HomeMy WebLinkAbout1991 United Artists EntertainmentMay 1, 1991
Mr. Jack Niemann
City of Meridian
33 E. Idaho
Meridian, ID 83647
Dear Mr. Jack Nieman:
United Artists Cable
of Idaho
8400 Westpark Street
P.O. Box 44
Boise, ID 83744
(208) 375-8288
UNI I LIJAH I ISI Sr'
HAND DELIVERED
The attached Financial Statements for United Artists Cable of Idaho
portion of City of Meridian are respectively submitted for your
perusal:
O Balance Sheet
O Income Statement
O Statement of Changes in Financial Position
Financial documents are prepared as of December 31, 1990 and are
submitted in compliance with the terms and conditions of our
Franchise Agreement.
A copy of United Artists Entertainment Company's Annual Report to
the Securities & Exchange Commission, a 10-K Report, for the period
January 1, 1990 to December 31, 1990 is enclosed for your review.
If there are any questions or concerns, please feel free to contact
my office. Thank you for the time and courtesies you have afforded
US.
Respectfully,
Wayne H. W son
General Manager
WHW:tt
WHW29AP1
I am in receipt of the Financial Statements dated January 1, 1990
to December 31, 1990 for United Artists Cable of Idaho and the
documents meet with the City's reporting requirements.
Signature
Date
United Artists Cablesystems Corporation
Denver Technological Center
4700 South Syracuse Parkway
Denver, CO 80237
(303) 779-5999
UNUtoARK Timb b��
April 17, 1991
To the City of Meridian:
I have prepared the balance sheet of the City of Meridian
portion of United Artists Cable of Idaho, an operating unit
of United Artists Entertainment Company at December 31, 1990,
and the related statements of operations and cash flows for
the year then ended.
It is not possible to specifically identify each capital cost
or operating expense of United Artists Cable of Idaho as
benefitting a particular community. The allocation of
capital costs and operating expenses to the City of Meridian
portion of United Artists Cable of Idaho was performed as
described in the notes to the financial statements.
I am not independent with respect to United Artists Cable of
Idaho and the accompanying financial statements. Therefore,
I do not express an opinion with regards to the balance sheet
and statements of operations and cash flows.
&/"^� �
Cynthia Morgan, CPA
Controller - Western Division
CITY OF MERIDIAN PORTION OF
UNITED ARTISTS CABLE OF IDAHO
(Defined in Note 1)
BALANCE SHEET
DECEMBER 31, 1990
(Unaudited)
ASSETS
Cash
Accounts Receivable, less allowance for
doubtful accounts of $1342
Prepaid Expense and Other Assets
Investment in Cable Television Systems:
Property and equipment
Less: Accumulated depreciation
Net Property, plant & equipment
Franchise costs & other intangibles net of
accumulated amortization of $64,081
Total Assets
LIABILITIES AND PARENT'S INVESTMENT
Accounts Payable
Subscriber prepayments
Accrued liabilites
Lease payable
Total Liabilities
Parent's Investment
Total Liabilities and Parent's Investment
See Accompanying Notes to Financial Statements
$3,404
25,505
1,259
2,152,270
(329,506)
1,822,764
1,879,480
3,702,244
$3,732,412
$3,625
9,968
70,618
10,015
94,226
3,638,186
CITY OF MERIDIAN PORTION OF
UNITED ARTISTS CABLE OF IDAHO
(Defined in Note 1)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1990
(Unaudited)
Revenue $634,630
Expenses:
Operating 475,729
Depreciation 204,390
Amortization 35,757
Operating loss (81,246)
Interest expense, net 85,815
Net Loss (167,061)
See Accompanying Notes to Financial Statements
CITY OF MERIDIAN PORTION OF
UNITED ARTISTS CABLE OF IDAHO
(Defined in Note 1)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1990
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($167,061)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and Amortization 240,147
Net decrease in receivables, prepaid
expenses and other assets 1,470
Net decrease in accounts payable,
accrued liabilities and subscriber
prepayments (5,313)
Net cash used by operating activities $69,243
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (230,139)
Net cash used in investing activities ($230,139)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash advances from parent 167,418
Repayment of capitalized lease obligations (6,001)
Net cash used in financing activities $161,417
Net increase in cash 521
Cash balance, beginning of year 2,883
Cash balance, end of year $3,404
See Accompanying Notes to Financial Statements
City of Meridian
United Artists Cable of Idaho
(Defined in Note 1)
Notes to Financial Statements
(Unaudited)
Year ended December 31, 1990
1. Summary of Significant Accounting Policies
(a) Basis of Financial Statement Presentation
United Artists Cable of Idaho (the "Company") is an
operating unit of United Artists Entertainment
Company (UAE) and is not a separate legal entity.
On May 25, 1989, the former parent of the Company,
United Cable Television Corporation (UCTC) merged
with UAE. UAE has accounted for the UCTC merger
using the purchase method and such merger has been
deemed to have occurred on May 31, 1989 for
financial reporting purposes. Consequently, the
accumulated deficit of the Company as of May 31,
1989 has been eliminated and a portion of the UCTC
purchase price has been assigned to the assets and
liabilities of the Company based upon appraisals
and other valuations performed by the management of
UAE. The parent's investment account reflects the
net effect of the application of such purchase
accounting.
Because the financial position, results of
operations and cash flows of the Company subsequent
to May 31, 1989 reflect the allocation of the
purchase price, the financial statements for
periods prior to the UCTC merger are not
comparable.
Separate accounting records are maintained on a
consistent and uniform basis for each UAE operating
unit. To the extent practicable, the records of
each operating unit are based on income and expense
directly applicable to the respective operating
unit. Certain services are provided for the
operating unit by UAE because UAE can provide them
more economically than can the individual operating
units. The cost of such services are allocated to
the operating unit on a consistent basis, with all
cost savings passed on to the operating unit and
UAE realizing no net earnings as a result of these
allocations.
City of Meridian Portion of
City of Meridian Portion of
United Artists Cable of Idaho
Notes to Financial Statements, Continued
The Company operates franchise agreements which
serve the communities of Boise, Nampa, Caldwell,
Eagle, Meridian and certain unincorporated portions
of Ada and Canyon counties. For record keeping
purposes, the Company is considered as one
accounting entity. For financial statement
presentation for the City of Meridian Portion of
United Artists Cable of Idaho, total account
balances for the Company have been allocated on the
following basis:
Balance Sheet - Amounts have been allocated based
on the ratio of miles of plant within the City of
Meridian at December 31, 1990 to total plant miles
for the Company.
Income Statement - Revenue and expenses have been
allocated based on the ratio of number of
subscribers within the City of Meridian at
December 31, 1990 to total subscribers for the
Company.
(b) Investment in Cable Television System
Property and equipment is stated at cost, which
includes an allocation of a portion of the purchase
price paid by UAE for UCTC. Depreciation is
calculated using the straight-line method over the
estimated useful lives of the assets which range
from 3 to 20 years.
Repairs and maintenance are charged to operations
renewals and additions are capitalized.
At the time of ordinary retirements, sales or other
dispositions of a portion of a cable television
system, the depreciated cost and cost of removal of
such property are charged to accumulated
depreciation. The net book value of major rebuilds
and lost converters is charged to depreciation
expense in the period of disposition. Gains or
losses are only recognized in connection with the
disposition of properties in their entirety.
(c) Franchise Costs and Other Intangibles
Costs incurred in obtaining cable television
permits are deferred and amortized over the lives
of the permits. Other intangible assets, arising
City of Meridian Portion of
United Artists Cable of Idaho
Notes to Financial Statements, Continued
from the application of purchase accounting from
the merger of UAE and United Cable Television
Corporation on May 25, 1989, are amortized on a
straight-line basis over forty years.
(d) Income Taxes
UAE and related subsidiaries file a combined Idaho
State Tax return using the unitary method of
apportioning income. The Company is part of a
group of corporations owned and operated by UAE
which file a consolidated Federal Income Tax
return. State income taxes and deferred Federal
income taxes have not been allocated to the
Company.
2. Property and Equipment
Property and equipment at December 31, 1990 is summarized
as follows :
Land $ 28,537
Buildings and leasehold improvements 31,677
Cable distribution systems 1,946,008
Support equipment 146,048
$ 2,152,270
3. Parent's Investment
UAE's investment in United Artists Cable of Idaho at
December 31, 1990 represents the net effect of cash
advances and other intercompany transactions with its
parent and other affiliated entities (including the net
effect of the application of purchase accounting in
connection with UAE's May 31, 1989 acquisition of UCTC)
4. Commitments
The Company leases certain property and equipment under
capital and operating leases. Lease payments for 1990
aggregated approximately $ 11,000 including approximately
$ 4,000 paid under pole rental agreements which are
terminable by either party.
The Company expects that in the normal course of
business, leases that expire will be renewed by other
leases. Accordingly, annual commitments after 1990 are
not expected to decrease.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 31, 1990
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File No. 0-2341
UNITED ARTISTS ENTERTAINMENT COMPANY
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
84-1101404
(I.R.S. Employer
Identification Number)
5619 DTC Parkway Englewood Colorado 80111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 843-8600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.001 per share
Class B Common Stock, par value $.001 per share
12-7/88 Cumulative Compounding
Redeemable Preferred Stock, Series A
Indicate by check mark whether 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 (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
[X] Yes [ ] No
Aggregate market value of voting stock held by non -affiliates of the
Registrant, computed by reference to the average of the bid and asked prices of such
stock as of the close of trading on February 28, 1991 was $697,117,987.
The number of shares of outstanding common stock (net of shares held in
treasury) as of February 28, 1991 was:
Class A Common Stock - 73,653,216
Class B Common Stock - 66,696,867
As amended by Form 8 dated April 10, 1991
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Annual Report on Form 10-K
December 31, 1990
Table of Contents
PART II
Item
5
PART I
P -&e
Related Stockholder Matters
2
Item
1
- Business
23
Item
2
- Properties
18
Item
3
- Legal Proceedings
19
Item
4
- Submission of Matters to a Vote of Security Holders
21
PART II
Item
5
- Market for Registrant's Common Equity and
Related Stockholder Matters
22
Item
6
- Selected Financial Data
23
Item
7
- Management's Discussion and Analysis of Financial
Condition and Results of Operations
24
Item
8
- Financial Statements and Supplementary Data
30
Item
9
- Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
30
PART III
Item 10 - Directors and Executive Officers of the Registrant 58
Item 11 - Executive Compensation 64
Item 12 - Security Ownership of Certain Beneficial Owners
and Management 71
Item 13 - Certain Relationships and Related Transactions 77
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 80
PART I
Item 1. Business
(a) General Develovment of Business
United Artists Entertainment Company (UAE or the Company) was formed in May
1988 by United Artists Communications, Inc. (United Artists) and United Cable
Television Corporation (United Cable). The Company was formed pursuant to a Second
Amended and Restated Agreement and Plan of Reorganization and Merger dated as of
March 8, 1988 (the Merger Agreement) by and among United Artists, United Cable, and
Tele-Communications, Inc. (TCI). On May 25, 1989, pursuant to the Merger Agreement,
United Artists and United Cable consummated a merger (Merger) whereby United Cable
became an indirect, wholly-owned subsidiary of UAE and United Artists was liquidated
by merger into UAE. UAE, as the successor company to United Artists, became the
Registrant. Unless the context indicates otherwise, the Company or UAE means United
Artists Entertainment Company and its consolidated subsidiaries. References to the
Company in respect to periods prior to May 25, 1989 means United Artists and its
consolidated subsidiaries.
The Company is principally engaged in the construction, acquisition,
ownership, and operation of motion picture theatres and cable television systems.
The Company and its predecessor have been in the motion picture theatre business
since 1926 and in the cable television business since the 1950s. The Company owns
and operates the largest theatrical exhibition circuit in the United States, in
terms of the number of theatre screens operated, and is one of the largest cable
television operators in the United States in terms of basic subscribers.
In conjunction with the Merger, stockholders of United Artists received one
share of each of UAE's Class A and Class B common stock in exchange for each share
of United Artists common stock owned by them. Shares of United Cable common stock,
other than those beneficially owned by TCI, were acquired by the Company as follows:
(i) approximately 8.2 million shares were acquired for cash consideration of $38.50
per share; (ii) approximately 5.2 million shares were exchanged for a like number of
preferred stock units consisting of one share of UAE's 12-7/8% Cumulative
Compounding Redeemable Preferred Stock, Series A having a liquidation price of
$19.25 per share and 1.1 shares of UAE's Class A common stock; and (iii)
approximately 14.2 million shares were exchanged for a like number of rights units
consisting of one share of each of UAE's Class A and Class B common stock and two
separately tradable rights. Each right entitles the holder to require TCI to
purchase from such holder one share of either class of UAE's common stock in January
1992 or January 1995 (subject to acceleration in certain events) for 90% of its then
appraised fair market value. TCI contributed to UAE 9.1 million shares of United
Cable common stock beneficially owned by TCI in exchange for an equal number of
shares of each class of UAE's common stock. The remaining outstanding shares of
United Cable common stock (8.7 million shares), which were acquired by United
Artists in October 1988 through the issuance of a note to TCI, which was repaid on
May 25, 1989, were cancelled in the Merger. Excluding the consideration paid for
such cancelled shares, the total purchase price for United Cable was approximately
$1.9 billion. In conjunction with the Merger, TCI received an additional 2.0
million shares of each class of UAE's common stock as consideration for issuing the
aforementioned rights. TCI owned, as of December 31, 1990, approximately 53.7% and
57.3% of UAE's Class A and Class B common stock, respectively.
At the time of the Merger, UAE and its wholly-owned subsidiary, United Artists
Holdings, Inc., entered into credit agreements with certain banks totaling
approximately $2.6 billion. Such facilities were used to fund the cash portion of
the Merger and refinance approximately $1.0 billion of United Artists' and $600
million of United Cable's existing debt.
In August 1990, the Company refinanced $2.45 billion of the above-described
bank debt commitments with new commitments aggregating $2.75 billion. Such new
facilities include a $400 million revolving bank credit facility of UAE and an
aggregate of $2.35 billion of credit facilities of three of the Company's principal
domestic cable subsidiaries.
During the fourth quarter of 1990, the Company recorded a $25.6 million charge
in connection with its December 1990 plan to restructure its theatre operations.
This charge includes the net estimated costs associated with the closure of 23
theatres (73 screens) located in seven states and the sale of 54 theatres (218
screens) located in thirteen states. This plan was implemented because such
theatres generally were unprofitable or located in non-strategic areas. Upon
completion of the restructuring program, it is anticipated that the Company will
operate 463 theatre locations in 32 states, Hong Kong and Puerto Rico. Such theatre
locations, on average, will have 4.78 screens per location.
In 1988, the Company entered into a purchase agreement with Daniels &
Associates, Inc. (Daniels) and its stockholders to acquire all of Daniels'
outstanding capital stock for approximately $196.4 million and the assumption of
approximately $60.0 million of subordinated debt. As of December 31, 1988, the
Company had acquired 53% of Daniels' common stock and all of its preferred stock for
$109.4 million. In May 1989, the Company purchased the remaining 47% of Daniels'
common stock for cash consideration of $4.5 million and the issuance of 27,500
shares of 7% Convertible Preferred Stock, Series A (the Convertible Preferred
Stock), having a redemption value of $82.5 million. During 1990, TCI acquired
13,749 shares of such Convertible Preferred Stock from the former shareholders of
Daniels. On March 25, 1991, the Executive Committee of the Company's Board of
Directors adopted a resolution that, among other matters, contemplates the purchase,
by the Company, of the above-described 13,749 shares from TCI at the stated
liquidation value of $42.7 million (including $1.5 million of accrued dividends
through March 31, 1991). See Certain RelationshiQs and Related Transactions. Also,
subsequent to December 31, 1990, the Company purchased from shareholders other than
TCI 7,550 additional shares of the Convertible Preferred Stock at the stated
liquidation value of $22.7 million.
(b) Financial Information about Industry Segments
The Company operates primarily in the motion picture theatre and cable
television industries.
A table presenting selected financial information attributable to both of the
Company's principal operating segments is set forth in Note 15 to the consolidated
financial statements filed under Item 8 in Part II of this Report.
(c) Narrative DescriQtion of Business
Cable Television Business
Genera
Cable television systems receive television, radio, and data signals
transmitted by nearby television and radio broadcast stations, microwave relay
systems, and/or communications satellites. In many cases, cable television systems
also originate and distribute local programming. Such signals are then amplified
and distributed by coaxial cable to the premises of subscribers who pay a fee for
the service.
3
Cable television operators, including the Company, offer a "basic service"
consisting of local and distant television broadcast stations, public and
governmental access channels and displays of data such as time, news, weather, and
stock market reports. Specialized programming, in such areas as health, family
entertainment, news, weather, public affairs, sports, shopping opportunities, and
music, are also included as part of the basic service or are offered for an
additional charge. Cable television systems also offer to their subscribers, for an
extra monthly charge, "premium services" (referred to in the cable television
industry as Pay -TV) consisting principally of feature films, as well as live and
taped sports events, concerts, and other programming. Regional sports programming
is also offered in some cable television systems.
