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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 1999 Commission file number: 333-56985
333-56999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
UNITED ARTISTS THEATRE COMPANY
(exact name of registrant as specified in charter)
DELAWARE 84-1198391
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9110 E. Nichols Avenue, Suite 200
ENGLEWOOD, CO 80112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 792-3600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant. N/A.
As of April 10, 2000, 11,551,383 shares of Class A Common Stock, 419,783
shares of Class B Common Stock (including options to acquire 387,408 shares
of Class B Common Stock exercisable within 60 days of such date) and 4,342
shares of Class C Common Stock were outstanding.
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UNITED ARTISTS THEATRE COMPANY
Annual Report on Form 10-K
December 30, 1999
TABLE OF CONTENTS
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PART I
Page
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Item 1 - Business 3
Item 2 - Properties 15
Item 3 - Legal Proceedings 15
Item 4 - Submission of Matters to a Vote of Security Holders 15
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder
Matters 16
Item 6 - Selected Financial Data 16
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Item 7(A) - Quantitative and Qualitative Disclosures About Market Risk 30
Item 8 - Financial Statements and Supplementary Data 31
Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 31
PART III
Item 10 - Directors and Executive Officers of the Registrant 53
Item 11 - Executive Compensation 55
Item 12 - Security Ownership of Certain Beneficial Owners and Management 58
Item 13 - Certain Relationships and Related Transactions 60
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 61
Signatures
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CAUTIONARY STATEMENT REGARDING
FORWARD LOOKING STATEMENTS
CERTAIN OF THE MATTERS DISCUSSED IN THIS FORM 10-K MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SECURITIES ACT OF 1933, AS
AMENDED AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE UNCERTAINTIES AND OTHER FACTORS AND THE
ACTUAL RESULTS AND PERFORMANCE OF 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
"BUSINESS", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK." ADDITIONALLY, CERTAIN OF SUCH RISKS AND UNCERTAINTIES RELATE TO
THE HIGHLY LEVERAGED NATURE OF UNITED ARTISTS, 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 CAPITAL APPRECIATION FUND II AND THE
DEPENDENCE OF UNITED ARTISTS ON KEY PERSONNEL, AMONG OTHERS. ADDITIONALLY,
UNITED ARTISTS' ABILITY TO SUCCESSFULLY IMPLEMENT ITS BUSINESS AND OPERATING
STRATEGY MAY BE DEPENDENT UPON REORGANIZING ITS CAPITAL STRUCTURE AS DISCUSSED
HEREIN.
THE FOREGOING CAUTIONARY STATEMENTS EXPRESSLY QUALIFY ALL WRITTEN OR ORAL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO UNITED ARTISTS.
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
United Artists Theatre Company ("United Artists") (formerly known as Oscar I
Corporation) and an affiliated company OSCAR II Corporation ("OSCAR II") were
formed in February 1992 for the purpose of acquiring United Artists Theatre
Circuit, Inc. ("UATC") and United Artists Realty Company ("UAR") from an
affiliate of Tele-Communications, Inc. ("TCI"). OSCAR II was subsequently merged
into OSCAR I Corporation.
Merrill Lynch Capital Appreciation Fund II ("ML Fund II"), a private equity
investment fund managed by Merrill Lynch Capital Partners, Inc., certain
institutional investors, and certain members of United Artists' management own
United Artists. On May 12, 1992, United Artists purchased all of the outstanding
common stock of UATC from the 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. In
addition to the development of 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 businesses. To separately finance its significant real
estate holdings to provide capital for reinvestment, UAR and two of its
subsidiaries, United Artists Properties I Corp. ("Prop I") and United Artists
Properties II Corp. ("Prop II"), were formed and several of UATC's fee-owned
theatre properties were transferred to those entities and then leased back to
UATC. The theatre land and buildings were then mortgaged as part of various
mortgage bond financings.
From 1986 through 1989, UACI's growth was the result of the acquisition of
several regional theatre circuits predominantly in Pennsylvania, Georgia, North
and South Carolina, Louisiana, Arkansas, Mississippi, Arizona, Nevada and
Colorado. Subsequent to these acquisitions UACI was the largest operator of
theatres in North America with 2,695 screens. From 1989 to the present UACI has
continued to consolidate the previously acquired operations through the
construction of new facilities and the sale or closure of numerous older,
smaller theatres.
In 1989 UACI changed its name 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
and pursued divestiture of UATC and UAR, which was completed in May 1992.
Subsequent to the Acquisition by ML Fund II, United Artists increased its
investments in new domestic theatres, international theatres and invested in
certain businesses that it believed were synergistic with its theatre
operations. These new businesses included virtual reality entertainment
centers and the Satellite Theatre
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Network(TM), a network of theatres that can be used for business meetings during
non-peak theatrical business hours.
In December of 1996, subsequent to the departure of United Artists' then CEO,
United Artists initiated a more focused operating and capital investment
strategy. This strategy was designed to improve the efficiency and quality of
its core operating theatre business and increase its market share within its key
domestic markets. As part of this strategy, substantially all of its
international operations were sold, its entertainment center business was
discontinued and certain domestic markets and theatres that were
under-performing or non-strategic were sold or earmarked for sale. The proceeds
from the sale of the international and domestic assets have been used to repay
debt and reinvested into new theatres and the expansion or renovation of
existing successful theatres in key domestic markets.
(b) NARRATIVE DESCRIPTION OF BUSINESS
United Artists is a leading motion picture exhibitor in North America. At
December 30, 1999, United Artists operated 2,018 screens at 283 theatres located
in 23 states. United Artists licenses films from all of the major and
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 43.2% of its screens are located in the top 20 DMAs. United
Artists believes that it is one of the largest single exhibitors, based on
number of screens, in many of its core areas of operation and that this market
position provides several operating benefits. Theatre operations in six states
(California, New York, Pennsylvania, Florida, Texas and Colorado) accounted for
approximately 57.6% and 56.7% of United Artists' total theatres and screens,
respectively, at December 30, 1999 and 63.3% of United Artists' theatrical
revenue for the fiscal year ended December 30, 1999.
United Artists has invested more than $520.3 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 39.2% of United Artists' screens (791 screens) have been
constructed since January 1, 1992. Virtually all of the theatres United
Artists has built since 1997 are state-of-the-art, 9 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. In addition, since 1997 eight theatres (77 screens) have been
rebuilt or renovated to accommodate stadium seating. These state-of-the-art
amenities will be included in United Artists' construction of all newly built
theatres as well as in renovations to existing theatres. 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 December 30, 1999, United Artists operated 30 theatres (318 screens) which
offered stadium seating. At December 30, 1999, approximately 89.0% of United
Artists' screens were located in theatres with five or more screens. United
Artists' average number of screens per theatre has increased 47.9% from 4.8
at January 1, 1992 to 7.1 at December 30, 1999.
During late 1997 several of United Artists' competitors initiated expansion
programs to aggressively build new stadium seating megaplexes (14 or more
screens) in an effort to gain market share. As a result of this unprecedented
increase in capital spending by other operators, several of United Artists'
older, smaller non-stadium seating theatres were adversely impacted. In
response to this market condition, United Artists, within the limitations
imposed by its capital structure and liquidity, has been seeking to defend
its competitive position through investments in its key market positions and
dispositions of those theatres that were unprofitable and could not compete
effectively against new stadium seating theatres.
During 1999 as the level of the capital spending of its competitors peaked,
United Artists implemented a plan intended to accelerate the divestitures of
under-performing and non-strategic theatres and real estate. At December 30,
1999, 55 operating theatres (371 screens), leases for 18 closed theatres, and
12 owned properties were included in its disposition plan. The 55 operating
theatres include 41 leased and five owned properties and nine properties
previously sold and leased back by United Artists. In addition to the effort
of United Artists' personnel, an outside consultant was engaged to facilitate
negotiations with landlords. The timing and cost of disposal of
under-performing theatres have been estimated based on recent progress,
ongoing settlement discussions and/or prospective tenants which have been
identified to take over the location. During 1999, 21 theatre leases (113
screens) were terminated and three parcels of real estate were sold. Net
proceeds of $9.9 million were received for the terminations and sales. The
earnings before interest, tax, depreciation and amortization plus other
non-recurring or non-cash operating credits
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or charges ("EBITDA") of these properties for the twelve months prior to the
termination or sale was a negative $2.8 million.
United Artists continues to face liquidity problems caused by its significant
debt burden and its continuing net losses. United Artists has incurred net
losses of $127.3 million, $98.0 million and $50.8 million in 1999, 1998 and
1997, respectively. United Artists' EBITDA in 1999, 1998, and 1997 were, and
absent recapitalization and restructuring its projected EBITDA in future years
is projected to be insufficient to support its current debt balances and
related interest obligations. United Artists' independent public accountants
included in their report on United Artists' consolidated financial statements
for the fiscal year ended December 30, 1999 an explanatory paragraph that
describes the significant uncertainty about United Artists' ability to
continue as a going concern due to recurring losses and insufficient
liquidity, and that United Artists' financial statements do no reflect any
adjustment that might result from the outcome of this uncertainty.
Due to a decline in its EBITDA and lack of operating liquidity, in February
2000, United Artists initiated discussions with the senior secured lenders
under its Bank Credit Facility, regarding a recapitalization plan. Once a
recapitalization plan has been approved by its senior secured lenders, United
Artists intends to initiate discussions with the holders of the Senior
Subordinated Notes, with resect to that recapitalization plan. There can be
no assurance that such negotiations will be successful and even if
successful, implementation of the recapitalization plan may require
additional actions with respect to the reorganization of United Artists.
United Artists is or soon will be in default under its Bank Credit Facility
and Senior Subordinated Notes, and in the absence of forbearance and
conclusion of a successful recapitalization and restructuring, the senior
secured lenders and Senior Subordinated Noteholders may seek to exercise
their remedies, including acceleration of indebtedness. In the absence of a
recapitalization and restructuring, management will not be able to implement
its business plan as expressed throughout this document, and United Artists
will have to explore other alternatives to reorganize United Artists.
On April 15, 2000, an interest payment of $12.3 million is due to the holders
of the Senior Subordinated Notes. United Artists will not make that payment
when due and will attempt to complete its negotiations with its senior
secured lenders under the Bank Credit Facility to recapitalize United Artists
during the 30-day Senior Subordinated Notes interest payment grace period and
then United Artists will present that plan to the holders of the Senior
Subordinated Notes for their consideration. There can be no assurance that
the holders of the Senior Subordinated Notes will consent to the plan. At the
end of the 30-day interest payment grace period under the Senior Subordinated
Notes, assuming that both the lenders under the Bank Credit Facility and the
holders of the Senior Subordinated Notes have not consented to a
recapitalization plan, the holders of the Senior Subordinated Notes may then
attempt to exercise any remedies available to them, including, without
limitation, acceleration of the indebtedness. The senior secured lenders
under the Bank Credit Facility have, however notified the holders of the
Senior Subordinated Notes of a default under the Bank Credit Facility and
blocked payment of the Senior Subordinated Notes for up to 180 days. A
financial and corporate reorganization of United Artists is likely whether or
not a consensual debt restructuring agreement can be reached with the lenders
under the Bank Credit Facility and the holders of the Senior Subordinated
Notes.
INDUSTRY OVERVIEW
According to the National Association of Theatre Owners, more than 400
participants in the domestic motion picture theatre exhibition business
operate approximately 37,200 screens in North America. At June 1999, the top
ten companies operated approximately 54.5% 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 45.5% of the
screens being operated by approximately 390 exhibitors. United Artists has
one of the largest shares of total screens with approximately 5.4% of all
screens in North America at December 30, 1999.
The majority of the theatres operated in North America are multi-screen theatres
with four to 12 screens and sloped floors ("multiplex"). During 1996 a new
theatre design known as the megaplex which generally has between 14 and 30
screens in a single theatre, became the industry standard in most major markets.
The multiplex and megaplex 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 and megaplexes have auditoriums
with 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 are staggered. The growth in the number of screens
operated nationally and the cost of construction have accelerated significantly
over the past three years. The number of screens increased 7.2% in each of 1997
and 1998 and 8.8% in 1999 while the cost per screen of a stadium seating
megaplex has increased to $1.0 million or more. In contrast, the annual average
rate of increase since 1978 was only approximately 3.9% and the cost per screen
was less than half of the current cost.
The growth of the number and quality of screens, strong domestic consumer
demand, growing foreign theatrical construction and 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 and megaplex
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 often release over 2,500
prints of a major film and open it nationally in one weekend. While these
broader national openings have made up-front promotion of films critical to
attract audiences and stimulate word of mouth advertising, they have in many
cases shortened the length of run and increased the film cost percentage paid by
exhibitors.
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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 $51.5 million in 1999 compared with approximately $17.5 million in
1986. The average cost to advertise and promote a picture was approximately
$24.5 million in 1999 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 five years there has
been an increase of approximately 6.6% 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.
BUSINESS AND OPERATING STRATEGY
The matters described under this caption "Business and Operating Strategy",
to the extent that they relate to future events or expectations, may be
significantly and negatively affected by United Artists current liquidity
position. Due to a decline in its EBITDA and lack of operating liquidity, in
February 2000, United Artists initiated discussions with the senior secured
lenders under its Bank Credit Facility regarding a recapitalization plan.
Once a recapitalization plan has been approved by its senior secured lenders,
United Artists intends to initiate discussions with the holders of the
Senior Subordinated Notes, with respect to that recapitalization plan. There
can be no assurance that such negotiations will be successful and even if
successful, implementation of the recapitalization plan may require additional
actions with respect to the reorganization of United Artists. United Artists
is or soon will be in default under its Bank Credit Facility and Senior
Subordinated Notes, and in the absence of forbearance and conclusion of a
successful recapitalization and restructuring, the senior secured lenders and
Senior Subordinated Noteholders may seek to exercise their remedies,
including acceleration of indebtedness. In the absence of a recapitalization
and restructuring, management will not be able to implement its business plan
as expressed throughout this document, and United Artists will have to
explore other alternatives to reorganize United Artists.
United Artists' operating and capital investment strategy is to focus on
improving the quality of its theatres in key operating markets and the quality
of its daily operations. Key elements include:
DIVEST OR FIND ALTERNATE USES FOR UNDER-PERFORMING THEATRES. United Artists'
1999 divestiture plan was designed to accelerate the termination or sale of
under-performing or non-strategic assets by:
- terminating leases for under-performing theatres;
- selling real estate underlying non-strategic or
under-performing theatres;
- divesting profitable theatres in non-core areas;
- exchanging theatres in non-core areas for theatres in core
areas; and
- finding new operating techniques or alternative uses for
under-performing theatres.
During 1999, United Artists sold certain non-operating real estate assets and
closed or sold 40 under-performing or non-strategic theatres (205 screens)
for which net cash proceeds of $9.9 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. The divestiture plan
is designed to significantly increase EBITDA by discontinuing operations at
under-performing and non-strategic locations. United Artists has identified
55 operating theatres (371 screens) and 12 parcels of owned real estate which
are not considered strategically important or are under-performing. United
Artists plans to sell or close these theatres (and terminate the lease)
during the next twelve months, although there can be no assurance that United
Artists will be able to accomplish such divestitures or closings (or lease
terminations). EBITDA for those operating theatres included in the
divestiture plan at December 30, 1999, was negative $11.2 million for the
year then ended. In addition, theatres closed during 1999 had negative EBITDA
totaling $4.8 million and $2.4 million of expenses related to
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entertainment center operations discontinued in 1998. Increased cash flow
(net of the disposition costs) resulting from the disposition of
under-performing theatres can be used to either reduce debt or for capital
improvements to existing, successful theatres. Lease exit costs of $22.7
million have been charged to operating income during 1999 related to the
operating theatres targeted for disposition.
FOCUSED OVERHEAD AND OPERATING STRATEGY. 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.
During the last few years, United Artists has implemented operational
improvements and overhead reductions intended to improve United Artists'
operating results and has sold or closed numerous under-performing or
non-strategic theatres.
RENOVATE, REBUILD OR EXPAND EXISTING KEY THEATRE LOCATIONS AND DEVELOP NEW
THEATRES IN CORE MARKET AREAS. United Artists plans to continue increasing its
number of screens per location and operating margins by focusing its capital
investment activities on the renovation or expansion of existing key theatres in
its core areas of operation. All future 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
solidify market position and improve operating performance.
If presented with a good opportunity, United Artists may also build new
state-of-the-art theatres within its core areas of operation. Currently, only
one new theatre (15 screens plus an IMAX) is under construction and is
scheduled to open during 2000. This theatre replaces two existing twin screen
theatres in the Philadelphia market. While no additional theatre developments
have been initiated, plans or other pre-development work has been completed
for the renovation and expansion of several existing key theatres. Assuming
United Artists is able to complete its recapitalization, these high priority
renovations will be initiated. United Artists constructs its new theatres or
renovates existing theatres with stadium seating, digital sound, comfortable
high back rocker seats and other popular design features and amenities.
