition of gain or loss to a U.S. Holder in an amount equal to the
difference between (a) the amount of cash and fair market value of property
received in exchange therefor (except to the extent attributable to the
payment of accrued but unpaid stated interest) and (b) the holder's adjusted
tax basis in such Note.
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Any gain or loss on the sale or other taxable disposition of a Note
generally will be capital gain or loss. Payments on such disposition for
accrued interest not previously included in income will be treated as
ordinary interest income.
MARKET DISCOUNT AND BOND PREMIUM. If a U.S. Holder of a Note has a tax
basis in the Note that is less than its "stated redemption price at
maturity," the amount of the difference will be treated as "market discount"
for U.S. federal income tax purposes, unless such difference is less than a
specified DE MINIMIS amount. Under the market discount rules of the Code, a
U.S. Holder will be required to treat any principal payment on, or any gain
on the sale, exchange, retirement or other disposition of a Note as ordinary
income to the extent of any accrued market discount that has not previously
been included in income. Market discount generally accrues on a straight-line
basis over the term of a debt instrument remaining after the acquisition. A
U.S. Holder may not be allowed to deduct immediately all or a portion of the
interest expense on any indebtedness incurred or continued to purchase or to
carry such Note. A U.S. Holder may elect to include market discount in income
currently as it accrues (either on a straight-line basis or, if the U.S.
Holder so elects, on a constant yield basis), in which case the interest
deferral rule set forth in the preceding sentence will not apply. Such an
election will apply to all bonds acquired by the U.S. Holder on or after the
first day of the first taxable year to which such election applies and may be
revoked only with the consent of the IRS.
If a U.S. Holder purchases a Note for an amount greater than the sum of
all amounts payable on the Note after the purchase date, other than stated
interest, such holder will be considered to have purchased such Note with
"amortizable bond premium" equal in amount to such excess, and may elect (in
accordance with applicable Code provisions) to amortize such premium, using a
constant yield method over the remaining term. The amount amortized in any
year will be treated as a reduction of the U.S. Holder's interest income from
the Note in such year. A U.S. Holder that elects to amortize bond premium
must reduce its tax basis in the Note by the amount of the premium amortized
in any year. An election to amortize bond premium applies to all taxable debt
obligations then owned and thereafter acquired by the U.S. Holder and may be
revoked only with the consent of the IRS.
BACKUP WITHHOLDING. The backup withholding rules require a payor to
deduct and withhold a tax if (i) the payee fails to furnish a taxpayer
identification number ("TIN") in the prescribed manner, (ii) the IRS notifies
the payor that the TIN furnished by the payee is incorrect, (iii) the payee
has failed to report properly the receipt of "reportable payments" and the
IRS has notified the payor that withholding is required, or (iv) the payee
fails to certify under the penalty of perjury that such payee is not subject
to backup withholding. If any one of the events discussed above occurs with
respect to a holder of Notes, United Artists, its paying agent or other
withholding agent will be required to withhold a tax equal to 31% of any
"reportable payment" made in connection with the Notes of such holder. A
"reportable payment" includes, among other things, amounts paid in respect of
interest on a Note. Any amounts withheld from a payment to a holder under the
backup withholding rules will be allowed as a refund or credit against such
holder's federal income tax, provided that the required information is
furnished to the IRS. Certain holders (including, among others, corporations
and certain tax-exempt organizations) are not subject to backup withholding.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
This section discusses special rules applicable to a Non-U.S. Holder (as
defined below) of Notes. This summary does not address the tax consequences
to stockholders, partners or beneficiaries in a Non-U.S. Holder. For purposes
hereof, a "Non-U.S. Holder" is any person who is not a U.S. Holder and is not
subject to U.S. federal income tax on a net basis on income with respect to a
Note because such income is effectively connected with the conduct of a U.S.
trade or business.
INTEREST. Payments of interest to a Non-U.S. Holder that do not qualify
for the portfolio interest exception discussed below will be subject to
withholding of U.S. federal income tax at a rate of 30% unless a U.S. income
tax treaty applies to reduce, or eliminate, the rate of withholding. To claim
a treaty reduced rate, the Non-U.S. Holder must provide a properly executed
Form 1001 or applicable successor form.
Interest that is paid to a Non-U.S. Holder on a Note will not be subject
to U.S. income or withholding tax if the interest qualifies as "portfolio
interest." Generally, interest on the Notes that is paid by United Artists
will qualify as portfolio interest if (i) the Non-U.S. Holder does not own,
actually or constructively, 10% or more of the total combined voting power of
all classes of stock of United Artists entitled to vote; (ii) the Non-U.S.
Holder is not a controlled foreign corporation that is related to United
Artists actually or constructively through stock ownership for U.S. federal
income tax purposes; (iii) the Non-U.S. Holder is not a bank receiving
interest on a loan entered into in the ordinary course of business; and (iv)
either (x)
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the beneficial owner of the Note provides United Artists or its paying agent
with a properly executed certification on IRS Form W-8 (or a suitable
substitute form), signed under penalties of perjury, that the beneficial
owner is not a "U.S. person" for U.S. federal income tax purposes and that
provides the beneficial owner's name and address, or (y) a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its business holds the Note
and certifies to United Artists or its agent under penalties of perjury that
the IRS Form W-8 (or a suitable substitute) has been received by it from the
beneficial owner of the Note or a qualifying intermediary and furnishes the
payor a copy thereof.
Treasury regulations that will be effective with respect to payments
made after December 31, 1999 (the "Withholding Regulations") provide
alternative methods for satisfying the certification requirements described
in clause (iv) above. The Withholding Regulations also will require, in the
case of Notes held by a foreign partnership, that (x) the certification
described in clause (iv) above be provided by each partner and (y) the
partnership provide certain information, including its taxpayer
identification number. A look-through rule will apply in the case of tiered
partnerships.
SALE, EXCHANGE OR RETIREMENT OF NOTES. Any gain realized by a Non-U.S.
Holder on the sale, exchange or retirement of the Notes, will generally not
be subject to U.S. federal income tax or withholding unless (i) the Non-U.S.
Holder is an individual who was present in the U.S. for 183 days or more in
the taxable year of the disposition and meets certain other requirements; or
(ii) the Non-U.S. Holder is subject to tax pursuant to certain provisions of
the Code applicable to certain individuals who renounce their U.S.
citizenship or terminate long-term U.S. residency. If a Non-U.S. Holder falls
under (ii) above, the holder will be taxed on the net gain derived from the
sale under the graduated U.S. federal income tax rates that are applicable to
U.S. citizens and resident aliens, and may be subject to withholding under
certain circumstances. If a Non-U.S. Holder falls under (i) above, the holder
generally will be subject to U.S. federal income tax at a rate of 30% on the
gain derived from the sale (or reduced treaty rate) and may be subject to
withholding in certain circumstances.
U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING TAX. Back-up
withholding generally will not apply to a Note issued in registered form that
is beneficially owned by a Non-U.S. Holder if the certification of Non-U.S.
Holder status is provided to United Artists or its agent as described above
in "Certain U.S. Federal Income Tax Consequences for Non-U.S.
Holders--Interest," PROVIDED that the payor does not have actual knowledge
that the holder is a U.S. person. United Artists may be required to report
annually to the IRS and to each Non-U.S. Holder the amount of interest paid
to, and the tax withheld, if any, with respect to each Non-U.S. Holder.
If payments of principal and interest are made to the beneficial owner
of a Note by or through the foreign office of a custodian, nominee or other
agent of such beneficial owner, or if the proceeds of the sale of Notes are
paid to the beneficial owner of a Note through a foreign office of a "broker"
(as defined in the pertinent Regulations), the proceeds will not be subject
to backup withholding (absent actual knowledge that the payee is a U.S.
person). Information reporting (but not backup withholding) will apply,
however, to a payment by a foreign office of a custodian, nominee, agent or
broker that is (i) a U.S. person, (ii) a controlled foreign corporation for
U.S. federal income tax purposes, or (iii) a foreign person that derives 50%
or more of its gross income from the conduct of a U.S. trade or business for
a specified three-year period or, effective after December 31, 1999, by a
foreign office of certain other persons, unless the broker has in its records
documentary evidence that the holder is a Non-U.S. Holder and certain
conditions are met (including that the broker has no actual knowledge that
the holder is a U.S. Holder) or the holder otherwise establishes an
exemption. Payment through the U.S. office of a custodian, nominee, agent or
broker is subject to both backup withholding at a rate of 31% and information
reporting, unless the holder certifies that it is a Non-U.S. Holder under
penalties of perjury or otherwise establishes an exemption.
Any amount withheld under the backup withholding rules from a payment to
a Non-U.S. Holder will be allowed as a credit against, or refund of, such
holder's U.S. federal income tax liability, provided that certain information
is provided by the holder to the IRS.
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PLAN OF DISTRIBUTION
This Prospectus is to be used by Merrill Lynch in connection with offers
and sales of the Notes in market-making transactions effected from time to
time. Merrill Lynch may act as a principal or agent in such transactions,
including as agent for the counterparty when acting as principal or as agent
for both counterparties, and may receive compensation in the form of
discounts and commissions, including from both counterparties when it acts as
agent for both. Such sales will be made at prevailing market prices at the
time of sale, at prices related thereto or at negotiated prices.
Affiliates of Merrill Lynch own approximately 88.0% of United Artists'
outstanding voting stock. See "Principal Stock Ownership." Merrill Lynch has
informed United Artists that it does not intend to confirm sales of the Notes
to any accounts over which it exercises discretionary authority without the
prior specific written approval of such transactions by the customer.
United Artists has been advised by Merrill Lynch that, subject to
applicable laws and regulations, Merrill Lynch currently intends to make a
market in the Notes following completion of the Offer. However, Merrill Lynch
is not obligated to do so and any such market-making activity will be subject
to the limits imposed by the Securities Act and the Exchange Act. There can
be no assurance that an active trading market will develop or be sustained.
See "Risk Factors--Trading for the Notes."
Merrill Lynch has provided investment banking services to United Artists
in the past and may provide such services and financial advisory services to
United Artists in the future. Merrill Lynch acted as purchasers in connection
with the initial sale of the Fixed Rate Notes and the Floating Rate Notes and
received an aggregate underwriting discount of approximately $4.5 million in
connection therewith. An affiliate of Merrill Lynch is a lender and acted as
a co-syndication agent under the Senior Credit Facilities for which it
received usual and customary fees.
Merrill Lynch and United Artists have entered into a registration right
agreement with respect to the use by Merrill Lynch of this Prospectus.