Technological changes which may affect the cable industry are fiber optics and
High Definition Television (HDTV). Cable operators have traditionally used coaxial
cable for transmission of television signals to subscribers. Optical fiber is a
technologically advanced transmission medium capable of carrying signals via light
waves generated by laser. Prior to 1989, optical fiber was used in a very small
percentage of cable systems in the United States. The Company has installed optical
fiber in several of its cable systems, primarily in trunk applications.
HDTV refers to the enhancement of television picture quality to approximately
that of 35mm film. Enhanced Definition Television (EDTV) refers to improved picture
quality exceeding that generally available, but not on par with 35mm film. EDTV is
generally compatible with existing television receivers. The Federal Communications
Commission (FCC) initiated an inquiry into whether it should adopt a standard for
HDTV and, in conjunction with a further Notice of Inquiry, tentatively decided not
to adopt a HDTV over -the -air standard which would be incompatible with existing
television sets, without a transition period. Conversely, the FCC tentatively
concluded for non -broadcast services, such as cable television, not to prohibit HDTV
standards, including ones similar to those used in Japan and Europe, which would be
incompatible with existing television receivers. Depending upon the standard
adopted, if any, cable facilities may require modification with attendant additional
investment.
Company's Cable Systems
The following table sets forth subscriber data concerning the cable television
systems owned by the Company for the periods indicated.
In addition, affiliates in which the Company holds a 508 or lesser interest,
accounted for under the equity method, served approximately 483,000 and 521,000
basic subscribers and approximately 443,000 and 546,000 premium subscriptions at
December 31, 1990 and 1989, respectively. The Company also manages additional cable
television systems which served approximately 77,000 and 72,000 basic subscribers
and approximately 56,000 and 63,000 premium subscriptions at December 31, 1990 and
1989, respectively.
4
December 31,
August 31,
1990 (3)
1989 1988
1987
1987
Basic Subscribers 2,214,224
2,023,414(1) 880,065
796,914
772,151
Premium Subscriptions (2) 1,846,787
1,646,114(1) 739,734
675,115
636,933
(1) Includes approximately 940,000
basic subscribers
and 775,000
premium
subscriptions added as a result
of the Merger.
(2) A basic subscriber may subscribe to one or more premium services
and the
number of premium subscriptions
represents the aggregate number
of such
subscriptions.
(3) Includes approximately 34,000
basic subscribers
and 40,000
premium
subscriptions attributable to
the Company's cable
television
systems
located in the United Kingdom.
In addition, affiliates in which the Company holds a 508 or lesser interest,
accounted for under the equity method, served approximately 483,000 and 521,000
basic subscribers and approximately 443,000 and 546,000 premium subscriptions at
December 31, 1990 and 1989, respectively. The Company also manages additional cable
television systems which served approximately 77,000 and 72,000 basic subscribers
and approximately 56,000 and 63,000 premium subscriptions at December 31, 1990 and
1989, respectively.
4
The channel capacities of the Company's operating systems vary from 25 to 80
television channels. Approximately 95% of the Company's cable systems have a
channel capacity of 30 or greater. During 1990, the Company continued to expand the
channel capacity of its systems and increased the number of services offered.
The prices charged by the Company's cable television systems vary in
accordance with the level of services selected. Monthly prices charged by the
Company for basic services generally range from $10.95 to $22.45. In addition to
the fee for basic service, a nonrecurring installation fee for residential
subscribers is charged, except during promotional periods when it may be reduced or
waived. A nonrecurring fee is also charged for the installation of additional
outlets. For premium service, a subscriber is charged a monthly fee generally
ranging from $5.95 to $13.95 per service, which charges are discounted when multiple
premium services are ordered. Commercial subscribers such as hotels, motels, and
hospitals are charged a nonrecurring connection fee, which usually covers the cost
of installation and monthly fees for basic and premium service, which vary widely
depending on the nature and type of service. The Company also provides pay-per-view
service in some of its systems. Except under the terms of certain contracts with
commercial subscribers, subscribers are free to discontinue service at any time
without penalty.
The Company has entered into joint venture and other arrangements to produce
and distribute regional sporting events. Other than the foregoing, the Company does
not currently produce any of the programming for its premium services or for its
specialized cable television channels, but does hold interests and directorships in
certain cable programming entities. The Company believes that its programming
investments will help assure the development and continued availability of .high
quality differentiated cable exclusive programming which in turn will reduce
subscriber dissatisfaction resulting from action by the FCC on syndicated
exclusivity (see Legislation and Regulation) and maintain the Company's competitive
posture in the marketplace.
If the rates are favorable, the Company purchases some of its programming for
its cable systems from Satellite Services, Inc. (SSI), a wholly-owned subsidiary of
TCI. Under license agreements entered into by SSI with certain program suppliers,
affiliates of TCI are permitted to obtain programming directly from SSI at what may
be more favorable rates than those available directly from the suppliers themselves.
Competition
The Company's cable television systems compete for customers in the market for
news, entertainment and other information. The competitors in this market include
broadcast television and radio, newspapers, magazines and other printed material,
motion picture theatres, video cassettes and other alternative means of transmitting
information and entertainment.
There are alternative methods of distribution of the same or similar video
programming offered by cable television systems. In addition to broadcast
television stations, the Company competes in a number of areas with other services
that offer Pay -TV and other satellite -delivered programming provided to subscribers
on a direct over -the -air basis. Such services include single channel multi -point
distribution systems (MDS) and multi -channel MDS (MMDS), which deliver programming
services over microwave channels received by subscribers with a special antenna.
MDS and MMDS systems are less capital intensive, are not required to obtain local
franchises or pay franchise fees, and are subject to fewer regulatory requirements
than cable television systems. To date, the ability of these so-called "wireless"
cable services to compete with cable television systems has been limited by channel
capacity and the need for unobstructed line of sight over -the -air transmission. In
addition, failure to control signal theft has impeded the development of these
systems as significant competitors, but signal theft problems have been reduced
recently in some cities. Although there are relatively few MMDS systems in the
United States that are currently in operation or under construction, virtually all
markets have been licensed or tentatively licensed. The FCC has taken a series of
actions, most recently on October 11, 1990, to facilitate the development of
wireless cable systems as alternative means of distributing video programming,
including reallocating the use of certain frequencies to these services and
expanding the permissible use and eligibility requirements for the use of certain
channels reserved for educational purposes. The FCC's actions would enable a single
entity to develop an MMDS systems with a potential of up to 30 to 33 channels,
depending on existing educational usage which varies with locality, and thus compete
more effectively with cable television. The most recent action by the FCC
eliminated certain ownership restrictions thus increasing the number of such
channels that may be commonly owned; provides for the displacement of certain
educational users of MMDS channels if suitable alternative spectrums are available;
allows wireless cable operators to use the point-to-point cable antenna television
relay service frequencies on the same basis as cable television systems in providing
communications links within their wireless cable systems; prohibits cable television
system owners from owning or using wireless cable facilities in their franchise
areas (except in areas defined as rural); increases permissible power levels to
enhance signal quality and establishes procedures to allow wireless operators to use
signal boosters or repeaters which could improve reception in areas out of the
transmitter's line of sight. For a description of additional proposed changes to
Federal regulation that could further enhance the competitive ability of wireless
cable operators, see Proposed Chances in Federal Regulation below.
The Company also competes with Master Antenna Television (MATY) systems and
Satellite MATV (SMATV) systems, which provide multi -channel program services
directly to hotel, motel, apartment, condominium and similar multi -unit complexes
within a cable television system's franchise area, generally free of any regulation
by state and local governmental authorities. For a description of a proposed
rulemaking by the FCC that would enable SMATV systems to compete more effectively
with cable television, see Proposed Changes in Federal Regulation below.
Home satellite dishes (HSDs) serving residences, private businesses and
various non-profit organizations are presently an alternative means of receiving
satellite -delivered programming. The Company estimates that there are currently
over two million HSD's in the United States. Competition could become substantial
as developments in technology continue to increase transmitter power and decrease
the cost and size .of equipment to receive higher frequency transmissions. The
Company considers satellite delivery of cable television programming information
services to be an alternative technology in the business of providing video signals
to the home.
The Company and several other cable operators (including TCI) formed a
partnership (K Prime Partners) in February 1990 to provide direct satellite
broadcast (DBS) services via a medium power satellite using the Ku portion of the
frequency spectrum. The venture commenced operations in late 1990 with
approximately seven broadcast super -stations from various large metropolitan areas
and at least two channels of pay-per-view entertainment. In March of 1990, General
Electric's NBC unit, News Corp., General Motors' Hughes Communications unit and a
cable television operator announced plans to provide DBS via a high power satellite
also using the Ku portion of the frequency spectrum commencing in 1993. Announced
plans include a projected offering of 108 channels of programming to be determined
in the future. The new venture, called "Sky Cable", has said that although the
technology is not yet available to transmit 108 channels of video information with
the radio frequency bandwidth allocated to the orbital position contemplated, the
venture projects that such technology will become available by the planned launch
date.
Sky Pix Corp., another potential DBS competitor, has recently announced that
it intends to launch a Ku -band DBS system, utilizing video compression technology,
in the summer of 1991.
DBS has advantages and disadvantages as an alternative means of distribution
of video signals to the home. Among the advantages are that the capital investment
(although initially high) for the space segment of a DBS system (the satellite and
uplinking facilities) is fixed and does not increase with the number of subscribers
receiving satellite transmissions; that DBS is not currently subject to local
regulation of service and prices or required to pay franchise fees; and that the
capital costs for the ground segment of a DBS system (the reception equipment) are
directly related to and limited by the number of service subscribers. DBS's
disadvantages include the inability to tailor the programming package to the
interests of different geographic markets, such as providing local news, other local
origination services and local broadcast stations; signal reception being subject to
line of sight angles; and intermittent interference from atmospheric conditions and
terrestrially generated radio frequency noise. Because of presently unknown facts,
including the number of video channels and types of programming that ultimately may
be offered by DBS services and the service charges therefor, the effect of
competition from these services cannot be predicted.
The cable television industry competes with radio, broadcast television and
print media for advertising revenue. As the cable television industry continues to
develop programming designed specifically for distribution by cable, advertising
revenue may increase.
The 1986 decision of the Supreme Court of the United States in City of Los
Angeles v Preferred Communications held that the activities of cable operators
imply First Amendment rights and raised significant questions regarding the extent
to which local franchising authorities may regulate cable television without
violating those rights. Under Preferred, the grant of an exclusive franchise may
violate the First Amendment rights of other applicants unless justified by factors
in which the government has a legitimate interest, such as limited physical capacity
on existing utility poles and facilities. Since the Preferred decision, several
Federal district courts have invalidated exclusive franchises and particular
franchise requirements on First Amendment grounds where local municipalities have
failed to demonstrate compelling governmental interests justifying such
restrictions. However, certain other district courts have upheld similar
restrictions. Thus, the constitutionality of various franchising requirements,
including access requirements and franchise fees, is the subject of substantial
disagreement among the courts. Although the cable industry may benefit to some
extent from the recognition of the First Amendment rights of cable operators,
competition among cable operators may also increase, which could adversely affect
the profitability of the Company.
Also, within the cable television industry, cable operators may compete
directly with other cable operators seeking franchises for competing systems within
the same geographical area at any time during the terms of existing franchises or
upon expiration of such franchises in expectation that they will not be renewed.
The Company has no basis upon which to estimate the number of cable television
companies and other entities with which it competes or may potentially compete.
There are a large number of individual and multiple system cable television
operators in the United States but, measured by the number of basic subscribers, the
Company believes that it is one of the largest providers of cable television
services.
Legislation and Regulation
The Cable Communications Policy Act of 1984 (the Cable Act), an amendment to
the Communications Act of 1934, established a national policy covering the
regulation of cable systems in the areas of ownership, channel usage, franchising,
subscriber prices, service and equal employment opportunity (EEO). The Cable Act
(a) restricts the ownership of cable systems through prohibition of cross -ownership
by local television broadcast station owners; (b) requires cable television systems
with thirty-six or more "activated" channels to reserve a percentage of such
channels for commercial use by unaffiliated third parties; (c) permits franchise
authorities to require the cable operator to provide channel capacity, equipment and
facilities for public, educational and governmental access; (d) limits the amount of
fees required to be paid to franchise authorities by cable operators to a maximum of
5% of annual gross revenue; (e) restricts the power of franchise authorities to
regulate rates, services, facilities and equipment provided by the cable operators;
(f) grants cable operators access to public rights-of-way and utility easements; (g)
establishes a Federal Policy for use of subscriber lists and subscriber information;
(h) establishes civil and criminal liability for unauthorized reception or
interception of programming offered over a cable television system or satellite
delivered services; (i) authorizes the FCC to preempt state regulation of prices,
terms and conditions for pole attachments unless the state has issued effective
rules and has taken action on complaints within a specified time; (j) requires the
sale or lease to subscribers of devices enabling them to block programming
considered offensive; and (k) contains provisions governing cable operators'
compliance with EEO programs.
The Cable Act limits a franchise authority's power to regulate prices so that
only prices for basic cable service may be regulated and then only in those markets
where cable television is not subject to "effective competition", as defined in
regulations promulgated by the FCC. At this time, substantially all of the
Company's systems are subject to "effective competition" as defined in the FCC's
current regulations, which are currently under review by the FCC. For cable
television systems not subject to "effective competition", the Cable Act allows the
price for basic service, in most cases, to be raised by up to 58 per year without
the approval of the franchise authority. The Cable Act required the FCC to prepare
a report with recommendations to Congress during 1990 regarding regulation of cable
service prices. In its report, the FCC declined to propose rate regulation of the
cable television industry beyond that existing under the Cable Act. In the FCC's
companion proceeding revisiting its determination of what constitutes "effective
competition", the FCC determined not to take any action because of the then active
consideration by the 101st Congress of cable rate regulation legislation. After the
101st Congress adjourned without taking action on such legislation, the FCC, in
December of 1990, proposed amendments to its present "effective competition"
standard. The 1990 FCC report, the FCC's companion proceeding (including such
proposed amendments) and the legislative proposals introduced in the 102nd Congress
are discussed under Proposed Changes in Federal Regulation below.
Regulations promulgated by the FCC under the Communications Act of 1934 and
which continue in effect (subject, in certain instances, to modifications due to the
application of the Cable Act) contain detailed provisions and requirements
concerning the operation of a cable television system. Such provisions and
requirements include: technical standards; signal leakage; testing; licensing of
microwave transmission, satellite receivers and business radio facilities; cross -
ownership of cable television and broadcast television; syndicated exclusivity;
network non -duplication; and sport program blackout requirements, annual reporting
requirements; notification requirements to consumers regarding availability and
carriage of local television stations and requirements to offer input selector
switch equipment that facilitates cable subscribers' reception of off -air television
signals; and EEO compliance and recordkeeping. In late 1985, the FCC eliminated its
requirement for cable television systems to comply with certain of its technical
performance standards, but retained such standards as maximum guidelines, thus
preempting the power of state and local authorities to impose standards more
stringent than those of the FCC.
On January 1, 1990, the FCC's new syndicated exclusivity rules, a prior
version of which had been eliminated, became effective. Revised network non -
duplication rules also became effective January 1, 1990, which rules were amended to
afford greater latitude to broadcasters and networks in negotiating the extent to
which exclusivity would be afforded. Under the new rules, a cable system operator
must delete from the signals of distant television stations carried by the system,
duplicative network and syndicated programming if such deletion is requested by
local television stations that have exclusive local rights to distribute such
programming and, in certain cases, upon the request of the copyright owner of such
programs. The local broadcast television station is entitled to protection from
distant telecasts of the programming even if the local station is not carried on the
cable television system. As a result of these rules, distant broadcast stations
carried by cable television systems may be less attractive to subscribers and
potential subscribers.
The FCC's former "must -carry" rules, which required a cable television system
to carry certain local broadcast television stations, have been invalidated by the
Federal courts. FCC regulations currently require cable operators to provide
consumer information relative to the optional carriage of local broadcast stations,
and to make available to their subscribers a switching device which allows the
subscriber to choose between television signals brought into their homes on cable
and signals receivable over the air by a conventional antenna. For a discussion of
legislative and regulatory efforts to reinstate the "must -carry" rules, see Proposed
Changes in Federal Regulation below.
In 1984, the FCC changed its rules concerning the cable television industry's
use of certain frequencies shared with the Federal Aviation Authority (FAA). The
new rules required cable television systems, prior to July 1, 1990, to offset all of
the frequencies in those bands, to monitor the cable television system for signal
leakage on a quarterly basis and to perform and file with the FCC an annual
Cumulative Leakage Index (CLI). The CLI is a test that measures the cumulative
effect of the signal leakage in a cable television system and the potential for
interference with FAA communication and navigation.