United Artists believes that its theatre design with 12 to 16 screens will
provide an optimal relationship between the number of screens (12 to 16) and
the size of the auditoriums (125 to 400 seats) and maximize the revenue per
square foot generated by the facility and reduce the cost per square foot of
construction and operation. This 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 16 screens tend to have a higher level of return risk because
they require both a larger capital investment and a larger drawing area
(exposed to more potential competition) to be successful. This strategy
generally results in a diminishing return on capital investment for the
incremental screens.
While United Artists plans to develop new state-of-the-art theatres on a very
selective basis, its main focus will be to improve the risk return relationship
of investments made. This can be accomplished by reducing 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 to help reduce overall
construction costs. United Artists' renovation of theatres in successful
locations eliminates much of the geographic risk related to a project's success
as it is already known that patrons prefer the location.
In order to reduce the overall investment in new theatres, United Artists
generally enters into "build to suit" and other landlord leasing arrangements or
sale and leaseback transactions. United Artists also intends to continue to sell
non-strategic and under-performing assets and expects to redeploy capital to its
core markets. This strategy is intended to provide increased liquidity from the
disposal of non-cash flow producing investments and theatres with limited growth
potential.
United Artists also has plans to renovate the concession stands in several of
its high volume theatres with a new "pass-thru" design. This design has been
included in theatres opened during 1999 and has provided increased concession
sales in those theatres of $0.25 to $0.50 per patron over traditional stand
designs in the same market. The investment of approximately $150,000 per stand
is expected, by management, to have a pay back period of six months to a year.
During 1999, United Artists opened three new theatres (37 screens), added
stadium seating to three theatres (36 screens), and renovated one additional
theatre (2 screens).
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IMPLEMENT OPERATIONAL IMPROVEMENTS. United Artists has recognized theatre and
concession operating efficiencies through a heightened focus on increasing
concession sales, managing theatre payrolls and other variable costs and
increased staff training. Concession sales per patron increased by approximately
2.4% in 1999 versus 1998 and 5.0% annually from 1993 to 1999. Management
believes that there are opportunities to achieve additional operating
efficiencies by disposing of under-performing theatres, renovating and expanding
certain existing theatres, developing new multiplex stadium theatres, and
continuing to control theatre level operating expenses.
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 efficient film rental percentages. United Artists
believes that it will maintain or increase the number of prints it obtains from
each studio as it increases the number of its screens in key locations,
renovates certain of its existing theatres and develops new, larger (12 to 16
screens), higher margin theatres in its core markets.
DEVELOP ANCILLARY REVENUE OPPORTUNITIES. United Artists believes that there are
opportunities to increase its ancillary revenue from its Satellite Theatre
Network(TM) ("STN") VIP/Premier group ticket sales, In-Theatre Advertising and
game machines. STN rents theatres on a networked and non-networked basis for
corporate meetings, seminars, product and customer research and other
entertainment uses. Through its VIP/Premier ticket programs, 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.
In-Theatre Advertising provides an additional opportunity to increase revenue
and profitability through the sale of rolling stock commercials, intermission
slides, intermission music, lobby monitor advertising and other advertising
products.
OPERATIONS
OVERVIEW
The following table summarizes the screens and theatres in which United Artists
owned more than a 50% interest and the total screens in North America at the end
of each of the last five years:
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1995 1996 1997 1998 1999
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Number of United Artists Theatres 406 366 338 319 283
Number of United Artists Screens 2,310 2,203 2,172 2,184 2,018
Average Screens per Theatre 5.7 6.0 6.4 6.8 7.1
Number of North America Screens 27,843 29,731 31,865 34,168 37,185
United Artists Share of Industry Screens 8.3% 7.4% 6.8% 6.4% 5.4%
</TABLE>
United Artists also manages four other theatres (10 screens) in the United
States in which it owns a 50% or less interest and owns 10% interests in each of
two corporate entities, one of which operates two theatres (seven screens) in
Singapore and the other that operates two theatres (14 screens) in Thailand.
As set forth in the following table, although United Artists operates some
smaller theatres (in terms of number of screens), approximately 89.0% of United
Artists' screens as of December 30, 1999 were 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> <C>
Greater than 10 36 22.7% 28.6%
9 - 10 57 27.2 28.0
7 - 8 53 20.2 17.3
5 - 6 66 18.9 16.3
3 - 4 50 9.4 7.5
1 - 2 21 1.6 2.3
</TABLE>
As part of its strategic operating plan, United Artists intends to terminate
leases or sell 55 theatres (371 screens) in operation at year-end. A summary
of the theatres included in the disposition plan is set forth below:
8
<PAGE>
<TABLE>
<CAPTION>
Number of Screens Number of % of % of
per Theatre Theatres Total Screens Total Revenue
----------------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Greater than 10 5 3.0% 2.0%
9 - 10 5 2.4 1.1
7 - 8 14 5.3 2.6
5 - 6 21 6.0 2.6
3 - 4 8 1.5 0.8
1 - 2 2 0.2 0.1
-- --- ---
55 18.4% 9.2%
== ===== ====
</TABLE>
REVENUE United Artists' principal sources of revenue from its theatres are
derived from theatrical admissions and concession sales. For the fiscal year
ended December 30, 1999, theatrical admissions and concession sales comprised
approximately 68.6% and 27.6% of United Artists' revenue, respectively. The
remaining 3.8% of revenue for this period was derived primarily from
In-Theatre Advertising, the Satellite Theatre Network(TM), electronic video
games located in theatre lobbies and other miscellaneous sources.
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. Admission prices are typically evaluated taking
into consideration such things as the prices at competitive theatres within the
region, the nature of the theatre and the local economy. Admissions revenue is
recorded net of applicable sales taxes within the region.
Concession sales are a significant factor in the overall profitability of a
theatre. United Artists' primary concession products are varying 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 both 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. Theatre managers and
assistant managers are motivated to increase concession sales through concession
commission programs that represent a significant portion of their total
compensation.
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.
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
9
<PAGE>
film zone is based primarily upon population density. United Artists operates
145 theatres in non-competitive film 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) a theatre admissions revenue sharing
formula. Under the gross box office receipts formula, the film distributor
receives a specified weekly percentage of the gross box office receipts, with
the percentage declining over the term of the run. Under the theatre admissions
revenue sharing 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 certain
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.
MARKETING AND ADVERTISING
United Artists relies principally upon newspaper advertisements, newspaper film
schedules, the internet, MovieFone and word of mouth to inform its patrons of
film titles and exhibition times. United Artists typically pays for local
newspaper advertisements to promote its theatres and inform its patrons of the
films being played and show times. In many areas, the film's distributor pays
for multi-media advertisements for upcoming film releases. In many areas there
is also 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 initiate a
newspaper marketing campaign with the objective of increasing attendance at the
theatre.
THEATRE PROPERTIES
The majority of United Artists' theatres are located in freestanding buildings
or are "anchor" tenants in regional malls or strip centers. Typically, United
Artists' third-party leases have remaining terms ranging 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
different terms. United Artists owns directly or through its subsidiaries
substantially all of the theatre equipment used in all of its theatres.
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 required net
capital expenditures. A summary of United Artists' theatre leases is as
follows (base rent and square feet in millions):
<TABLE>
<CAPTION>
Remaining
Terms (yrs.) Leases Screens Base Rent Square Feet
------------ ------ ------- --------- -----------
<S> <C> <C> <C> <C> <C>
1-3 61 266 $7.8 1.1
4-6 51 239 7.1 0.9
7-9 35 236 9.1 0.9
more than 9 126 1,091 63.1 4.5
</TABLE>
10
<PAGE>
The leases related to the 50 operating theatres and 18 closed theatres that
United Artists is seeking to terminate are summarized as follows (base rent
and square feet in millions):
<TABLE>
<CAPTION>
Remaining
Terms (yrs.) Leases Screens Base Rent Square Feet
------------ ------ ------- --------- -----------
<S> <C> <C> <C> <C> <C>
1-3 17 48 $1.8 0.3
4-6 21 68 3.8 0.4
7-9 13 90 4.6 0.4
more than 9 17 116 8.2 0.6
</TABLE>
Reserves totaling $22.7 million for estimated lease termination costs were
booked during 1999. Management believes that: (i) the relatively short
remaining lease terms, (ii) the size of the spaces, (iii) and general
favorable locations of these underperforming or closed theatres will assist
it in its efforts to terminate the leases.
CONSTRUCTION. United Artists intends to add additional screens to existing
theatres and refurbish or rebuild existing theatres to strengthen its position
in existing areas as capital becomes available. 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.
Additionally, the timing of these capital expenditures are flexible and thus can
be matched to net cash provided by operating activities, asset sales and other
sources of capital.
United Artists' new theatre construction strategy focuses on selecting sites in
its existing core areas of operation and enhancing the theatregoers' 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 stadium seating
theatres that have a favorable balance between the number of screens (12 to 16)
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.
As a result of new construction and the sale or closure of older, smaller
theatres, approximately 39.2% of United Artists' screens have been constructed
since January 1, 1992 and approximately 58.8% 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 47.9% from 4.8 screens at January 1, 1992 to 7.1
screens at December 30, 1999.
GEOGRAPHIC POSITIONING. Geographic positioning and operating efficiencies are
key elements of United Artists' operating strategy. Geographic clustering at
both the regional and local levels 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
numbers 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.
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), and Georgia. United
Artists believes that it has a good balance and strong positions in many of
these major metropolitan areas and in several rural or smaller metropolitan
areas where there is reduced competition. The six states that represent the
largest geographic concentration of theatres and screens operated accounted
for approximately 57.6% and 56.7% of United Artists' total theatres and
screens, respectively, at December 30, 1999 and generated approximately 63.3%
of United Artists' theatrical revenue for the fiscal year ended December 30,
1999 were as follows:
11
<PAGE>
<TABLE>
<CAPTION>
Total Number Total Number % of
of Theatres of Screens Theatrical Revenue
------------ ------------ -------------------
<S> <C> <C> <C>
California 48 292 16.4%
New York 31 216 18.4
Florida 22 195 6.1
Texas 22 186 7.3
Pennsylvania 21 131 7.8
Colorado 19 124 7.3
</TABLE>
During the next 12 months, United Artists plans to terminate leases on 55
theatres (371 screens) in operation at December 30, 1999 and 18 closed
theatres as well as sell 12 real estate parcels. Reserves totaling $22.7
million for estimated lease termination costs were booked during 1999. A
summary of those under performing or closed theatres by state is as follows:
<TABLE>
<CAPTION>
Total Number Total Number % of
of Theatres of Screens Theatrical Revenue
------------ ------------ ------------------
<S> <C> <C> <C>
California 15 96 3.2%
New York 3 26 0.8
Florida 8 65 1.2
Texas 5 34 0.7
Pennsylvania 2 6 0.4
Colorado 2 9 0.2
Georgia 5 36 0.6
Louisiana 3 22 0.5
Other 12 77 1.6
-- ----- ---
55 371 9.2%
== === ====
</TABLE>
COMPETITION
United Artists competes for the public's leisure time and disposable income with
all forms of out-of-home entertainment including sporting events, concerts, live
theatre and restaurants. United Artists is also 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 have greater capital resources and/or be better
established in certain areas where United Artists' theatres are located.
Competition for patrons occurs locally and depends upon factors such as:
- which films a particular theatre is showing;
- location of theatres;
- comfort and quality of theatres;
- 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 materially 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 general market areas in which United
Artists operates. This new megaplex construction has resulted in excess capacity
and adversely affect attendance at existing theatres in these market areas.
United Artists has attempted to address the situation by rebuilding/renovating
or expanding its locations, or through its divestiture plan. United Artists
plans to further address this situation through capital expenditures. To the
extent that future funds are available for capital expansion, United Artists
intends to rebuild, renovate and/or expand existing key locations.
12
<PAGE>
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 Exhibition Group with Cineplex Odeon Corp. and the merger of Act
III Cinemas Inc. and several other regional circuits with Regal Cinemas Inc.
Such consolidation has increased the level of capital available to these and
other larger entities which has resulted in a significant increase in new
theatre construction over the past three years. As the investment returns
related to this new construction have been generally low, United Artists
believes future levels of new theatre construction within the industry will be
much lower than in recent years.
IN-THEATRE ADVERTISING
As a means of producing ancillary revenue, United Artists sells various
advertising within its theatres and on its web page including rolling stock
commercials, intermission slides, intermission music, lobby monitor advertising
and entertainment, coupon distribution and customer sampling. Revenues are
primarily contingent upon the location of the theatre and attendance at the
theatres. Profit margins on the In-Theatre Advertising are extremely high as
United Artists utilizes a small corporate staff to sell and coordinate the
advertising, while local theatre personnel implement the advertising programs.
Existing assets at the theatres are utilized so that only a small capital
investment is necessary for slide projectors. Strong business relationships
exist between United Artists and some of its national advertisers, such as
Coca-Cola Company, MovieFone and America on Line (AOL). United Artists recorded
revenues of $8.4 million, $4.4 million and $4.5 million for the years ended
December 1999, 1998 and 1997, respectively, from In-Theatre Advertising.
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) ("STN"). STN rents
theatre auditoriums for seminars, corporate training, business meetings,
educational or communication uses, product and customer research and other
entertainment uses. Theatre auditoriums are rented individually or on a
networked basis. To provide the "broadcasting" network or "teleconferencing"
equipment, a network of theatres has been created by installing high quality
(high definition-like) electronic 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 December 30, 1999, STN included 26 theatres permanently equipped with
electronic video capability and an additional 257 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 STN utilizes
existing theatre facilities and existing personnel manage its operations
within the theatre, very little incremental capital or personnel expenditures
are required. Marketing and sales of STN services is performed on a national
basis by staff located in the corporate headquarters in Englewood, Colorado.
United Artists recorded $6.2 million, $5.9 million, and $6.6 million of
revenue from STN for the years ended December 1999, 1998, and 1997,
respectively.
During 1998, United Artists was issued a United States Patent (No. 5,801,754)
with respect to the interactive theatre network system.
MANAGEMENT
United Artists operates its theatres from its Englewood, Colorado corporate
headquarters, two regional operating offices, 14 district operating offices and
two film booking offices. During January 2000, the number of district operating
offices was reduced to 13. Nearly all of United Artists' district offices and
regional operating offices are located within theatres.
There is active communication between the theatres, 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 day-to-day 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.
13
<PAGE>
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 daily, 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 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 on a daily basis. All accounting, reporting
and management information systems are centralized at the corporate
headquarters.
As of December 30, 1999, United Artists employed approximately 9,000 employees,
of whom approximately 1,000 were full-time. Approximately 25% 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 125 employees (primarily consisting of film
projectionists, many of whom are part-time) are covered by two collective
bargaining agreements.
SEASONALITY
United Artists' theatrical results of operations are subject to seasonal
fluctuations in theatre attendance which corresponds to holiday school vacation
periods and a greater availability of popular motion pictures during the period
from Memorial Day through Labor Day and during the Easter, Thanksgiving and
Christmas holiday seasons.
GOVERNMENT REGULATION
The distribution of motion pictures is regulated by Federal and state anti-trust
laws and has been the subject of numerous anti-trust cases. Consent decrees
resulting from one of the most significant cases, to which United Artists was
not a party, have an impact on the theatrical exhibition business. 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 agreements with major film
distributors, but must compete for its film 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. 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. If
United Artists is unsuccessful in its efforts to reorganize its capital
structure, it may be unable to comply with the ADA and the settlement
agreement in the CONNIE ARNOLD case. Failure to comply with the ADA and the
settlement agreement in the CONNIE ARNOLD case may have a materially adverse
effect on United Artists' financial position, liquidity and results of
operations.
OTHER
United Artists has not expended material amounts on research and development
during the past three years.
There is no customer or affiliated group of customers to which sales are made in
an amount that exceeds 10% of United Artists' consolidated revenue.
14
<PAGE>
Compliance with Federal, state and local laws and regulations which have been
enacted or adopted regulating the discharge of materials into the environment,
or otherwise relating to the protection of the environment, has had no material
effect upon United Artists' financial position, liquidity or results of
operations.
ITEM 2. PROPERTIES
United Artists leases its executive office located in Englewood, Colorado and
certain of its regional operating and film booking offices. The following table
summarizes the theatres operated by United Artists at December 30, 1999:
<TABLE>
<CAPTION>
Total Number Total Number
of Theatres of Screens
----------- ------------
Owned and Operated Theatres:
<S> <C> <C>
Owned 33 195
Leased from third party landlords 214 1,494
Leased through sale and leaseback transactions 36 329
---- ------
Total owned and leased theatres 283 2,018
Managed theatres 4 10
---- ------
Total theatres operated 287 2,028
=== =====
</TABLE>
Of the 283 owned and operated theatres, five theatres (11 screens) are held
through a corporation that is owned 75% by United Artists, one theatre (2
screens) is owned 60% by United Artists, and four theatres (33 screens) are held
by three partnerships, each owned 51% by United Artists. The remaining owned and
operated theatres are held directly by United Artists or its wholly owned
subsidiaries. The master leases for theatres associated with sale and leaseback
transactions allow for the exchange and sale of obsolete theatres for theatres
that are part of United Artists long-term business plan. Substitutions may be
made under certain conditions, during certain time periods in the future. The
managed theatres include four theatres (10 screens) located in the United
States.