Pursuant to such agreement, United Artists agreed to bear substantially all
registration expenses incurred under such agreement , and United Artists
agreed to indemnify Merrill Lynch against certain liabilities, including
liabilities under the Securities Act.
VALIDITY OF THE NOTES
The validity of the Notes was passed on for United Artists by Wachtell,
Lipton, Rosen & Katz, New York, New York special counsel to United Artists.
EXPERTS
The consolidated financial statements of United Artists Theatre Company
(formerly Oscar I Corporation) and subsidiaries as of December 31, 1998 and
December 31, 1997 and for each of the years in the period ended December 31,
1998 included in this Prospectus and elsewhere in the Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein upon
the authority of said firm as experts in giving said report.
87
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OSCAR I CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants--Arthur Andersen LLP....................................................... F-2
Consolidated Balance Sheets, December 31, 1998 and 1997............................................................ F-3
Consolidated Statements of Operations, Years Ended December 31, 1998, 1997 and 1996................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit).......................................................... F-5
Consolidated Statements of Cash Flow, Years Ended December 31, 1998, 1997 and 1996................................. F-6
Notes to Consolidated Financial Statements......................................................................... F-7
Condensed Consolidated Balance Sheets, April 1, 1999 and December 31, 1998......................................... F-23
Condensed Consolidated Statements of Operations, Thirteen Weeks Ended April 1, 1999 and Three Months Ended
March 31, 1998..................................................................................................... F-24
Condensed Consolidated Statement of Stockholder's Equity (Deficit), April 1, 1998.................................. F-25
Condensed Consolidated Statements of Cash Flow, Thirteen Weeks Ended April 1, 1999 and Three Months Ended
March 31, 1998..................................................................................................... F-26
Notes to Condensed Consolidated Financial Statements............................................................... F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO UNITED ARTISTS THEATRE COMPANY:
We have audited the accompanying consolidated balance sheets of United
Artists Theatre Company (formerly OSCAR I Corporation) and subsidiaries
("United Artists") as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity (deficit) and
cash flow for each of the three years in the three year period ended December
31, 1998. These consolidated financial statements are the responsibility of
United Artists' management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Artists Theatre Company and subsidiaries as of December 31, 1998 and 1997 and
the results of their operations and their cash flow for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 31, 1999
F-2
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in Millions)
<TABLE>
<CAPTION>
Assets December 31,
------ ------------------
1998 1997*
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................................. $ 8.2 10.8
Receivables, net:
Notes............................................................................... 2.4 1.0
Other............................................................................... 18.0 13.4
------- ------
20.4 14.4
Prepaid expenses and concession inventory.............................................. 15.2 18.4
Other assets........................................................................... 0.7 0.3
------- ------
Total current assets................................................................ 44.5 43.9
Investments and related receivables...................................................... 8.3 15.4
Property and equipment, at cost (note 12):
Land................................................................................. 44.0 54.7
Theatre buildings, equipment and other............................................... 592.3 502.0
------- ------
636.3 556.7
Less accumulated depreciation and amortization (note 5).............................. (216.4) (176.0)
------- ------
419.9 380.7
Intangible assets, net (note 12)......................................................... 81.3 101.5
Net assets of discontinued operations (note 13).......................................... 3.4 14.6
Other assets, net (note 2)............................................................... 21.7 6.9
------- ------
$ 579.1 563.0
======= ======
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Current Liabilities:
Accounts payable:
Film rentals......................................................................... $ 28.7 29.8
Other................................................................................ 65.2 57.3
------- ------
93.9 87.1
Accrued liabilities:
Salaries and wages................................................................... 6.1 6.7
Interest............................................................................. 8.3 5.6
Other................................................................................ 30.1 16.8
------- ------
44.5 29.1
Current portion of long-term debt (notes 2 and 7)...................................... 8.5 81.7
------- ------
Total current liabilities............................................................ 146.9 197.9
Other liabilities (note 3)............................................................... 44.5 45.9
Debt (notes 2 and 7)..................................................................... 645.4 332.3
Liabilities related to discontinued operations (note 13)................................. 4.9 -
------- ------
Total liabilities.................................................................... 841.7 576.1
Minority interests in equity of consolidated subsidiaries................................ 5.6 7.2
Stockholders' equity (deficit) (notes 2 and 9):
Preferred stock...................................................................... - 193.9
Common stock:
Class A........................................................................... 0.1 0.1
Class B........................................................................... - -
Class C........................................................................... - -
Additional paid-in capital........................................................... 51.1 16.4
Accumulated deficit.................................................................. (317.5) (228.5)
Cumulative foreign currency translation adjustment................................... - (0.4)
Treasury stock ...................................................................... (1.9) (1.8)
------- ------
Total stockholders' equity (deficit)............................................... (268.2) (20.3)
------- ------
$ 579.1 563.0
======= ======
</TABLE>
* Restated
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in Millions)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1998 1997* 1996*
------- ------ ------
<S> <C> <C> <C>
Revenue:
Admissions..................................................... $ 454.4 473.9 466.5
Concession sales............................................... 188.5 189.6 185.1
Other.......................................................... 19.2 20.3 25.5
------- ------ ------
662.1 683.8 677.1
------- ------ ------
Costs and expenses:
Film rental and advertising expenses........................... 248.5 262.5 257.2
Direct concession costs........................................ 28.0 30.2 29.3
Other operating expenses ...................................... 259.8 257.6 257.6
Sale and leaseback rentals (note 3)............................ 14.5 12.8 11.0
General and administrative (note 11)........................... 23.4 24.3 35.1
Restructuring charge (note 10)................................. - 0.8 1.9
Depreciation and amortization (note 5)......................... 53.9 59.0 74.2
Provisions for impairment (note 12)............................ 36.3 35.0 9.5
------- ------ ------
664.4 682.2 675.8
------- ------ ------
Operating loss from continuing operations................... (2.3) 1.6 1.3
Other income (expense):
Interest, net (notes 2 and 7):
Interest expense............................................ (54.5) (42.6) (42.7)
Amortization of deferred loan costs......................... (1.9) (2.2) (2.2)
Interest income............................................. 0.8 0.5 0.3
------- ------ ------
(55.6) (44.3) (44.6)
Gain on disposition of assets, net (note 14)................... 1.0 28.0 2.7
Share of losses of affiliates, net............................ (0.3) (1.6) (0.5)
Minority interests in earnings of consolidated subsidiaries... (1.3) (1.3) (0.8)
Other, net..................................................... (1.7) (2.5) (1.4)
------- ------ ------
(57.9) (21.7) (44.6)
------- ------ ------
Loss from continuing operations before income tax
expenses, discontinued operations and extraordinary item..... (60.2) (20.1) (43.3)
Income tax expense (note 15)....................................... (0.6) (1.5) (1.0)
------- ------ ------
Loss from continuing operations.................................... (60.8) (21.6) (44.3)
Discontinued operations (note 13).................................. (20.3) (5.4) (1.5)
------- ------ ------
Loss before extraordinary item................................. (81.1) (27.0) (45.8)
Extraordinary item - loss on early extinguishment of debt (note 2). (7.9) - -
------- ------ ------
Net loss....................................................... (89.0) (27.0) (45.8)
Dividend on preferred stock (note 9)............................... (9.0) (23.8) (20.9)
------- ------ ------
Net loss available to common stockholder....................... $ (98.0) (50.8) (66.7)
======= ====== ======
</TABLE>
* Restated
See accompanying notes to consolidated financial statements
F-4
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
(Amounts in Millions)
<TABLE>
<CAPTION>
Cumulative
foreign Total
Common Common Common Additional currency stockholders'
Preferred stock stock stock paid-in Accumulated translation Treasury equity
stock Class A Class B Class C capital deficit adjustment stock (deficit)
--------- ------- ------- --------- ---------- ----------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996.................... $149.2 0.1 - - 61.1 (155.7) (0.1) - 54.6
Accretion of dividends
on preferred stock.... 20.9 - - - (20.9) - - - -
Foreign currency
translation
adjustment............ - - - - - - (0.4) - (0.4)
Net loss................ - - - - - (45.8) - - (45.8)
------ ------ ------ ------ ------ ------- ----- ------ ------
Balance at December 31,
1996.................... 170.1 0.1 - - 40.2 (201.5) (0.5) - 8.4
Accretion of dividends
on preferred stock.... 23.8 - - - (23.8) - - - -
Foreign currency
translation
adjustment............ - - - - - - 0.1 - 0.1
Purchase of treasury
stock................. - - - - - - - (1.8) (1.8)
Net loss................ - - - - - (27.0) - - (27.0)
------ ------ ------ ------ ------ ------ ------ ------ ------
Balance at December 31,
1997.................... 193.9 0.1 - - 16.4 (228.5) (0.4) (1.8) (20.3)
Accretion of dividends
on preferred stock.... 9.0 - - - (9.0) - - - -
Redemption of
preferred stock....... (202.9) - - - 43.7 - - - (159.2)
Foreign currency
translation
adjustment............ - - - - - - 0.4 - 0.4
Purchase of treasury
stock................. - - - - - - - (0.1) (0.1)
Net loss................ - - - - - (89.0) - - (89.0)
------ ------ ------ ------ ------ ------ ------ ------ ------
Balance at December 31,
1998.................... $ - 0.1 - - 51.1 (317.5) - (1.9) (268.2)
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(Amounts in Millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997* 1996*
---- ----- -----
<S> <C> <C> <C>
Net cash provided by operating activities.................................. $ 43.7 51.0 30.8
------- ------- -------
Cash flow from investing activities:
Capital expenditures.................................................... (116.9) (67.4) (67.1)
Increase in receivable from sale and leaseback escrow................... (11.0) (12.8) (19.5)
Proceeds from sale and leaseback transaction and escrow................. 2.7 23.2 22.9
Proceeds from disposition of assets, net................................ 16.0 70.0 23.5
Change in investments and receivables from theatre joint ventures, net.. 2.7 (18.3) (14.3)
Other, net.............................................................. (8.0) 0.7 (1.4)
------- ------- -------
Net cash used in investing activities.................................. (114.5) (4.6) (55.9)
------- ------- -------
Cash flow from financing activities:
Proceeds from issuance of senior subordinated notes..................... 265.6 - -
Debt borrowings......................................................... 630.6 150.9 129.8
Debt repayments......................................................... (549.5) (191.5) (132.7)
Redemption of preferred stock........................................... (159.2) - -
Repurchase of senior secured notes...................................... (128.6) - -
Increase (decrease) in cash overdraft................................... 10.5 (2.8) 6.2
Other, net.............................................................. (1.2) (2.3) (0.6)
------- ------- -------
Net cash provided by (used in) financing activities.................... 68.2 (45.7) 2.7
------- ------- -------
Net increase (decrease) in cash and cash equivalents................... (2.6) 0.7 (22.4)
Cash and cash equivalents:
Beginning of period .................................................... 10.8 10.1 32.5
------- ------- -------
End of period .......................................................... $ 8.2 10.8 10.1
------- ------- -------
------- ------- -------
Reconciliation of net loss to net cash provided by operating activities:
Net loss................................................................ $ (89.0) (27.0) (45.8)
Non-cash expenses associated with discontinued operations................. 16.6 2.7 0.7
Extraordinary item...................................................... 7.9 - -
Effect of leases with escalating minimum annual rentals................. 4.0 3.7 3.1
Depreciation and amortization........................................... 53.9 59.0 74.2
Provisions for impairment............................................... 36.3 35.0 9.5
Gain on disposition of assets, net...................................... (1.0) (28.0) (2.7)
Share of losses of affiliates, net...................................... 0.3 1.6 0.5
Minority interests in earnings of consolidated subsidiaries............. 1.3 1.3 0.8
Change in assets and liabilities:
Receivables........................................................... 5.1 2.4 (4.4)
Prepaid expenses and concession inventory............................. 2.4 (3.0) 4.0
Other assets.......................................................... 0.4 1.9 1.3
Accounts payable...................................................... 7.5 3.3 (8.4)
Accrued and other liabilities......................................... (2.0) (1.9) (2.0)
------- ------- -------
Net cash provided by operating activities.............................. $ 43.7 51.0 30.8
------- ------- -------
------- ------- -------
</TABLE>
*Restated
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(1) ORGANIZATION
United Artists Theatre Company ("United Artists"), a Delaware
corporation, was formed in February 1992 for the purpose of purchasing
United Artists Theatre Circuit, Inc. ("UATC") from an affiliate of
Tele-Communications, Inc. ("TCI"). United Artists is owned by an
investment fund managed by affiliates of Merrill Lynch Capital
Partners, Inc. ("MLCP"), certain institutional investors, and certain
members of United Artists' management. On May 12, 1992, United Artists
purchased all of the outstanding common stock of UATC from an affiliate
of TCI (the "Acquisition").