Cable television systems generally are constructed and operated under the
authority of nonexclusive permits or "franchises" granted by local and/or state
governmental authorities. Such franchises are generally transferable only with the
consent of the governmental authority and contain many conditions for the operation
of a cable television system, such as time limitations on commencement and/or number
of channels and broad categories of programming; service to certain institutions;
provisions for access and commercial leased -use channels; and maintenance of
insurance and/or indemnity bonds. The Company's franchises also typically provide
for periodic payments of fees, generally ranging from 38 to 5% of revenue, as
defined, to the governmental authority granting the franchise. Most of the
Company's present franchises had initial terms of approximately 10 to 15 years. The
duration of the Company's outstanding franchises presently varies from a period of
months to an indefinite period of time. Subject to applicable law, a franchise may
be terminated prior to its expiration date if the cable television operator fails to
comply with the material terms and conditions thereof.
The Cable Act limits the power of the franchising authorities to impose
certain conditions upon cable television operators as a condition of the granting or
renewal of a franchise. In connection with a renewal, subject to the provisions of
the Cable Act and applicable Federal, state and local law, the franchising authority
may impose different and more stringent conditions for the provision of cable
service, the impact of which cannot be predicted. The Cable Act, however,
establishes an orderly process for franchise renewal which makes it less likely that
cable operators will be unfairly denied renewal where the operator's past
performance and proposal for future performance meet the standards established by
this legislation. Nevertheless, the provisions of the Cable Act related to the
above-described orderly process for franchise renewal are procedural in nature and,
in no way, assure that the franchise will be renewed or that other competing
franchises will not be granted.
The Copyright Revision Act of 1976 (the Copyright Act) provides cable
television operators with a compulsory license for retransmission of broadcast
television programming without having to negotiate with the stations or individual
copyright owners for retransmission consent. The availability of the compulsory
license is conditioned upon the cable operators' compliance with certain reporting
requirements and payment of appropriate license fees, including interest charges for
late payments, pursuant to the schedule of fees established by the Copyright Act and
regulations promulgated thereunder. The Copyright Act also established a Copyright
Royalty Tribunal (the CRT), which is empowered to periodically review and adjust
copyright royalty rates based on inflation and/or petitions for adjustments due to
modifications of FCC rules. In light of the FCC's reimposition of syndicated
programming exclusivity regulations, the CRT recently eliminated a surcharge it had
imposed for syndicated programming, thereby somewhat lowering the compulsory license
fees certain of the Company's cable television systems must pay. The FCC has
recommended to Congress the abolition of the compulsory license for cable television
carriage of broadcast signals. See Proposed Changes in Federal Regulation.
The Company has two-way communications stations, microwave relay stations and
receive -only earth stations for reception of satellite signals, which are
individually licensed by the FCC for a specific term. Such licenses must be
periodically renewed by the Company.
The FCC is authorized to impose fines upon cable television system operators
for violations of FCC rules and may suspend licenses and authorizations and issue
cease and desist orders.
Pursuant to rental agreements with local public utilities, the cables in the
Company's cable television systems are generally attached to utility poles or are in
underground ducts or buried in trenches. The rates and conditions imposed on the
Company by a majority of the utility companies are subject to regulation by the FCC
or, in some instances, by state agencies.
Proposed Changes in Federal Regulation
The 102nd Congress and the FCC are considering various proposals which could
have an adverse effect on the Company's cable television business. Moreover,
additional bills that could also have an adverse effect on the Company's cable
television business may be introduced in the 102nd Congress based on proposals that
were considered by the 101st Congress which adjourned without passing cable
legislation. It is not possible at this time to predict what form such legislation
or regulation might ultimately take or their effects on the Company. Certain of the
more significant proposals being considered by the FCC and the 102nd Congress, as
well as certain of the proposals that were considered by the 101st Congress, are
discussed below.
10
On July 31, 1990, the FCC released the 1990 FCC Report to Congress on the
status of competition, rate deregulation and the FCC's policies relating to cable
television service. Although the FCC found that the Cable Act has fostered its
intended results, it also found that, while there is substantial existing and
potential competition to cable television, there is no close substitute for cable
service. The FCC concluded that cable operators possess varying degrees of market
power in the local distribution of video programming; that most cable operators have
the ability to deny or unfairly impose conditions on the access of most program
services to the cable communities they serve; that the continued viability of public
broadcast television may depend on mandatory carriage obligations for cable
operators; that uniform Federal technical standards for all cable video
transmissions should be adopted; and that franchising authorities generally should
be compelled to grant more .than one franchise if requested. In light of legislative
then pending before the 101st Congress, the FCC indicated it would delay concluding
a rulemaking proceeding initiated in December 1989 to amend its regulations defining
the conditions under which cable television systems will be deemed to have
"effective competition." As the 101st Congress adjourned without taking action on
cable legislation, on December 14, 1990, the FCC proposed amendments to those
regulations. The nature and effect of such proposed amendments to the FCC's present
"effective competition" standard, the details of which are provided towards the
conclusion of this discussion on legislative activity, would be to require that the
current "effective competition" rule, which generally exempts cable television
systems from rate regulation when three or more broadcast stations are available in
a locality, be more stringent. Based on the FCC proposals to amend its "effective
competition" standard, the Company anticipates that most of its cable systems would
be subject to some form of rate regulation, if and when the FCC adopts the proposed
amendments in their current form.
In the 102nd Congress, three cable re -regulation bills have been introduced,
two in the Senate and one in the House of Representatives. The Senate bills are
S.12, introduced January 14, 1991, and S.211, introduced January 15, 1991. The
House Bill, H.R.550, introduced January 16, 1991, is identical to 5.211.
Notwithstanding the consideration of these bills or the possibility that additional
bills may be introduced in the 102nd Congress, it is not possible to predict whether
the 102nd Congress, as a whole, will pass cable legislation, what form such
legislation will ultimately take, or whether such legislation would be signed into
law by the President.
11
S.12 and S.211 (H.R.550) address the following substantive areas:
Regulation of cable service offerings and rates - Both bills allow
regulation of cable rates, unless "effective competition" exists where
the cable system is located. S.12 presumes the existence of "effective
competition" if less than 308 of the cable homes are subscribers of the
system or there is presently a sufficient number of local broadcast
signals (to be determined by the FCC) and the availability of service
from a non-affiliated multi -channel video program distributor (such as
MMDS or DBS) offering programming comparable to that offered by the
cable system and at comparable rates to a majority of the households in
the cable community and which, in the aggregate, serve at least 158 of
those households. 5.211 is the same as S.12 with respect to the
determination of whether "effective competition" exists, except that a
non-affiliated multi -channel video program distributor must serve at
least 308, rather than 158, of the households in the cable community,
and the presence of a sufficient number of local broadcast signals is
not a factor to be considered. S.12 limits basic cable service rate
regulation to the service levels containing local broadcast signals
(basic cable), unless less than 308 of the cable system's customers
subscribe to that service level, in which case rate regulation applies
to the lowest priced level of service to which at least 308 of the cable
system's customers subscribe. Where there is no "effective
competition", non -basic cable service (except per -channel services) can
be regulated by the FCC if on a complaint the cable operator is
determined to not to be offering such service at a reasonable price. A
cable operator is permitted to add or delete from basic cable service
any non -local broadcast signal program service, thereby permitting the
establishment of a "broadcast basic" level of service. 5.211 authorizes
regulation of all cable service rates, including Pay -TV services. Both
bills would eliminate the automatic price increases in regulated cable
television systems that are guaranteed under current Federal statutes.
Both bills also authorize regulation of rates charged for equipment
rental and for installation of equipment for the reception of cable
service. Both bills authorize the FCC to establish a mechanism for
certification of states to regulate the prices for affected cable
services. Where a state has not been certified, the FCC retains
authority to regulate. The state may delegate its authority to regulate
to, among others, franchising authorities. 5.211 prohibits cable
operators from charging subscribers of the cable system different rates
for the same services.
Passage of legislation leading to the re -regulation of cable service
prices would have an adverse effect on the growth of the Company's cable
television revenue.
2. Access to cable programming - Both bills would, in their present form,
prohibit vertically integrated cable programmers from "unreasonably
refusing to deal" with multi -channel video programming vendors and from
discriminating in price, terms and conditions for the sale of video
programming to other multi -channel video programming distributors, such
as MMDS or DBS. The bills require the FCC to prescribe regulations to
implement provisions to recognize cost -based and other "non -exclusivity"
factors permissibly affecting price under the bills.
Territorial exclusivity is an important competitive tool throughout the
entertainment industry. Thus, passage of the bills could hamper the
Company's ability to compete against present or future competitors.
12
Regulation of carriage agreements - S.12 contains language prohibiting
cable operators from discriminating against unaffiliated programmers as
to carriage and language prohibiting cable television operators from
requiring a financial interest in a video programming service as a
condition of carriage. The bill requires the FCC to establish
regulations to that effect. While these or similar provisions, if they
become law, could result in increased access to cable distribution by
programming services, they could limit the bargaining flexibility of the
Company with many of its programming suppliers, thereby reducing its
ability to control programming costs. Such provisions may also
discourage investment in new or untested programming ventures that the
Company or other programmers may wish to launch in the future.
4. Vertical and horizontal size - S.12 mandates the FCC to implement a
rulemaking proceeding to impose limitations on horizontal concentration
and vertical integration in the cable industry. Pursuant to the bill,
the FCC would be required to conduct a rulemaking proceeding to
establish reasonable limits on the number of cable subscribers a person
is authorized to reach through cable systems that it owns or in which it
has an attributable interest, and to establish reasonable limits on the
number of channels on a cable system that can be occupied by video
programmers in which a cable operator has an attributable interest.
Although it is impossible to predict the outcome of such FCC
proceedings, if they are mandated by future legislation, they could
adversely affect the Company's growth opportunities in cable -related
areas.
5. Other provisions - Both bills contain a number of other provisions which
would reimpose local broadcast station "must -carry" obligations on cable
television systems as a condition to the availability of the copyright
compulsory license. S.12 would require cable operators to set aside up
to one-third of their channel capacity to accommodate local stations
requesting carriage; 5.211 would require a set-aside of up to one-fourth
of capacity consistent with the FCC's former "must -carry" regulations
that were invalidated on First Amendment grounds by the Federal courts.
S.12 requires the cable operator to assign each "must -carry" broadcast
station a cable channel corresponding with the broadcaster's FCC -
assigned channel number, or the channel position on which the station
had been, carried, if at all, on July 19, 1985, at the election of the
broadcaster. This provision on channel positioning could eviscerate the
establishment of a "broadcast basic" level otherwise contemplated in
S.12. S.211 likewise imposes channel position reassignment restrictions
on the cable operator.
Both bills strengthen the power of the FCC or franchising authorities to
impose customer service standards on cable television systems. Both
bills require the FCC to promulgate minimum nationwide customer service
and picture quality standards. S.211 would grant the states and
franchising authorities the authorization to impose higher standards
than the Federal standard, thereby subjecting the cable industry and the
Company to a patchwork of different technical standards, which would
likely increase the cost of compliance.
Both bills strengthen regulations requiring leased access to cable
television systems and lessen the protections afforded to cable
operators under current law with respect to franchise renewals.
13
With respect to developments in the 101st Congress not implicated by the bills
in the 102nd Congress, there may be measures reintroduced that would restrict
foreign ownership of cable television systems, that would restrict or prohibit the
ownership by cable operators of MMDS, SMATV or DBS companies, or that would allow
telephone companies to offer video programming to consumers on a common carrier or
other basis. Under the common carrier, so-called "video dial tone" approach,
neither the telephone company common carrier nor video programmers appearing on such
a service would be required to have a local franchise.
The Cable Act, FCC regulations and the 1982 Federal court consent decree which
settled the 1974 antitrust suit against AT&T currently restrict the ability of
telephone companies to provide cable television and other information services. As
indicated above, the 101st Congress entertained proposals to allow telephone
companies to offer video programming to consumers without a franchise. Cable
systems, including those owned by the Company, are required to have such franchises.
In addition, it is not inconceivable that legislation could be introduced that would
remove the restrictions in the 1982 consent decree thereby permitting the Bell
Operating Companies (BOCs) to provide cable television and other information
services. A first step in that direction has been made by the introduction of a
bill in the Senate (S.173) on January 14, 1991, proposing to lift the prohibition
against the BOCs' manufacturing customer telephone equipment. The pendency of S.173
places additional pressure on Congress to consider similar legislation as to the
lifting of the information services restrictions affecting the BOCs.
On January 15, 1991, a bill was introduced in the Senate proposing to
reallocate 200 MHz of spectrum from government users for distribution by the FCC for
non-government use. The bill, 5.218, if enacted, could make additional spectrum
available for cable television use, thereby potentially benefiting the Company's
cable television business.
On December 14, 1990, the FCC adopted a Further Notice of Proposed Rulemaking
to its December of 1989 Notice of Proposed Rulemaking to amend its "effective
competition" standard for deregulation of basic cable television rates to a level
more stringent than the current so-called "three signal" standard. In the Further
Notice, the FCC proposed that "effective competition" exists under either of two
structural tests or under a "competitive behavior" test. One structural test
consists of the presence in the cable television system's community of at least six
unduplicated broadcast signals and the absence of a subscriber penetration level by
the cable television system above 50%. The second alternative structural test
consists of the availability to at least 50% of the homes passed by the cable
television system, and a subscriber penetration of those homes of at least 10%, of
other independently -owned multi -channel video service providers, such as another
cable system, a "wireless" cable system, a SMATV system, and HSD and DBS services.
The alternative "competitive behavior" test consists of benchmarks or guidelines of
basic cable service price and, "perhaps" numbers of channels. The FCC proposed to
develop the benchmarks transitionally over two years to approximate prices and
service levels of cable television systems that have "effective competition" under
either of the structural tests. If a system not subject to "effective competition"
under one of the structural tests provides basic cable service within the
benchmarks, it will be deemed to be behaving competitively and, thus, will be deemed
subject to "effective competition." The FCC expects to promulgate an amended
"effective competition" standard pursuant to the Further Notice in April or May
1991, with a 90 -day period before becoming effective.
In July 1988, the FCC issued a report in which it tentatively concluded to
recommend to Congress the elimination of the cable -telephone company cross -ownership
rules and initiated a rulemaking proceeding to consider a change in the rules
towards less restrictive standards concerning affiliation between telephone
companies and cable operators. Although that rulemaking proceeding is still
pending, if current proposals are adopted, telephone companies would be permitted to
have larger, but still less than controlling, ownership interests in cable systems
in their telephone service areas than permitted under current regulations.
14
Pending before the FCC is a petition filed by the National Telecommunications
and Information Administration (NTIA) seeking a declaration from the FCC that it is
in the public interest for the BOCs to provide information services, thereby
arguably establishing circumstances for the FCC to assert jurisdiction over the
BOCs, in lieu of the U.S. District Court for the District of Columbia Circuit which
exercises jurisdiction over the 1982 consent decree. In October of 1988, the NTIA
released a report recommending that this jurisdiction be placed with the FCC, and
that the FCC determine on a service -by -service basis whether BOCs should be
permitted to provide information services. The report also favors telephone company
provision of common carrier facilities for video programming to the home. The
Company believes that fair competition between cable television operators and local
exchange telephone operators cannot occur because it is impossible to provide
adequate regulatory safeguards to prevent cross subsidization and other unfair
competitive practices by the telephone operators. On January 9, 1990, the NTIA
issued a Notice of Inquiry into the domestic telecommunications infrastructure. On
February 13, 1990, the NTIA initiated another inquiry on the "trend toward the
'globalization' of the mass media." In addition to the issues of telephone company
cross -ownership, the 'globalization' inquiry requested comments on whether
restrictions should be imposed on vertical integration in the cable television
industry.
Further, in 1988, the FCC revived a rulemaking proceeding, which was
originally instituted in 1982 and is still pending, proposing to eliminate the rules
that prohibit the ownership of cable television systems by national broadcast
television networks. There are other pending FCC and Copyright Office proceedings
affecting the business of the Company. In 1987, the FCC initiated a rulemaking
proceeding, which is still pending, to eliminate the current limitations on the
geographic territory within which broadcast television licensees may purchase
program exclusivity for their stations. These same geographic limitations presently
govern the extent to which a broadcast television licensee may acquire exclusivity
protection under the FCC's syndicated program exclusivity and network nonduplication
regulations from distant broadcast television stations carried by cable television
systems. Accordingly, if the limitations are removed, television licensees'
syndicated program exclusivity and network nonduplication rights will have been
expanded, thereby potentially lessening the amount of programming on distant
television stations available to the Company's subscribers over its cable television
systems. In addition, Major League Baseball filed a petition with the FCC in
September of 1990, seeking an interpretation of the network nonduplication
regulations that would, if granted, extend the scope and extent of network
nonduplication protection currently afforded network programming that consists of
sports events. If adopted, more sports programming on broadcast signals carried by
cable television systems would be subject to deletion under the network
nonduplication regulations.
In May 1988, in response to requests from several members of Congress, the FCC
issued a Notice of Inquiry relating to the television signal carriage practices of
cable systems, with a view toward the appropriateness of future "must -carry"
regulation. In September of 1988, the FCC submitted a report to Congress based upon
its Notice of Inquiry, which report could be used as evidence to justify the need
for "must -carry" legislation such as provisions similar to those contained in S.12
and S.211.