As of December 30, 1999, United Artists also had a 10% interest in two Asian
theatre exhibition joint venture companies that operate four theatres (21
screens) in Singapore and Thailand.
United Artists owns directly or through its subsidiaries substantially all of
the theatre equipment used in its fee-owned theatres and theatres leased from
unaffiliated third parties.
ITEM 3. LEGAL PROCEEDINGS
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 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, if United Artists' recapitalization efforts (see Note 2, Going
Concern) are unsuccessful, and judgements against United Artists are obtained
in such proceedings, there could result a material adverse effect on United
Artists' financial position, liquidity and result of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during the
quarter ended December 30, 1999.
15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
United Artists' common stock is privately held.
United Artists has not paid a cash dividend on its common stock during the past
two years. United Artists is restricted by certain debt covenants as to the
amount of dividends that it can declare and pay on its common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data relating to the results of
operations for the fifty-two weeks ended December 30, 1999 and the years ended
December 31, 1998, 1997, 1996 and 1995, and balance sheets as of December 30,
1999 and December 31, 1998, 1997, 1996 and 1995 (dollars in millions, except
revenue per weighted average operating theatre):
<TABLE>
<CAPTION>
Years Ended December, (3)
---------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
SUMMARY OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenue $ 631.4 662.5 684.3 677.1 649.1
===== ===== ===== ===== =====
EBITDA (1) $ 61.3 87.9 96.4 86.9 89.2
==== ==== ==== ==== ====
Depreciation and amortization $ 53.5 53.9 59.0 74.2 69.2
==== ==== ==== ==== ====
Operating income before provision
for impairments, lease exit costs and other $ 7.8 34.0 37.4 12.7 20.0
=== ==== ==== ==== ====
Impairments, lease exit costs and other $ 61.6 36.3 35.8 11.4 21.0
==== ==== ==== ==== ====
Operating income (loss) $ (53.8) (2.3) 1.6 1.3 (1.0)
====== ===== === === =====
Interest expense $ (66.8) (54.5) (42.6) (42.7) (53.1)
====== ===== ====== ====== =====
Gain (loss) on disposition of assets $ 4.5 1.0 28.0 2.7 (5.7)
=== === ==== === ===
Discontinued operations $ 2.4 20.3 5.4 1.5 0.6
=== ==== === === ===
Extraordinary loss $ - 7.9 - - -
=== === === === ===
Net loss $ (127.3) (89.0) (27.0) (45.8) (64.8)
======= ====== ====== ====== ======
Net loss available to common stockholder $ (127.3) (98.0) (50.8) (66.7) (83.1)
======= ===== ====== ====== ======
Net loss available to common stockholder
before provisions for impairments, lease exit
costs and other, gain (loss) on disposition of
assets, discontinued operations, and
extraordinary loss $ (67.8) (34.5) (37.6) (56.5) (55.8)
====== ====== ====== ====== =====
Net cash provided by (used in)
investing activities $ (35.4) (113.4) 0.1 (55.9) (1.6)
==== ===== === ==== ===
BALANCE SHEET DATA AT YEAR END:
Total assets $ 534.3 579.1 563.0 612.7 665.8
===== ===== ===== ===== =====
Total debt $ 721.6 653.9 414.0 453.1 453.7
===== ===== ===== ===== =====
Preferred stock $ - - 193.9 170.1 149.2
=== === ===== ===== =====
Weighted avg. operating screens(2) 2,108 2,160 2,204 2,299 2,270
===== ===== ===== ===== =====
Weighted avg. operating theatres(2) 304 327 354 395 409
=== === === === ===
Weighted avg. operating screens
per operating theatre 6.9 6.6 6.2 5.8 5.6
=== === === === ===
Revenue per weighted average
operating theatre (000's) $ 2,077 2,026 1,933 1,714 1,587
===== ===== ===== ===== =====
</TABLE>
(1) Earnings before interest, taxes, depreciation and amortization plus other
non-recurring or non-cash operating credits or charges.
(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.
(3) During 1999, United Artists changed its reporting period from the
traditional calendar year end to a fifty-two /fifty-three week
presentation. The 1999-year contained 52 weeks and ended on December 30.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF UNITED ARTISTS' FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH UNITED ARTISTS'
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO. SUCH FINANCIAL
STATEMENTS PROVIDE ADDITIONAL INFORMATION REGARDING UNITED ARTISTS' FINANCIAL
ACTIVITIES AND CONDITION.
United Artists continues to face liquidity problems caused by its significant
debt burden and its continuing net losses. United Artists has incurred net
losses of $127.3 million, $98.0 million and $50.8 million in 1999, 1998 and
1997, respectively. United Artists' EBITDA in 1999, 1998, and 1997 were, and
absent recapitalization and restructuring its EBITDA in future years is
projected to be insufficient to support its current debt balances and related
interest obligations. United Artists' independent public accountants included
in their report on United Artists' consolidated financial statements for the
fiscal year ended December 30, 1999 an explanatory paragraph that describes
the significant uncertainty about United Artists' ability to continue as a
going concern due to recurring losses and insufficient liquidity, and that
United Artists' financial statements do not reflect any adjustment that might
result from the outcome of this uncertainty.
Due to a decline in its EBITDA and lack of operating liquidity, in February
2000, United Artists initiated discussions with the senior secured lenders
under its Bank Credit Facility regarding a recapitalization plan. Once a
recapitalization plan has been approved by its senior secured lenders, United
Artists intends to initiate discussions with the holders of the Senior
Subordinated Notes, with respect to that recapitalization plan. There can be
no assurance that such negotiations will be successful and even if
successful, implementation of the recapitalization plan may require
additional actions with respect to the reorganization of United Artists.
United Artists is or soon will be in default under its Bank Credit Facility
and Senior Subordinated Notes, and in the absence of forbearance and
conclusion of a successful recapitalization and restructuring, the senior
secured lenders and Senior Subordinated Noteholders may seek to exercise
their remedies, including acceleration of indebtedness. In the absence of a
recapitalization and restructuring, management will not be able to implement
its business plan as expressed throughout this document, and United Artists
will have to explore other alternatives to reorganize United Artists. Based
on the foregoing, reported financial information may not necessarily be
indicative of future operating results or of future financial condition.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 1999, 1998 AND 1997
The following table summarizes certain operating data of United Artists'
theatres(1) (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>
Fiscal Years Ended Fiscal Years Ended
December (4) % December %
---------------- Increase --------------- Increase
1999 1998 (Decrease) 1998 1997 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Admissions $433.1 454.4 (4.7)% 454.4 473.9 (4.1)%
Concession sales 174.4 188.5 (7.5) 188.5 189.6 (0.6)
Other (2) 23.9 19.6 21.9 19.6 20.8 (5.8)
Operating expenses:
Film rental and advertising expenses 244.0 248.5 (1.8) 248.5 262.5 (5.3)
Concession costs 22.7 28.0 (18.9) 28.0 30.2 (7.3)
Other operating expenses:
Personnel expense 96.5 96.2 0.3 96.2 95.5 0.7
Occupancy expense:
Rent excluding sale and leaseback 75.8 70.2 8.0 70.2 67.8 3.5
Sale and leaseback rentals 16.8 14.5 15.9 14.5 12.8 13.3
Misc. operating expenses (3) 91.7 93.8 (2.2) 93.8 94.8 (1.1)
</TABLE>
(1) The operating information includes revenue and expenses of all theatres
operated by United Artists that are more than 50% owned.
(2) Revenues from the business segments In-Theatre Advertising and Satellite
Theatre Network(TM) are included in Other.
(3) Expenses from the business segments In-Theatre Advertising and Satellite
Theatre Network(TM) are included in Misc. operating expenses.
(4) During 1999, United Artists changed its reporting period from the
traditional calendar year end to a fifty-two /fifty-three week
presentation. The 1999-year contained 52 weeks and ended on December 30.
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. The periods presented below are for the fifty-two weeks
ended December 30, 1999 and the calendar years ended December 31, 1998 and 1997.
United Artists operates three business segments: Theatre Operations, In-Theatre
Advertising and Satellite Theatre Network(TM). Each segment is separately
discussed in the following analysis.
17
<PAGE>
THEATRE OPERATIONS SEGMENT
The following table summarizes operating revenue and expenses of United Artists'
Theatre Operations Segment for the fifty-two weeks ended December 30, 1999 and
the years ended December 31, 1998 and 1997 (dollars in millions).
<TABLE>
<CAPTION>
% %
---------------- Increase --------------- Increase
1999 1998 (Decrease) 1998 1997 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Admissions $433.1 454.4 (4.7)% 454.4 473.9 (4.1)%
Concession sales 174.4 188.5 (7.5) 188.5 189.6 (0.6)
Other 9.3 9.3 - 9.3 9.7 (4.1)
Expenses:
Film rental and advertising expenses 244.0 248.5 (1.8) 248.5 262.5 (5.3)
Concession costs 22.7 28.0 (18.9) 28.0 30.2 (7.3)
Other operating expenses:
Personnel expense 96.5 96.2 0.3 96.2 95.5 0.7
Occupancy expense 92.6 84.7 9.3 84.7 80.6 5.1
Misc. operating expenses 86.5 88.9 (2.7) 88.9 89.5 (0.7)
Weighted avg. operating theatres(1) 304 327 (7.0) 327 354 (7.6)
Weighted avg. operating screens(1) 2,108 2,160 (2.4) 2,160 2,204 (2.0)
Weighted avg. screens per
avg. theatre 6.9 6.6 5.0 6.6 6.2 6.1
Admissions per weighted avg.
operating theatre $1,424,671 1,389,602 2.5 1,389,602 1,338,701 3.8
Admissions per weighted avg.
operating screen $205,455 210,370 (2.3) 210,370 215,018 (2.2)
Concession sales per weighted
avg. operating theatre $573,684 576,453 (0.5) 576,453 535,593 7.6
</TABLE>
(1) Weighted average operating theatres and screens represent the number of
theatres and screens operated weighted by the number of days operated
during the period.
REVENUE AND EXPENSES FROM OPERATING THEATRES FOR THE FISCAL YEAR ENDED
DECEMBER 30, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
ADMISSIONS: Admissions revenue decreased 4.7% during the fifty-two weeks
ended December 30, 1999 as compared to the year ended December 31, 1998. This
decrease was primarily due to a 9.6% decrease in attendance, partially offset
by a 5.4% increase in the average ticket price. The increases in the average
ticket prices during the year were due to an increase in the percentage of
adult, non-matinee tickets sold and certain selective ticket price increases
during 1998 and early 1999. The attendance decline during the fifty-two weeks
ended December 30, 1999 was primarily due to three factors:
- - The closure and/or sale of 40 theatres (205 screens), partially offset
by the opening of three new theatres (37 screens),
- - The short run of several films released at the end of 1998 and a weak
film release schedule during the first four months of 1999 as compared
to the unprecedented success of the film TITANIC during the same 1998
period,
- - The adverse impact of stadium seating theatre construction built by
competitive theatre chains.
CONCESSION SALES: Concession sales decreased 7.5% during the fifty-two weeks
ended December 30, 1999 as compared to the year ended December 31, 1998. The
decrease in sales was primarily due to the decrease in attendance discussed
above, partially offset by a 2.4% increase in the average concession sales per
patron. While
18
<PAGE>
concession sales growth was adversely impacted by film mix (fewer children's and
action films), improvements were realized as a result of:
- - Certain selective price increases during 1998 and 1999,
- - Additional concession menu items,
- - Increased emphasis on sales staff training,
- - The opening of new theatres with more efficient concession operations
and the closure or sale of older, smaller theatres with less efficient
concession operations.
The following table sets forth the admissions and concession sales revenue for
theatres operated throughout all of 1999 and 1998 (dollars in millions):
<TABLE>
<CAPTION>
Theatres Screens 1999 1998 % Decrease
-------- ------- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Theatres operated throughout
both periods 281 1,887
Admissions $372.4 416.2 (10.5)%
Concession sales 154.2 172.9 (10.8)
</TABLE>
This "same theatre" analysis eliminates the effect of new theatre openings,
sales or closures during 1999 or 1998.
OTHER:
Other theatre operations segment revenue is derived primarily from electronic
video games located in theatre lobbies, theatre screening and commercial
rentals, and other miscellaneous sources. Despite the reduction in theatres,
other revenue remained constant during 1999 as compared to 1998 due to an
increase in miscellaneous game revenues and rental income on a per theatre
basis, partially offset by a small decrease in commercial rental revenue.
FILM RENTAL AND ADVERTISING EXPENSES: Film rental and advertising expenses
decreased 1.8% during the fifty-two weeks ended December 30, 1999 as compared
to the year ended December 31, 1998, primarily as a result of the decrease in
admissions revenue discussed above, partially offset by higher film rental
percentages. Film rental and advertising expenses as a percentage of
admissions revenue for the fifty-two weeks ended December 30, 1999 and the
year ended December 31, 1998 were 56.3% and 54.7%, respectively. The increase
in film rental and advertising expenses as a percentage of admissions revenue
related primarily to higher than average film terms associated with certain
highly anticipated films released in May and June of 1999 and the shorter run
of several films. 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 18.9% during the fifty-two
weeks ended December 30, 1999 as compared to the year ended December 31, 1998.
Concession costs as a percentage of concession sales revenue for the fifty-two
weeks ended December 30, 1999 and the year ended December 31, 1998 were 13.0%
and 14.9%, respectively. The decrease in concession costs as a percentage of
concessions revenue for the fifty-two weeks ended December 30, 1999 was
primarily due to the rebidding or restructuring of the product and distribution
contracts associated with many of United Artists' concession products.
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. The 0.3% increase in personnel expense
during the fifty-two weeks ended December 30, 1999, as compared to the year
ended December 31, 1998 related primarily to a 3.5% increase in the average
hourly rate, increased costs for union projectionists, security and
janitorial expenses, partially offset by lower payroll taxes and the
reduction in the number of staff hours and theatres operated during the year.
Personnel expense as a percentage of admissions and concessions revenue was
15.9% and 15.0% for the fifty-two weeks ended December 30, 1999 and the year
ended December 31, 1998, respectively. The increase in personnel expense as a
percentage of admissions and concessions revenue was primarily attributable
to the increased wages discussed above, partially offset by more efficient
theatre staffing, the closing of numerous unprofitable theatres and the
opening of several new larger, more efficient multiplex theatres. In
addition, personnel expense as a percentage of admissions and concessions
revenue for the fifty-two weeks ended December 30, 1999 was negatively
impacted by the lower attendance during the first four months of 1999 and the
fixed nature of certain expenses (i.e., theatres managers' and assistant
managers' salaries).
OCCUPANCY EXPENSE: United Artists' typical theatre lease arrangement provides
for a base rental as well as contingent rentals that are a function of the
underlying theatre's revenue over an agreed upon breakpoint.
19
<PAGE>
Occupancy expense increased 9.3% during the fifty-two weeks ended December 30,
1999 as compared to the year ended December 31, 1998. This increase relates to
higher base rentals on theatres opened in late 1998 and 1999 and additional sale
and leaseback rent, partially offset by fewer weighted average operating
theatres and lower contingent rent. In addition, occupancy expense includes
non-cash charges relating to the effect of escalating leases which have been
"straight-lined" for accounting purposes of $4.8 million and $4.0 million for
the fifty-two weeks ended December 30, 1999 and the year ended December 31,
1998, 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 2.7% during the fifty-two weeks ended December 30, 1999 as
compared to the year ended December 31, 1998. This fluctuation was primarily due
to a decrease in repair and maintenance, supplies, utilities, real estate taxes
and common area maintenance expenses related to the fewer number of theatres
operated, partially offset by merchant fees on credit card generated revenues.
REVENUE AND EXPENSES 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 7.3% decrease in attendance partially
offset by a 3.4% increase in the average ticket price. The lower attendance was
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 closure of numerous
under-performing theatres, the opening of several new theatres which have higher
admissions and more screens per theatre and the increases in ticket prices,
partially offset by an increase in the number of new competitive 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,
increased emphasis on sales staff training, the closure of numerous less
efficient theatres and the opening of several new theatres with more efficient
concession operations.
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 1998 1997 % Decrease
-------- ------- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Theatres operated throughout
both periods 294 1,912
Admissions $389.6 425.0 (8.3)%
Concession sales 160.9 168.8 (4.7)
</TABLE>
This "same theatre" analysis eliminates the effect of new theatre openings,
sales or closures during 1998 or 1997.