UATC, a Maryland corporation, was initially founded in 1926 by
shareholders including Mary Pickford, Douglas Fairbanks, Sam Goldwyn
and Joe Schenck. From its founding through its first 40 years, UATC
developed its theatre operations. In the early 1960s, UATC, through a
separate subsidiary, invested in the cable television business. In
1986, an affiliate of TCI acquired a controlling interest in UATC's
then parent company, United Artists Communications, Inc. ("UACI") which
owned both the theatre and cable business. UACI subsequently changed
its name in 1989 to United Artists Entertainment Company ("UAE") in
conjunction with the acquisition of United Cable Television
Corporation. In December 1991, TCI's affiliate acquired the remaining
outstanding shares of UAE.
In addition to its ownership of UATC, United Artists owns all of the
outstanding capital stock of United Artists Realty Company ("UAR"), a
Delaware corporation. 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.
(2) RECAPITALIZATION
On April 21, 1998, United Artists completed the offering of $225.0
million of its 9.75% senior subordinated notes due April 15, 2008 and
the offering of $50.0 million of its floating rate senior subordinated
notes due October 15, 2007 (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 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 under UATC's existing bank credit
facility (the "Bank Credit Facility") (approximately $272.5 million),
and to fund the redemption of United Artists' 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%
of par value 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 facilitate the repayment of certain Prop I mortgage
notes upon their maturity. On November 1, 1998, approximately $45.7
million of this delayed draw facility was used to repay and retire
these Prop I mortgage notes. (See Note 7, Debt.)
As a result of the repayment of the Bank Credit Facility and redemption
of the Senior Secured Notes, United Artists recognized an extraordinary
loss on the early extinguishment of debt during 1998 of approximately
$7.9 million, consisting of the $3.6 million prepayment premium on the
Senior Secured Notes and approximately $4.3 million of unamortized
deferred loan costs.
F-7
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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 the 1995-A United Artists
Pass Through Trust (the "Pass Through Trust"), an unaffiliated third
party. United Artists realized a net gain of approximately $12.1
million as a result of the 1995 Sale and Leaseback. For financial
statement purposes this gain has been deferred and will be recognized
over the term of the lease as a reduction of rent expense. 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
December 31, 1998, approximately $9.1 million of the sales proceeds
were deposited into an escrow account and are to be paid under the
terms of the sale and leaseback to fund 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.
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
United Artists and its majority owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
(b) NATURE OF OPERATIONS
United Artists is principally engaged in the operation of
motion picture theatres.
(c) CASH AND CASH EQUIVALENTS
United Artists considers investments with initial maturities
of three months or less to be cash equivalents.
(d) INVESTMENTS
Investments in which United Artists' ownership is 20% to 50%
are accounted for using the equity method. Under this method,
the investment, originally recorded at cost, is adjusted to
recognize dividends received and United Artists' share of net
earnings or losses of the investee as they occur. Investments
in which United Artists' ownership is less than 20% are
accounted for using the cost method. Under this method, the
investments are recorded at cost and any dividends received
are recorded as income.
(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, including
acquisition costs allocated to tangible assets acquired.
Construction costs, including applicable direct overhead, are
capitalized.
F-8
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
During the year ended December 31, 1998, United Artists
capitalized $1.5 million of interest related to its various
construction projects. Repairs and maintenance are charged to
operations.
Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets, which range from 3
to 40 years. Leasehold improvements are amortized over the
terms of the leases, including certain renewal periods or, in
the case of certain improvements, the estimated useful lives
of the assets, if shorter. Costs associated with new theatre
construction are depreciated once such theatres are placed in
service.
(f) INTANGIBLE ASSETS
Intangible assets consist of theatre lease acquisition costs
and non-compete agreements. Amortization of theatre lease
acquisition costs and non-compete agreements is calculated on
a straight-line basis over the terms of the underlying leases
including certain renewal periods (weighted average life of
approximately 17 years) and non-compete agreements (primarily
5 years). Intangible assets and related accumulated
amortization are summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
Theatre lease acquisition costs............................. $ 145.5 156.9
Non-compete agreements...................................... - 3.0
--------- ------
145.5 159.9
Accumulated amortization.................................... (64.2) (58.4)
--------- ------
$ 81.3 101.5
--------- ------
--------- ------
</TABLE>
(g) OTHER ASSETS
Other assets primarily consist of deferred loan costs, long
term receivables and other assets. Amortization of the
deferred loan costs is calculated on a straight-line basis
over the terms of the underlying loan agreements (average life
of approximately seven years) and is included as a component
of interest expense. Other assets and related accumulated
amortization are summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Deferred loan costs........................................... $ 16.4 16.1
Long term receivables......................................... 6.1 0.5
Other......................................................... 0.4 1.2
-------- -----
22.9 17.8
Accumulated amortization...................................... (1.2) (10.9)
-------- -----
$ 21.7 6.9
-------- -----
-------- -----
</TABLE>
(h) OPERATING COSTS AND EXPENSES
Film rental and advertising expenses include film rental and
co-op and directory advertising costs. Film advertising costs
are expensed as incurred. Direct concession costs include
direct concession product costs and concession promotional
expenses. Concession promotional expenses are expensed as
incurred. Other operating expenses include joint facility
costs such as employee costs, theatre rental and utilities,
which are common to both ticket sales and concession
operations. As such, other operating expenses are reported as
a combined amount as the allocation of such costs to
exhibition and concession activities would be arbitrary and
not meaningful. Rental expense for operating leases which
provide for escalating minimum annual rentals during the term
of the lease are accounted for on a straight-line basis over
the terms of the underlying leases.
F-9
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(i) ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(j) RECLASSIFICATION
Certain prior year amounts have been reclassified for
comparability with the 1998 presentation.
(5) CHANGE IN ESTIMATED USEFUL LIVES
During 1998, United Artists revised the estimated useful lives of
certain equipment and leasehold improvements to more closely reflect
the actual lives of these assets. The effect of this change in
estimated useful lives was to decrease depreciation and amortization
expense for the year ended December 31, 1998 by approximately $2.9
million.
(6) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest for the years ended December 31, 1998, 1997
and 1996, were $53.4 million, $42.8 million, and $44.6 million,
respectively.
Cash payments by certain less than 80% owned entities for income taxes
for the years ended December 31, 1998, 1997 and 1996, were $1.8
million, $1.4 million, and $1.4 million, respectively.
United Artists accrued $9.0 million, $23.8 million and $20.9 million of
dividends during the years ended December 31, 1998, 1997 and 1996,
respectively, on its preferred stock (see note 9).
During 1998, 1997 and 1996, United Artists incurred $0.7 million, $1.1
million and $1.4 million, respectively, of capital lease obligations
relating to new equipment.
(7) DEBT
Debt is summarized as follows (amount in millions):
<TABLE>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
New Bank Credit Facility (a)......... $ 365.3 -
Senior Subordinated Notes (b)....... 275.0 -
Senior Secured Notes (c)............. - 125.0
Bank Credit Facility (c)............. - 226.5
UAR Promissory Notes (d)............. 2.4 10.7
Other (e)............................ 11.2 5.6
Prop I Mortgage Notes (f)............ - 46.2
------ ------
653.9 414.0
Less current portion................. (8.5) (81.7)
------ ------
$ 645.4 332.3
====== ======
</TABLE>
F-10
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) DEBT, CONTINUED
(a) The New Bank Credit Facility provides for delayed draw 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
delayed draw term loan (the "Tranche A Term Loan"); (ii) a
$118.0 million delayed draw term loan (the "Tranche B Term
Loan"); and (iii) a $162.0 million delayed draw term loan (the
"Tranche C Term Loan"). All of the term loans were fully
funded at December 31, 1998.
Commitments available for borrowing under the Revolving
Facility reduce semi-annually commencing December 31, 2001
through April 21, 2005. The Tranche A Term Loan requires
semi-annual principal payments commencing December 31, 1998
through June 30, 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 31, 2005 and
April 21, 2006. The Tranche C Term Loan requires semi-annual
principal payments commencing December 31, 1998 through June
30, 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 31, 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 United Artists, but no less frequently than
once each 90 days.