In October 1986, the Copyright Office issued a Notice of Inquiry, which is
still pending, as to whether the copyright compulsory license extends to SMATV and
MDS. If persons other than cable television systems are determined to be eligible
for the compulsory license, cable television systems may face additional
competition. Although the FCC has no authority to modify cable's compulsory license
absent new legislation, the FCC in October of 1988 recommended that Congress
eliminate the compulsory license for both local and distant broadcast signals.
Should such legislation be enacted, the Company could incur additional costs
associated with the carriage of certain broadcast stations, and, if some broadcast
stations were not carried, cable television subscribers' satisfaction with the
service they receive may decrease unless and until cable programmers provide
satisfactory replacement programming.
15
In January 1990, the FCC instituted a rulemaking proceeding, which is still
pending, in which it proposed adopting regulations that would permit SMATV operators
to provide point-to-point microwave service to distribute video entertainment
programming. On October 11, 1990, in conjunction with its concurrent release of new
rules to facilitate development of wireless cable systems, the FCC adopted a Further
Notice of Rulemaking to evaluate reallocating other frequency bands of MMDS service,
to allow use by wireless operators of vacant channels reserved for educational
usage, and to solicit comments on grandfathering the existing use of wireless
facilities by cable companies within their franchise areas and on how to define
rural communities. These proposals, if adopted, would lower the cost of providing
service by wireless and SMATV systems, thereby potentially increasing competition
with the Company's systems.
Theatre Exhibition Business
The Company is the largest motion picture exhibitor in the United States in
terms of the number of theatre screens. As of December 31, 1990, the Company had
interests (mostly 100%) in 540 theatres with an aggregate of 2,506 screens. The
Company's theatres are geographically dispersed with locations in 37 states, Hong
Kong and Puerto Rico. The five largest concentrations of theatre screens at
December 31, 1990 were as follows:
Total number Total number
of locations of screens
California
75
321
Florida
34
255
Texas
39
215
New York
48
205
Georgia
35
161
Other
309
1,349
540 2.506
In order to meet changing market and demographic patterns, the Company's
theatre strategy has focused on the acquisition and construction of multiplexes
(theatres with two or more screens). Multiplexes permit the Company to offer a
diversified selection of films within a particular theatre while utilizing a single
ticket booth, concession stand, automated projection equipment and lobby. The
following table sets forth selected data concerning the number of multiplexes
operated by the Company in the United States for the periods presented.
During the fourth quarter of 1990, the Company recorded a $25.6 million charge
in connection with its December 1990 plan to restructure its theatre operations.
This charge includes the net estimated costs associated with the closure of 23
theatres (73 screens) located in seven states and the sale of 54 theatres (218
screens) located in thirteen states. This plan was implemented because such
theatres generally were unprofitable or located in non-strategic areas. Upon
completion of the restructuring program, it is anticipated that the Company will
operate 463 theatre locations in 32 states, Hong Kong and Puerto Rico. Such theatre
locations, on average, will have 4.78 screens per location.
16
1990(1)
December 31
1987
August 31,
1987
1989 1988
Number of
theatres
540
628
686
479
475
Number of
screens
2,506
2,695
2,677
2,047
2,001
Average screens per
theatre
4.64
4.29
3.90
4.27
4.21
(1) The
the
1990 data
subject of
includes the
the
77 theatre
locations
(291 screens)
that are
restructuring plan
discussed below.
During the fourth quarter of 1990, the Company recorded a $25.6 million charge
in connection with its December 1990 plan to restructure its theatre operations.
This charge includes the net estimated costs associated with the closure of 23
theatres (73 screens) located in seven states and the sale of 54 theatres (218
screens) located in thirteen states. This plan was implemented because such
theatres generally were unprofitable or located in non-strategic areas. Upon
completion of the restructuring program, it is anticipated that the Company will
operate 463 theatre locations in 32 states, Hong Kong and Puerto Rico. Such theatre
locations, on average, will have 4.78 screens per location.
16
Additionally, the Company closed approximately 58 screens at 27 locations and
sold approximately 196 screens at 69 locations in 1990. Many of the screens were
single or twin screen locations which did not meet the Company's operating criteria
or were located in non-strategic areas outside major theatrical markets.
Accordingly, the Company's average screens per location increased from 4.29 in 1989
to 4.64 in 1990.
The distribution of motion pictures is in large part regulated by Federal and
state antitrust laws, which have developed on a case-by-case basis. The most
significant of these cases is United States v Paramount Pictures Corporation et
al., which was affirmed by the U.S. Supreme Court in 1950. The Company was not a
party in the Paramount case.
The trade practice limitations imposed upon some major film distributors by
various decrees entered in the _Paramount case require the films of such distributors
to be offered and licensed to exhibitors, including the Company, on a theatre -by -
theatre basis. Consequently, the Company cannot assure itself of a supply of films
by entering into long-term arrangements with major distributors, but must compete
for its licenses on a film -by -film and theatre -by -theatre basis. In many localities
in the territories in which the Company operates, such licenses are offered to the
various exhibitors on the basis of competitive bidding. As a result of market
conditions, the Company is frequently required to enter into commitments for new
films prior to their completion and having the opportunity to review them. In
certain instances, the Company is required to guarantee a fixed minimum rental to
the distributor, which arrangement subjects the Company to the risk of loss if the
motion picture's patronage is below the Company's expectation. Booking arrangements
frequently require the Company to make substantial advances to the distributor
against future rentals and to settle the film rental contract after the exhibition
of the contracted motion picture. The Company ordinarily pays to the film
distributor a percentage rental based upon box office receipts. The Company has
generally been able to license a majority of the motion pictures available; however,
there is no guarantee that this will continue to be the case.
The Company's theatres compete with independent theatre operators and other
theatre exhibition chains with respect to both the aforementioned licensing of
motion pictures as well as the attraction of patrons. The Company's theatres also
compete with television, video cassettes and other forms of home entertainment.
The results of the Company's theatre operations are subject to seasonal
fluctuations. Revenue from theatre operations is usually higher during the period
from Memorial Day through Labor Day and during holiday vacation periods, such as
Christmas, Easter, and Thanksgiving. Additionally, the Company's business is
dependent upon the availability of marketable motion pictures. Accordingly, poor
performance or disruption of the production of motion pictures by the major studios
and/or independent producers may have an adverse effect upon the business of the
Company.
General
The Company has not expended material amounts on research and development
during the past fiscal year. Construction and maintenance materials are available
and acquired from a number of suppliers and are not deemed to be in short supply.
Legislative, administrative and/or judicial action may alter portions of the
foregoing statements relating to competition and regulation.
There is no customer or affiliated group of customers to whom sales are made
in an amount which exceeds 108 of the Company's consolidated revenue.
17
Compliance with Federal, state, and local provisions which have been enacted
rw
or adopted regulating the discharge of material into the environment or otheise
relating to the protection of the environment has had no material effect upon the
capital expenditures, results of operations or competitive position of the Company.
At December 31, 1990, the Company employed approximately 13,100 persons (part-
time and full-time employees) in its theatre operations, approximately 6,900 persons
in its cable operations, and approximately 400 persons in its corporate offices and
other business operations.
The Company has neither material foreign operations nor export sales.
Relationship with TCI
As of December 31, 1990, TCI owned approximately 53.7% of the Company's Class
A common stock and approximately 57.38 of the Company's Class B common stock and
certain officers and/or directors of TCI hold five seats on the Company's Board of
Directors.
TCI is the largest provider of cable television services in the United States
in terms of the number of basic subscribers. The presence of the two companies in
the cable television industry could give rise to potential conflicts of interest
where both may be pursuing the same business opportunity. No formal policies or
guidelines have been adopted by the Board to deal with Board actions which involve
actual or potential conflicts of interest between the Company and TCI. However,
while TCI may have an incentive to resolve conflicts of interest in its favor,
directors of the Company have fiduciary obligations under Delaware law to all of the
Company's stockholders.
The Company may also from time to time enter into transactions with TCI and
its subsidiaries. Although the terms of any such transactions will be established
based on negotiations between employees of the Company and TCI, there can be no
assurance that the terms of any such transactions will be as favorable to the
Company as those that may be available from non -affiliates in similar transactions.
Item 2. Properties
The Company leases its executive offices in Englewood, Colorado and most of
its cable and theatre division offices. The motion picture theatres operated by the
Company (the majority of which are leased and the remainder owned in fee) and
related real estate are located throughout the United States, Hong Kong, and Puerto
Rico. The Company owns substantially all of its theatre equipment.
The Company's physical cable television properties, which are located
throughout the United States and the United Kingdom, consist of system components,
motor vehicles, miscellaneous hardware, spare parts, and other components. In
addition, the Company has lease and fee interests in various commercial properties
in the United States. The Company's properties are not subject to major
encumbrances except that certain of the Company's fee owned theatre real estate
secures approximately $146 million of first mortgage notes. The Company's motion
picture theatre and cable television facilities are, in the opinion of management,
suitable and adequate by industry standards. In connection with the August 1990
refinancing described in General Development of Business, the lenders have been
granted a negative pledge on certain assets of UAE and its subsidiaries. See note
(8) to the accompanying consolidated financial statements.
18
Item 3. Legal Proceedings
Certain legal proceedings relating to the Company are as follows:
1. Boeckmann Charitable Foundation vs United Cable Television Corporation and
United Cable Television of Los Angeles. This matter was filed in the Superior
Court, County of Los Angeles, California on December 24, 1986 alleging breach
of contract, bad faith denial of the contract and fraud. The complaint
alleges that in exchange for Mr. Boeckmann's efforts to persuade the Los
Angeles City Council to award United Cable, through its subsidiary, United
Cable Television of Los Angeles, Inc. (UCT of Los Angeles) the East San
Fernando Valley cable television franchise, the Company was to pay the
plaintiff $100,000 per year for fifteen years during the life of the franchise
and to grant it a 3% interest in the franchise when it was formed. The
complaint seeks $1.5 million for the annual payments, the 3% interest, and $15
million of punitive damages for the alleged bad faith denial of the contract.
The Court has determined that the contract was unenforceable, leaving only the
fraud claim. This matter was settled on or about January 9, 1991. The
parties are preparing the appropriate documents and releases for execution and
filing with the Court.
2. Bell Cohen vs John C Malone et al including UCTC and its directors. This
matter was filed on October 20, 1987 in the Chancery Court, Newcastle County,
Delaware against United Cable, TCI, United Artists and their respective
directors. This action was brought as a class action by a stockholder on
behalf of United Cable's stockholders, alleging, among other things, that the
consideration to be received by United Cable's stockholders pursuant to the
terms of a business combination announced on October 16, 1987, was unfair and
inadequate, and that consummation of a business combination under those terms
would constitute a breach of United Cable's directors' fiduciary duties and a
breach by TCI of its fiduciary duties as a major stockholder of United Cable,
and would otherwise be unlawful. The complaint sought an injunction or
rescission of the proposed combination, unspecified monetary damages and
attorney's fees and costs. On October 20, 1987, United Cable and United
Artists announced that merger negotiations had been suspended, and counsel for
UCTC and counsel for plaintiffs agreed that the defendants' time to respond to
the complaint would be extended indefinitely. Merger negotiations were
subsequently resumed resulting in the execution on March 8, 1988 of a merger
agreement, which contained terms substantially different from those challenged
in the lawsuit. Counsel for the plaintiff participated in the latter stages
of the subsequent merger negotiations and, based upon the terms of the merger
agreement and subsequent amendment thereto, the litigation was settled in
principle.
The parties have entered into a settlement agreement, which has been submitted
to the Court. Final settlement is subject to a notice of settlement being
mailed to the class and approval of the settlement by the Court after a
hearing.
3. E L Greenfield as custodian for M L Greenfield vs Tele-Communications
Inc.. et al. On April 18, 1988, United Artists, TCI and United Cable and
their respective directors were named as defendants in an action by a
stockholder of United Artists brought as a purported class action on behalf of
all United Artists stockholders in the Court of Chancery, Newcastle County,
Delaware. The complaint alleges, among other things, that the consideration
to be received by United Artists' stockholders pursuant to the terms of the
initial merger agreement was unfair and inadequate, and that consummation of
the merger under those terms would constitute a breach of the fiduciary duties
of United Artists' directors and a breach of TCI of its fiduciary duties as a
major stockholder of United Artists, and would otherwise be unlawful. The
complaint also alleges that United Cable and its directors aided and abetted
19
the aforementioned breaches of fiduciary duty. The complaint seeks
certification of the action as a class action, an injunction or rescission of
the proposed merger, unspecified compensation damages, a disgorgement of all
monies, profits and benefits obtained in connection with the merger and
attorneys' fees and costs. All defendants have moved to dismiss the lawsuit.
Defendants' motions have been briefed and argued and are currently before the
Court for decision.
A settlement in principle has been reached, but no settlement agreement has
been entered into or submitted to, or approved by, the Court.
4. Harkins Amusement Enterprises Inc vs General Cinema Corvoration, et al.
(Two Actions) - These actions were commenced, respectively, on September 21,
1977 ("Harkins 1"), and September 29, 1980 ("Harkins 2"), by the filing of
complaints in the U.S. District Court for the District of Arizona, Phoenix
Division. The complaints named the Company as a defendant, together with a
number of companies engaged in the business of motion picture exhibition and
distribution. The actions charged violation of the antitrust laws over
different time periods with respect to the distribution and exhibition of
motion pictures in the greater Phoenix, Arizona area. The actions seek $9
million and $1 million, respectively, of damages, after trebling, together
with costs, attorneys' fees and injunctive relief.
In 1987, the Company's motion for summary judgment to dismiss it as a
defendant in both actions were granted. The plaintiff appealed.
M
The Ninth Circuit in Harkins 1 upheld the summary judgment against five of the
plaintiff's claims (unlawful clearances, moveovers, blind -bidding, illusory
advances and guarantees and monopolization) and reversed on three. The three
claims which have been reinstated are on spliting, bidrigging and circuitwide
deals which will be remanded for further discovery and trial. In November
1989, the Court of Appeals reversed the order of summary judgment in Harkins 2
as premature.
United Artists Communications Inc. This matter is a breach of contract
action filed in the U.S. District Court for the Eastern District of New York
on September 13, 1989. The complaint alleges that defendant United Artists
Tele-Communications, Inc. (UATI), by and through its parent, defendant United
Artists, entered into an agreement with plaintiff wherein plaintiff was
engaged as a manager to order, install and supervise telephone switching
systems throughout the United States, and to order, install and supervise pay
telephones in the greater New York metropolitan area, and that the defendants
wrongfully and in bad faith terminated the contract. Damages in excess of
$100 million are sought. Discovery has been substantially completed.
and James Dovey. This matter was filed in June 1988, in the District Court,
Arapahoe County, Colorado. Plaintiff claims that in anticipation of the
formation of a regional sports station, it purchased and leased equipment,
hired and trained personnel, and leased and developed real estate at a cost of
$5 million over a period of five years in Aspen, Colorado. Plaintiff claims
that in reliance on the promises of United Cable Television of Colorado, Inc.
and Home Sports Network to aid in the formation of a regional sports station,
plaintiff moved its equipment and personnel to Denver, gave up its leased
property, and dismantled its microwave transmission system in Aspen.
Plaintiff claims that in August 1987, defendants ceased making contributions
to, and then terminated all relations with plaintiff, all in breach of
defendants' fiduciary duties. Plaintiff alleges fraud, promissory estoppel,
breach of contract and negligent misrepresentation. Plaintiff claims damages
OM
of $5 million and punitive damages of over $20 million. This compliant was
amended in July 1990 to add an allegation which allows treble damages.
Discovery has been completed and the matter was scheduled to have begun trial
on February 11, 1991, but the trial was continued to a future date in 1991, as
yet unknown.
7. TV Communications Network Inc. a/k/a TVCN v. ESPN Inc.. Tele-Communications
8.
a/k/a TNT. This lawsuit, which was filed in the United States District Court
for the District of Colorado on August 17, 1990, seeks injunctive relief and
monetary damages on account of alleged anti-competitive and monopolistic
activities of the defendants. Plaintiff operates a "wireless cable" service
which delivers programming to subscribers on a direct over -the -air basis.
Plaintiff alleges that defendants have conspired to violate the antitrust laws
by limiting access to certain programming that would otherwise be available to
the plaintiff. Defense counsel for all defendants have filed comprehensive
motions to dismiss most or all of the counts of the complaint for failure to
state any claim upon which relief can be granted. Plaintiff claims it has
been damaged in the amount of $458 million, prior to trebling, even though it
has only recently begun operations.
This matter was dismissed in its entirety as to all defendants by the Court in
December 1990 pursuant to the defendants various Motions to Dismiss, which the
Court treated as Motions for Summary Judgment. Plaintiff has filed a motion
for reconsideration.
Communications. Inc.: United Artists Theatre Circuit Inc • et al This
action was filed in the Superior Court, New York County, New York on
October 27, 1989. Plaintiffs claim conversion, injunctive relief, an
accounting, and misappropriation of business secrets in connection with an
agreement to sell small size pizzas in theatres, alleging damages in excess of
$35 million.