OTHER: Other revenue is derived from electronic video games located in theatre
lobbies, theatre rentals, commercial rental properties, and other miscellaneous
sources. Other revenue decreased 4.1% during 1998 as compared to 1997 primarily
as a result of decreased commercial rents.
FILM RENTAL AND ADVERTISING EXPENSES: Film rental and advertising expenses
decreased 5.3% during 1998 as compared to 1997 primarily due to the decreased
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.
20
<PAGE>
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 decreased 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 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
closure of numerous theatres during the year. 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 0.7% during 1998 as compared to 1997. This decrease in 1998
relates primarily to lower insurance, common area maintenance, utility expenses
and prior year adjustments, partially offset by higher real estate taxes and
repairs and maintenance expenses.
THEATRES TARGETED FOR DISPOSITION: During 1999, United Artists continued to
implement a strategy intended to identify and divest of underperforming and
non-strategic theatre and properties. In December 1999, management formalized
a plan to dispose of 55 operating theatres (371 screens) and 12 owned
properties and exit leases covering 18 closed theatres. As a result, United
Artists recorded estimated lease termination costs of $17.9 million in the
fourth quarter of 1999. Set forth below are the 1999, 1998, and 1997 revenue
and expenses, included within the theatre operation segment information
discussed above, for the theatres and properties included in the disposition
plan at December 30, 1999 or closed during 1999 (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- -----
<S> <C> <C> <C>
Revenue:
Admissions $46.6 74.2 99.3
Concession sales 20.3 32.2 40.3
Other 0.4 0.5 0.7
----- ----- -----
Total revenue 67.3 106.9 140.3
Expenses:
Film rental and advertising expenses 26.1 40.9 55.8
Concession costs 2.8 5.2 7.1
Other operating expenses:
Personnel expense 16.9 21.1 22.4
Occupancy expense 18.7 20.3 20.9
Misc. operating expenses 18.8 22.1 22.7
---- ---- ----
Total expenses 83.3 109.6 128.9
Revenue less expenses: $(16.0) (2.7) 11.4
====== ===== ====
</TABLE>
21
<PAGE>
IN-THEATRE ADVERTISING
The following table summarizes operating revenue and expenses of United
Artists In-Theatre Advertising segment for 1999, 1998 and 1997 (dollars in
millions):
<TABLE>
<CAPTION>
% %
Increase Increase
1999 1998 (Decrease) 1998 1997 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Other 8.4 4.4 90.9% 4.4 4.5 (2.2)%
Expenses:
Other operating expenses: 0.7 0.3 133.3 0.3 0.4 (25.0)
Misc. operating expenses
</TABLE>
REVENUES AND EXPENSES FOR THE FISCAL YEAR ENDED DECEMBER 30, 1999
COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
ADVERTISING REVENUE: United Artists sells advertising including rolling stock
commercials, intermission slides, intermission music, lobby monitor advertising
and entertainment, coupon distribution and customer sampling. Revenues are
primarily contingent upon the success of the sales efforts, as well as upon the
location of theatres and attendance at the theatres. In-Theatre Advertising
revenue increased 90.9% during the fifty-two weeks ended December 30, 1999 as
compared to the year ended December 31, 1998. This increase was primarily due to
a change from the use of an outside sales agency to a small corporate sales
staff that increased the number of advertising sales and the net rate received.
ADVERTISING EXPENSES: Expenses associated with In-Theatre Advertising include
supplies, professional services, freight, projection repair and other
miscellaneous expenses. These expenses have increased 133.3% during the
fifty-two weeks ended December 30, 1999 as compared with the year ended December
31, 1998. Expenses have increased in conjunction with the substantial increases
in advertising revenue and the in-house nature of its sales effort. The most
significant increases were in the areas of supplies, professional fees and
projection repair costs.
REVENUES AND EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1998
COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
ADVERTISING REVENUE: In-Theatre Advertising revenue decreased 2.2% during the
year ended December 31, 1998 as compared to the year ended December 31, 1997.
This decrease related to the poor performance of the outside sales agency
that was primarily responsible for managing sales. The contract with the
outside agency was cancelled and, as mentioned above, a small corporate staff
was hired to sell and coordinate the advertising.
ADVERTISING EXPENSES: Expenses associated with In-Theatre Advertising decreased
25.0% during the year ended December 31, 1998 as compared with the year ended
December 31, 1997. Expenses decreased primarily due to lower professional fees,
freight and projection repair costs, partially offset by higher advertising and
travel and entertainment costs.
SATELLITE THEATRE NETWORK(TM)
The following table summarizes operating revenue and expenses of United
Artists' Satellite Theatre Network(TM) segment for 1999, 1998 and 1997
(dollars in millions):
<TABLE>
<CAPTION>
% %
Increase Increase
1999 1998 (Decrease) 1998 1997 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Other 6.2 5.9 5.1% 5.9 6.6 (10.6)%
Expenses:
Other operating expenses:
Misc. operating expenses 4.5 4.6 (2.2) 4.6 4.9 (6.1)
</TABLE>
22
<PAGE>
REVENUES AND EXPENSES FOR THE FISCAL YEAR ENDED DECEMBER 30, 1999
COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
STN REVENUE: The Satellite Theatre Network(TM) ("STN") rents theatre auditoriums
for seminars, corporate training, business meetings, educational or
communication uses, product and customer research and other entertainment uses.
Theatre auditoriums are rented individually or on a networked basis. Revenues
increased 5.1% for the fifty-two weeks ended December 30, 1999 as compared to
the year ended December 31, 1998. The additional revenue was due primarily to an
increase in refreshment sales and satellite seminar revenue.
STN EXPENSES: Expenses associated with STN decreased 2.2% for the fifty-two
weeks ended December 30, 1999 as compared to the year ended December 31,
1998. Other operating costs decreased primarily related to a reduction in
equipment rental due to projector technology improvements.
REVENUES AND EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1998
COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
STN REVENUE: STN revenues decreased 10.6% during the year ended December 31,
1998 as compared to the year ended December 31, 1997, due to a decrease in
refreshment, satellite seminar and non-satellite revenues of 36.2%, 2.5% and
20.5%, respectively.
STN EXPENSES: Expenses associated with STN decreased 6.1% for the year ended
December 31, 1998 as compared to the year ended December 31, 1997. This decrease
related to lower refreshment costs and other variable costs due to the decrease
in revenue, partially offset by higher personnel costs.
OTHER EXPENSES FOR THE FISCAL YEARS ENDED DECEMBER 1999, 1998 AND 1997
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense consists primarily of costs associated with
functions at United Artists' corporate headquarters, two film booking and
regional operating offices and 14 district theatre operations offices (generally
located in theatres). Staff at the corporate headquarters include theatre
administrative and operating personnel, In-Theatre Advertising and Satellite
Theatre Network(TM) sales and marketing staff and other support functions. 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 in 1998 as compared to 1997.
During 1999, administrative expenses decreased $0.8 million primarily as a
result of a reduction in personnel, travel and entertainment, telecommunications
and other miscellaneous corporate expenses, partially offset by a reduction in
management fees from international theatre investments, which were sold at the
end of 1998.
IMPAIRMENTS, LEASE EXIT COSTS AND OTHER
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 undiscounted cash flow expected to be received
from the operation or future sale of the individual theatre (or groups of
theatres). United Artists recorded non-cash provisions for asset impairments
of $35.7 million, $31.8 million, and $26.5 million during 1999, 1998, and
1997, respectively.
During 1999, United Artists continued to implement a strategy intended to
identify and divest of under-performing and non-strategic theatres and
properties. In December 1999, management formalized a plan to dispose of 55
operating theatres (371 screens) and 12 owned properties and exit leases
covering 18 closed theatres. In addition to the efforts of United Artists
personnel, an outside consultant has been hired to facilitate negotiations
with certain landlords. Lease exit costs for operating theatres of $17.9
million have been charged to operating income during 1999. In cases where
theatres are closed, but the termination of the lease has not been finalized
or negotiated, an accrual for lease exit costs and other ongoing expenses is
estimated and charged to income. Amounts recorded for estimated termination
costs of closed theatres were $4.8 million, $4.5 million and $8.5 million for
fiscal 1999, 1998 and 1997, respectively.
23
<PAGE>
Restructuring costs of $0.3 million and $0.8 million for termination costs
related to corporate personnel were recorded during fiscal 1999 and 1997,
respectively. In December 1999, United Artists received an invoice from its
former insurance provider for approximately $2.9 million for previously
unbilled insurance claims paid by the insurance provider during 1996 through
1999 on United Artists' behalf. After verifying the validity of the
additional invoice, United Artists recorded a charge of approximately $2.9
million.
DEPRECIATION AND AMORTIZATION
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 $0.4 million
during 1999 as compared to 1998 and $5.1 million for 1998 as compared to 1997.
The 1999 decreases were primarily due to theatre closures and the effect of
asset impairments during 1998 and 1999, partially offset by increased
depreciation from new theatres opened at the end of 1998 and during 1999. The
1998 decreases were primarily due to theatre closures and 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 of amortization expense during 1997 on non-compete agreements and
certain other assets acquired as part of the Acquisition, which were fully
amortized in May 1997.
OPERATING INCOME (LOSS)
United Artists incurred operating losses of $53.8 million and $2.3 million
during 1999 and 1998, respectively, versus generating operating income of $1.6
million during 1997. The decrease in operating income during 1999 was primarily
due to lower revenue, a higher film rental percentage and occupancy expenses,
increased non-cash charges related to provisions for impairment and accrued
lease termination costs, partially offset by lower non-film related operating
costs and general and administrative expenses. 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.
INTEREST, NET
Interest, net increased $12.1 million in 1999 as compared to 1998 and $11.3
million in 1998 as compared to 1997. The 1999 increase was primarily due to an
increase in the interest rate borrowing spread on the amended credit facilities,
higher market interest rates and a higher average debt balance. 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 Bank Credit Facility. United Artists capitalized $0.8 million
and $1.5 million of interest during 1999 and1998, respectively, to various
construction projects.
GAIN ON DISPOSITION OF ASSETS, NET
During 1999, United Artists sold certain theatres for which cash proceeds of
$18.0 million were received and $4.5 million of gains were recognized. 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
under-performing 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.
INCOME TAX EXPENSE
Income tax expense consists of current state and Federal income taxes of 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. 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
24
<PAGE>
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 30, 1999,
United Artists has a net operating loss carryforward of approximately $283.9
million. The IRS is currently auditing United Artists' income tax returns for
the years ended December 31, 1995, 1996 and 1997. 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.
DISCONTINUED OPERATIONS
During 1998, United Artists established a plan to dispose of its
entertainment center business segment. Operations in all of United Artists'
entertainment centers ceased during 1999. United Artists wrote off the cost
of the related assets of $3.4 million against a previously established
reserve. United Artists subsequently established an additional reserve of
$2.4 million related to estimated costs necessary to terminate three
remaining leases and settle remaining litigation related to the entertainment
centers. At December 30, 1999, the balance in the discontinued operations
reserve account is $2.4 million. The net loss from the discontinued
operations was $14.2 million and $5.4 million for 1998 and 1997,
respectively. Included in the net loss from discontinued operations was
interest expense of $1.1 million and $1.3 million for 1998 and 1997,
respectively. The anticipated loss from disposition was $6.1 million during
1998 which represented future losses. Additionally, the net loss from
discontinued operations included non-cash provisions for asset impairments of
$10.7 million and $1.0 million for 1998 and 1997 respectively.
EXTRAORDINARY ITEM
As a result of the repayment of United Artists' existing bank credit facility
(the "Former Bank Credit Facility") and senior secured notes (the "Senior
Secured Notes") during 1998, United Artists recognized an extraordinary loss on
the early extinguishment of debt. The extraordinary loss amounted to $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 $127.3
million during 1999 compared to net losses available to common stockholders of
$98.0 million and $50.8 million for 1998 and 1997, respectively. The increase in
loss from 1998 to 1999 relates to reduced operating income increased interest
costs and non-cash provisions for asset impairment, partially offset by the
dividends on preferred stock, the extraordinary loss on early extinguishment of
debt, and the loss from discontinued operations recorded during 1998. 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. Excluding these unusual items, the net losses available
to common stockholders for 1999, 1998 and 1997 would have been as follows
(dollars in millions):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss available to common stockholders.......... $ (127.3) (98.0) (50.8)
Impairment, lease exit costs and other............. 61.6 36.3 35.8
Gain on disposition of assets...................... (4.5) (1.0) (28.0)
Discontinued operations............................ 2.4 20.3 5.4
Loss on early extinguishment of debt............... - 7.9 -
----- ------ ---------
$ (67.8) (34.5) (37.6)
====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
25
<PAGE>
For the 52 weeks ended December 30, 1999, net cash of $9.5 million was used
in United Artists' operating activities. This use of operating cash, in
addition to $35.4 million of cash used for capital expenditures and other
investing activities, was provided by $52.7 million of financing activities.
Cash balances available at December 30, 1999 were $7.8 million higher than
those available at December 31, 1998. However, United Artists has no
availability under its revolving credit facilities and is not in compliance
with certain covenants of its Bank Credit Facility (see Note 9, Debt).
On April 15, 2000, an interest payment of $12.3 million is due to the holders
of the Senior Subordinated Notes. United Artists will not make that payment
when due and will attempt to complete its negotiations with its senior
secured lenders under the Bank Credit Facility to recapitalize United Artists
during the 30-day Senior Subordinated Notes interest payment grace period and
then United Artists will present that plan to the holders of the Senior
Subordinated Notes for their consideration. There can be no assurance that
the holders of the Senior Subordinated Notes will consent to the plan. At the
end of the 30-day interest payment grace period under the Senior Subordinated
Notes, assuming that both the lenders under the Bank Credit Facility and the
holders of the Senior Subordinated Notes have not consented to attempt to
recapitalization plan, the holders of the Senior Subordinated Notes may then
attempt to exercise any remedies available to them, including, without
limitation, acceleration of the indebtedness. The senior secured lenders
under the Bank Credit Facility have, however, notified the holders of the
Senior Subordinated Notes of a default under the Bank Credit Facility and
blocked payment of the Senior Subordinated Notes for up to 180 days. A
financial and corporate reorganization of United Artists is likely whether or
not a consensual debt restructuring agreement can be reached with the lenders
under the Bank Credit Facility and the holders of the Senior Subordinated
Notes.
Substantially all of United Artists' admissions and concession sales revenue is
collected in cash. United Artists benefits from the fact that film expenses
(except for films that require advances) are usually paid 15 to 45 days after
the admissions revenue is collected.
During April 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
(collectively, the "Senior Subordinated Notes"). Simultaneously, United Artists
entered into a $450.0 million bank credit facility (the "Bank Credit Facility")
with a final maturity of April 21, 2005.
The proceeds from the offerings of the Senior Subordinated Notes and a portion
of the borrowings under the New Bank Credit Facility were used to:
- repay the outstanding borrowings of $272.5 million under UATC's Former
Bank Credit Facility
- fund the redemption of United Artists' 14% preferred stock (approximately
$159.2 million)
- fund 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.
- repay and retire the 11.15% Prop I mortgage notes (approximately $45.7
million)
As a result of the repayment of the Former Bank Credit Facility and the
redemption of the Senior Secured Notes, United Artists recognized an
extraordinary loss on the early extinguishment of debt during 1998. The
extraordinary loss totaled $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.
In March 1999 and September 1999, United Artists finalized the second and
third amendments to its Bank Credit Facility with its lenders, including a
shortening of the maturity date for part of the credit facility, an increase
in the LIBOR borrowing spread and additional loan security through mortgages
on certain of United Artists properties. As of December 30, 1999, United
Artists is in default under certain covenants of its Bank Credit Facility.
In December 1996, United Artists initiated a new investment strategy that
focuses on the development of new theatres and renovations (including stadium
seating retrofits) and expansions of existing high revenue theatres in the U.S.
where United Artists has a significant operating presence. As part of this
increased focus on its U.S. operations, United Artists restructured and
realigned its corporate overhead functions and has sold substantially all of its
international theatre exhibition investments. The proceeds received from the
sale of international investments and corporate overhead savings were redeployed
into new theatre developments and the renovation and expansion of existing key
theatres in United Artists' core areas of operation and used to repay existing
debt.
During late 1997, several of United Artists' competitors initiated expansion
programs to aggressively build new stadium seating megaplexes in a effort to
gain market share. As a result of this unprecedented increase in capital
spending by other operators and resulting increase in new theatre screens in
1998 and 1999, several of United
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<PAGE>
Artists' older, smaller non-stadium theatres were adversely impacted. In
response to this market condition, United Artists has been aggressively seeking
to defend its key market positions through selective investments in key
locations and dispose of those theatres that were unprofitable and could not
compete effectively.