The New Bank Credit Facility is guaranteed, on a joint and
several basis, by certain of United Artists' subsidiaries,
those being UATC, 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 United Artists
and by an intercompany note from UATC to United Artists
established with respect to borrowings by UATC from United
Artists.
The New Bank Credit Facility contains certain provisions that
require United Artists to maintain certain financial ratios
and places limitations on, among other things, additional
indebtedness, disposition of assets and restricted payments.
(b) The Senior Subordinated Notes consist of $225.0 million of
9.75% notes due April 15, 2008 (the "Fixed Rate Subordinated
Notes") and $50.0 million of floating rate notes due October
15, 2007 (the "Floating Rate Subordinated Notes"). Interest on
the Fixed Rate Subordinated Notes is due semi-annually.
Interest on the Floating Rate Subordinated Notes is due
quarterly and is calculated based upon the three month LIBOR
rate plus 4.375%.
The Fixed Rate Subordinated Notes may be redeemed at the
option of United Artists, in whole, or in part, any time on or
after April 15, 2003. The Floating Rate Subordinated Notes may
be redeemed at any time at the option of United Artists, in
whole or in part, any time on or after April 15, 1999. Upon a
change of control (as defined in the respective indentures
(the "Indentures") under which the Senior Subordinated Notes
were issued), the holders of the Senior Subordinated Notes
have the right to require United Artists to purchase all or
any portion of such holders Senior Subordinated Notes at a
purchase price equal to 101% of the principal amount thereof
together with accrued and unpaid interest, if any, to the date
of purchase.
F-11
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) DEBT, CONTINUED
The Indentures contain certain covenants that place
limitations on, among other things, the incurrence of
additional indebtedness by United Artists and any of its
subsidiaries, the payment of dividends, the redemption of
capital stock, the making of investments, the issuance of
capital stock of subsidiaries, the creation of dividend and
other restrictions affecting subsidiaries, transactions with
affiliates, asset sales and certain mergers and
consolidations.
The Senior Subordinated Notes are unsecured, senior
subordinated obligations of United Artists and are
subordinated in right of payment to all existing and future
senior indebtedness of United Artists including borrowings
under the New Bank Credit Facility. The Fixed Rate
Subordinated Notes rank PARI PASSU with the Floating Rate
Subordinated Notes.
(c) As discussed in Note (2), Recapitalization, the Bank Credit
Facility and the Senior Secured Notes were repaid during 1998
from proceeds of the offerings of the Senior Subordinated
Notes and the New Bank Credit Facility.
(d) In connection with the acquisitions of certain theatres prior
to the Acquisition, UAR issued non-interest bearing promissory
notes to the sellers. Principal on the promissory notes is due
quarterly through October 1999. For financial statement
purposes, the promissory notes were discounted at UAR's
effective borrowing rate on the date the promissory notes were
executed. The undiscounted amount payable under the promissory
notes at December 31, 1998, was approximately $2.4 million.
(e) Other debt at December 31, 1998 consists of various term
loans, mortgage notes, capital leases, seller notes 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.
(f) As discussed in Note (2), Recapitalization, additional
commitments under the New Bank Credit Facility were designated
for the retirement of the Prop I mortgage notes that matured
on November 1, 1998. On November 1, 1998, approximately $45.7
million of borrowings under the New Bank Credit Facility were
used to retire the Prop I mortgage notes and $12.5 million of
letters of credit were cancelled.
At December 31, 1998, United Artists 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. United Artists is subject to credit
risk exposure from non-performance of the counterparties to the
interest rate cap agreements. As United Artists 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 December 31, 1998, United Artists had approximately $83.0 million
of Revolving Facility commitments, $4.1 million of which has been used
for the issuance of letters of credit. United Artists pays commitment
fees of 1/2% per annum on the average unused commitments.
F-12
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) DEBT, CONTINUED
The primary source of principal and interest payments related to the
New Bank Credit Facility and the Senior Subordinated Notes will come
from payments by UATC to United Artists. The amount of payments by UATC
to United Artists may be limited from time to time by covenants
included in the participation agreement relating to the 1995 Sale and
Leaseback. See Note (3), Sale and Leaseback Transactions.
Annual maturities of debt for each of the next five years and
thereafter are summarized as follows (amounts in millions):
<TABLE>
<S> <C>
1999.................................................$ 8.8
2000................................................ 6.4
2001................................................ 6.8
2002................................................ 16.2
2003................................................ 24.2
Thereafter.......................................... 591.5
------
$ 653.9
======
</TABLE>
(8) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS
The carrying amount of cash and cash equivalents approximates fair
value because of its short maturity.
FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of United Artists'
financial instruments at December 31, 1998 are summarized as
follows (amounts in millions):
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
------- -----------
<S> <C> <C>
New Bank Credit Facility and Other Debt.......... $ 378.9 378.9
===== =====
Senior Subordinated Notes........................ $ 275.0 266.0
===== =====
Interest Rate Collar Agreements.................. $ - (3.1)
===== =====
</TABLE>
New Bank Credit Facility and Other Debt: The carrying amount of United
Artists' borrowings under the New Bank Credit Facility and other debt
approximates fair value because the interest rates on the majority of
this debt floats with market interest rates.
Senior Subordinated Notes: The fair value of United Artists' Senior
Subordinated Notes is estimated based upon quoted market prices at
December 31, 1998.
Interest Rate Collar Agreements: The fair value of United Artists'
interest rate collar agreements is estimated based upon dealer quotes
for similar agreements at December 31, 1998.
(9) STOCKHOLDERS' EQUITY
PREFERRED STOCK
As part of the recapitalization discussed in Note (2),
Recapitalization, proceeds from the Senior Subordinated Notes and a
portion of the borrowings under the New Bank Credit Facility were used
to fund the redemption of United Artists' preferred stock on May 1,
1998. At the redemption date, the
F-13
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) STOCKHOLDERS' EQUITY, CONTINUED
actual redemption value of the preferred stock was approximately $159.2
million. The carrying amount of the preferred stock at the redemption
date was approximately $43.7 million more than the redemption value as
dividends had been accrued at a 14% per annum rate for all periods
since issuance in 1992 rather than the stated rate of 8% through
December 31, 1995, 9% through December 31, 1996 and 14% thereafter.
This difference has been shown as an increase in additional paid-in
capital in the accompanying financial statements. United Artists is
authorized to issue 5,000,000 shares of preferred stock.
COMMON STOCK
At December 31, 1998, United Artists had outstanding 11,551,383 shares
of Class A common stock, $0.01 par value per share, 36,225 shares of
Class B common stock, $0.01 par value per share and has granted 10,542
shares of Class C common stock, $0.01 par value to certain members of
management, all of which are vested. The Class A and Class B shares are
identical except that the Class B shares do not have any voting rights.
The Class C shares vest over a four-year period and are identical to
the Class B common stock except for a $9.50 per share liquidation
preference in favor of the holders of the Class A and Class B common
stock.
United Artists is authorized to issue 23,200,000 shares of Class A
common stock, 1,818,000 shares of Class B common stock and 57,000
shares of Class C common stock.
STOCK OPTIONS
In connection with the Acquisition, the United Artists Management Stock
Plan was established. The United Artists Management Stock Plan
established three types of options, those being: the Incentive Options
(the "Incentive Plan"), Performance Options (the "Performance Plan"),
and Premium Options (the "Premium Plan" and collectively, the "Option
Plans"). The options covered under the Incentive Plan vest in equal
amounts each year through the fifth anniversary of the date of grant,
while options covered under the Performance and Premium Plans vest
based on certain calculations of United Artists' value or the
investment returns received by the Class A common stockholders. Each
option granted under either the Incentive or Performance Plans may be
exercised for one Class B share at an exercise price equal to the
estimated market value of the Class B share at the date of grant
provided that such options have been vested under the terms of the
respective plan. Each option granted under the Premium Plan may be
exercised for one Class B share at an exercise price, which increases
from $30 to $233, provided that such options have vested under the
terms of the Premium Plan. All options granted expire 10 years after
the date of grant.
United Artists applies the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for its Option Plans. No compensation
cost has been recognized by United Artists for any of the Option Plans.
United Artists' compensation expense would not have been materially
different had United Artists recorded compensation expense for its
Option Plans in accordance with SFAS No. 123, "Accounting for Stock
Based Compensation," and accordingly, the pro forma net loss disclosure
as if SFAS No. 123 had been applied are not presented.
F-14
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) STOCKHOLDERS' EQUITY, CONTINUED
A summary of United Artists' Incentive Plan as of December 31, 1998,
1997 and 1996, and changes during those years is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -------------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 130,833 $10.12 544,320 $10.06 594,720 $10.05
Granted - - - - 6,600 $10.79
Exercised - - - - - -
Forfeited (27,700) $10.00 (413,487) $10.04 (57,000) $10.00
-------- --------- --------
Outstanding at December 31 103,133 $10.10 130,833 $10.12 544,320 $10.06
======== ========= ========
</TABLE>
The following table summarizes information about the Incentive Plan at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- -------------------
Weighted Avg.
Number Remaining Number
Exercise Price Outstanding Contractual Life Exercisable
-------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$10.00 90,133 3.5 90,133
$10.79 13,000 5.9 13,000
------- -------
103,133 3.8 103,133
======= =======
</TABLE>
A summary of United Artists' Performance Plan as of December 31, 1998,
1997 and 1996, and changes during those years is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -------------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 311,875 $11.31 528,975 $10.05 573,450 $10.04
Granted 276,625 $22.50 197,250 $12.00 5,900 $10.79
Exercised - - - - - -
Forfeited (31,475) - (414,350) $10.04 (50,375) $10.00
-------- --------- --------
Outstanding at December 31 557,025 $16.64 311,875 $11.31 528,975 $10.05
======== ========= ========
</TABLE>
The following table summarizes information about the Performance Plan at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- -------------------
Weighted Avg.
Number Remaining Number
Exercise Price Outstanding Contractual Life Exercisable
-------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$10.00 79,275 3.5 0
$10.79 11,125 5.8 0
$12.00 190,000 8.3 118,751
$22.50 276,625 9.0 138,313
------- -------
557,025 7.8 257,064
======= =======
</TABLE>
F-15
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) STOCKHOLDERS' EQUITY, CONTINUED
A summary of United Artists Premium Plan as of December 31, 1998, 1997
and 1996, and changes during those years is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -------------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 56,431 $90.50 265,403 $66.00 287,791 $48.25
Granted - - - 2,800 $48.25
Exercised - - - - - -
Forfeited (11,612) $90.50 (208,972) $66.00 (25,188) $48.25
------- -------- -------
Outstanding at December 31 44,819 $90.50 56,431 $66.00 265,403 $48.25
======= ======== =======
Options Exercisable at
December 31 0 0 0
= = =
</TABLE>
As of December 31, 1998, the 44,819 Premium Plan options had an
exercise price of $90.50 and a weighted average remaining contractual
life of 3.8 years.