Although no assurance can be given as to the outcome of the above litigation
matters, management believes their ultimate disposition should not have a material
adverse effect upon the financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1990.
21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Shares of UAE's Class A and Class B common stock are traded in the over-the-
counter market on the National Association of Securities Dealers Automated
Quotations (NASDAQ) National Market Systems under the symbols UAECA and UAECB,
respectively. In conjunction with the Merger (see General Development of Business),
each share of common stock of United Artists, the Company's predecessor, was
converted into one share of Class A and one share of Class B common stock of UAE.
The prices of United Artists common stock set forth below have been adjusted for the
effects of the stock issued to the United Artists pre -merger stockholders in
connection with the Merger. The following table sets forth the range of high and
low closing sales prices, as furnished by NASDAQ, for (i) the common stock of United
Artists for each quarter during the period commencing January 1, 1989 through May
24, 1989, the last trading date prior to the Merger, and (ii) the Class A and Class
B common stock of UAE for each quarter during the period commencing May 25, 1989 and
ending December 31, 1990. The prices have been rounded up to the nearest eighth;
represent prices between dealers; do not include retail markups, markdowns, or
commissions; and do not necessarily represent actual transactions.
United Artists
UAE
Period
High
Low
January 1, 1989 through May 24, 1989:
1st Quarter
16.3/8
13.1/2
2nd Quarter (54 days)
18.1/4
15-7/8
Ctass
A
Class
6
Period
High
Low
High
Low
May 25, 1989 through December 31, 1989:
2nd Quarter (37 days)
19-1/2
17
19.7/8
17
3rd Quarter
23.1/2
18-7/8
23-1/4
18-7/8
4th Quarter
23-1/4
18.1/4
23-1/4
18.1/4
Year ended December 31, 1990:
1st Quarter
19-3/4
12.1/4
19
14
2nd Quarter
16.3/8
11.5/8
16-3/8
12-1/2
3rd Quarter
15-1/4
9-3/4
15.3/4
9-3/4
4th Quarter
13
9-3/4
13
10-1/2
As of February 28, 1991, there were 2,008 holders of record of the Company's
Class A common stock and 1,876 holders of record of the Company's Class B common
stock. These amounts do not include the number of stockholders whose shares are
held of record by brokerage houses, but do include each brokerage house as one
stockholder.
The Company did not pay a cash dividend on its common stock during the two
year period ended December 31, 1990. The Board of Directors of the Company
determines the Company's dividend policy based on the Company's results of
operations, financial conditions, capital requirements and other relevant
considerations. It is the Board of Directors' present intention to retain cash for
the operations and expansion of the Company, and it is not anticipated that cash
dividends will be paid in the foreseeable future. Certain agreements, pursuant to
which the Company has borrowed funds, contain provisions that limit the amount of
dividends the Company may pay. See note (8) to the accompanying consolidated
financial statements. Also, see the related discussion in Management's Discussion
and Analysis of Financial Condition and Results of Operations.
22
Item 6. Selected Financial Data
The following table presents selected financial information relating to the
financial condition and results of operations of the Company as of and for the years
ended December 31, 1990, 1989 and 1988, as of and for the four months ended December
31, 1987 and as of and for the years ended August 31, 1987 and 1986. As a result of
the Merger (see General Development of Business), the summary of operations data for
the year ended December 31, 1990, and the balance sheet data as of December 31, 1990
and 1989, are not comparable to the prior periods presented.
Net earnings (loss) applicable
to common shareholders Ste) (114.8) 2.3 8 0
Earnings (loss) per
common share (1) S27) _,,_j 99)03 24 ww�06 .10
Cash dividends paid per share:
Class A stock (2) S 017
(1) Earnings (loss) per common share for periods prior to 1989 have been
adjusted for the effects of the stock issued to the United Artists pre-
merger stockholders in connection with the Merger.
(2) There were no cash dividends paid on any other class of the Company's
common stock during the periods presented.
December 31
Four
August 31,
1990
1989 1988
Years ended
1986
Months ended
(amounts in millions, except per share amounts)
December 31,
$
December 31,
Years ended August 31
691.0
1990
1989
1988
1987
1987
1986
_1 281.6
1,193,9
® 9
(amounts in millions, except per share
amounts)
S_
Summary of operations data:
2.734.0 1.573.0
979.1
882.3
613.4
Redeemable preferred stock
Si®
Revenue
S_ 1�46�0.0
1.1990
841 0
1
��
528.6
Operating income
S 113.2
X4_4
116..0��105.0___70.6
115.2
Net earnings (loss)
Ste))
2.39.6
4.8
8.0
Net earnings (loss) applicable
to common shareholders Ste) (114.8) 2.3 8 0
Earnings (loss) per
common share (1) S27) _,,_j 99)03 24 ww�06 .10
Cash dividends paid per share:
Class A stock (2) S 017
(1) Earnings (loss) per common share for periods prior to 1989 have been
adjusted for the effects of the stock issued to the United Artists pre-
merger stockholders in connection with the Merger.
(2) There were no cash dividends paid on any other class of the Company's
common stock during the periods presented.
In 1987, the Company changed its fiscal year end from August 31 to December
31. Accordingly, the Company's operations as of and for the years ended December
31, 1990, 1989, 1988 and as of and for the four months ended December 31, 1987 are
based on a calendar year. In the prior fiscal period, the Company used a 52-53 week
fiscal year ending on the Thursday nearest August 31 for theatre operations. The
cable system operations and other non -theatre operations were included based on a
fiscal year ended August 31.
23
December 31
1987
August 31,
1990
1989 1988
1987
1986
Balance sheet data:
(amounts in millions, except per share amounts)
Property and equipment, net
$
1.798.2
1.712.3 894.2
691.0
===L4=81
Total assets
E
4,025.8
4,077.3 1 q�03.7
_1 281.6
1,193,9
® 9
858.5
Debt
S_
2.890.3
2.734.0 1.573.0
979.1
882.3
613.4
Redeemable preferred stock
Si®
X2_5 ...
--Mw�
...
IMNM-M�
Stockholders' equity
S
606.3
755.9 132.2
121.3
118.9
115.2
In 1987, the Company changed its fiscal year end from August 31 to December
31. Accordingly, the Company's operations as of and for the years ended December
31, 1990, 1989, 1988 and as of and for the four months ended December 31, 1987 are
based on a calendar year. In the prior fiscal period, the Company used a 52-53 week
fiscal year ending on the Thursday nearest August 31 for theatre operations. The
cable system operations and other non -theatre operations were included based on a
fiscal year ended August 31.
23
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Company's consolidated
financial statements and related notes thereto included elsewhere herein. Such
consolidated financial statements provide additional information regarding the
Company's financial activities and condition.
Results of Operations
On May 25, 1989, the Company consummated the Merger (see General Development
of Business). In accordance with the purchase method of accounting, the operations
of United Cable have been included in the Company's results of operations since the
date of the Merger. Accordingly, the Company's results of operations for the 1990
period includes the operations of United Cable for the full twelve months whereas
United Cable's operations are included in the Company's results for only seven
months during the 1989 period and are excluded entirely from the Company's 1988
results. As a consequence, the Merger has significantly affected the comparability
of the Company's results of operations during the three-year period ended December
31, 1990. The following table sets forth the results of operations of the cable
systems acquired in the Merger for the indicated periods. The table does not
include corporate expenses of United Cable or the operations of cable systems
acquired by United Cable (as a subsidiary of the Company) subsequent to the date of
the Merger (amounts in millions):
Cable revenue
Cable operating expenses
Depreciation and amortization
Operating income
Revenue
The following table sets forth, for the
revenue generated by the Company's theatrical,
well as the percentage change of such items as
in millions, except percentages):
Percentage
Year Ended
December 31,
1990
$ 368.0
(195.2)
(98.7)
$ 74.1
Seven
Months Ended
December 31,
1989
194.1
(106.8)
(63.4)
23.9
years presented, the components of
cable and other business segments, as
compared to the prior period (amounts
24
Year Ended December 31,
Increase
Year Ended December 31
Percentage
Revenue:
1990
1989
(Decrease)
1989
1988
Increase
Cable S
754.1
508.8
48.2%
S 508.8
253.6
100.6%
Theatre:
Admissions and other
515.6
498.4
3.5%
498.4
426.7
16.8%
Concessions
167.5
166.1
0.1X
166.1
145.0
14.6%
total theatre
683.1
664.5
2.8%
664.5
571.7
16.2%
Other
22.8
25.7
(11.3X)
25.7
15.7
63.7%
S_
1.46
�2�
Sa;.`®
i 0
42.6X
24
Cable Revenue
Cable revenue increased $245.3 million or 48.2% from 1989 to 1990.
Approximately $173.9 million or 34.2% of this increase is due to the inclusion of
revenue generated by the cable systems acquired in the Merger for a full year in
1990 as compared to seven months in 1989. An additional $37.6 million or 7.48 of
the increase in cable revenue is attributable to external growth of approximately
46,000 basic and 76,000 premium subscriptions resulting from the net effect of other
less significant acquisitions and dispositions that occurred during 1990. The
remaining $33.8 million or 6.68 increase in cable revenue is primarily due to
internal growth of approximately 145,000 basic and 124,000 premium subscriptions.
Excluding the portion of the above-described internal growth that is
attributable to the Company's international cable operations, the Company
experienced an internal growth rate during 1990 of approximately 6.58 for both basic
and premium subscriptions. Average monthly revenue per basic subscriber increased
by approximately 4.68 during 1990.
The $255.2 million or 100.68 increase in cable revenue from 1988 to 1989 is
primarily due to the inclusion during 1989 of $194.1 million (76.58) of revenue from
cable systems acquired in the Merger. The remaining $61.1 million or 24.18 increase
is primarily due to the acquisition of approximately 96,000 basic and 81,000 premium
subscriptions and internal growth of approximately 109,000 basic and 50,000 premium
subscriptions.
Certain proposed changes to the legislative and regulatory environment in
which the cable television industry operates could limit future increases in prices
charged for cable television service. No assurance can be given as to whether such
limitations will be imposed and, if imposed, to what extent they will limit the
future growth of cable television revenue of the Company. See Legislation and
Regulation and Proposed Changes in Federal Regulation.
Theatre Revenue
Theatre admissions and other revenue increased by approximately $17.2 million
or 3.58 from 1989 to 1990. This increase is primarily attributable to the net
effect of a 7.58 increase in average ticket prices and a 3.78 decline in attendance.
The decline in attendance partially results from a 7.08 decrease in the number of
screens in operation at December 31, 1990 as compared to the prior year.
The $71.7 million or 16.88 increase in 1989 theatre admissions and other
revenue over 1988 is due to a 9.58 increase in attendance as a result of theatres
acquired and constructed during 1989 and 1988 and a 7.78 increase in average ticket
prices.
The average ticket price received by the Company in any given year is a
function of the mix of tickets purchased by patrons (e.g., adults vs. children or
regular prices vs. discount prices) and the effect of any increase in actual ticket
prices.
Theatre concession revenue remained relatively constant from 1989 to 1990 and
increased $21.1 million or 14.68 from 1988 to 1989. Such changes in theatre
concession revenue are consistent with similar fluctuations in attendance, as
described above. The Company experienced modest increases in concession sales per
patron of 4.58 during 1990 and 4.68 during 1989.
Other Revenue
During 1990, the Company elected to terminate certain of its non-core
operations. Such terminated operations contributed approximately $15 million to
other revenue and approximately $26.9 million to other expenses during the year
ended December 31, 1990.
25
Operating` Costs and Expenses
85.18
84.98
83.18
The following table sets forth the
percentage relationships
of
operating
expenses and depreciation and amortization
expense to total
revenue for each of the
cable and theatre business segments.
Operating income
X4.48
X8.68
10.38
Years
Ended December
31,
1990
1989
1988
Cable
Revenue
100.08
100.0%
100.08
Expenses:
Operating
54.68
53.5%
50.58
Depreciation and amortization
25.48
24.2%
16.78
Operating income
20.08
22�3%
32.88
Theatre
Revenue
100.08
100.08
100.08
Expenses:
Operating
85.18
84.98
83.18
Restructuring charge
3.78
---8
---8
Depreciation and amortization
6.88
6.58
6.68
Operating income
X4.48
X8.68
10.38
Cable Operating Expenses
During 1990, several factors contributed to the 1.18 increase in cable
operating expenses as a percentage of cable revenue. Such cable operating expense
percentage increased by approximately 2.38 as a result of the negative margins
associated with the Company's international operations, which are in their start-up
phase, and the acquisition, during 1990 and 1989, of certain cable systems which
currently have lower than normal operating margins. Management believes such
acquired lower margin cable systems have growth potential. An additional 1.18
increase is attributable to the higher program costs experienced in 1990 by the
Company and the cable industry in general. Approximately 2.08 of the effect of the
above factors is offset by an increase in capitalized labor and overhead consistent
with the significant increase during 1990, in the level of the Company's
construction activities related to its cable distribution systems. The remaining
decrease in cable operating expenses, as a percentage of cable revenue, is
attributable to the relative fixed nature of certain expenses and other individually
insignificant items.
For the year ended December 31, 1989, cable operating expenses as a percentage
of cable revenue increased by approximately 3.08 over the prior year. Higher
program costs in 1989, together with the previously discussed effects of the lower
margins of certain acquired cable systems and the negative margins of the Company's
international operations, accounted for the majority of this increase.
Although the Company anticipates higher program costs in the future due to
increases in rates charged by program suppliers, the Company presently cannot
determine what effect, if any, those higher program costs will have on its cable
operating income in the future.
The increases in cable depreciation and amortization expense during the three
years presented is the result of increases in the average balances of property and
equipment and intangible assets. Such average balances increased as a result of the
Merger, the acquisition of cable systems and capital expenditures.
26
Theatre Ooeratine Expenses
For the year ended December 31, 1990, theatre operating expenses (exclusive of
the theatre restructuring charge) as a percentage of revenue were comparable to the
prior year percentage. During 1989, theatre operating expenses as a percentage of
revenue increased by approximately 1. 8%. Such percentage increase is primarily
attributable to increased film rental costs during 1989.
During the fourth quarter of 1990, the Company recorded a $25.6 million charge
in connection with its December 1990 plan to restructure its theatre operations.
This charge includes the net estimated costs associated with the closure of 23
theatres (73 screens) located in seven states and the sale of 54 theatres (218
screens) located in thirteen states. The estimated net realizable value of such
theatres held for sale, $7.3 million, is included in assets held for sale at
December 31, 1990 in the accompanying consolidated financial statements. For the
years ended December 31, 1990, 1989 and 1988, such restructured theatres contributed
approximately $41.0 million, $40.7 million and $38.4 million, respectively, to total
theatre revenue and incurred approximately $42.8 million, $41.3 million and $35.4
million, respectively, of theatre operating expenses (including depreciation and
amortization).
The increases in theatre depreciation and amortization expense during 1990 and
1989 are consistent with similar increases in the average balances of depreciable
and amortizable assets due to capital expenditures and acquisitions. Such average
balances increased in 1990 despite a decrease in the ending 1990 balance because the
majority of the $111 million of retirements of theatre related assets for the year
ended December 31, 1990 were recorded in the fourth quarter of 1990 in connection
with the theatre restructuring plan, as discussed above, and other retirement and/or
sales transactions.
Under the Fair Labor Standards Act, effective April 1, 1991, the minimum wage
increases from $3.80 to $4.25 per hour. Although the Company anticipates higher
labor costs in the future due to the above-described increase in the minimum wage,
the Company presently cannot determine what effect, if any, those higher labor costs
will have on its theatre operating income in the future.
General and Administrative Expense
General and administrative expense, which represents costs associated with the
Company's corporate offices, remained relatively constant over the 1990 and 1989
periods. However, as a percentage of total revenue, general and administrative
expenses decreased from 3.88 during 1989 to 2.98 during 1990. The increase in this
expense category in 1989 is consistent with a similar increase in the overall
magnitude of the Company's operations as a result of the May 1989 Merger.
Other Income and Expense
The increase in interest expense during the three years ended December 31,
1990, is due principally to additional borrowings used to fund the Merger, the
acquisition of Daniels and certain theatre circuits and cable systems and to fund
certain of the Company's investments. The Company's weighted average interest rate
on borrowings was approximately 10.18, 10.98 and 8.98 in 1990, 1989 and 1988,
respectively. In August 1990, the Company refinanced approximately $2.45 billion of
its existing bank commitments with new commitments aggregating $2.75 billion. See
Liquidity and Capital Resources.
The Company disposed of certain investments, a cable system and certain
theatre and real estate properties for an aggregate pre-tax loss of approximately
$16.3 million during the year ended December 31, 1990. Similar asset sales in 1989
and 1988 resulted in aggregate pre-tax gains of $28.5 million and $13.4 million,
respectively.
27
In 1989, the Company's share of losses of affiliates increased due to the
Company's recognition of its share of losses from investments acquired in connection
with the Merger.
The loss on extinguishment of debt primarily represents the write-off of loan
costs in connection with August 1990 and May 1989 refinancings of the Company's bank
debt.