In 1999, as the capital spending by its competitors peaked, United Artists
continued to implement a strategy intended to identify and divest of
under-performing and non-strategic theatres and properties. In December 1999,
management formalized a plan to dispose of 55 operating theatres (371
screens) and 12 properties and exit leases covering 18 closed theatres. For
the fiscal year ended December 30, 1999 these theatres generated $11.2
million of negative EBITDA (earnings before interest, taxes, depreciation and
amortization plus other non-recurring or non-cash operating credits or
changes). While there can be no assurance that such sales or lease
termination efforts will be successful, or what the final cost will be,
negotiations are ongoing with respect to several theatres and parcels of real
estate. During 1999 United Artists received $12.0 million of proceeds as a
result of the sale or early lease buyouts associated with 14 theatres (69
screens) and disbursed approximately $2.1 million in early lease termination
payments relating to five theatres (38 screens). Additionally 11 theatres (61
screens) were closed, the leases on 10 theatres (35 screens) expired and one
theatre (eight screens) was subleased to another theatre operator. The
theatres that were closed or sold were primarily smaller, older theatres that
were under-performing or not part of United Artists' long-term strategic
plans.
In response to the increasing competitive environment and limited capital
resources, during 1999 United Artists continued to focus its investment
activities on defending its key market positions and significantly curtailed its
capital spending to only the most strategically important projects. During 1999,
United Artists invested approximately $12.0 million on eight theatres (103
screens) which opened in 1998. Approximately $47.5 million was invested on
projects which opened during 1999 and for recurring capital maintenance. These
1999 projects include:
- the development of two new theatres (25 screens) in the Philadelphia and
Dallas markets,
- the development of one theatre (12 screens) on an existing drive-in site
on Long Island,
- the renovations, expansions and addition of stadium seating to three
existing theatres (36 screens),
- the renovation of one theatre (two screens) in Forest Hills, NY
In addition, approximately $5.0 million was invested in one theatre (15 screens
plus an IMAX) expected to open during the spring of 2000 in the Philadelphia
market.
A significant portion of United Artists' capital expenditures over the past
several years has been funded by sale and leaseback transactions. Following is a
summary of the various transactions:
In December 1995, UATC and UAR entered into a sale and leaseback transaction
(the "1995 Sale and Leaseback") whereby the 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 pass-through certificates. The lease related
to the properties and other agreements require 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 building and land underlying three of its operating theatres and two
theatres under development were sold for approximately $21.5 million 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 for approximately $18.1 million and
leased back from an unaffiliated third party. Approximately $9.2 million of
the sales proceeds were paid to UATC during 1999 for reimbursement of certain
of the construction costs relating to the two theatres.
During 1999, UATC and UAR entered into three separate sale and leaseback
transactions on one existing theatre and two theatres under construction
aggregating approximately $19.1 million. A $5.4 million sale and leaseback
transaction on the existing theatre was funded during 1999. The purchase
and sale agreement for $9.7 million, relating to a theatre that opened in
December 1999, lapsed because the ground lessor's consent could not be
obtained. United Artists and the buyer of the building and the ground
lessor are currently involved in litigation claiming that the landlord
has unreasonably withheld consent. A $4.0 million transaction on a theatre
that opened in September 1999 is still pending.
27
<PAGE>
At December 30, 1999, United Artists had entered into a construction and
lease agreement for one new theatre (15 screens plus an IMAX). United Artists
estimates this theatre will be opened in April 2000 and capital expenditures
during 2000 will aggregate approximately $14.6 million. This is the only
project for which United Artists has executed a definitive lease and all
significant lease contingencies have been satisfied. United Artists expects
additional capital expenditures for ongoing maintenance and with regard to
the renovation, expansion or replacement of existing key locations as
opportunities present themselves and capital resources are available. Because
a significant portion of 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. Therefore, they can
be matched to net cash provided by operating activities, asset sales and
other sources of capital.
At December 30, 1999, United Artists was party to interest rate collar
agreements on $150.0 million of floating rate debt which provide for a LIBOR
interest rate cap of 6% per annum and a LIBOR interest rate floors of
approximately 5 1/2%, expiring at August 2001. In February 2000, United
Artists reset the cap agreements at a rate of 7.5% and received $1.4 million.
The terms of the Bank Credit Facility 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.
At December 30, 1999, United Artists had approximately $437.7 million of
indebtedness outstanding under its Bank Credit Facility and approximately
$2.7 million of revolving loan commitments thereunder which had been used for
the issuance of letters of credit. There is no credit available to United
Artists under the Bank Credit Facility.
The level of continued investing activities by United Artists is being
significantly curtailed by its current liquidity status. Investing activities
are dependent on, among other factors, its on-going operating liquidity and
other sources of liquidity. One measure commonly used in the theatrical industry
to measure operating liquidity is referred to as "Interest Coverage." Interest
Coverage is the ratio of Operating Cash Flow (defined as EBITDA - earnings
before interest, taxes, depreciation and amortization - plus other non-recurring
or non-cash operating credits or charges) to interest expense (excluding
amortization of deferred loan costs). Following is a calculation of Operating
Cash Flow and Interest Coverage for each of the last three years, including a
reconciliation of Operating Income to Operating Cash Flow. Additionally,
information from the statements of cash flow is presented for each of the last
three years in the following table (dollars in millions):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating income (loss) from continuing operations.......$ (53.8) (2.3) 1.6
Depreciation and amortization............................ 53.5 53.9 59.0
Impairments, lease exit costs and other.................. 61.6 36.3 35.8
Non-cash rent............................................ 4.8 4.0 3.7
----- ----- -------
Operating Cash Flow....................................$ 66.1 91.9 100.1
==== ==== =====
Interest Expense.........................................$ 66.8 54.5 42.6
==== ==== ====
Interest Coverage Ratio.................................. 0.99 1.69 2.35
==== ==== ====
Statements of Cash Flow Information:
Net cash provided by (used in) operating activities.......$ (9.5) 42.6 46.3
Net cash used in investing activities..................... (35.4) (113.4) 0.1
Net cash provided by (used in) financing activities....... 52.7 68.2 (45.7)
---- ---- ------
Net cash increase (decrease)..............................$ 7.8 (2.6) 0.7
=== ===== ===
</TABLE>
As shown above, United Artists' Interest Coverage Ratio decreased from 2.35
times for 1997 to 1.69 times for 1998 and 0.99 times for 1999 primarily due
to reduced Operating Cash Flow.
Operating Cash Flow, set forth above, is one measure of value and borrowing
capacity commonly used in the theatrical exhibition industry. It 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.
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<PAGE>
Another measure of liquidity is net cash provided by operating activities as set
forth above. Net cash used in operating activities was $9.5 million during 1999.
Net cash provided by operating activities was $42.6 million and $46.3 million
for 1998 and 1997, respectively. This measurement sets forth the net cash from
the operations provided by United Artists' operations 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 unless a recapitalization plan is completed, the
net cash provided by operations, proceeds from asset sales and sale-leaseback
transactions may not be sufficient to fund its future cash requirements.
United Artists expects the future cash requirements will principally be for
interest and repayments of indebtedness, working capital requirements and
capital expenditures. United Artists' future operating performance and
ability to service its indebtedness will be subject to the success of motion
pictures which are released, future economic conditions, the sale of non-core
assets and to financial, business and other factors, many of which are beyond
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.
OTHER
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 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.
Historically, the principal impact of inflation and changing prices upon United
Artists has been with respect to the construction of new theatres, the purchase
of theatre equipment and the utility and labor costs incurred in connection with
continuing theatre operations. Film rental fees, which are the largest operating
expense incurred by United Artists, are customarily paid as a percentage of
admissions revenue and hence while the film rental fees may increase on an
absolute basis the percentages are not directly affected by inflation. Inflation
and changing prices have not had a significant impact on United Artists' total
revenues and results of operations.
YEAR 2000
United Artists completed a review of its internal information systems for
potential year 2000 transition problems. Areas addressed include:
- Computer based systems in United Artists' theatres (point-of-sale ("POS")
system, the projection and sound system, the energy management system and
other ancillary systems),
- Computer based systems at United Artists' administrative offices
(financial information systems and telecommunications systems),
- Products and services provided by outside vendors (e.g., the motion
picture companies and banks).
The change over into the year 2000 did not result in significant disruption of
United Artists' business operations nor did it have a material adverse effect on
United Artists' liquidity or results of operations. United Artists' cost
associated with year 2000 upgrades and preventative measures was approximately
$0.1 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
29
<PAGE>
committed to on May 21, 1998 if construction had not commenced 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 theatre leases entered into in the future to be recorded
as lease financing obligations. United Artists believes that none of its
current construction commitments will need to be accounted for in accordance
with Issue No. 97-10.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in
the balance sheet as either an asset or liability measured at its fair
value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000 and earlier application is encouraged. United Artists has not
yet quantified the impact, if any, of adopting SFAS No. 133 on its financial
statements and has not determined the timing of or method of adoption of SFAS
No. 133. However, SFAS No. 133 could increase volatility in earnings and
other comprehensive income.
ITEM 7A. 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):
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
---------------------------------------------------------------------------------------
FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL Value(4)
---- ---- ---- ---- ---- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Indebtedness
Fixed Rate $3.2 1.5 0.4 0.4 0.4 227.9 233.9 42.6
Avg. Interest Rate 9.4% 9.2 7.8 7.8 7.8 9.7 9.7
Floating Rate $3.5 10.4 30.7 46.3 58.8 338.0 487.7 292.0
Avg. Interest Rate (1) (1) (1) (1) (1) (1) (1)
Interest Rate Collars
(notional amount) $ - 150.0 - - - - 150.0 0.7
Avg. Interest Rate
Interest Rate Cap (2) (2) (2) (2) (2) (2) (2) (2)
Interest Rate Floor (3) (3) (3) (3) (3) (3) (3) (3)
</TABLE>
(1) The weighted average floating interest rate at December 30, 1999 was 10.3%.
(2) At December 30, 1999, the average interest rate cap is 6.0% through August
2001. During February 2000 this interest collar was sold for $1.4 million
and replaced with a 7.5% cap which expires at December 2000.
(3) At December 30, 1999, the average interest rate floor was 5.5% through
August 2001. During February 2000 this interest collar was sold.
(4) At April 6, 2000, the fair market value of the fixed rate debt was $24.6
million and the floating rate debt was $288.0 million.
30
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of United Artists are filed under this
item beginning on page 32.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO UNITED ARTISTS THEATRE COMPANY:
We have audited the accompanying consolidated balance sheets of United
Artists Theatre Company and subsidiaries ("United Artists") as of December
30, 1999 and December 31,1998, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flow for the fiscal years
ended December 30, 1999 and December 31, 1998 and 1997. 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 auditing standards generally accepted
in the United States. 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 30, 1999 and December
31, 1998 and the results of their operations and their cash flow for the
fiscal years ended December 30, 1999 and December 31, 1998 and 1997 in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that United
Artists will continue as a going concern. As discussed in Note 2 to the
financial statements, United Artists has suffered recurring losses from
operations and may not generate sufficient liquidity to meet its financial
obligations as they become due, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should United Artists be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Denver, Colorado
April 13, 2000
32
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in Millions)
<TABLE>
<CAPTION>
Assets December 30, December 31,
------ 1999 1998
-------- -------
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................... $ 16.0 8.2
Receivables, net:
Notes........................................................... 1.2 1.8
Other........................................................... 5.4 17.6
---- ----
6.6 19.4
Prepaid expenses and concession inventory......................... 16.5 15.0
Other assets...................................................... 2.3 0.7
---- ----
Total current assets........................................... 41.4 43.3
Investments and related receivables................................. 3.5 8.3
Property and equipment, at cost (note 13):
Land............................................................ 37.8 44.0
Theatre buildings, equipment and other.......................... 625.6 592.5
----- -----
663.4 636.5
Less accumulated depreciation and amortization (note 7)......... (257.4) (216.4)
------- ------
406.0 420.1
Intangible assets, net (note 13).................................... 57.8 81.3
Net assets of discontinued operations (note 14)..................... - 3.4
Other assets, net (note 4).......................................... 25.6 22.7
---- ----
$ 534.3 579.1
===== =====
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable:
Film rentals.................................................... $ 36.4 28.7
Other........................................................... 42.1 65.2
---- ----
78.5 93.9
Accrued liabilities:
Salaries and wages.............................................. 5.5 6.1
Interest........................................................ 10.6 8.3
Other........................................................... 45.9 26.3
---- ----
62.0 40.7
Current portion of long-term debt (notes 4 and 9)................. 717.0 8.5
----- ------
Total current liabilities....................................... 857.5 143.1
Other liabilities (note 5).......................................... 58.1 48.3
Debt (notes 4 and 9)................................................ 4.6 645.4
Liabilities related to discontinued operations (note 14)............ 2.4 4.9
------- -------
Total liabilities............................................... 922.6 841.7
Minority interests in equity of consolidated subsidiaries........... 5.8 5.6
Stockholders' equity (deficit) (notes 4 and 11):
Common stock:
Class A...................................................... 0.1 0.1
Class B...................................................... - -
Class C...................................................... - -
Additional paid-in capital...................................... 51.1 51.1
Accumulated deficit............................................. (444.8) (317.5)
Unrealized holding gain......................................... 1.6 -
Treasury stock ................................................. (2.1) (1.9)
------- ---------
Total stockholders' equity (deficit).......................... (394.1) (268.2)
------- -------
$ 534.3 579.1
===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Operations
(Amounts in Millions)
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------------------
December 30, December 31, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue:
Admissions..................................................... $ 433.1 454.4 473.9
Concession sales............................................... 174.4 188.5 189.6
Other.......................................................... 23.9 19.6 20.8
---- ------ ------
631.4 662.5 684.3
----- ----- -----
Costs and expenses:
Film rental and advertising expenses........................... 244.0 248.5 262.5
Direct concession costs........................................ 22.7 28.0 30.2
Other operating expenses ...................................... 264.0 260.2 258.1
Sale and leaseback rentals (note 5)............................ 16.8 14.5 12.8
General and administrative .................................... 22.6 23.4 24.3
Depreciation and amortization (note 7)......................... 53.5 53.9 59.0
Impairment, lease exit costs and other (note 13)............... 61.6 36.3 35.8
------ ------ -----
685.2 664.8 682.7
----- ----- -----
Operating income (loss) from continuing operations.......... (53.8) (2.3) 1.6
Other income (expense):
Interest, net (notes 4 and 9):
Interest expense............................................ (66.8) (54.5) (42.6)
Amortization of deferred loan costs......................... (2.2) (1.9) (2.2)
Interest income............................................. 1.3 0.8 0.5
------ ------ ------
(67.7) (55.6) (44.3)
Gain on disposition of assets, net (note 15)................... 4.5 1.0 28.0
Share of losses of affiliates, net............................ - (0.3) (1.6)
Minority interests in earnings of consolidated subsidiaries.... (1.0) (1.3) (1.3)
Other, net..................................................... (5.8) (1.7) (2.5)
------ ------ -------
(70.0) (57.9) (21.7)
------ ------ ------
Loss from continuing operations before income tax
expenses, discontinued operations and extraordinary item..... (123.8) (60.2) (20.1)
Income tax expense (note 16)....................................... (1.1) (0.6) (1.5)
-------- ------ ------
Loss from continuing operations................................ (124.9) (60.8) (21.6)
Discontinued operations (note 14).................................. (2.4) (20.3) (5.4)
-------- ------ ------
Loss before extraordinary item................................. (127.3) (81.1) (27.0)
Extraordinary item - loss on early extinguishment of debt (note 4). - (7.9) -
---------- ------ --------
Net loss....................................................... (127.3) (89.0) (27.0)
Dividend on preferred stock (note 11).............................. - (9.0) (23.8)
---------- ------ ------
Net loss available to common stockholders...................... $ (127.3) (98.0) (50.8)
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements
34
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
(Amounts in Millions)
<TABLE>
<CAPTION>
Common Common Common Additional
Preferred stock stock stock paid-in Accumulated
stock Class A Class B Class C capital deficit
--------- ------- ------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.................... 170.1 0.1 - - 40.2 (201.5)
Accretion of dividends on preferred stock..... 23.8 - - - (23.8) -
Foreign currency translation adjustment....... - - - - - -
Purchase of treasury stock.................... - - - - - -
Net loss..................................... - - - - - (27.0)
------ ------ ------ ------ ------ ------
Balance at December 31, 1997.................... 193.9 0.1 - - 16.4 (228.5)
Accretion of dividends on preferred stock.... 9.0 - - - (9.0) -
Redemption of preferred stock................ (202.9) - - - 43.7 -
Foreign currency translation adjustment....... - - - - - -
Purchase of treasury stock.................... - - - - - -
Net loss...................................... - - - - - (89.0)
------- ------- ------- ------ ------ ------
Balance at December 31, 1998.................... - 0.1 - - 51.1 (317.5)
Purchase of treasury stock..................... - - - - - -
Unrealized holding gains....................... - - - - - -
Net loss...................................... - - - - - (127.3)
-------- -------- ------- ------ ------ -------
Balance at December 30, 1999.................... $ - 0.1 - - 51.1 (444.8)
======== ======== ======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Unrealized foreign currency Total
holding translation Treasury stockholders'
Gain Adjustment Stock Equity (deficit)
---------- ---------------- -------- ------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996.................... - (0.5) - 8.4
Accretion of dividends on preferred stock..... - - - -
Foreign currency translation adjustment....... - 0.1 - 0.1
Purchase of treasury stock.................... - - (1.8) (1.8)
Net loss..................................... - - - (27.0)
----- -------- ------ ------
Balance at December 31, 1997.................... - (0.4) (1.8) (20.3)
Accretion of dividends on preferred stock.... - - - -
Redemption of preferred stock................ - - - (159.2)
Foreign currency translation adjustment....... - 0.4 - 0.4
Purchase of treasury stock.................... - - (0.1) (0.1)
Net loss...................................... - - - (89.0)
------ ------ ------ ------
Balance at December 31, 1998.................... - - (1.9) (268.2)
Purchase of treasury stock..................... - - (0.2) (0.2)
Unrealized holding gains....................... 1.6 - - 1.6
Net loss...................................... - - - (127.3)
------- ------ ------ -------
Balance at December 30, 1999.................... 1.6 - (2.1) (394.1)
======== ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(Amounts in Millions)
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------
December 30, December 31, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net cash provided by (used in) operating activities........................ $ (9.5) 42.6 46.3
----- ---- ----
Cash flow from investing activities:
Capital expenditures.................................................... (64.5) (116.9) (67.4)
Change in receivable from sale and leaseback escrow..................... 5.2 (11.0) (12.8)
Proceeds from sale and leaseback transaction and escrow................. 5.4 2.7 23.2
Proceeds from disposition of assets, net................................ 12.6 16.0 70.0
Change in investments and receivables from theatre joint ventures, net.. 2.4 2.7 (18.3)
Other, net.............................................................. 3.5 (6.9) 5.4
----- ------- -----
Net cash used in investing activities.................................. (35.4) (113.4) 0.1
------ ------- -----
Cash flow from financing activities:
Proceeds from issuance of senior subordinated notes..................... - 265.6 -
Debt borrowings......................................................... 144.0 630.6 150.9
Debt repayments......................................................... (76.3) (549.5) (191.5)
Redemption of preferred stock........................................... - (159.2) -
Repurchase of senior secured notes...................................... - (128.6) -
Increase (decrease) in cash overdraft................................... (9.8) 10.5 (2.8)
Other, net.............................................................. (5.2) (1.2) (2.3)
----- ------ ------
Net cash provided by (used in) financing activities.................... 52.7 68.2 (45.7)
---- ---- ------
Net increase (decrease) in cash and cash equivalents................... 7.8 (2.6) 0.7
Cash and cash equivalents:
Beginning of period .................................................... 8.2 10.8 10.1
----- ----- -----
End of period .......................................................... $ 16.0 8.2 10.8
==== ====== ====
Reconciliation of net loss to net cash provided by operating activities:
Net loss................................................................ $(127.3) (89.0) (27.0)
Non-cash portion of discontinued operations............................. 1.1 16.6 2.7
Extraordinary item...................................................... - 7.9 -
Effect of leases with escalating minimum annual rentals................. 4.8 4.0 3.7
Depreciation and amortization........................................... 53.5 53.9 59.0
Provisions for impairment............................................... 35.7 31.8 26.5
Reserve for lease termination costs..................................... 19.0 5.3 11.6
Gain on disposition of assets, net...................................... (4.5) (1.0) (28.0)
Share of losses of affiliates, net...................................... - 0.3 1.6
Minority interests in earnings of consolidated subsidiaries............. 1.0 1.3 1.3
Early lease termination payments........................................ (2.1) (1.1) (4.7)
Change in assets and liabilities:
Receivables........................................................... (0.2) 5.1 2.4
Prepaid expenses and concession inventory............................. (1.5) 2.4 (3.0)
Other assets.......................................................... 0.7 0.4 1.9
Accounts payable...................................................... 5.6 7.5 3.3
Accrued and other liabilities......................................... 4.7 (2.8) (5.0)
--- ----- -----
Net cash provided by (used in) operating activities................... $ (9.5) 42.6 46.3
===== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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
Appreciation Fund II, 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) GOING CONCERN
The accompanying financial statements have been prepared assuming
United Artists will continue as a going concern.