(10) RESTRUCTURING CHARGE
At the end of 1996, United Artists initiated a corporate restructuring
plan intended to provide a higher level of focus on United Artists'
domestic theatrical business at a lower annual cost. This corporate
restructuring was substantially completed in January 1997. In
conjunction with this corporate restructuring plan, United Artists
recorded $0.8 million and $1.9 million of restructuring charges in 1997
and 1996, respectively, for severance and other related expenses.
(11) EMPLOYEE BENEFIT PLANS
The UATC 401(k) Savings Plan (the "Savings Plan") provides that
employees may contribute up to 10% of their compensation, subject to
IRS limitations, to the Savings Plan. Employee contributions are
invested in various investment funds based upon elections made by the
employee. Depending on the amount of each employee's level of
contribution, the Savings Plan currently matches up to 4.0% of their
compensation.
Effective January 1, 1993, UATC established the United Artists
Supplemental 401(k) Savings Plan (the "Supplemental Plan") for certain
employees who are highly compensated as defined by the IRS and whose
elective contributions to the Savings Plan exceed the IRS limitations.
Effective January 1, 1997, United Artists suspended the Supplemental
Plan.
Contributions to the various employee benefit plans for the years ended
December 31, 1998, 1997 and 1996 were $0.6 million, $0.6 million, and
$2.3 million, respectively.
F-16
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) PROVISIONS FOR IMPAIRMENT
United Artists 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 years ended December
31, 1998, 1997 and 1996, United Artists recorded non-cash charges for
the impairment of its long-lived assets of $36.3 million, $35.0 million
and $9.5 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 discounted cash flow
expected to be received from the operation or future sale of the
individual theatres (or groups of theatres).
(13) DISCONTINUED OPERATIONS
During 1998, United Artists 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 $3.4 million and $14.6
million at December 31, 1998 and 1997, respectively. Liabilities
related to the discontinued operations were $4.9 million at December
31, 1998. The net loss from discontinued operations was $14.2 million,
$5.4 million, and $1.5 million for the years ended December 31, 1998,
1997, and 1996, respectively. The anticipated loss from disposition was
$6.1 million during 1998 which represents future losses. Revenue
generated by the discontinued operations was $3.0 million, $2.4 million
and $1.9 million, for the years ended December 31, 1998, 1997 and 1996,
respectively. Included in the net loss from discontinued operations was
interest expense of $1.1 million, $1.3 million and $0.7 million for the
years ended December 31, 1998, 1997, and 1996, respectively. Interest
expense was allocated to the discontinued operations based upon the
average fixed asset balance and United Artists' average borrowing rate.
The net loss from discounted operations included non-cash provisions
for asset impairments of $10.7 million and $1.0 million for the years
ended December 31, 1998 and 1997 respectively.
(14) GAIN ON DISPOSITION OF ASSETS
In 1998, United Artists sold the majority of its remaining
international theatrical exhibition assets for $3.0 million of cash,
$0.5 million of stock of the acquiring company and a $3.0 million note.
In addition, United Artists sold certain other operating theatres and
non-operating real estate for which net cash proceeds of $16.0 million
were received. During April 1997, United Artists sold its 50% interest
in Hong Kong theatre company to its partner for approximately $17.5
million and, during September 1997, UATC sold its theatre investments
in Mexico and the majority of its theatre assets in Argentina for
approximately $25.0 million. During the year ended December 31, 1997,
United Artists sold various other non-strategic or underperforming
theatres for net cash proceeds of approximately $27.5 million. During
the year ended December 31, 1996, United Artists sold certain theatres
and other assets for which cash proceeds of $23.5 million were
received.
(15) INCOME TAXES
Consolidated subsidiaries in which United Artists' owns less than 80%
file separate federal income tax returns. The current and deferred
federal and state income taxes of such subsidiaries are determined as
if they were separate tax paying entities within the consolidated
group. For the years ended December 31, 1998, 1997 and 1996 United
Artists 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.
F-17
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) INCOME TAXES, CONTINUED
On February 10, 1998, United Artists filed a private letter ruling with
the Internal Revenue Service (the "IRS") requesting an extension of
time to file a Section 197 election. This election allows for the
amortization of various intangible assets over 15 years. On June 8,
1998, the IRS granted United Artists' request and, on August 6, 1998,
United Artists filed a Section 197 election along with its amended 1993
income tax return. As United Artists had previously been amortizing
certain intangible assets acquired as part of the Acquisition over a
five year period, the effect of the Section 197 election was to reduce
United Artists' net operating loss carryforward and to increase the
basis of certain intangible assets, which will be amortized, and
provide for future tax deductions. The Section 197 election also
enabled United Artists to conclude the IRS audit for the years ending
December 31, 1992, 1993 and 1994. As a result of the audit the net
operating loss was reduced further by various items which were
reclassified as Section 197 audits. These items will be amortized and
will provide United Artists with additional future deductions. As
United Artists had fully reserved the deferred tax asset associated
with its net operating loss carryforward, there is no financial
statement impact associated with the reduction in its net operating
loss carryforward.
The current state income tax expense of United Artists and federal
income tax expense of United Artists' less than 80%-owned consolidated
subsidiaries and deferred state and federal income tax expense are as
follows (amounts in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current income taxes:
State expense................................... $ 0.2 0.2 0.1
Federal expense................................. 0.4 1.3 1.0
---- ---- ----
0.6 1.5 1.1
Deferred income taxes:
State expense................................... -- -- --
Federal expense................................. -- -- --
---- ---- ----
$ 0.6 1.5 1.1
---- ---- ----
---- ---- ----
</TABLE>
Income tax expense differed from the amount computed by applying the
U.S. federal income tax rate (35% for all periods) to loss before
income tax expense as a result of the following (amounts in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Expected tax benefit.............................. $(30.9) (8.9) (15.7)
Change in valuation allowance..................... 35.0 11.1 16.1
Adjustment of net operating loss carryforward (30.0) 0.1 2.9
Increase in basis of assets....................... 29.3 -- --
Other............................................. (2.8) (0.8) (2.2)
------ ------ ------
$ 0.6 1.5 1.1
------ ------ ------
------ ------ ------
</TABLE>
F-18
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) INCOME TAXES, CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31,
1998 and 1997 are as follows (amounts in millions):
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................................... $ 69.7 75.1
Intangible and other assets........................................... 32.2 3.7
Accrued liabilities................................................... 6.4 3.6
Deferred gain on sale and leaseback................................... 2.6 3.5
Property and equipment................................................ 1.8 --
Deferred revenue...................................................... 4.5 --
Other................................................................. 1.1 1.2
------- ------
118.3 87.1
Less: valuation allowance............................................ (115.5) (80.5)
------- ------
Net deferred tax assets............................................ 2.8 6.6
------- ------
Deferred Tax Liabilities:
Property and equipment................................................ -- 3.5
Deferred intercompany gains........................................... 1.6 1.6
Other................................................................. 1.2 1.5
------- ------
Net deferred tax liabilities....................................... 2.8 6.6
------- ------
Net.................................................................... $ -- --
------- ------
------- ------
</TABLE>
At December 31, 1998, United Artists had a net operating loss
carryforward for federal income tax purposes of approximately $183.0
million.
United Artists' 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 United Artists' net operating
loss carryforward and/or change the basis (and thus future tax
depreciation) related to certain assets. United Artists believes that
the result of the audit will not have a material adverse effect on its
financial condition or results of operation.
(16) SEGMENT INFORMATION
United Artists' operations are classified into two business segments;
theatre 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 a networked basis.
F-19
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) SEGMENT INFORMATION, CONTINUED
The following table presents certain information relating to the
theatre operations and Satellite Theatre Network(TM) segments for each
of the last three years (amounts in millions):
<TABLE>
<CAPTION>
THEATRE SATELLITE
OPERATIONS THEATRE NETWORK TOTAL
---------- --------------- -----
<S> <C> <C> <C>
1998
----
Revenue............................................ $ 656.6 5.5 662.1
Operating income (loss)............................ (2.7) 0.4 (2.3)
Depreciation and amortization...................... 53.8 0.1 53.9
Assets............................................. 575.2 3.9 579.1
Capital expenditures............................... 116.9 -- 116.9
1997
----
Revenue............................................ 677.6 6.2 683.8
Operating income (loss)............................ 1.0 0.6 1.6
Depreciation and amortization...................... 58.9 0.1 59.0
Assets............................................. 559.1 3.9 563.0
Capital expenditures............................... 67.4 -- 67.4
1996
----
Revenue............................................ 671.1 6.0 677.1
Operating income (loss)............................ 2.4 (1.1) 1.3
Depreciation and amortization...................... 74.2 -- 74.2
Assets............................................. 608.8 3.9 612.7
Capital expenditures............................... 67.1 -- 67.1
</TABLE>
(17) 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 United Artists' cumulative foreign
currency translation adjustment. For the years ended December 31, 1998,
1997 and 1996, the change in the cumulative foreign currency
translation adjustment was $0.4 million, $0.1 million, and $0.4
million, respectively.
(18) COMMITMENTS AND CONTINGENCIES
United Artists conducts a significant portion of its theatre and
corporate operations in leased premises. These leases have
noncancelable terms expiring at various dates after December 31, 1998.
Many leases have renewal options. Most of the leases provide for
contingent rentals based on the revenue results of the underlying
theatre and require the payment of taxes, insurance, and other costs
applicable to the property. Also, certain leases contain escalating
minimum rental provisions that have been accounted for on a
straight-line basis over the initial term of the leases.
F-20
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(18) COMMITMENTS AND CONTINGENCIES, CONTINUED
Rent expense for theatre and corporate operations is summarized as
follows (amounts in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997* 1996*
---- ---- ----
<S> <C> <C> <C>
Minimum rental..................................... $ 79.5 75.4 71.7
Contingent rental.................................. 3.0 3.7 3.4
Effect of leases with escalating
minimum annual rentals........................... 4.0 3.7 3.1
Rent tax........................................... 0.6 0.5 0.6
---- ---- ----
$ 87.1 83.3 78.8
==== ==== ====
</TABLE>
*Restated
Approximately $14.5 milllion, $12.8 million and $11.0 million of the
minimum rentals reflected in the preceding table for the years ended
December 31, 1998, 1997 and 1996, respectively, were incurred pursuant
to the sale and leaseback transactions (see note 3).