The increase in the minority interests' share of losses during 1990 is
primarily the result of losses recognized by two majority-owned cable partnerships.
In 1989, the Company's ownership of these partnerships was such that there was not a
significant minority interest with respect to either partnership.
During both 1990 and 1989, the Company recognized income tax benefits of $33.9
million. Such benefits are the result of the utilization of the Company's current
net operating losses to offset deferred taxes which were initially recorded in prior
years. Because the Company has virtually eliminated its deferred tax liability as
of December 31, 1990, it is anticipated that the Company will not have the ability
to similarly recognize income tax benefits during the subsequent periods preceding
the Company's adoption of Statement of Financial Accounting Standards No. 96,
Accounting for Income Taxes. See Recent Accounting Pronouncements below.
Net Earnings (Loss) Applicable to Common Shareholders
Due to the factors set forth in the above discussion, and the Company's
dividend obligations on its redeemable preferred stock, the Company incurred a net
loss applicable to common shareholders of $177.5 million and $114.8 million during
the years ended December 31, 1990 and 1989, respectively. The Company's net losses
are due primarily to additional interest expense and increased depreciation and
amortization expense related to the Merger and other cable system acquisitions. The
Company expects such increased interest, depreciation and amortization expense to
continue to have a negative impact on its future earnings.
Inflation did not have a significant impact on the Company's results of
operations during the years ended December 31, 1990, 1989 and 1988.
Recent Accounting Pronouncements
The Company has formulated an implementation plan for determining the impact
of Statement of Financial Accounting Standards No. 96, Accounting for Income Taxes.
In its current form, Statement No. 96 is currently effective for fiscal years
beginning after December 15, 1991. At this time, sufficient information gathering
and analysis has not taken place and, therefore, the effect of Statement No. 96
cannot be quantified. The Company currently plans to restate prior years' financial
statements in connection with implementation of Statement No. 96. This restatement
would require the remeasurement of prior years' business combinations and would
likely result in increases in certain assets and deferred income taxes.
In December 1990, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other than Pensions. This Statement, which is generally effective for
fiscal years beginning after December 31, 1992, is not expected to have a material
impact on the Company because the Company is not obligated to provide any material
postretirement benefits other than pensions.
28
Liquidity and Capital Resources
The Company generally utilizes cash provided from operations, borrowings under
credit facilities and proceeds from the sale of assets to fund acquisitions, capital
expenditures, and to service debt.
During 1990, net cash borrowings increased approximately $93.4 million. The
increase in cash borrowings, cash provided by operating activities of $61.4 million,
cash on hand at December 31, 1989 of $12.5 million, contributions from minority
interest owners of $11.6 million, cash received from other financing activities of
$5.6 million and proceeds from the sale of certain assets of $190.8 million were
utilized to fund capital expenditures of $299.4 million, acquisitions of $6.0
million, additional investments in affiliates of $50.7 million and dividends on the
Company's redeemable preferred stock of $18.7 million during the year ended December
31, 1990. Capital expenditures during 1991 are expected to be lower than 1990
levels.
In August 1990, the Company refinanced approximately $2.45 billion of its
existing bank debt commitments with new commitments aggregating $2.75 billion. The
Company's new credit facilities include a $400 million bank credit facility of UAE
and $2.35 billion of separate credit facilities of three of the Company's principal
domestic cable subsidiaries. As a result of the August 1990 refinancing, the
average life of the Company's debt has been increased by two years to approximately
seven years. Such increased average life was accomplished through extensions of
final maturities and $600 million of reductions of required principal payments
through December 31, 1992. See note (8) to the accompanying consolidated financial
statements.
Including the effect of certain interest rate protection agreements,
approximately $1.7 billion or approximately 608 of the Company's aggregate
borrowings at December 31, 1990, bear interest at fixed rates.
As of December 31, 1990, the Company had approximately $349.1 million of
unused commitments under existing credit facilities. Based on the most restrictive
covenants of the Company's credit facilities, approximately $207.7 million of such
unused commitments were available based on December 31, 1990 covenant calculations.
The Company is currently in compliance with the restrictive covenants contained in
its credit facilities. However, additional borrowings under such facilities are
subject to the Company's continuing compliance with such restrictive covenants. The
covenants require the maintenance of certain leverage and debt service ratios and
include limitations on additional indebtedness and dispositions of assets, payments
of dividends and other distributions, and changes in control.
The Company's debt to equity ratio (which is calculated utilizing historical
amounts and does not assume the exercise of options or the conversion of certain
preferred stock) was 4.8 to 1.0 at December 31, 1990.
Recent changes in commercial bank lending practices have resulted in changes
in the availability and terms of bank financing. At present, the Company is not
able to determine the effect, if any, such changes will have on the availability and
terms of the Company's future capital resources. However, taken as a whole, the
sources of borrowed funds available to the Company are considered adequate to meet
its needs for the foreseeable future.
In September 1990, the Company called for the redemption of the $100 million
outstanding principal amount of its 6-3/88 convertible debentures. Such debentures
were redeemed on December 14, 1990 at an aggregate redemption price of $102.6
million including $1.6 million of accrued interest to the date of redemption.
29
On March 25, 1991, the Executive Committee of the Company's Board of Directors
adopted a resolution to enter into an agreement to transfer certain of its cost
investments to TCI in exchange for cash proceeds of $43.1 million and the 13,749
shares of the Company's Convertible Preferred Stock held by TCI. The stated
liquidation value of such Convertible Preferred Stock is $42.7 million (including
$1.5 million of accrued dividends through March 31, 1991). Subject to the
completion of a definitive agreement, the above-described transaction is expected to
close in the near future. See Certain Relationships and Related Transactions. If
this exchange transaction is consummated, the Company intends to use the $43.1
million of cash proceeds to pay down its existing bank revolving credit facilities
In addition, the Company, in January 1991, purchased 7,550 shares of its
Convertible Preferred Stock from holders other than TCI at the stated liquidation
value of $22.7 million. Commencing on May 25, 1991, the remaining 6,201 shares of
such Convertible Preferred Stock are subject to redemption at the option of the
holder.
Pursuant to a February 1990 agreement, certain minority owners of one of the
Company's cable subsidiaries have the right, at any time during the 60 days
following February 15, 1991, to cause the Company to purchase all or a portion of
their partnership interests for aggregate consideration of approximately $28.5
million. It is anticipated that any such purchase, if required, would be funded by
borrowings under existing credit facilities.
The Company's various partnerships and other affiliates, accounted for by the
equity method, finance a substantial portion of their acquisitions and capital
expenditures through borrowings under their own credit facilities (which are
generally not guaranteed by the Company) and net cash provided by their operating
activities.
Certain subsidiaries' loan agreements contain limitations regarding transfers
to UAE in the form of loans, advances or cash dividends. However, funds currently
permitted to be transferred to UAE pursuant to the provisions of the agreements have
been and are expected to be sufficient to enable UAE to meet its cash obligations.
Management believes that its available lines of credit, funds provided by
operations and proceeds from the sale of assets will provide adequate sources of
funding for capital expenditures, debt service, and other liquidity requirements for
the foreseeable future.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company are filed under this Item
beginning on Page 31. The consolidated financial statement schedules required under
Regulation S-X are filed pursuant to Item 14 of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
30
Peat Marwick
Certified Public Accountants
2300 ARCO Tower
707 Seventeenth Street
Denver, CO 80202
Independent Auditors' ReQort
The Board of Directors and Stockholders
United Artists Entertainment Company:
We have audited the accompanying consolidated balance sheets of United Artists Entertainment
Company and subsidiaries as of December 31, 1990 and 1989, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the years in the three-
year period ended December 31, 1990. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of United Artists Entertainment Company and subsidiaries as of
December 31, 1990 and 1989, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1990 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick
Denver, Colorado
March 26, 1991
31
loss Member Firm of
Klynveld Peat Marwick Goerdeler
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
(Amounts in Millions)
(Continued)
32
1990
1989
Assets
Cash and cash equivalents
$ ---
12.5
Receivables, net:
Trade
26.1
20.4
Notes
33.2
9.1
Related parties and employees (note 14)
2.8
7.0
Other
30.9
30.2
93.0
66.7
Prepaid expenses
50.0
44.1
Assets held for sale (notes 1, 4, 6 and 17)
117.8
66.1
Investments in affiliates, at equity, and
related receivables (note 5)
211.1
291.2
Other investments, at cost (note 6)
149.3
240.2
Property and equipment, at cost (notes 1 and 7)
Land
117.7
123.3
Theatre buildings, equipment and other
532.7
592.3
Theatre lease acquisition costs
128.9
140.1
Cable distribution systems
1,432.7
1,173.7
Cable support equipment
136.7
100.9
2,348.7
2,130.3
Less accumulated depreciation and amortization
(550.5)
(418.0)
1.798.2
1.712.3
Franchise costs and other intangibles,
at cost (notes 1 and 7)
1,670.8
1,658.3
Less accumulated amortization
(99.6)
(56.7)
1.571.2
1.601.6
Other assets, net
35.2
42.6
$_.4.,.O
4.077.3
(Continued)
32
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
December 31,
(Amounts in Millions)
See accompanying notes to consolidated financial statements.
*]
1990
1989
Liabilities and Stockholders' Equity
Accounts payable
$ 91.2
93.1
Accrued interest payable
35.6
53.8
Accrued liabilities
109.6
76.8
Debt (note 8)
2,890.3
2,734.0
Deferred income taxes
4.8
42.3
Other liabilities
70.0
95.1
Total liabilities
3.201.5
3.095.1
Minority interests in equity of
consolidated subsidiaries
35.5
43.8
Redeemable preferred stock (note 9)
182.5
182.5
Stockholders' equity (note 10):
Preferred stock, $.001 par value
---
---
Class A common stock, $.001 par value
.1
.1
Class B common stock, $.001 par value
.1
.1
Additional paid -in capital
794.3
795.2
Cumulative foreign currency translation adjustment
12.0
(.2)
Accumulated deficit
(197.9)
(39.1)
608.6
756.1
Less treasury stock, at cost
(2.3)
(.2)
Total stockholders' equity
606.3
755.9
Commitments and contingencies (note 12)
4.077.3
See accompanying notes to consolidated financial statements.
*]
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31,
(Amounts in Millions, Except Per Share Amounts)
1990 1989
Revenue:
Cable $ 754.1 508.8
Theatre
Admissions and other 515.6 498.4
Concessions 167.5 166.1
Other 22.8 25.7
1.460.0 1.199.0
Operating expenses:
Cable
Theatre
Other
General and administrative
Depreciation and amortization of
property and equipment
Amortization of intangibles
Theatre restructuring charge (note 4)
Operating income
Other income (expense):
Interest expense, net
Gain (loss) on sale of assets, net
(notes 5 and 6)
Share of losses of affiliates, net
Share of losses of United Cable
Television Corporation (note 6)
Loss on early extinguishment of debt
(note 8)
Minority interests in (earnings) losses
of consolidated subsidiaries
Other, net
Earnings (loss) before
income taxes
Income tax expense (benefit) (note 11)
Net earnings (loss)
Preferred stock dividend requirement
Net earnings (loss) applicable to
common shareholders
412.0
581.3
42.2
42.0
197.2
46.5
25.6
1.346.8
113.2
(279.4)
(16.3)
(8.4)
(11.8)
7.4
2.6
(305.9)
272.4
564.4
40.0
45.2
141.4
31.2
1.094.6
104.4
(253.2)
28.5
(10.7)
(5.2)
(3.2)
(1.5)
3.5
(241.8)
(114.8)
Earnings (loss) per common share $x(1.2.7) x(.99)
Weighted average common shares
outstanding 14091 115.5
See accompanying notes to consolidated financial statements.
34
1988
253.6
426.7
145.0
15.7
841.0
128.1
474.8
16.7
20.8
71.5
13.1
725.0
116.0
(118.6)
13.4
(2.1)
(1.6)
1.3
(107.6)
8.4
6.1
2.3
2.3
03
82.2
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Amounts in Millions)
Unrealized
Loss on
Additional Retained marketable Total
Common stock Common paid -in earnings Treasury equity stockholders,
Class A Class 8 stock capital (deficit) stock securities equity
Balance at
January 1, 1988 S --- --• .5 66.8 81.6 (22.2) (5.4) 121.3
Recovery of
unrealized loss
on marketable
equity securities
...
...
...
.•.
---
•--
Treasury stock
contributed to
Employee Stock
Ownership Plan
•••
...
...
1.9
.•.
.8
Options exercised
and granted
...
.•.
•-•
(.5)
.--
1.4
Income tax effect
of stock option
deduction
---
••.
.••
1.8
••.
.--
Charge resulting from
the purchase of an
asset (note 6)
---
...
.--
.•.
(2.2)
.--
Net earnings
---
.--
--
--
2.3
...
Balance at
December 31, 1988
---
...
.5
70.0
81.7
(20.0)
Stock options granted
...
...
.--
.5
...
••.
Class A and Class 8
stock issued in
conjunction with
merger (note 1)
.1
.1
(.5)
711.8
---
20.0
Charge resulting from
business combination
(note 6)
...
...
...
...
(6.0)
...
Stock options exercised
--•
••.
---
12.2
.--
(.2)
Income tax effect of
stock option deduction
-•
--
--
.5
•..
...
Redeemable preferred
stock dividends
---
••.
--•
•--
(11.3)
..
Net loss
(103.5)
-
Balance at
December 31, 1989 S
1
.1
795.0
(39.1)
(.2)
35
5.4 5.4
... 2.7
.9
--- 1.8
... (2.2)
... � z
-- 132.2
.5
.-- 731.5
... (6.0)
-- vi n
-- .5
--- (11.3)
(103.5)
--- 755.9
(Continued)
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity, Continued
(Amounts in Millions)
Balance at
December 31, 1989
Stock options exercised
Translation adjustment
Redeemable preferred
stock dividends
Net loss
Balance at
December 31, 1990
Cumulative
foreign
Additional currency Total
Common stock paid -in translation Accumulated Treasury stockholders,
Class A Class B capital adiustment deficit stock equity
$ .1 .1 795.2 (.2) (39.1) (.2) 755.9
--- ••• 17.8 ... ... (2.1) 15.7
... •-• --- 12.2 ... ••• 12.2
(18.7) -• --
•- (158.8)
-• (18.7)
(158.8)
S 1 1 794.3 12.0 (197.9)) 606.3
s
See accompanying notes to consolidated financial statements.
36
13
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31,
(Amounts in Millions)
1990 1989 1988
Net cash provided by operating activities $ 61.4 95.8 22.4
Cash flows from investing activities:
Acquisition of United Cable
Television Corporation
Acquisition of cable television systems,
theatre circuits, and other,
net of cash acquired
Capital expenditures for property
and equipment
Additional investments in affiliates
and other companies
Proceeds from sale of assets
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from debt
Repayments of debt
Payment of note payable to
Tele-Communications, Inc.
Redeemable preferred stock dividends
Contribution from minority interests owner
Other, net
Net cash provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents:
Beginning of year
End of year
Reconciliation of net earnings (loss) to
net cash provided by operating activities:
Net earnings (loss)
Adjustments:
Depreciation and amortization
Deferred income tax expense (benefit)
Loss (gain) on sale of assets, net
Theatre restructuring charge
Loss on early extinguishment of debt
Share of losses of affiliates, net
Minority interests in (losses) earnings
of consolidated subsidiaries
Loan costs
Increase in receivables and prepaid
expenses, net
Increase (decrease) in accounts payable,
accrued interest payable, accrued
liabilities and other liabilities, net
Other, net
Net cash provided by operating activities
---
(942.4)
---
(6.0)
(167.5)
(187.0)
(299.4)
(209.2)
(111.7)
(50.7)
(88.0)
(61.6)
190.8
241.7
65.8
(.5)
(3.9)
18.6
(165.8)
(1.169.3)
(275.9)
3,640.3
3,216.0
590.8
(3,546.9)
(1,866.1)
(386.7)
---(289.8)
---
(18.7)
(8.1)
---
11.6
20.4
---
5.6
.1
1.9
91.9
1.072.5
206.0
(12.5)
(1.0)
(47.5)
12.5
13.5
61.0
12.5
13.5
$ (158.8)
(103.5)
2.3
243.7
172.6
84.6
(37.5)
(37.2)
7.0
16.3
(28.5)
(13.4)
25.6
---
---
11.8
3.2
---
8.4
15.9
2.1
(7.4)
1.5
1.6
(14.0)
(7.6)
(10.9)
(12.6)
(7.4)
(23.7)
(14.4)
86.2
(21.2)
.3
.6
(6.0)
$
.8
22.4
See accompanying notes to consolidated financial statements.