There can be no assurance that such negotiations will be successful
and even if successful, implementation of the recapitalization plan
may require additional actions with respect to the reorganization of
United Artists. United Artists is in default under its Bank Credit
Facility and soon will be in default under its Senior Subordinated
Notes (see discussion below) and in the absence of forbearance and
conclusion of a successful recapitalization and restructuring, the
senior secured lenders and Senior Subordinated Noteholders may seek
to exercise their remedies, including acceleration of indebtedness.
United Artists continues to face liquidity problems caused by its
significant debt burden and its continuing net losses. United Artists
has incurred net losses of $127.3 million, $98.0 million and 50.8
million in 1999, 1998 and 1997, respectively.
In February 2000, United Artists initiated discussions with the
senior secured lenders under its Bank Credit Facility regarding a
recapitalization plan. Once a recapitalization plan has been approved
by its senior secured lenders, United Artists intends to initiate
discussions with the holders of its Senior Subordinated Notes (see
Note 4) with respect to that recapitalization plan.
On April 15, 2000, an interest payment of $12.3 million is due to
the holders of the Senior Subordinated Notes. United Artists will not
make that payment when due and will attempt to complete its
negotiations with its senior secured lenders under the Bank Credit
Facility to recapitalize United Artists during the 30-day Senior
Subordinated Notes interest payment grace period and then United
Artists will present that plan to the holders of the Senior
Subordinated Notes for their consideration. There can be no
assurance that the holders of the Senior Subordinated Notes will
consent to the plan. At the end of the 30-day interest payment grace
period under the Senior Subordinated Notes, assuming that both the
lenders under the Bank Credit Facility and the holders of the Senior
Subordinated Notes have not consented to a recapitalization plan, the
holders of the Senior Subordinated Notes may then attempt to exercise
any remedies available to them, including, without limitation,
acceleration of the indebtedness. The senior secured lenders under the
Bank Credit Facility have, however, notified the holders of the
Senior Subordinated Notes of a default under the Bank Credit
Facility and blocked payment of the Senior Subordinated Notes for up to
180 days. A financial and corporate reorganization of United Artists
is likely whether or not a consensual debt restructuring agreement
can be reached with the lenders under the Bank Credit Facility and
the holders of the Senior Subordinated Notes. However, in the
absence of a recapitalization and restructuring, management will not
be able to implement its business plan and United Artists will have to
explore other alternatives to reorganize United Artists.
A financial advisor has been retained to advise United Artists in
development of a debt/equity recapitalization plan. The advisor will
assist in the presentation of that plan to United Artists' lenders and
bondholders, and be available for consultation.
37
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) 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 52
weeks ended December 30, 1999 and the twelve months ended December 31,
1998 and 1997.
(4) 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"). Simultaneously, United Artists entered into a
$450.0 million bank credit facility (the "Bank Credit Facility")
with a final maturity of April 21, 2005.
The proceeds from the offerings of the Senior Subordinated Notes and a
portion of the borrowings under the Bank Credit Facility were used to:
- repay the outstanding borrowings under UATC's existing bank
credit facility (the "Former Bank Credit Facility")
(approximately $272.5 million), - fund the redemption of
United Artists' preferred stock (approximately $159.2
million),
- fund 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.
- Repay and retire certain Prop I mortgage notes upon their
November 1998 maturity (approximately $45.7 million). (See
Note 9, Debt.)
As a result of the repayment of the Former Bank Credit Facility and
redemption of the Senior Secured Notes, United Artists recognized an
extraordinary loss on the early extinguishment of debt during 1998.
The extraordinary loss was 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.
(5) 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.
38
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) SALE AND LEASEBACK TRANSACTIONS, CONTINUED
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 for $21.5
million 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. Approximately $9.2 million of the sales proceeds were
paid to UATC during 1999 as reimbursement for certain construction
costs associated with the two theatres. The lease has a term of 22
years with options to extend for an additional 10 years.
During 1999, UATC and UAR entered into three separate sale and
leaseback transactions on one existing theatre and two theatres under
construction aggregating $19.1 million. A $5.4 million sale and
leaseback transaction on the existing theatre was funded during 1999.
A $4.0 million transaction on a theatre that opened in September 1999
is still pending. The remaining purchase and sale agreement for $9.7
million, relating to a theatre that opened in December 1999, lapsed
because the ground lessor's consent could not be obtained. United
Artists and the buyer of the building and the ground lessor are
currently involved in litigation claiming that the landlord has
unreasonably withheld consent.
(6) 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. United Artists capitalized $0.8 million and $1.5
million of interest related to its various construction
projects for the fiscal years ended December 30, 1999 and
December 31, 1998. 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.
39
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(f) INTANGIBLE ASSETS
Intangible assets consist of theatre lease acquisition costs.
Amortization of theatre lease acquisition costs 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). Intangible assets and related
accumulated amortization as of the fiscal year end 1999 and
1998 are summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Theatre lease acquisition costs............. $ 143.0 145.5
Accumulated amortization.................... (85.2) (64.2)
------ -------
$ 57.8 81.3
==== ====
</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 as of the fiscal year end 1999 and 1998 are
summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred loan costs......................... $ 21.4 16.4
Long term receivables....................... 2.7 7.1
Prepaid rent................................ 4.0 -
Other....................................... 0.8 0.4
-------- -----
28.9 23.9
Accumulated amortization.................... (3.3) (1.2)
----- -----
$ 25.6 22.7
==== ====
</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.
(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 1999 presentation.
40
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) 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.
(8) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest for the fiscal years ended December 1999,
1998 and 1997, were $64.1 million, $53.4 million and $42.8 million,
respectively.
Cash payments by certain less than 80% owned entities for income taxes
for the fiscal years ended December 1999, 1998, and 1997 were
$0.5 million, $1.8 million, and $1.4 million, respectively.
United Artists accrued $9.0 million and $23.8 million of dividends
during the years ended December 31, 1998, and 1997, respectively, on
its preferred stock (see Note 11, Stockholders' Equity).
During 1998 and 1997, United Artists incurred $0.7 million and $1.1
million, respectively, of capital lease obligations relating to new
equipment.
(9) DEBT
In March 1999 and September 1999, United Artists finalized the second
and third amendments to its Bank Credit Facility with its lenders,
including an advancement of the maturity date for part of the
agreement, an increase in the LIBOR borrowing spread and additional
loan security through mortgages on certain of United Artists
properties. As of December 30, 1999, United Artists is in default of
certain covenants of the Bank Credit Facility. In addition, the senior
secured lenders under the Bank Credit Facility have notified the
holders of the Senior Subordinated Notes of a default under the Bank
Credit Facility and blocked payment of the Senior Subordinated Notes
for up to 180 days. United Artists will not make the interest payments
of approximately $12.3 million due on its Senior Subordinated Notes on
April 15, 2000. After the expiration of the interest payment grace
period, United Artists will be in default of its obligations to the
holders of the Senior Subordinated Notes. As a result of the existing
default under the Bank Credit Facility and the pending default under
the Senior Subordinated Notes (and certain cross-default provisions in
United Artists' other debt), United Artists has classified most of its
debt outstanding at December 30, 1999, as current.
Debt is summarized as follows (amount in millions):
<TABLE>
<CAPTION>
December 30, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Bank Credit Facility (a).................. $437.7 365.3
Senior Subordinated Notes (b)............. 275.0 275.0
UAR Promissory Notes (c).................. - 2.4
Other (d)................................. 8.9 11.2
-------- ------
721.6 653.9
Less current portion...................... (717.00) (8.5)
-------- ------
$ 4.6 645.4
======== ======
</TABLE>
(a) The 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").
Commitments available for borrowing under the Revolving
Facility reduce semi-annually commencing January 3, 2002
through April 21, 2005. The aggregate Term loan balance at
December 30, 1999 was $437.7 million. The Tranche A Term Loan
requires semi-annual principal payments commencing December
31, 1998 through June 28, 2001 of
41
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) DEBT, CONTINUED
1/2% of the December 31, 1998 outstanding balance and then in
escalating semi-annual payments through April 21, 2005. The
Tranche B and Tranche C Term Loans require semi-annual
principal payments commencing December 31, 1998 through
December 30, 2004 of 1/2% of the December 31, 1998 outstanding
balance and a final payment of 93 1/2% of the December 31,
1998 outstanding balance on April 21, 2005. There is no
credit available to United Artists under the Bank Credit
Facility.
Borrowings under the Bank Credit Facility provide for
interest to be accrued at varying rates depending on the ratio
of indebtedness to annualized operating cash flow, as defined.
Interest is payable at varying dates depending on the type of
rate selected by United Artists, but no less frequently than
once each 90 days. The weighted average interest rate at
December 30, 1999 was 10.3%
The 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 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 Bank Credit Facility is secured
by mortgages on certain of United Artists' properties.
The Bank Credit Facility contains certain 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
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 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 Bank Credit Facility. The Fixed Rate Subordinated
Notes rank PARI PASSU with the Floating Rate Subordinated
Notes.
(c) 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 was
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.
42
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) DEBT, CONTINUED
(d) Other debt at December 30, 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 December 30, 1999, United Artists was party to interest rate collar
agreements on $150.0 million of floating rate debt which provide for a
LIBOR interest rate cap of 6% and a LIBOR interest rate floor of
approximately 5 1/2% expiring August 2001. In February 2000, United
Artists sold the existing collar for $1.4 million and reset the cap
agreements at a rate of 7.5%. 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 30, 1999, United Artists had approximately $2.7 million of
Revolving Facility commitments, all of which has been used for the
issuance of letters of credit. United Artists pays commitment fees of
5/8% per annum on the average unused commitments.
The primary source of principal and interest payments related to the
Bank Credit Facility and the Senior Subordinated Notes come
from payments by UATC to United Artists. The amount of payments by UATC
to United Artists may be limited from time-to-time by covenants
included in the participation agreement relating to the 1995 Sale and
Leaseback. See Note (5), Sale and Leaseback Transactions.
Absent the effects of acceleration of debt payments, if any,
resulting from defaults under the Bank Credit Facility and potential
defaults under the Senior Subordinated Notes, Annual maturities of
debt for each of the next five years and thereafter are summarized as
follows (amounts in millions):
<TABLE>
<S> <C>
2000................................................$ 6.7
2001................................................ 12.0
2002................................................ 31.1
2003................................................ 46.7
2004................................................ 59.2
Thereafter.......................................... 565.9
-----
$ 721.6
=========
</TABLE>
(10) 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 30, 1999 are summarized as follows
(amounts in millions):
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
------- -----------
<S> <C> <C>
Bank Credit Facility and Other Debt.............. $ 446.6 293.3
===== ======
Senior Subordinated Notes........................ $ 275.0 41.3
===== ======
Interest Rate Collar Agreements.................. $ - 0.7
===== ======
</TABLE>
43
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Bank Credit Facility and Other Debt: The fair value of United Artists'
borrowings under the Bank Credit Facility is estimated based upon
quoted market prices at December 30, 1999.
Senior Subordinated Notes: The fair value of United Artists' Senior
Subordinated Notes is estimated based upon quoted market prices at
December 30, 1999.
Interest Rate Collar Agreements: The fair value of United Artists'
interest rate collar agreements is estimated based upon dealer quotes
at December 30, 1999.
(11) STOCKHOLDERS' EQUITY
PREFERRED STOCK
As part of the recapitalization discussed in Note (4),
Recapitalization, proceeds from the Senior Subordinated Notes and a
portion of the borrowings under the Bank Credit Facility were used
to fund the redemption of United Artists' preferred stock on May 1,
1998. At the redemption date, the 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 30, 1999, United Artists had outstanding 11,551,383 shares
of Class A common stock, $0.01 par value per share, 32,375 shares of
Class B common stock, $0.01 par value per share and has granted 4,342
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 vested 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:
- Incentive Options (the "Incentive Plan"),
- Performance Options (the "Performance Plan"),
- 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. 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.
44
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) STOCKHOLDERS' EQUITY, CONTINUED
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
disclosures as if SFAS No. 123 had been applied are not presented.
A summary of United Artists' Incentive Plan as of December 1999, 1998,
and 1997, and changes during those years is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -------------------------
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 1 103,133 $10.10 130,833 $10.12 544,320 $10.06
Granted - - - - - -
Exercised - - - - - -
Forfeited (27,600) $10.00 (27,700) $10.00 (413,487) $10.04
------- -------- --------
Outstanding at Year End 75,533 $10.14 103,133 $10.10 130,833 $10.12
======= ======== =======
</TABLE>
The following table summarizes information about the Incentive Plan at
December 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ -------------------
Weighted Avg.