Future minimum lease payments under noncancelable operating leases for
each of the next five years and thereafter are summarized as follows
(amounts in millions):
<TABLE>
<S> <C>
1999............................................................. $ 88.6
2000............................................................. 85.8
2001............................................................. 84.0
2002............................................................. 81.5
2003............................................................. 79.7
Thereafter....................................................... 580.7
</TABLE>
Included in the future minimum lease payments table above are lease
payments relating to theatres which United Artists intends to sell or
close. To the extent United Artists is successful in disposing of these
theatres, the future minimum lease payments will be decreased.
It is expected that in the normal course of business, desirable leases
that expire will be renewed or replaced by other leases.
At December 31, 1998, United Artists had entered into theatre
construction and equipment commitments aggregating approximately $39.0
million for five new theatres (68 screens) and for renovations and
stadium seating to three existing theatres (36 screens) which United
Artists intends to open or renovate during 1999. Such amount relates
only to projects in which United Artists has executed a definitive
lease agreement and all significant lease contingencies have been
satisfied.
United Artists 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
other various claims against United Artists relating to certain of the
leases held by United Artists. Although it is not possible to predict
the outcome of these proceedings, United Artists believes that such
legal proceedings will not have a material adverse effect on United
Artists' financial position, liquidity or results of operations.
The Americans with Disabilities Act of 1990 (the "ADA") and certain
state statutes, among other things, require that places of public
accommodation, including theatres (both existing and newly
constructed), be accessible to and that assistive listening devices be
available for use by certain patrons with disabilities. With respect to
access to theatres, the ADA may require that certain modifications be
made to existing theatres to make such theatres accessible to certain
theatre patrons and employees who
F-21
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(18) COMMITMENTS AND CONTINGENCIES, CONTINUED
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
attorneys' fees and expenses under certain circumstances. United
Artists has established a program to review and evaluate United
Artists' theatres and to make any changes that may be required by the
ADA. In 1995, United Artists settled the lawsuit styled CONNIE ARNOLD
ET AL. VS. UATC, filed in 1991. This lawsuit involved allegations that
certain of United Artists' theatres lacked accessibility to persons
with mobility disabilities in violation of the ADA. In the settlement
agreement, UATC, the plaintiffs and the Department of Justice
established standards of modifications that must be made to United
Artists theatres throughout the United States to make them more
accessible to persons with disabilities. United Artists believes that
the cost of complying with the ADA and the settlement agreement in the
CONNIE ARNOLD case will not have a material adverse effect on United
Artists' financial position, liquidity or results of operations.
F-22
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
APRIL 1, 1999 DECEMBER 31, 1998
------------- -----------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 6.0 8.2
Receivables, net ............................................... 19.1 19.4
Prepaid expenses and concession inventory....................... 20.4 15.0
Other assets.................................................... 0.5 0.7
------ ------
Total current assets......................................... 46.0 43.3
Investments and related receivables............................... 6.7 8.3
Property and equipment, at cost:
Land............................................................ 41.9 44.0
Theatre buildings, equipment and other.......................... 599.9 592.5
------ -----
641.8 636.5
Less accumulated depreciation and amortization.................. (223.4) (216.4)
------ ------
418.4 420.1
Intangible assets, net............................................ 78.9 81.3
Net assets of discontinued operations (note 8).................... 3.4 3.4
Other assets, net (note 3)........................................ 23.7 22.7
------ ------
$ 577.1 579.1
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------
Current liabilities:
Accounts payable................................................ $ 73.5 93.9
Accrued and other liabilities................................... 44.3 40.7
Current portion of long-term debt (notes 3 and 6)............... 8.2 8.5
------ ------
Total current liabilities.................................... 126.0 143.1
Other liabilities (note 4)........................................ 49.7 48.3
Debt (notes 3 and 6).............................................. 685.9 645.4
Liabilities to discontinued operations (note 8)................... 4.3 4.9
------ ------
Total liabilities............................................ 865.9 841.7
Minority interests in equity of consolidated
subsidiaries................................................. 5.3 5.6
Stockholders' equity (deficit) (note 3):
Common stock:
Class A...................................................... 0.1 0.1
Class B...................................................... -- --
Class C...................................................... -- --
Additional paid-in capital...................................... 51.1 51.1
Accumulated deficit............................................. (343.3) (317.5)
Treasury stock.................................................. (2.0) (1.9)
------ ------
Total stockholders' equity (deficit)......................... (294.1) (268.2)
------- ------
$ 577.1 579.1
====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-23
<PAGE>
UNITED ARTISTS THEATRE COMPANY
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............................................................. 4.5 4.3
----- -----
134.9 164.3
----- -----
Costs and expenses:
Film rental and advertising expenses.............................. 52.1 60.9
Direct concession costs........................................... 4.7 6.5
Occupancy expense (note 4)........................................ 23.0 20.5
Other operating expenses.......................................... 45.5 45.3
General and administrative........................................ 6.0 5.4
Depreciation and amortization..................................... 14.2 13.5
----- ------
145.5 152.1
----- -----
Operating income (loss) from continuing operations................ (10.6) 12.2
Other income (expense):
Interest, net (notes 3 and 6)..................................... (15.4) (10.0)
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)
------ ------
(15.0) (10.7)
------ ------
Income (loss) from continuing operations before
income tax expense and discontinued operations................. (25.6) 1.5
Income tax expense (note 9)............................................ (0.2) (0.3)
------ ------
Income (loss) from continuing operations.......................... (25.8) 1.2
Discontinued operations (note 8)....................................... - (1.2)
------- -----
Net income (loss)................................................. (25.8) -
Dividends on preferred stock (note 3).................................. - (6.7)
------ ------
Net loss available to common stockholders......................... $ (25.8) (6.7)
====== ======
</TABLE>
*Restated
See accompanying notes to condensed consolidated financial statements.
F-24
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
(Amounts in Millions)
(Unaudited)
<TABLE>
<CAPTION>
COMMON COMMON COMMON ADDITIONAL TOTAL
STOCK STOCK STOCK PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
CLASS A CLASS B CLASS C CAPITAL DEFICIT STOCK EQUITY (DEFICIT)
-------- ------- -------- ---------- ----------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999..................... $ 0.1 - - 51.1 (317.5) (1.9) (268.2)
Purchase of treasury stock..................... - - - - - (0.1) (0.1)
Net loss....................................... - - - - (25.8) - (25.8)
------ ------ ------ ------ ------ ------ --------
Balance at April 1, 1999 ...................... $ 0.1 - - 51.1 (343.3) (2.0) (294.1)
===== ====== ======= ==== ======= ===== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-25
<PAGE>
UNITED ARTISTS THEATRE COMPANY
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........................................ $ (21.0) (0.6)
------ -----
Cash flow from investing activities:
Capital expenditures.................................................... (21.3) (17.4)
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................................ (15.4) (20.2)
----- -----
Cash flow from financing activities:
Debt borrowings......................................................... 53.0 42.0
Debt repayments......................................................... (12.8) (26.4)
Increase (decrease) in cash overdraft................................... (4.4) 1.8
Other, net.............................................................. (1.6) (0.1)
----- -----
Net cash provided by financing activities............................ 34.2 17.3
----- -----
Net decrease in cash................................................. (2.2) (3.5)
Cash and cash equivalents:
Beginning of period..................................................... 8.2 10.8
----- -----
End of period........................................................... $ 6.0 7.3
===== =====
Reconciliation of net income (loss) to net cash used in
operating activities:
Net income (loss)............................................................ $ (25.8) --
Discontinued operations...................................................... (0.6) 0.4
Effect of leases with escalating minimum annual rentals...................... 1.2 0.9
Depreciation and amortization................................................ 14.2 13.5
Gain on disposition of assets, net........................................... (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............................................................ 0.7 0.2
Accounts payable........................................................ (7.2) (8.0)
Accrued and other liabilities........................................... 2.6 (4.2)
----- -----
Net cash used in operating activities................................ $ (21.0) (0.6)
===== =====
</TABLE>
*Restated
See accompanying notes to condensed consolidated financial statements.
F-26
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
April 1, 1999
(Unaudited)
(1) GENERAL INFORMATION
United Artists Theatre Company ("United Artists") (formerly known as
OSCAR I Corporation), a Delaware corporation, was formed in February
1992 for the purpose of purchasing United Artists Theatre Circuit, Inc.
("UATC") from an affiliate of Tele-Communications, Inc. ("TCI"). United
Artists is owned by an investment fund managed by affiliates of Merrill
Lynch Capital Partners, Inc. ("MLCP") and certain institutional
investors (collectively, the "Non-Management Investors"), and certain
members of UATC's management. On May 12, 1992, United Artists purchased
all of the outstanding common stock of UATC from an affiliate of TCI
(the "Acquisition").
In addition to its ownership of UATC, United Artists 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 and its subsidiaries.
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 that are necessary to
present fairly the financial position of United Artists 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
United Artists' Form 10-K.
(2) CHANGE IN REPORTING PERIOD
During 1999, United Artists 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. This change was
made to more accurately reflect United Artists' 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, United Artists 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") (approximately $272.5 million)
and to fund the redemption of United Artists' preferred stock
(approximately $159.2 million) and the redemption of UATC's $125
million senior secured notes (the "Senior Secured Notes") at 102.875%
of par value plus accrued but unpaid interest of approximately $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).
F-27
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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. United Artists realized a net gain of
approximately $12.1 million as a result of this sale and leaseback
transaction. For financial statement purposes, this gain has been
deferred and is being recognized over the term of the lease as a
reduction of rent expense. 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 $9.8 million and $7.3 million for the
thirteen weeks ended April 1, 1999 and the three months ended March 31,
1998, respectively.
United Artists 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).
(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
Senior Subordinated Notes (b)................ 275.0 275.0
Other (c).................................... 11.8 13.6
----- -----
694.1 653.9
Less current portion......................... (8.2) (8.5)
----- -----
$ 685.9 645.4
===== =====
</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").
F-28
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) DEBT, CONTINUED
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 United Artists, but no less frequently than
once each 90 days.
The New Bank Credit Facility is guaranteed, on a joint and
several basis, by UATC, 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 United
Artists and by an intercompany note from UATC to United
Artists established with respect to borrowings by UATC from
United Artists. Additionally, the New Bank Credit Facility
will be secured by mortgages on certain of United Artists'
properties.