37
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1990, 1989 and 1988
(1) Merger with United Cable Television Corporation
United Artists Entertainment Company (UAE) was formed in May 1988 by United
Artists Communications, Inc. (United Artists) and United Cable Television
Corporation (United Cable) in accordance with the terms of a Second Amended
and Restated Agreement and Plan of Reorganization and Merger dated as of March
8, 1988 (the Merger Agreement) by and among United Artists, United Cable and
Tele-Communications, Inc. (TCI). On May 25, 1989, pursuant to the Merger
Agreement, United Artists and United Cable consummated a merger (the Merger)
whereby United Cable became an indirect wholly-owned subsidiary of UAE and
United Artists was liquidated by merger into UAE. UAE, as the successor
company to United Artists, became the Registrant. Unless the context
indicates otherwise, the Company refers to UAE and its consolidated
subsidiaries. Reference to the Company for periods prior to May 25, 1989
refers to United Artists and its consolidated subsidiaries.
In conjunction with the Merger, stockholders of United Artists received one
share of each of UAE's Class A and Class B common stock in exchange for each
share of United Artists' common stock held by them. Shares of United Cable
common stock, other than those beneficially owned by TCI, were acquired by the
Company as follows: (i) approximately 8.2 million shares were acquired for
cash consideration of $38.50 per share; (ii) approximately 5.2 million shares
were exchanged for a like number of preferred stock units consisting of one
share of UAE's 12-7/88 Cumulative Compounding Redeemable Preferred Stock,
Series A having a liquidation price of $19.25 per share and 1.1 shares of
UAE's Class A common stock; and (iii) approximately 14.2 million shares were
exchanged for a like number of rights units consisting of one share each of
UAE's Class A and Class B common stock and two separately tradable rights.
Each right entitles the holder to require TCI to purchase from such holder one
share of either class of UAE's common stock in January 1992 or January 1995
(subject to acceleration in certain events) for 908 of UAE's then appraised
fair market value. TCI contributed to UAE 9.1 million shares of United Cable
common stock beneficially owned by TCI in exchange for an equal number of
shares of each class of UAE's common stock. The remaining outstanding shares
of United Cable common stock (8.7 million shares), which were acquired by
United Artists in October 1988, were cancelled in the Merger. See note (6).
In conjunction with the Merger, TCI received an additional 2.0 million shares
of each class of UAE's common stock as consideration for issuing the
aforementioned rights. The total purchase price for United Cable was $1.9
billion.
During 1990, TCI purchased 13,749 shares of the Company's Convertible
Preferred Stock, Series A. These shares are convertible into 100 shares of
each class of the Company's common stock. See note (17).
The Class A and Class B common stock are identical, except that the Class B
common stock is entitled to ten votes per share and the Class A common stock
is entitled to one vote per share, and each share of Class B common stock is
convertible into one share of Class A common stock at the option of the
holder. As of December 31, 1990, TCI owned approximately 53.78 and 57.3% of
UAE's Class A and Class B common stock, respectively.
38
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1), Continued
At the time of the Merger, UAE and its wholly-owned subsidiary, United Artists
Holdings, Inc. (Holdings), entered into credit agreements with certain banks
totaling approximately $2.6 billion. Such facilities were used to fund the
cash portion of the Merger and refinance approximately $1.3 billion of United
Artists, (including its note payable to TCI) existing debt. The Company
completed a subsequent refinancing in August 1990. See note (8).
The aforementioned Merger has been accounted for by the purchase method.
Accordingly, the results of operations of United Cable have been included in
the accompanying consolidated statements of operations since the date of the
Merger.
Pro forma summarized operating results of the Company assuming the Merger had
occurred as of the beginning of the respective periods presented would be as follows
(amounts in millions, except per share amounts):
Revenue
Expenses:
Operating
Depreciation and amortization
Operating income
Net loss
Net loss applicable to common shareholders
Loss per common share
Years Ended
December 31,
1989 1988
$ 1,328.2 1,126.3
(998.6)
(808.1)
(217.3)
(184.9)
$112.33
133.3
$___L149,. 5)
(72.2)
$...L168 _.a.
(90.9)
$(1.46)
The foregoing pro forma information is based on historical results of operations
adjusted for acquisition and financing costs and is not necessarily indicative of
the results that would have been achieved had UAE operated United Cable since the
beginning of each respective period.
(2) Summary of Significant Accounting Policies
(a) PrinciRles of Consolidation
The consolidated financial statements include the Company and all of its
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(b) Statement of Cash Flows
The Company considers investments with maturities of three months or
less to be cash equivalents.
39
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2), Continued
(c) Investments
Investments in which the Company's ownership is 208 to 508 are generally
accounted for by the equity method. Investment interests of less than
208 for which the Company has the ability to exercise significant
influence over financing and operating policies of the investees, and
investments in limited partnerships in which the Company is a general
partner are also accounted for by the equity method. Under this method,
the investment, originally recorded at cost, is adjusted to recognize
the Company's share of net earnings or losses of the investee as they
occur rather than as dividends are received. The Company's share of
earnings or losses of affiliates includes the amortization of the
difference between the amount at which the investment is carried and the
amount of the underlying historical equity. Other investments in which
the Company's ownership interest is less than 208 are generally carried
at cost. Investments in marketable equity securities are carried at the
lower of aggregate cost or market.
(d) Assets Held for Sale
Assets held for sale are stated at the lower of cost or net realizable
value.
(e) Property and Equipment
Property and equipment is stated at cost including acquisition costs
allocated to tangible assets and theatre lease acquisition costs.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets. Leaseholds and improvements and
theatre lease acquisition costs (consideration paid to acquire existing
leaseholds) are amortized over the terms of the leases, including
certain renewal periods or, in the case of certain improvements, the
estimated useful lives, if shorter.
(f) Franchise Costs and Other Intangibles
Intangibles are amortized on a straight-line basis primarily over forty
years.
(g) Theatre Operating Expenses
Theatre operating expenses include direct costs of theatre and
concession activities (discussed below), and joint costs which are
common to both activities. Direct and joint theatre and concession
costs are reported as a combined amount as the allocation of joint costs
to theatre and concession activities would be arbitrary and not
meaningful.
Included with theatre operating expenses for the years ended December
31, 1990, 1989 and 1988 are direct concession product costs of $28.9
million, $28.4,, million and $22.0 million, respectively, and direct
theatre costs (film rental and advertising) of $276.4 million, $269.2
million and $219.9 million, respectively.
(h) Income Taxes
The provision for income taxes is based upon earnings (loss) reported in
the financial statements. Deferred income taxes have been provided for
timing differences resulting from the reporting of amounts in tax
returns in different periods from those used in the financial
statements.
40
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(i) Earnings (Loss) Per Common Share
Earnings (loss) per common share is computed by dividing net earnings
(loss) applicable to common shareholders by the weighted average common
shares outstanding. All share and per share amounts included in these
financial statements and related notes have been adjusted for the
effects of the stock issued to the United Artists' pre -merger
stockholders in connection with the Merger.
Options to purchase common stock, which are normally considered common
stock equivalents, have been excluded from the calculation because the
effect on earnings per share would not be significant. Stock issuable
upon conversion of the Company's Convertible Preferred Stock, Series A,
has not been included as its effect would be anti -dilutive. See notes
(9) and (17).
(j) Foreign Currency Translation
All balance sheet asset and liability accounts of the Company's United
Kingdom subsidiaries are translated to U.S. dollars using the exchange
rate in effect at the balance sheet date. The results of operations of
such subsidiaries are translated using the average exchange rate during
the period. Resulting translation adjustments are recorded as a
separate component of stockholders' equity, "Cumulative Foreign Currency
Translation Adjustment."
(k) Reclassifications
Certain prior period amounts have been reclassified for comparability
with the 1990 presentation.
(3) Suonlemental Disclosure of Cash Flow Information
Cash payments for interest on debt and income taxes are summarized as follows:
Years Ended December 31
1990 1989 1988
(amounts in millions)
Interest $ 291.3 217.5 113.3
Income taxes $ 4.7 6.3 13.9
The Company received income tax refunds of approximately $5.2 million and $9.3
million during the years ended December 31, 1990 and 1989, respectively.
The following represents the significant noncash investing and financing
activities during the periods presented:
Acquisitions:
Fair value of assets
acquired
Liabilities assumed
Common stock issued in
acquisition
Preferred stock issued in
acquisitions
Cash paid
Common stock of United
Cable acquired by issuing
a note payable to TCI
Years Ended December 31
1990 1989 1988
(amounts in millions)
$ 73.6
(67.6)
$__
$
41
2,243.6
(219.7)
(731.5)
(182.5)
1.109.9
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Theatre Restructuring Charge
_During the fourth quarter of 1990, the Company recorded a $25.6 million charge
in connection with its December 1990 plan to restructure its theatre
operations. This charge includes the net estimated costs associated with the
closure of 23 theatres (73 screens) located in seven states and the sale of 54
theatres (218 screens) located in thirteen states. The estimated net
realizable value of such theatres held for sale, $7.3 million, is included in
assets held for sale at December 31, 1990. For the years ended December 31,
1990, 1989 and 1988, such restructured theatres to be sold or closed
contributed approximately $41.0 million, $40.7 million and $38.4 million,
respectively, to total theatre revenue and incurred approximately $42.8
million, $41.3 million and $35.4 million, respectively, of theatre operating
expenses (including depreciation and amortization).
(5) Investments in Affiliates
Investments in affiliates, accounted for by the equity method, at December 31,
are summarized as follows:
1990 1989
Cable television limited partnerships and (amounts in millions)
joint ventures (a) $ 89.5 139.4
Advances and notes receivable (a) 98.5 96.6
Theatre partnerships and joint ventures (b) 2.7 35.6
Other 20.4 19.6
$ 211.1 291.2
(a) The Company is a general partner of or holds investments in and has
receivables from several entities which were formed to act as the
general partner of the general partner of limited partnerships formed to
acquire and operate cable television systems. The net earnings and
losses of the limited partnerships are allocated to the Company as
defined in the individual partnership agreements. Ownership interests
in the limited partnerships range from .5% to 50%. A general partner,
as a matter of partnership law, is contingently liable for all debts of
a partnership in the event that the liabilities of the partnership were
to exceed its assets. The Company's exposure to such contingent
liability, as a result of its indirect ownership of the above-described
general partner interests, is not expected to have any material adverse
effect on the Company's financial position.
(b) Represents the Company's investment in several partnerships and joint
ventures which are engaged in the operation of motion picture theatres.
The Company's ownership interest in these investments is primarily 50%.
In 1990, the Company sold its equity investment in a group of theatres
to an unaffiliated third party for cash proceeds of approximately $45.2
million. A pre-tax gain of approximately $15.3 million was recognized
in connection with this transaction.
42
(6)
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Other Investments
Other investments, accounted for by the cost method, at December 31, are
summarized as follows:
1990 1989
(amounts in millions)
Marketable equity securities (a) $ 46.8 46.8
Preferred stock investments (b) 96.4 155.5
Other 6.1 37.9
$
(a) The marketable equity securities, which are accounted for by the lower
of aggregate cost or market, had an aggregate market value of
approximately $62.1 million and $94.9 million, at December 31, 1990 and
1989, respectively. The aggregate market value exceeds the aggregate
cost by approximately $15.3 million and $48.1 million at December 31,
1990 and 1989, respectively.
In December 1989, the Company sold certain marketable equity securities
acquired in the Merger for cash proceeds of approximately $128.8
million. The sales resulted in pre-tax gains of $23.3 million which
represent appreciation from the date of the Merger.
(b) Preferred stock investments, at December 31, 1990, primarily represent
the Company's investment in Class C Convertible Preferred Stock
(Class C) of TBS. Each share of the Class C preferred stock is
convertible into six shares of TBS Class B common stock. The Class C
preferred stock shareholders as a group are entitled to elect seven of
fifteen members of TBS' board of directors of which the Company has two
representatives. As of December 31, 1990 and 1989, the Company's
investment in TBS preferred stock (including the Class B Cumulative
Preferred Stock discussed below) had an estimated current value of
approximately $264.6 million and $360.0 million, respectively.
At December 31, 1990, the Company's $67.7 million investment in the
Class B Cumulative Preferred Stock of TBS is included in assets held for
sale. Such preferred stock, which was included in preferred stock
investments at December 31, 1989, carries a 108 annual dividend, payable
in arrears, a mandatory redemption feature and has no voting rights.
See note (17).
(c) On October 1, 1988, the Company issued a $289.8 million demand
promissory note to TCI as consideration for approximately 8.7 million
shares (approximately 208) of United Cable's common stock. The shares,
which were cancelled upon consummation of the Merger (see note 1), were
recorded at $2$7.6 million, TCI's cost, and the difference between the
purchase price and TCI's cost was recorded as a charge of $2.2 million
to retained earnings. The investment was accounted for by the cost
method although the Company's ownership interest was approximately 20%.
The cost method of accounting was considered appropriate due to the
Company's lack of ability, as a result of a stand -still agreement
between TCI and United Cable, to exercise influence over United Cable's
operating and financial policies.
43
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Upon consummation of the Merger, the note to TCI plus accrued interest
was repaid. In addition, the Company recorded a charge of $6.0 million
to retained earnings and $5.2 million to share of losses for its share
of the cumulative losses of United Cable as if United Cable had been
accounted for under the equity method from the date the initial
investment was made in United Cable through the date of the Merger.
(7) Acquisitions
In February 1989, the Company acquired all of the cable television assets of
American Cable TV Investors (ACT 1) for approximately $128.1 million in cash.
A wholly-owned subsidiary of the Company was the managing agent of and held an
investment interest in ACT 1. As a result of the acquisition, the Company
received approximately $11.9 million in cash which was recorded as a reduction
in the basis of the assets acquired.
In May 1988, the Company entered into a purchase agreement with Daniels and
Associates, Inc. (Daniels) and its stockholders to acquire all of Daniels'
outstanding capital stock for approximately $196.4 million and the assumption
of approximately $60.0 million of subordinated debt. In 1988, the Company
paid $109.4 million for 538 of the common stock and all of Daniels' preferred
stock. On May 25, 1989, in conjunction with the Merger, the Company acquired
the remaining 478 of the common stock for cash consideration of $4.5 million
and convertible preferred stock having a redemption price of $82.5 million.
See notes (9) and (17).
The acquisitions were accounted for by the purchase method. Accordingly, the
results of operations of the acquired entities have been included in the
accompanying consolidated statements of operations since their respective
dates of acquisitions.
(8) Debt
Debt at December 31 is summarized as follows:
UAE:
Bank credit facilities (a)
6-3/88 convertible debentures (b)
Subsidiaries:
Bank credit facilities:
Revolving credit facilities (c)
Term loan facilities (c)
Reducing revolving credit facilities (d)
Promissory notes (e)
Term loan (f)
Real estate mortgage notes (g)
12-3/48 subordinated notes (h)
Other
44
1990 1989
(amounts in millions)
401.7 153.0
-- 100.0
401.7 253.0
254.3
340.1
1,032.0
1,750.0
462.6
31.1
354.9
67.0
150.0
---
158.9
163.4
59.6
59.5
16.3
_ 69.9
$.2.890,3 2.734.0
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In August 1990, the Company refinanced $2.45 billion of its existing bank debt
commitments with new commitments aggregating $2.75 billion (the Refinancing).
Such new facilities include a $400 million revolving bank credit facility of
UAE and an aggregate of $2.35 billion of credit facilities of three of the
Company's principal domestic cable subsidiaries. Each of the cable
subsidiaries has entered into separate credit arrangements that provide for an
aggregate of $1.9 billion of bank borrowings, $300 million of fixed rate
promissory notes and a $150 million term loan with certain Japanese leasing
companies. In conjunction with the Refinancing, the Company recorded an $8.9
million charge to loss on extinguishment of debt for unamortized loan costs
associated with the previous credit facilities. The terms of the new credit
facilities, as well as other significant borrowings that remain outstanding at
December 31, 1990, are described below.
(a) UAE's revolving credit facility consists of a revolving loan (the
revolving loan) and a reducing revolving loan (the reducing loan). The
revolving loan provides for aggregate borrowings of up to $300 million
through June 30, 1993, at which time the outstanding balance converts to
a term loan, payable in 20 escalating quarterly installments through
June 30, 1998. The reducing loan initially provides for aggregate
borrowings of up to $100 million. Such borrowing capacity can be
increased by up to $50 million to the extent that borrowings under the
revolving loan are less than $300 million. On June 30, 1991,
December 31, 1992, and June 30, 1993, borrowing availability pursuant to
the reducing loan is reduced to $100 million, $50 million, and zero,
respectively. The facilities contain certain provisions which require,
among other items, the maintenance of certain leverage and debt service
ratios, and include limitations on additional indebtedness, dispositions
of assets, payment of dividends and other distributions, and changes in
control. Borrowings under the facilities are secured by: (i) the
capital stock of the Company's theatre subsidiary, United Artists
Theatre Circuit, Inc. (UATC) and certain of its and other UAE
subsidiaries; and (ii) a $400 million note receivable from UATC. In
addition, the lenders have been granted a negative pledge on all assets
of UATC and its subsidiaries and subsidiary stock held by UAE.