Number Remaining Number
Exercise Price Outstanding Contractual Life Exercisable
-------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$10.00 62,533 2.5 62,533
$10.79 13,000 4.9 13,000
------ ------
75,533 2.9 75,533
====== ======
</TABLE>
A summary of United Artists' Performance Plan as of fiscal year end
1999, 1998, and 1997, and changes during those years is presented
below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ----------------------- -------------------------
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 1 557,025 $16.64 311,875 $11.31 528,975 $10.05
Granted 525,000 $12.50 276,625 $22.50 197,250 $12.00
Exercised - - - - - -
Forfeited 131,350 $14.69 (31,475) $15.33 (414,350) $10.04
--------- -------- ---------
Outstanding at Year End 950,675 $14.67 557,025 $16.64 311,875 $11.31
========= ======== =========
</TABLE>
45
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) STOCKHOLDERS' EQUITY, CONTINUED
The following table summarizes information about the Performance Plan at
December 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ --------------------
Weighted Avg.
Number Remaining Number
Exercise Price Outstanding Contractual Life Exercisable
-------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$10.00 54,525 2.5 0
$10.79 11,125 4.8 0
$12.00 155,500 7.3 155,500
$12.50 500,000 9.0 0
$22.50 229,525 8.0 229,525
-------- --------
950,675 8.1 385,025
======== ========
</TABLE>
A summary of United Artists Premium Plan as of fiscal year end
1999, 1998 and 1997, and changes during those years is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ----------------------- -------------------------
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 44,819 $124.00 56,431 $90.50 265,403 $66.00
Granted - - - - - -
Exercised - - - - - -
Forfeited (13,876) $124.00 (11,612) $90.50 (208,972) $66.00
-- ------- --------
Outstanding at December 30,943 $124.00 44,819 $90.50 56,431 $66.00
= ====== ======
Options Exercisable at
Year End 0 0 0
= = =
</TABLE>
As of December 30, 1999, the 30,943 Premium Plan options had an
exercise price of $90.50 and a weighted average remaining contractual
life of 2.9 years.
(12) EMPLOYEE BENEFIT PLANS
The UATC 401(k) Savings Plan (the "Savings Plan") provides that
employees may contribute up to 20% 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.
Contributions to the various employee benefit plans for the years ended
December 1999, 1998, and 1997 were $0.7 million, $0.6 million, and $0.6
million, respectively.
(13) IMPAIRMENT, LEASE EXIT COSTS AND OTHER
IMPAIRMENTS
Impairments, lease exit costs and other consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Asset impairments................................ $ 35.7 31.8 26.5
Lease exit costs in operating theatres........... 17.9 - -
Lease exit costs in closed theatres.............. 4.8 4.5 8.5
Insurance........................................ 2.9 - -
Administrative restructuring costs............... 0.3 - 0.8
----- -------- ------
$ 61.6 36.3 35.8
==== ==== ====
</TABLE>
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
1999, 1998, and 1997, United Artists recorded non-cash charges for the
impairment of its
46
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) IMPAIRMENT, LEASE EXIT COSTS AND OTHER, CONTINUED
long-lived assets of $35.7 million, $31.8 million, and $26.5 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).
EXIT COSTS
During 1999, United Artists continued to implement a strategy
intended to identify and divest of under-performing and non-strategic
theatres and properties. In December 1999, management formalized a
plan to dispose of 55 operating theatres (371 screens) and 12
properties and exit leases covering 18 closed theatres. As a result,
United Artists recorded estimated lease termination costs of
$17.9 million in fourth quarter of 1999.
The exit plan is focused on lease termination negotiations and there
are no other significant actions necessary to complete the plan. As
such, in December 1999, United Artists hired a consultant to
facilitate negotiations of lease terminations with landlords.
Management believes that such negotiations will be finalized within
one year.
In addition, during fiscal 1999, 1998 and 1997 United Artists accrued
$4.8 million, $4.5 million and $8.5 million, respectively, for
estimated lease termination costs for theatres closed in those years.
These theatres were not part of the exit plan discussed above.
OTHER
In December 1999, United Artists received an invoice from its
former insurance provider for approximately $2.9 million for
previously unbilled insurance claims paid by the insurance provider
during 1996 through 1999 on United Artists' behalf. After verifying
the validity of the additional invoice, United Artists recorded a
charge of approximately $2.9 million.
Restructuring costs of $0.3 million and $0.8 million for termination
cost related to corporate personnel were recorded during 1999 and
1997, respectively.
(14) 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
December 31, 1998. Liabilities related to the discontinued operations
were $4.9 million at December 31, 1998. The net loss from
discontinued operations was $14.2 million and $5.4 million for the
years ended December 31, 1998, and 1997, respectively. The anticipated
loss from disposition recorded in 1998 was $6.1 million during 1998
which represents future losses. Revenue generated by the discontinued
operations was $1.0 million and $2.4 million, for the years ended
December 31, 1998 and 1997, respectively. Included in the net loss from
discontinued operations was interest expense of $1.1 million and $1.3
million for the years ended December 31, 1998 and 1997, respectively.
Interest expense was allocated to the discontinued operations based
upon the average fixed asset balance and United Artists'
47
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) DISCONTINUED OPERATIONS, CONTINUED
average borrowing rate. The net loss from discontinued 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. Operations in all of United Artists entertainment
centers ceased during 1999.
United Artists wrote off the cost of the related assets of $3.4
million against a previously establised reserve. United Artists
subsequently established an additional reserve of $2.4 million
related to estimated costs necessary to terminate three remaining
leases and settle remaining litigation related to the entertainment
centers.
(15) GAIN ON DISPOSITION OF ASSETS
In fiscal 1999, United Artists sold certain theatres and other assets
for cash proceeds of $18.0 million. 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
net cash proceeds of $16.0 million during fiscal 1998. 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, 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 under-performing theatres for
net cash proceeds of approximately $27.5 million.
(16) 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 fiscal years 1999, 1998 and 1997 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.
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. 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 ended
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.
48
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) INCOME TAXES, CONTINUED
The current state 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>
Fiscal Years Ended December
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current income taxes:
State expense................................... $ 0.4 0.2 0.2
Federal expense................................. 0.7 0.4 1.3
------ ----- ---
1.1 0.6 1.5
Deferred income taxes:
State expense................................... - - -
Federal expense................................. - - -
------ ----- ---
$ 1.1 0.6 1.5
====== ===== ===
</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>
Fiscal Years Ended December
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C>
Expected tax benefit.............................. $(44.2) (30.9) (8.9)
Change in valuation allowance..................... 46.0 35.0 11.1
Adjustment of net operating loss carryforward (30.0) 0.1
Increase in basis of assets....................... 0.2 29.3 -
Other............................................. (0.9) (2.8) (0.8)
----- ------ -----
$ 1.1 0.6 1.5
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at fiscal year
end 1999 and 1998 are as follows (amounts in millions):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $107.9 69.7
Intangible and other assets............................. 26.2 32.2
Accrued liabilities..................................... 6.1 6.4
Deferred gain on sale and leaseback..................... 3.2 2.6
Property and equipment.................................. 15.3 1.8
Deferred revenue........................................ 5.6 4.5
Other................................................... 1.1 1.1
------ -----
165.4 118.3
------ -----
Less: valuation allowance.............................. (161.5) (115.5)
------ -----
Net deferred tax assets.............................. 3.9 2.8
------ -----
Deferred tax liabilities:
Property and equipment.................................. - -
Deferred intercompany gains............................. 1.6 1.6
Other................................................... 2.3 1.2
------ -----
Net deferred tax liabilities......................... 3.9 2.8
------ -----
Net...................................................... $ - -
====== =====
</TABLE>
49
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) INCOME TAXES, CONTINUED
At December 30, 1999, United Artists had a net operating loss
carryforward for federal income tax purposes of approximately $283.9
million which will begin to expire in 2007.
The IRS is currently auditing United Artists' income tax returns for
the years ended December 31, 1995, 1996 and 1997. 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.
(17) SEGMENT INFORMATION
United Artists' operations are classified into three business segments:
Theatre Operations, In-Theatre Advertising 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. In-Theatre Advertising sells
various advertising within its theatres and on its web page.
The following table presents certain information relating to the
Theatre Operations, In-Theatre Advertising, and Satellite Theatre
Network(TM) segments for each of the last three fiscal years (amounts
in millions):
<TABLE>
<CAPTION>
Theatre In-Theatre Satellite
Operations Advertising Theatre Network Total
---------- ------------ --------------- -----
1999
----
<S> <C> <C> <C> <C>
Revenue............................ $ 616.8 8.4 6.2 631.4
Operating income (loss)............ (62.4) 7.3 1.3 (53.8)
Depreciation and amortization...... 53.3 0.2 - 53.5
Assets............................. 528.7 1.7 3.9 534.3
Capital expenditures............... 64.5 - - 64.5
1998
----
Revenue............................ 652.2 4.4 5.9 662.5
Operating income (loss)............ (6.2) 3.5 0.4 (2.3)
Depreciation and amortization...... 53.4 0.4 0.1 53.9
Assets............................. 573.4 1.8 3.9 579.1
Capital expenditures............... 116.7 0.2 - 116.9
1997
----
Revenue............................ 673.2 4.5 6.6 684.3
Operating income (loss)............ (2.7) 3.7 0.6 1.6
Depreciation and amortization...... 58.5 0.4 0.1 59.0
Assets............................. 557.4 1.7 3.9 563.0
Capital expenditures............... 67.3 0.1 - 67.4
</TABLE>
(18) COMPREHENSIVE INCOME
Separate statements of comprehensive income have not been presented in
these financial statements as the only reconciling items 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 in fiscal 1998 and 1997 of $0.4
million and 0.1 million, respectively, and an unrealized holding gain
in fiscal 1999 of $1.6 million. For the years ended December 1998 and
1997, the change
50
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(18) COMPREHENSIVE INCOME, CONTINUED
in the cumulative foreign currency translation adjustment was $0.4
million and $0.1 million, respectively. For the year ended December 30,
1999, United Artists had an unrealized holding gain of $1.6 million.
(19) COMMITMENTS AND CONTINGENCIES
United Artists conducts a significant portion of its theatre and
corporate operations in leased premises. These leases have
noncancelable terms expiring at various dates after December 30, 1999.
Many leases have renewal options. Most of the leases provide for
contingent rentals based on the revenue results of the underlying
theatre and require the payment of taxes, insurance, and other costs
applicable to the property. Also, certain leases contain escalating
minimum rental provisions that have been accounted for on a
straight-line basis over the initial term of the leases.
Rent expense for theatre and corporate operations is summarized as
follows (amounts in millions):
<TABLE>
<CAPTION>
Years Ended December
------------------------------------
1999 1998 1997
---------- ----- ------
<S> <C> <C> <C>
Minimum rental.....................................$ 87.1 79.5 75.4
Contingent rental.................................. 2.4 3.0 3.7
Effect of leases with escalating
minimum annual rentals........................... 4.8 4.0 3.7
Rent tax........................................... 0.6 0.6 0.5
--- ----- -----
$ 94.9 87.1 83.3
==== ==== ====
</TABLE>
Approximately $16.8 million, $14.5 million, and $12.8 million of the
minimum rentals reflected in the preceding table for the years ended
December 1999, 1998 and 1997, respectively, were incurred pursuant to
the sale and leaseback transactions (see Note 5, Sale and Leaseback
Transactions).
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>
2000...................................................................... 87.2
2001...................................................................... 86.0
2002...................................................................... 84.0
2003...................................................................... 81.6
2004...................................................................... 79.9
Thereafter................................................................ 785.1
</TABLE>
Lease payments relating to theatres which United Artists intends to
sell or close are included in the future minimum lease payments table,
above. 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 30, 1999, United Artists had entered into theatre
construction and equipment commitments aggregating approximately $19.6
million for one new theatre (15 screens plus an IMAX) which United
Artists intends to open or renovate during 2000. 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
various claims against United
51
<PAGE>
UNITED ARTISTS THEATRE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(19) COMMITMENTS AND CONTINGENCIES, CONTINUED
Artists relating to certain of the leases held by United Artists.
Although it is not possible to predict the outcome of these
proceedings, if United Artists' restructuring efforts are
unsuccessful, and judgements against United Artists are obtained
in such proceedings, there could result a material adverse effect
on United Artists' financial position, liquidity and 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. 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. If United Artists is
unsuccessful in its efforts to reorganize its capital structure, it
may be unable to comply with the ADA and the settlement agreement in
the CONNIE ARNOLD case. Failure to comply with the ADA and the
settlement agreement in the CONNIE ARNOLD case may have a material
adverse effect on United Artists' financial position, liquidity and
results of operations.
52
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding members of United Artists' Board of Directors as of March
26, 2000 is set forth below. Directors will serve until the next annual meeting
and until his successor is duly elected and qualified.
<TABLE>
<CAPTION>
Name Age Business Experience During Past Five Years Other Public Directorships
- ---- --- ------------------------------------------ --------------------------
<S> <C> <C>
Kurt C. Hall................40 President and Chief Executive Officer since March
6, 1998. Chief Operating Officer from
February 24, 1997 and Executive Vice
President and Director since May 12, 1992.
Mr. Hall was Chief Financial Officer from
May 12, 1992 to March 5, 1998.
John W. Boyle...............71 Named Chairman of the Board on March 6, 1998. Mr. Boyle is a director of
Director since March 5, 1997. Mr. Boyle was Chief Supermarkets General Holdings Corp.
Financial Officer of Eckerd Corporation
from 1983 to 1995 and Vice Chairman from
1992 to 1995.
James J. Burke, Jr..........48 Director since May 12, 1992. Director of Merrill Mr. Burke is a director of AnnTaylor
Lynch Capital Partners, Inc. ("MLCP"), since 1985 Stores Corporation, Borg-Warner
and Partner and Director of Stonington Partners, Security Corporation, Education
Inc. ("SP"), since July 1993 and Partner and Management Corporation, Pathmark
Director of Stonington Partners, Inc. II ("SPII") Stores, Inc. and Supermarkets General
since 1994. Prior to July 1994, Mr. Burke was Holdings Corp.
President and Chief Executive Officer of
MLCP from 1987 to 1994, a Managing Director
of the Investment Banking Division of
Merrill Lynch & Co. ("ML&Co.") from 1985 to
1994 and a First Vice President of Merrill
Lynch Pierce Fenner and Smith, Inc. from
1988 to 1994.
Albert J. Fitzgibbons, III..54 Director since May 12, 1992. Director of MLCP Mr. Fitzgibbons is a director of
since 1988 and a Partner and a Director of SP Borg-Warner Security Corporation,
since July 1993 and a Partner and a Director of Dictaphone Corporation and Merisel,
SPII since 1994. Prior to July 1994, Mr. Inc.
Fitzgibbons was a Partner of MLCP from 1993 to
1994 and an 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.
Robert F. End...............44 Director since February 17, 1993. Director of Mr. End is a director of Goss Graphic
MLCP since 1993 and a Partner and a Director of SP Systems, Inc. and Packard BioScience
since July 1993 and a Partner and a Director of Company.
SPII since 1994. Prior to July 1994, Mr. End was
a Partner of MLCP from 1993 to 1994 and a Vice
President of MLCP from 1989 to 1993. Mr. End was
also a Managing Director of the Investment Banking
Division of ML&Co. from 1993 to July 1994.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Name Age Business Experience During Past Five Years Other Public Directorships
- ---- --- ------------------------------------------ --------------------------
<S> <C> <C>
Scott M. Shaw...............37 Director since February 17, 1993. Partner and Mr. Shaw is a director of Dictaphone
Director of SP since February 1999. Prior to Corporation.
becoming a Partner and Director, Mr. Shaw was a
Principal of SP since July 1993. Mr. Shaw has
also been a Partner and Director of SP II since
February 1999. Prior to July 1994, Mr. Shaw was a
Vice President of MLCP from January 1994, an
Associate of MLCP from 1991 to 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 and 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.
Michael Pade................50 Director since May 7, 1998. Executive Vice
President. Mr. Pade became Executive Vice
President of United Artists in February 1997
in charge of film operations. 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.
</TABLE>
Information regarding executive officers of United Artists who are not directors
of United Artists as of March 26, 2000 is set forth below. Executive officers
will hold office for such term as may be prescribed by the Board of Directors
and until such person's successor is chosen and qualified or until such person's
death, resignation, or removal.
<TABLE>
<CAPTION>
Name Age Business Experience During Past Five Years
- ---- --- ------------------------------------------
<S> <C> <C>
Neal Pinsker............44 Executive Vice President. Mr. Pinsker was
promoted to Executive Vice President of
United Artists in charge of theatre
operations in January 1999. Mr. Pinsker was
most recently Vice President of the western
region operations, and has previously
directed the east and central regional
operating offices of United Artists. Joining
United Artists in May of 1970, Mr. Pinsker
is a third generation theatre operator.