The New Bank Credit Facility contains provisions that require
United Artists to maintain certain financial ratios and places
limitations on, among other things, capital expenditures,
additional indebtedness, disposition of assets and restricted
payments.
(b) The Senior Subordinated Notes consist of $225.0 million of the
9.75% Fixed Rate Subordinated Notes and $50.0 million of the
Floating Rate Subordinated Notes. Interest on the Fixed Rate
Subordinated Notes is due semi-annually. Interest on the
Floating Rate Subordinated Notes is due quarterly and is
calculated based upon the three month LIBOR rate plus 4.375%.
The Fixed Rate Subordinated Notes may be redeemed at the
option of United Artists, in whole, or in part, any time on or
after April 15, 2003. The Floating Rate Subordinated Notes may
be redeemed at any time at the option of United Artists, in
whole or in part, any time on or after April 15, 1999. Upon a
change of control (as defined in the respective indentures
(the "Indentures") under which the Senior Subordinated Notes
were issued), the holders of the Senior Subordinated Notes
have the right to require United Artists to purchase all or
any portion of such holders Senior Subordinated Notes at a
purchase price equal to 101% of the principal amount thereof
together with accrued and unpaid interest, if any, to the date
of purchase.
The Indentures contain certain covenants that place
limitations on, among other things, the incurrence of
additional indebtedness by United Artists and any of its
subsidiaries, the payment of dividends, the redemption of
capital stock, the making of investments, the issuance of
capital stock of subsidiaries, the creation of dividend and
other restrictions affecting subsidiaries, transactions with
affiliates, asset sales and certain mergers and
consolidations.
The Senior Subordinated Notes are unsecured, senior
subordinated obligations of United Artists and are
subordinated in right of payment to all existing and future
senior indebtedness of United Artists including borrowings
under the New Bank Credit Facility. The Fixed Rate
Subordinated Notes rank PARI PASSU with the Floating Rate
Subordinated Notes.
F-29
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) DEBT, CONTINUED
(c) Other debt at April 1, 1999 consists of various term loans,
mortgage notes, capital leases, seller notes 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, United Artists 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. United Artists is subject to credit
risk exposure from non-performance of the counterparties to the
interest rate cap agreements. As United Artists 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, United Artists had approximately $41.0 million of
Revolving Facility commitments, $4.1 million of which has been used
for the issuance of letters of credit. United Artists 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 comes from
payments by UATC to United Artists. The amount of payments by UATC to
United Artists 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 $0.4
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 $0.2 million and $0.1 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
The carrying amount and estimated fair value of United Artists'
financial instruments at April 1, 1999 are summarized as follows
(amounts in millions):
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
---------- ------------
<S> <C> <C>
New Bank Credit Facility and Other Debt................ $ 419.1 419.1
===== =====
Senior Subordinated Notes.............................. $ 275.0 241.3
===== =====
Interest Rate Collar Agreements........................ $ -- (0.8)
===== =====
</TABLE>
New Bank Credit Facility and Other Debt: The carrying amount of United
Artists' borrowings under the New Bank Credit Facility and other debt
approximates fair value because the interest rates on the majority of
this debt floats with market interest rates.
Senior Subordinated Notes: The fair value of United Artists' Senior
Subordinated Notes is estimated based upon quoted market prices at
April 1, 1999.
Interest Rate Collar Agreements: The fair value of United Artists'
interest rate collar agreements is estimated based upon dealer quotes
for similar agreements at April 1, 1999.
F-30
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(8) DISCONTINUED OPERATIONS
During 1998, United Artists 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 $3.4 million at April 1,
1999 and December 31, 1998. Liabilities related to the discontinued
operations were $4.3 million at April 1, 1999 and $4.9 million at
December 31, 1998. The net loss from discontinued operations was $1.2
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 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 United Artists' average
borrowing rate.
(9) INCOME TAXES
Consolidated subsidiaries in which United Artists 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 United Artists.
At April 1, 1999, United Artists had a net operating loss carryforward
for federal income tax purposes of approximately $183.0 million.
United Artists' 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 United Artists' net operating
loss carryforward and/or change the basis (and thus future tax
depreciation) related to certain assets. United Artists believes that
the result of the audit will not have a material adverse effect on its
financial condition or results of operation.
(10) SEGMENT INFORMATION
United Artists' operations are classified into two business segments;
theatre 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 a 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
For the thirteen weeks ended April 1, 1999 Operations Theatre Network Total
------------------------------------------ ---------- --------------- -----
<S> <C> <C> <C>
Revenue....................................... $ 133.8 1.1 134.9
Operating income (loss)....................... (10.6) - (10.6)
Depreciation and amortization................. 13.9 0.3 14.2
Assets........................................ 573.2 3.9 577.1
Capital expenditures.......................... 21.3 - 21.3
</TABLE>
F-31
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(10) SEGMENT INFORMATION, CONTINUED
<TABLE>
<CAPTION>
For the three months ended March 31, 1998
-----------------------------------------
<S> <C> <C> <C>
Revenue...................................... 162.9 1.4 164.3
Operating income (loss)...................... 12.4 (0.2) 12.2
Depreciation and amortization................ 13.2 0.3 13.5
Assets....................................... 556.6 3.9 560.5
Capital expenditures......................... 17.4 - 17.4
</TABLE>
(11) 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 United Artists' 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.
(12) COMMITMENTS AND CONTINGENCIES
United Artists and/or its subsidiaries are 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 United Artists
and/or its subsidiaries relating to certain of the leases held by
United Artists and/or its subsidiaries. Although it is not possible to
predict the outcome of these proceedings, United Artists believes that
such legal proceedings will not have a material adverse effect on the
United Artists' financial position, liquidity or results of operations.
The Americans With Disabilities Act of 1990 (the "ADA") and certain
state statutes, among other things, require that places of public
accommodation, including theatres (both existing and newly constructed)
be accessible to and that assistive listening devices be available for
use by certain patrons with disabilities. With respect to access to
theatres, the ADA may require that certain modifications be made to
existing theatres 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 attorneys' fees and expenses under certain
circumstances. United Artists has established a program to review and
evaluate United Artists' theatres and to make any changes that may be
required by the ADA. United Artists' believes that the cost of
complying with the ADA will not have a material adverse affect on
United Artists' financial position, liquidity or results of operations.
F-32
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY UNITED ARTISTS OR THE INITIAL PURCHASERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF UNITED ARTISTS SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 10
The Refinancing Transactions.................... 17
Use of Proceeds................................. 17
Capitalization.................................. 18
Selected Historical Consolidated Financial
Information.................................. 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22
Business........................................ 38
Management...................................... 48
Certain Transactions............................ 54
Principal Stock Ownership....................... 55
Description of Certain Indebtedness............. 56
Description of the Notes........................ 59
Restrictions Imposed by the 1995 Sale
Leaseback.................................... 82
Description of Certain Federal Income Tax
Consequences of an Investment in the
Notes........................................ 84
Plan of Distribution............................ 87
Validity of the Notes........................... 87
Experts......................................... 87
Index to Financial Statements................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED ARTISTS THEATRE COMPANY
FLOATING RATE SERIES B
SENIOR SUBORDINATED NOTES
DUE 2007
($50,000,000 PRINCIPAL AMOUNT)
PROSPECTUS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation in such a capacity at another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgements, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that such person's conduct was unlawful.
Section 145 of the DGCL also provides that a corporation may indemnify any
person who was or is a party or threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgement in its favor by reason of the fact that
such person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by such person
in connection with the defense or settlement of such action or suit if such
person acted under similar standards, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all of the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
Section 145 of the DGCL also provides that to the extent that a director,
officer, employee or agent of a corporation is successful on the merits or
otherwise in the defense of any action referred to above, or in defense of
any claim, issue or matter therein, the corporation must indemnify such
person against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
In accordance with section 145 of the DGCL, The Registrant's Amend and
Restated Certificate of Incorporation (the "Certificate of Incorporation")
provides that the Registrant will indemnify and hold harmless, to the fullest
extent authorized by the DGCL (as existing or amended, but in the case of
such amendment, only to the extent such amendment permits the Registrant to
provide broader indemnification rights than prior to such amendment), each
person who was or is made a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is, or
a person of whom he or she is the legal representative, is or was a director
or officer of the Registrant or is or was serving at the request of the
Registrant as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity
II-1
<PAGE>
while serving as a director, officer, employee or agent, against all expense,
liability and loss (including attorneys' fees, judgements, fines ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection with such action, suit or
proceeding, and such indemnification will continue as to a person who has
ceased to be a director, officer, employee or agent and will inure to the
benefit of his or her heirs, executors and administrators: provided, however,
that, except as provided in the Certificate of Incorporation of the
Registration the Registration will indemnify any such person seeking
indemnification in connection with a proceeding initiated by such person only
if such proceeding was authorized by the Board of Directors.
The Registrant's Certificate of Incorporation also provides that the right to
indemnification is a contract right and includes the right to be paid by the
Registrant the expense incurred in defending any such proceeding in advance
of its final disposition: provided, however, that, if the DGCL requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, will be made only upon
delivery of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall be ultimately be determined that
such director or officer is not entitled to be indemnified by the Registrant
by law or pursuant to the Registrant's Certificate of Incorporation.
Section 102(b) (7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of a corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the directors' duty of loyalty to the corporation or its
stockholders, (ii) for the acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL (regarding certain illegal distributions) or (iv) for
any transaction from which the director derived an improper personal benefit.