Gene Hardy..............49 Executive Vice President and General
Counsel. Mr. Hardy was promoted to Executive
Vice President of United Artists in charge
of legal affairs and general counsel in
September 1994. Mr. Hardy was previously the
Senior Vice President and general counsel of
United Artists.
Raymond Nutt............38 Executive Vice President of Corporate
Operations. Mr. Nutt became Executive Vice
President of United Artists in October 1999.
Mr. Nutt's duties include supervision of
In-Theatre Advertising, Satellite Theatre
Network(TM), and various administrative
functions including Human Resources, Risk
Management, and Internal Audit. Most
recently, Mr. Nutt was Senior Vice President
from 1995 through 1999 and Vice President
from 1993 through 1995. Mr. Nutt joined
United Artists in 1988.
Bruce M. Taffet.........52 Executive Vice President. Mr. Taffet was
promoted to Executive Vice President in
January 1995 and is responsible for
construction operations of United Artists.
Prior to February 1995, Mr. Taffet was the
Senior Vice President in charge of national
concession operations of United Artists.
</TABLE>
In January 2000, United Artists' Chief Financial Officer left the Company to
pursue other opportunities. The former Controller of United Artists has since
rejoined United Artists, as the Acting Treasurer, to assume the duties of
the Chief Financial Officer.
There are no family relationships between any of the directors and executive
officers named above. During the past five years, none of the directors and
executive officers named above were involved in any legal proceedings that would
be material to an evaluation of his ability or integrity.
54
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
(a) COMPENSATION
The following table sets forth all compensation paid to the president and chief
executive officer and the four next most highly paid executive officers of
United Artists for the years ended December 30, 1999, December 31, 1998, and
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards/
Annual Compensation Securities Other
------------------------------ Underlying Annual All Other
Name and Salary Bonus Stock Options Compensation Compensation
Principal Positions Year ($) (1) ($) (2) # ($) (3) ($) (4)
- ------------------- ---- ------- ------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Kurt C. Hall 1999 325,060 -- 100,000 4,099 21,930
President and 1998 304,866 -- 50,000 3,960 4,800
Chief Executive Officer 1997 283,103 -- 80,000 2,877 4,684
Michael Pade 1999 265,056 -- 60,000 3,894 6,400
Executive Vice President 1998 258,998 7,500 20,000 3,795 --
1997 253,846 -- 12,000 6,083 41,079
Gene Hardy 1999 200,045 -- 25,000 3,050 17,415
Executive Vice President 1998 195,154 5,640 12,000 -- 4,800
1997 193,361 -- 12,000 -- 4,800
Neal Pinsker 1999 212,417 -- 45,000 -- 39,706
Executive Vice President 1998 117,351 3,403 5,000 -- 1,843
1997 117,810 -- 3,000 -- 2,108
Bruce Taffet 1999 175,051 -- 20,000 3,423 14,884
Executive Vice President 1998 168,961 4,800 12,000 1,289 4,800
1997 166,170 -- 12,000 1,073 5,367
Jim Ruybal (5) 1999 215,483 -- -- 673 56,537
Executive Vice President 1998 186,314 1,863 10,000 989 4,800
1997 193,481 -- 12,000 1,073 4,800
</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:
- the amount paid to Mr. Pade in 1997 relates to a forgiven loan,
- a portion of the amount paid to Mr. Ruybal in 1999 relates to a payment
as a result of an employment contract,
- a portion of the amount paid to Mr. Pinsker in 1999 relates to relocation
expenses paid by United Artists.
(5) Mr. Ruybal resigned from United Artists in October 1999.
55
<PAGE>
(b) STOCK OPTION GRANTS
The following table sets forth all of United Artists stock options granted
during 1999 to the president and chief executive officer and the four next most
highly paid executive officers of United Artists.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Option Term
Options Employees in Price Per Expiration ----------------------
Name Granted 1999 Share Date 5% 10%
---- ------- ---- ----- ---- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Kurt C. Hall 100,000 19.0% $12.50 2009 $786,118 1,252,870
Michael Pade 60,000 11.4% 12.50 2009 471,671 751,722
Gene Hardy 25,000 4.8% 12.50 2009 196,530 313,218
Neal Pinsker 45,000 8.6% 12.50 2009 353,753 563,791
Bruce Taffet 20,000 3.8% 12.50 2009 157,224 250,575
Jim Ruybal (1) -- 0.0% 12.50 2009 -- --
</TABLE>
(1) Mr. Ruybal resigned from United Artists in October 1999.
(c) YEAR-END STOCK OPTION TABLE
The following table sets forth the stock options held by the president and chief
executive officer and the four next most highly paid executive officers of
United Artists as of December 30, 1999.
<TABLE>
<CAPTION>
Number of
Share Underlying Value of
Unexercised Options at In-the-Money Options at
Option at December 30, 1999 December 30, 1999 (1)
Name Type -------------------------------- ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C>
Kurt C. Hall Incentive 30,250 --- --- ---
Performance 130,000 127,500 --- ---
Premium --- 13,750 --- ---
Michael Pade Incentive 7,750 --- --- ---
Performance 32,000 66,750 --- ---
Premium --- 3,375 --- ---
Gene Hardy Incentive 7,750 --- --- ---
Performance 24,000 31,750 --- ---
Premium --- 3,375 --- ---
Neal Pinsker Incentive 750 --- --- ---
Performance 8,000 45,625 --- ---
Premium --- 313 --- ---
Bruce Taffet Incentive 7,750 --- --- ---
Performance 24,000 26,750 --- ---
Premium --- 3,375 --- ---
</TABLE>
(1) Common Stock of United Artists is not publicly held. Given United
Artists' current liquidity position, United Artists has valued the
unexercised stock options at zero.
56
<PAGE>
(d) LONG-TERM INCENTIVE AWARDS
No long-term incentive awards were granted to executive officers of United
Artists during 1999.
(e) COMPENSATION OF DIRECTORS
Mr. Boyle received 30,000 performance options ($12.50 strike price) and $120,000
for his services as director during 1999. He received 25,000 performance options
($22.50 strike price) and $120,000 for his services as director during 1998 and
10,000 performance options ($12.00 strike price) and $20,000 for his services as
a director for his services as director during 1997. No other directors of
United Artists received compensation for their services as directors or
committee members.
(f) EMPLOYEE BENEFITS PLAN
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 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.
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
president and chief executive officer and the four other highest paid executives
have been included in the summary compensation table.
During 1999, 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.
(g) 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, Bruce
M. Taffet, Neil Pinsker, Raymond C. Nutt, Charles Fogel and Darrell C. Taylor.
Employment Agreements with Messrs. Hardy and Taffet expire on May 12, 2000.
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
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. 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. Hardy, Mr. Taffet Mr. Pinsker or Mr. Nutt 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.
57
<PAGE>
It is expected that the Employment Agreements will be amended and/or extended
prior to their expiration dates. The terms of the Employment Agreements, as
amended or extended, may be different from those currently in place.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
United Artists is a Delaware corporation whose only business interest is its
ownership of UATC and UAR. United Artists' principal executive offices are
located at 9110 E. Nichols Avenue, Englewood, Colorado 80112.
United Artists has three classes of capital stock outstanding: the United
Artists Theatre Company Class A Shares, the United Artists Theatre Company Class
B Shares, and the United Artists Theatre Company Class C Shares (collectively
the "United Artists Shares"). The United Artists Shares are held of record by
233 holders. The following tables set forth certain information concerning the
beneficial ownership United Artists Shares as of March 26, 2000:
- known to United Artists to own beneficially in excess of 5% of the
outstanding United Artists Shares
- the president and chief executive officer and the four other highest
paid executive officers of United Artists,
- for each director
- for all executive officers
- for directors of United Artists as a group.
Except as otherwise indicated, all of the persons listed below have:
(i) sole voting power and investment power with respect to their United
Artists Shares, except to the extent that authority is shared by
spouses under applicable law and
(ii) record and beneficial ownership with respect to their United Artists
Shares.
58
<PAGE>
UNITED ARTISTS THEATRE COMPANY COMMON STOCK
<TABLE>
<CAPTION>
name and Address Beneficial Percentage of Beneficial Percentage of Beneficial
Interest Interest United Artists Interest United Artists Interest
Beneficial Owner Class A Shares Class A Shares Class B Shares Class B Shares Class C Shares
- ---------------- -------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
MLCP(1)(5)(7)...................... 8,409,761 72.8% 0 - 0
Merrill Lynch & Co, Inc.(2)(5)..... 2,082,205 18.0% 0 - 0
Institutional Investors(8)......... 1,059,417 9.2% 0 - 0 -
Kurt C. Hall(3)(6)................. 0 - 171,250 35.8% 0
Michael Pade(3)(6)................. 0 - 40,325 8.4% 1,622
Gene Hardy(3)(6)................... 0 - 34,350 7.2% 0
Bruce Taffet(3)(6)................. 0 - 39,250 8.2% 0
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 - 35,000 7.3% 0
Directors and Executive Officers as
a group (11 persons)(6)......... 0 - 329,425 68.7% 4,342
</TABLE>
<TABLE>
<CAPTION>
Percentage of Percentage of
United Artist United Artist
Class C Shares Shares
-------------- -------------
<S> <C> <C>
MLCP(1)(5)(7)..................... - 69.9%
Merrill Lynch & Co, Inc.(2)(5).... - 17.3%
Institutional Investors(8)........ - 8.8%
Kurt C. Hall(3)(6)................ - 1.4%
Michael Pade(3)(6)................ 37.4% 0.4%
Gene Hardy(3)(6).................. - 0.3%
Bruce Taffet(3)(6)................ - 0.3%
James J. Burke, Jr.(4)(7)......... - -
Albert J. Fitzgibbons, III(4)(7).. - -
Robert F. End(4)(7)............... - -
Scott Shaw(4)..................... - -
John W. Boyle(9).................. - 0.3%
Directors and Executive Officers as
a group (11 persons)(6).......... 100.0% 2.8%
</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. II. ("MLCP II"). MLCP is the indirect managing
general partner of MLCAP B-XIX and MLCAP B-XX and the general partner of
ML Fund II. 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, and Hardy, 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 88.2% 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.
59
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Entities affiliated with MLCP own approximately 88.2% of the United Artists
Shares. Through a management agreement with MLCP, Stonington Partners, Inc.
manages the portfolio of companies owned by MLCP, including United Artists.
60
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements Included in Part II of this Report:
United Artists Theatre Company and Subsidiaries
<TABLE>
<S> <C>
Report of Independent Public Accountants 32
Consolidated Balance Sheets 33
December 30, 1999 and December 31, 1998
Consolidated Statements of Operations 34
Years Ended December 30, 1999, December 31, 1998, and 1997
Consolidated Statements of Stockholders' Equity (Deficit) 35
Years Ended December 30, 1999, December 31, 1998 and 1997
Consolidated Statements of Cash Flow 36
Years Ended December 30, 1999, December 31, 1998 and 1997
Notes to Consolidated Financial Statements 37
</TABLE>
2. Financial Statements Schedules
All financial statement schedules are omitted as they are not required
or are not applicable, or the required information is included in the
Consolidated Financial Statements or notes thereto.
3. Exhibits
The following exhibits are filed herewith or incorporated by reference
herein (according to the number assigned to them in Item 601 of
Regulation S-K) as noted:
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3.1 Amended and Restated Certificate of Incorporation of United Artists
Theatre Company (4)
3.2 By-Laws of United Artists Theatre Company (4)
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 (4)
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 (4)
4.3 Form of 9 3/4% Senior Subordinated Note (included in Exhibit 4.1) (4)
4.4 Form of Floating Rate Senior Subordinated Note (included in Exhibit
4.2) (4)
4.5 Form of 9 3/4% Series B Senior Subordinated Note (included in Exhibit
4.1) (4)
4.6 Form of Floating Rate Series B Senior Subordinated Note (included in
Exhibit 4.2) (4)
10.1 Registration Rights Agreement, as of April 21, 1998, by and among the
Company and Merrill Lynch & Co., Merrill Lynch Pierce, Fenner & Smith
Incorporated, BancAmerica Robertson Stephens, Morgan Stanley & Co.
Incorporated, BancBoston Securities Inc. and NationsBanc Montgomery
Securities LLC (4)
10.2 Registration Rights Agreement, dated as of April 21, 1998, by and among
the Company and Merrill Lynch & Co., Merrill Lynch Pierce, Fenner &
Smith Incorporated (4)
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61
<PAGE>
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10.3 Credit Agreement, dated as of April 21, 1998, among the Company, Bank
of American National Trust and Savings Association, BankBoston, N.A.,
NationsBank Texas, N.A., Merrill Lynch Capital Corporation and Morgan
Stanley Senior Funding, Inc. and the lenders party thereto (4)
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 (3)
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 (3)
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 (3)
10.7 Pass Through Trust Agreement, dated as of December 13, 1995, between
United Artists Theatre Circuit, Inc. and Fleet National Bank of
Connecticut (3)
10.8 Lease Agreement, dated as of December 13, 1995, between Wilmington
Trust Company and William J. Wade and United Artists Theatre Circuit,
Inc. (3)
10.9 Lease Agreement, dated as of October 1, 1988, between United Artists
Properties I Corporation and United Artists Theatre Circuit, Inc. (1)
10.10 United Artists Theatre Company Stock Incentive Plan (4)
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 (1)
10.12 Amendment No. 1, dated as of July 15, 1992, to the Stockholders'
Agreement, dated as of May 12, 1992, by and among OSCAR I,, 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. (1)
10.13 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. (1)
10.14 Non-Competition Agreement, dated as of May 12, 1992, by and among
Tele-Communications, Inc., United Artists Theatre Circuit, Inc. and
OSCAR I Corporation (1)
10.15 Trademark Agreement as of 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 (1)
10.16 United Artists Theatre Circuit 401(k) Savings Plan (1)
10.17 United Artists Theatre Circuit Supplemental 401(k) Savings Plan (2)
10.18 Tax Sharing Agreement, dated as of May 12, 1992, between OSCAR I
Corporation and United Artists Theatre Circuit, Inc. (1)
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62
<PAGE>
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10.19 Employment Agreement, dated as of May 12, 1992, between the Company and
Kurt C. Hall (1)
10.20 Employment Agreement Extension Letter, dated as of May 12, 1998,
between the Company and Kurt C. Hall (4)
10.21 Amendment to the United Artists Theatre Circuit, Inc. 401(k) Savings
Plan dated as of January 1, 1998 (5)
10.22 Subsidiaries of the Company (4)
10.23 Second Amendment to the Credit Agreement as of April 21, 1998 (6)
10.24 Third Amendment to the Credit Agreement as of April 21, 1998 (7)
27.1 Financial Data Schedule
</TABLE>
- ---------------
(1) Incorporated herein by reference from United Artists Theatre Circuit,
Inc. Form S-1 dated October 5, 1992.
(2) Incorporated herein by reference from United Artists Theatre Circuit,
Inc. Form 10-K for the year ended December 31, 1993.
(3) Incorporated herein by reference from United Artists Theatre Circuit,
Inc. Form S-2 dated January 31, 1996.
(4) Incorporated herein by reference from Form S-4 dated July 15, 1999.
(5) Incorporated herein by reference from United Artists Theatre Circuit,
Inc. 10-K for the year ended December 31, 1996.
(6) Incorporated herein by reference from Form 8-K dated April 9, 1999.
(7) Incorporated herein by reference from Form 8-K dated September 29,
1999.
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITED ARTISTS THEATRE COMPANY
(Registrant)
Director, President and Chief Executive /s/ Kurt C. Hall
Officer __________________________________
Dated: April 13, 2000 Kurt C. Hall
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
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Chairman of the Board and Director /s/ John W. Boyle
Dated: April 13, 2000 __________________________________
John W. Boyle
Director /s/ James J. Burke, Jr.
Dated: April 13, 2000 __________________________________
James J. Burke, Jr.
Director /s/ Albert J. Fitzgibbons, III
Dated: April 13, 2000 __________________________________
Albert J. Fitzgibbons, III
Director /s/ Robert F. End
Dated: April 13, 2000 __________________________________
Robert F. End
Director /s/ Scott M. Shaw
Dated: April 13, 2000 __________________________________
Scott M. Shaw
Director /s/ Michael Pade
Dated: April 13, 2000 __________________________________
Michael Pade
</TABLE>
64
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-30-1999
<CASH> 16,000
<SECURITIES> 0
<RECEIVABLES> 6,600
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<CURRENT-ASSETS> 41,400
<PP&E> 663,400
<DEPRECIATION> (257,400)
<TOTAL-ASSETS> 534,000
<CURRENT-LIABILITIES> 857,500
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0
0
<COMMON> 100
<OTHER-SE> (349,200)
<TOTAL-LIABILITY-AND-EQUITY> 528,500
<SALES> 174,400
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<INCOME-TAX> (1,100)
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<DISCONTINUED> (2,400)
<EXTRAORDINARY> 0
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</TABLE>