The Registrant's Certificate of Incorporation provides that the personal
liability of the Registrant's directors to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director is limited to
the fullest extent permitted by Delaware law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 - Amended and Restated Certificate of Incorporation of United Artists
Theatre Company (1)
3.1 - By-Laws of United Artists Theatre Company (1)
4.1 - Indenture, dated as of April 21, 1998, by and among the Company and
State Street Bank and Trust Company of Missouri, N.A. with respect to
the 9 3/4% Senior Subordinated Notes due 2008 (1)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4.2 - Indenture, dated as of April 21, 1998, by and among the Company and
State Street Bank and Trust Company of Missouri, N.A. with respect to
the Floating Rate Senior Subordinated Notes due 2007 (1)
4.3 - Form of 9 3/4% Senior Subordinated Note (included in Exhibit 4.1) (1)
4.4 - Form of Floating Rate Senior Subordinated Note (included in Exhibit
4.2) (1)
4.5 - Form of 9 3/4% Series B Senior Subordinated Note (included in Exhibit
4.1) (1)
4.6 - Form of Floating Rate Series B Senior Subordinated Note (included in
Exhibit 4.2) (1)
5.1 - Opinion of Wachtell, Lipton, Rosen & Katz with respect to the
Floating Rate Series B Senior Subordinated Notes doe 2007 (1)
10.1 - Registration Rights Agreement, dated as of April 21, 1998, by and
among the Company and Merrill Lynch & Co., Merill Lynch Pierce, Fenner
& Smith Incorporated BancAmerica Robertson Stephens, Morgan Stanley &
Co. Incorporated, BancBoston Securities Inc. and NationsBanc Montgomery
Securities LLC (1)
10.2 - Registration Rights Agreement, dated as of April 21, 1998, by and
among the Company and Merrill Lynch & Co., Merill Lynch Pierce, Fenner
& Smith Incorporated (1)
10.3 - Credit Agreement, dated as of April 21, 1998, by and among the
Company, Bank of American National Trust and Savings Association,
BancBoston, N.A., NationsBank Texas, N.A., Merill Lynch Capital
Corporation and Morgan Stanley Senior Funding. Inc. and the lenders
party thereto (1)
10.4 - Trust Indenture and Security Agreement dated as of December 13, 1995,
between Wilmington Trust Company, William J. Wade and Fleet National
Bank of Connecticut, and Alan B. Coffey (4)
10.5 - Pass Through Certificates, Series 1995-A Registration Rights
Agreement, dated as of December 13, 1995 among United Artists Theatre
Circuit, Inc., Morgan Stanley & Co. Incorporated and Merrill Lynch,
Pierce, Fenner & Smith Incorporated (4)
10.6 - Participation Agreement, dated as of December 13, 1995, among United
Artists Theatre Circuit, Inc., Wilmington Trust Company, William J.
Wade, Theatre Investors, Inc., Northway Mall Associates, LLC,
Wilmington Trust Company, William J. Wade, Fleet National Bank of
Connecticut, Alan B. Coffey and Fleet National Bank of Connecticut (4)
10.7 - Pass Through Trust Agreement, dated as of December 13, 1995, between
United Artists Theatre Circuit, Inc. and Fleet National Bank of
Connecticut (4)
10.8 - Lease Agreement, dated as of December 13, 1995, between Wilmington
Trust Company and William J. Wade and United Artists Theatre Circuit,
Inc (4)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.9 - Lease Agreement, dated as of October 1, 1988, between United Artists
Properties I and United Artists Theatre Circuit, Inc (2)
10.10 - United Artists Theatre Company Stock Incentive Plan (1)
10.11 - Stockholders' Agreement, dated as of May 12, 1992, by and
among Oscar I Corporation, Merrill Lynch Capital Appreciation
Partnership No. B-XIX, L.P., Roman Nineteen Offshore Fund
B.V., ML IBK Positions, Inc., MLCP Associates L.P. No. II,
Equitable Capital Private Income and Equity Partnership II, L.
P. and Equitable Deal Flow Fund, L. P. and the holders of
Options or Restricted Stock awards under the Management Stock
Option Plan (2)
10.12 - Stock Subscription Agreement, dated as of May 12, 1992, by and
among Oscar I Corporation, Merrill Lynch Capital Appreciation
Partnership No. B-XIX, L.P., Roman Nineteen Offshore Fund
B.V., ML IBK Positions, Inc., MLCP Associates L.P. No. II,
Equitable Capital Private Income and Equity Partnership II, L.
P. and Equitable Deal Flow Fund, L. P. (2)
10.13 - Non-Competition Agreement, dated May 12, 1992, by and among
Tele-Communications, Inc., United Artists Theatre Circuit, Inc. and
Oscar I Corporation (2)
10.14 - Trademark Agreement, dated May 12, 1992, by United Artists
Entertainment Company, United Artists Holdings, Inc., United Artists
Cable Holdings, Inc., United Artists Theatre Holding Company, on the
one hand and United Artists Theatre Circuit, Inc., United Artists
Realty Company, UAB, Inc., and UAB II, Inc., on the other hand (2)
10.15 - United Artists Theatre Circuit 401(k) Savings Plan (2)
10.16 - United Artists Theatre Circuit Supplemental 401(k) Savings Plan (3)
10.17 - Tax Sharing Agreement, dated as of May 12, 1992, between Oscar I
Corporation and United Artists Theatre Circuit, Inc. (2)
10.18 - Employment Agreement, dated as of May 12, 1992, between the Company
and Kurt C. Hall (2)
10.19 - Employment Agreement Extension Letter, dated as of May 12, 1998,
between the Company and Kurt C. Hall (1)
10.20 - United Artists Theatre Company 1998 Management Stock Plan (4)
10.21 - Amendment to the United Artists theatre Circuit, Inc. 401(k) Savings
Plan dated as of January 1, 1998 (5)
10.22 - Second Amendment to the Credit Agreement dated as of April 21,
1998 (6)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
12.1 - Statement re computation of ratios.
21.1 - Subsidiaries of the Company. (1)
23.1 - Consent of Arthur Andersen LLP.
25.1 - Statement of Eligibility and Qualification of Trustee on Form T-1 of
State Street Bank and Trust Company of Missouri, N.A. under the Trust
Indenture Act of 1939 (1)
27.1 - Financial Data Schedule
99.1 - Form of Letter of Transmittal for the Floating Rate Senior
Subordinated Notes due 2007 (1)
99.2 - Form of Notice of Guaranteed Delivery (1)
99.3 - Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (1)
(b) Financial Statement Schedules
- --------------
(1) Incorporated herein by reference from Form S-4 dated June 16, 1998
(2) Incorporated herein by reference from Form S-1 dated October 5, 1992
(3) Incorporated herein by reference from Form 10-K for the year ended
December 31, 1993
(4) Incorporated herein by reference from Form S-2 dated January 31, 1996
(5) Incorporated herein by reference from Form 10-K for the year ended
December 31, 1996
(6) Incorporated herein by reference from Form 8-K dated April 9, 1999
</TABLE>
II-5
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment, to this Registration
Statement:
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or
13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class
or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date
of the registration statement through the date of responding
to the request.
II-6
<PAGE>
(c) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being
acquired involved therein, that was not subject of and
included in the registration statement when it became
effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Englewood, State of Colorado, on July 15, 1999.
United Artists Theatre Company
By: /s/ Kurt C. Hall
-------------------------------------
Name: Kurt C. Hall
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on July 15, 1999.
NAME TITLE
/s/ Kurt C. Hall President, Chief Executive
----------------------------------- Officer and Director
Kurt C. Hall (principal executive officer)
/s/ Trent J. Carman Senior Vice President, Chief
----------------------------------- Financial Officer and
Trent J. Carman Treasurer (principal financial
and accounting officer)
/s/ John W. Boyle Chairman of the Board and
----------------------------------- Director
John W. Boyle
/s/ Albert J. Fitzgibbons, III Director
-----------------------------------
Albert J. Fitzgibbons, III
II-7
<PAGE>
/s/ James J. Burke, Jr. Director
-----------------------------------
James J. Burke, Jr.
/s/ Robert F. End Director
-----------------------------------
Robert F. End
/s/ Scott M. Shaw Director
-----------------------------------
Scott M. Shaw
/s/ Michael L. Pade Director
-----------------------------------
Michael L. Pade
II-8
<PAGE>
Exhibit 12.1
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
12/31/94 12/31/95* 12/31/96* 12/31/97*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
EARNINGS:
Pretax income (loss from
continuing operations...................... (28.5) (62.4) (43.3) (20.1)
Minority interest in earnings of
consolidated subsidiaries
that have fixed charges................... 0.8 1.2 0.8 1.3
Fixed charges(from below).................... 63.8 73.7 69.8 71.0
Total Earnings (Loss)........................ 36.1 12.5 27.3 52.2
FIXED CHARGES:
Interest expense and
amortization of debt expense............... 45.4 53.9 44.9 44.8
Rent expense representing
interest................................... 18.4 19.8 24.9 26.2
Total Fixed Charges.......................... 63.8 73.7 69.8 71.0
Ratio of Earnings to Fixed Charges........... - - - -
Deficiency................................... 27.70 61.20 42.5 18.8
CONSIDERATION OF MANAGEMENT FEES ON
RATIO OF EARNINGS TO FIXED CHARGES:
Management Fees.............................. n/a n/a n/a n/a
Total Earnings............................... n/a n/a n/a n/a
Total Fixed Charges.......................... n/a n/a n/a n/a
Ratio of Earnings to Fixed Charges........... n/a n/a n/a n/a
<CAPTION>
12/31/98 3/31/98* 4/1/99
-------- ------- ------
<S> <C> <C> <C>
EARNINGS:
Pretax income (loss from
continuing operations...................... (60.2) 1.5 (25.6)
Minority interest in earnings of
consolidated subsidiaries
that have fixed charges................... 1.3 0.4 0.1
Fixed charges(from below).................... 82.2 16.9 23.0
Total Earnings (Loss)........................ 23.3 18.8 (2.5)
FIXED CHARGES:
Interest expense and
amortization of debt expense............... 57.9 10.2 15.6
Rent expense representing
interest................................... 27.3 6.7 7.4
Total Fixed Charges.......................... 82.2 16.9 23.0
Ratio of Earnings to Fixed Charges........... - 1.1 -
Deficiency................................... 58.9 - 25.50
CONSIDERATION OF MANAGEMENT FEES ON
RATIO OF EARNINGS TO FIXED CHARGES:
Management Fees.............................. n/a n/a n/a
Total Earnings............................... n/a n/a n/a
Total Fixed Charges.......................... n/a n/a n/a
Ratio of Earnings to Fixed Charges........... n/a n/a n/a
</TABLE>
* Restated
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accounts, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement (No. 333-56985).
ARTHUR ANDERSEN LLP
Denver, Colorado
July 15, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-01-1999
<CASH> 6,000
<SECURITIES> 0
<RECEIVABLES> 19,100
<ALLOWANCES> 0
<INVENTORY> 20,400
<CURRENT-ASSETS> 46,000
<PP&E> 641,800
<DEPRECIATION> (223,400)
<TOTAL-ASSETS> 577,100
<CURRENT-LIABILITIES> 126,000
<BONDS> 685,900
0
0
<COMMON> 100
<OTHER-SE> (294,200)
<TOTAL-LIABILITY-AND-EQUITY> 571,800
<SALES> 37,000
<TOTAL-REVENUES> 134,900
<CGS> 4,700
<TOTAL-COSTS> 145,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15,400)
<INCOME-PRETAX> (25,600)
<INCOME-TAX> (200)
<INCOME-CONTINUING> (25,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,800)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