The interest rate on the revolving loan, which was 9-1/28 at
December 31, 1990, is dependent upon a ratio of debt (as defined) to
theatre operating cash flow (as defined). The revolving loan provides
for interest at varying rates depending upon the ratio discussed above,
at the borrower's option, as follows: (i) the agent bank's base rate
(prime based) plus zero to 5/88, (ii) the Eurodollar rate plus 18 to 1-
5/88 or (iii) the adjusted certificate of deposit rate plus 1-1/88 to 1-
3/48. Interest on the reducing loan is calculated at the borrower's
option, as follows: (i) the agent bank's base rate (prime based) plus
1-1/28, (ii) the Eurodollar rate plus 2-1/28 or (iii) the adjusted
certificate of deposit rate plus 2-5/88.
(b) Under the provisions of the Indenture, the Company called for and
redeemed all of the outstanding debentures on December 14, 1990 (the
Redemption Date). Such debentures were redeemed at the redemption price
of 1018 of the principal amount plus accrued interest to the Redemption
Date. The aggregate redemption price was approximately $102.6 million,
which includes $1.6 million of accrued interest.
45
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8), Continued
(c) The revolving credit facilities provide for aggregate borrowings of up
to $585.6 million. Approximately $425 million of such facilities are
available through June 30, 1993, at which time the outstanding balances
convert to term loans. The remaining revolving facilities convert to
term loans on or subsequent to December 31, 1990. Approximately $1.45
billion of the revolving and term facilities are payable in 26
escalating quarterly installments beginning September 30, 1993. The
remaining revolving and term loans are payable in quarterly installments
beginning on or after March 31, 1991.
(d) The reducing revolving credit facilities provide for aggregate
borrowings of up to $471 million. Such facilities require mandatory
repayments to the extent necessary to comply with certain scheduled
reductions in available borrowing capacity. Approximately $450 million
of such facilities provide for scheduled reductions that generally occur
ratably over the six year period beginning December 31, 1993.
The facilities discussed in (c) and (d) above provide for interest at varying
rates depending upon the borrower's ratio of debt, as defined, to operating
cash flow, as defined, at the borrower's option, as follows: (i) the agent
bank's alternative base rate (prime based) plus zero to 3/88, (ii) the
Eurodollar rate or LIBOR plus 3/48 to 1-3/88, or (iii) the adjusted
certificate of deposit rate plus 7/88 to 1-1/28. The weighted average
interest rate of these facilities at December 31, 1990 was 9-1/28.
(e) Approximately $300 million of the promissory notes bear interest at a
fixed rate of 10.248 and require sixteen escalating semi-annual
installments commencing December 31, 1992 with the final installment due
June 30, 2000. The remaining notes generally bear interest at fixed
rates ranging from 10.28 to 12.75 and require fixed installments through
1998.
(f) Borrowings under the term loan are required to be repaid in full on
June 30, 1997, and generally bear interest at the Eurodollar rate plus
0.98 to 1.18 depending upon certain leverage ratios, as defined. The
interest rate on this facility at December 31, 1990 was 9-1/48.
The agreements discussed in (c), (d), (e), and (f) above, contain certain
provisions which require, among other items, the maintenance of certain
financial ratios, and include limitations on additional indebtedness and
dispositions of assets, payments of dividends and other distributions, and
changes in control. The facilities are generally secured by (i) the capital
stock of the respective wholly-owned borrowing subsidiary; and (ii) certain
intercompany notes, if any, payable to the respective borrowing subsidiary.
In addition, the lenders have been granted a negative pledge on all assets of
the respective borrowing subsidiary and its subsidiaries.
46
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8), Continued
(g) Certain special purpose real estate subsidiaries of the Company have
entered into various non-recourse first mortgage notes aggregating
approximately $117.4 million at December 31, 1990. Approximately $44.5
million of the first mortgage notes bear interest at LIBOR plus 1.15%
per annum and the remainder at 11.158 per annum. Approximately $61.4
million of such mortgage notes are payable in installments through 1996
with the remaining $56 million due through 1998. The remaining real
estate mortgages of approximately $41.5 million bear interest at rates
ranging from 4-3/48 to 128 and are due through 2000.
(h) The subordinated notes were issued by Daniels and are due June 1, 1996.
The notes may be redeemed at the option of Daniels in whole or in part
on or after June 1, 1991 at a declining premium.
The Company has entered into a series of interest cap agreements which provide
for an average cap of approximately 108 on $800 million of floating rate debt.
These cap agreements expire at varying dates through August 1993. The Company
has also entered into a series of interest swap agreements that expire at
varying dates through November 1996. The swap agreements provide a fixed
interest rate ranging from 8.18 to 12.68 on approximately $482.6 million of
floating rate debt.
The Company is exposed to credit losses for the periodic settlements of
amounts due under these interest rate swap agreements in the event of non-
performance by the other parties to these agreements. However, the Company
does not anticipate non-performance by the counterparties.
As of December 31, 1990, the Company has approximately $349.1 million of
unused commitments under existing bank credit facilities. The Company pays
commitment fees, generally 3/88 per annum, on the average unused commitments.
The majority of the net assets of the Company's subsidiaries may not be
transferred to the parent company in the form of loans, advances or cash
dividends due to restrictions contained in certain subsidiaries' loan
agreements.
Principal maturities of debt for years after December 31, 1990 are as follows
(amounts in millions):
1991
$ 42.6
1992
82.8
1993
259.4
1994
239.1
1995
328.6
1996 and thereafter
1.937.8
47
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Redeemable Preferred Stock
Redeemable preferred stock outstanding at December 31, 1990 is as follows
(amounts in millions):
12-7/88 Cumulative Compounding
Redeemable Preferred Stock, Series A (a) $ 100.0
Convertible Preferred Stock, Series A (b) 82.5
$ 182.5
(a) The Company issued 5.2 million shares of such preferred stock in
conjunction with the Merger. The stock is stated at its redemption
value of $19.25 per share. Dividends are cumulative and accrue at
12-7/88 of the redemption value. Accrued dividends are payable
quarterly commencing October 1, 1989 and unpaid dividends are added to
the redemption price and accrue dividends until paid.
The preferred stock is redeemable at the option of the Company at any
time after January 1, 1992 in whole or in part, at the redemption value
plus accrued dividends. On January 1, 1999, the Company is required to
redeem one-half of the shares then outstanding. The remaining shares
outstanding must be redeemed on January 1, 2000.
(b) As part of the acquisition of Daniels, the Company issued 27,500 shares
of such redeemable preferred stock. The stock is stated at its
redemption value of $3,000 per share, and each share is convertible into
100 shares of each class of the Company's common stock at $15 per share.
Dividends accrue cumulatively at the rate of 78 for the first two years
commencing with the date of issuance and 108 thereafter and are payable
quarterly commencing July 1, 1989. Unpaid dividends will be added to
the redemption value and will accrue interest, until paid, at 78 per
annum for the first two years and 108 per annum thereafter. Interest
charged on unpaid dividends outstanding for two consecutive quarters
will increase to 158 per annum.
The preferred stock is subject to optional redemption by the Company in
whole or in part, commencing May 25, 1991 with mandatory redemption by
May 25, 1999, in each case at the redemption value plus accrued
including dividends. The stock is also subject to redemption by the
Company at the option of the holder, in whole or in part commencing May
25, 1991 at the redemption price plus accrued dividends.
In January 1991, UAE purchased 7,550 shares of this preferred stock at
the stated liquidation value of $22.7 million. See note (17).
Each of the preferred stock issues are senior to the Company's common stock
and equal with each ,other with respect to the declaration and payment of
dividends and liquidating distributions and have no voting rights except the
right to vote as a separate class on any amendment to the Company's Amended
and Restated Certificate of Incorporation that would adversely affect the
preferences and rights of such holders.
48
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Stockholders' Equi
(a) Preferred Stock
The Company is authorized
value preferred stock which
the Board of Directors. As
approximately 5.2 million
Redeemable Preferred Stock,
Preferred Stock, Series A.
to issue 15.0 million shares of $.001 par
may have various attributes as determined by
of December 31, 1990, the Company had issued
shares of 12-7/88 Cumulative Compounding
Series A and 27,500 shares of Convertible
See note (9).
(b) Common Stock
At December 31, 1990, the Company was authorized to issue 300.0 million
shares of Class A common stock and 100.0 million shares of Class B
common stock. There were 73,646,066 and 66,689,717 shares of Class A
and Class B common stock, respectively, outstanding at December 31,
1990.
(c) Stock Options
Set forth below is a brief description of each stock option plan.
United Artists Plans
The Company has a 1982 Stock Option Plan and a 1983 Stock Option Plan
(collectively, the United Artists Plans). Options granted under the
United Artists Plans are incentive stock options, non-qualified stock
options or a combination thereof. Options may be exercised in full on
or after the first anniversary date of grant and expire ten years from
the date of grant. Options granted under the United Artists Plans are
exercisable into one share of Class A and one share of Class B common
stock of the Company. The Company may not grant additional shares under
the United Artists Plans.
United Cable Plan
Upon consummation of the Merger, the Company assumed United Cable's
obligation for stock options outstanding under the United Cable Employee
Stock Option Plan (United Cable Plan). The Company assumed 620,056
stock options outstanding under the United Cable Plan. Options granted
under the United Cable Plan are exercisable into one share of Class A
and one share of Class B common stock of the Company and two separately
tradable rights. See note (1). All options were exercised prior to the
January 15, 1990 expiration date.
UAE Plan
The Company also has established the UAE Stock Option Plan (UAE Plan)
for which selected officers and key employees are currently eligible.
Under the UAE Plan options to purchase 7,000,000 shares of the Company's
Class A common stock may be granted. Options granted pursuant to the
UAE Plan may be either incentive stock options or non-qualified stock
options. The option price for incentive stock options must be at least
equal to the fair market value on the date of grant. However, non-
qualified stock options may be granted at a price less than fair market
value. Options may be exercised in full on or after the first
anniversary from the date of grant and expire ten years from the date of
grant.
49
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10), Continued
The following presents a summary of information regarding options
pursuant to the above plans to purchase the Company's Class A and Class
B common stock, excluding the Directors plans discussed below.
Years Ended December 31,
1990 1989 1988
Outstanding at beginning of year 1,233,289 559,100 826,000
Granted
Assumed in Merger
Exercised ($1.21 to $1.32
per share)
Exercised ($1.21 to $14.20
per share)
Exercised ($1.21 to $11.75
per share)
Cancelled
Outstanding at end of year
Price range at end of year
Exercisable at end of year
Available for grant at end of
year
261,100 (1) 403,500 (1) 90,000
620,056 ---
--- --- (356,900)
--- (337,117) ---
(382,705) ------
(16.024) (12.250) ---
1.095,660_ 1,233,289 559.100
$9.00 to
$19.00
543,751
$1.21 to
$19.00
561,000
$1.21 to
$12.32
161,000
6,352,924 (2) 6,601,500 (2) 473,000
(1) Such options are exercisable into Class A common stock only.
(2) Represents options available for grant from the UAE Plan.
Directors' Plans
In conjunction with the Merger, the Company also assumed 180,000 stock
options outstanding under United Cable's Non -Employee Director Option
Plan. The 180,000 options were exercised at $17.95 per option prior to
the August 21, 1990 expiration date. Options were for one share of
Class A and one share of Class B common stock of the Company and two
separately tradable rights. See note (1).
The Company has also granted 70,000 stock options, at $9.00 per share,
to certain members of the Board of Directors. These options are
currently exercisable.
UAE Stock Award Plan
The Company established the UAE Stock Award Plan (UAE Award Plan) for
which selected officers and key employees are currently eligible. Under
the UAE Stock Award Plan, stock awards for 2,000,000 shares of the
Company's common stock may be granted. During 1990, the Company granted
459,100 stock awards which start vesting one year after the date of
grant at a rate of 20% per annum. Approximately 9,300 of the awards
granted were cancelled.
50
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Income Taxes
The Company files a consolidated Federal income tax return with all of its 808
or more owned subsidiaries. Consolidated subsidiaries in which the Company
owns less than 808 file separate Federal income tax returns. The Company and
such subsidiaries calculate their respective tax liabilities on a separate
return basis and combine them in the accompanying consolidated financial
statements.
The provision for income taxes consists of the following:
The provision for income taxes differs from the amount computed by applying
the Federal statutory tax rate to earnings (loss) before income taxes as
follows:
Tax at statutory rate $
Benefit arising from investment
tax credits (ITC), net of
corresponding basis reduction
and recapture
Depreciation and amortization not
deductible for income tax
purposes
Losses of corporate affiliates
Rate differential related to
financial statement net
operating loss carryback
Net operating losses not utilized
for financial statement purposes
State income taxes (net of
Federal effect)
Other
51
Years Ended December 31,
1990 1989 1988
(amounts in millions)
(65.5) (46.7) 2.9
--- (4.0) (1.4)
20.3 12.8 3.1
2.2 2.6 1.0
--- (2.1) ---
7.5 --- ---
1.3 3.2 .4
.3 .3 .1
$.._J3 3 9) x(33 9) 6.1
Years
Ended December 31,
1990
1989
1988
(amounts in millions)
Current taxes:
Federal expense (benefit)
$ 1.7
(1.6)
(1.6)
State expense
1.9
4.9
.7
3.6
3.3
(.9)
Deferred tax expense (benefit)
(37.5)
(37.2)
7.0
$ (33.9)
(33.9)
6.1
The provision for income taxes differs from the amount computed by applying
the Federal statutory tax rate to earnings (loss) before income taxes as
follows:
Tax at statutory rate $
Benefit arising from investment
tax credits (ITC), net of
corresponding basis reduction
and recapture
Depreciation and amortization not
deductible for income tax
purposes
Losses of corporate affiliates
Rate differential related to
financial statement net
operating loss carryback
Net operating losses not utilized
for financial statement purposes
State income taxes (net of
Federal effect)
Other
51
Years Ended December 31,
1990 1989 1988
(amounts in millions)
(65.5) (46.7) 2.9
--- (4.0) (1.4)
20.3 12.8 3.1
2.2 2.6 1.0
--- (2.1) ---
7.5 --- ---
1.3 3.2 .4
.3 .3 .1
$.._J3 3 9) x(33 9) 6.1
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11), Continued
The sources of deferred income taxes and the tax effect of each are summarized
as follows:
Years Ended December 31,
1990 1989 1988
(amounts in millions)
Excess depreciation and
amortization for income tax
purposes $
Gain on sale of assets for income
tax purposes in excess of gain
for financial statement purposes
Partnership losses for income tax
purposes in excess of losses for
financial statement purposes
Loss on investments for income tax
purposes in excess of (less than)
loss for financial statement
purposes
Dividend income not currently
taxable
Income tax deduction for stock
options exercised
Deferred compensation
Other, net
Deferred income tax expense
(benefit) before adjustment
of deferred tax credits
Application of net operating losses
Benefit arising from ITC recognized
for financial statement purposes,
net of corresponding basis
reduction and recapture
Increase in ITC carryforward
resulting from tax net operating
loss carryback
Rate differential related to
financial statement net operating
loss carryback --- (2.1) ---
Alternative minimum tax rate
differential 2.p
$il.5) __..,L37.2) 7.0
6.2 7.2 6.3
--- (23.6) ---
8.5
4.7
---
(16.9)
(2.5)
1.8
3.0
1.8
---
---
6.2
1.8
.8
2.2
1.5
4.2
(2.5)
---
5.8
(6.5)
11.4
(43.3)
(25.6)
---
---
(4.0)
(1.4)
---
(1.0)
(3.0)
52
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11), Continued
At December 31, 1990, the Company had a net operating loss carryforward for
income tax purposes of $251.0 million of which $1.9 million expires in 2002,
$99.7 million in 2004 and $149.4 million in 2005. In addition, the Company
has a net operating loss carryforward for income tax purposes aggregating
$233.3 million which is subject to certain rules limiting its usage. For
financial statement purposes, the Company has net operating loss carryforwards
of $22.0 million. To the extent the net operating loss carryforwards are
utilized for income tax purposes, deferred income tax credits may be restored
at the then current rates.
At December 31, 1990, the Company had, for income tax purposes, an investment
tax credit carryforward of $18.8 million which expires at various dates
through 2005. In addition, the Company has for income tax purposes investment
tax credit carryforwards aggregating $38.9 million which are subject to
certain rules limiting their usage. For financial statement purposes, the
Company has investment tax credit carryforwards of $4.6 million. To the
extent the investment tax credit carryforward is utilized for income tax
purposes, deferred income tax credits may be restored at the then current
rates.
The Company has formulated an implementation plan for determining the impact
of Statement of Financial Accounting Standards No. 96, Accounting for Income
Taxes, in its current form. Statement No. 96 is currently effective for
fiscal years beginning after December 15, 1991. At this time, sufficient
information gathering and analysis has not taken place and, therefore, the
effect of Statement No. 96 cannot be quantified. The Company currently plans
to restate prior years' financial statements in connection with implementation
of Statement No. 96. This restatement would require the remeasurement of
prior years' business combinations and would likely result in increases in
certain assets and deferred income taxes.
(12) Commitments and Contingencies
The Company is named as a defendant, together with a number of other companies
engaged in the business of motion picture distribution and exhibition, in
certain actions which charge violation of antitrust laws with respect to the
distribution and exhibition of motion pictures in certain market areas. In
addition, there are other pending legal proceedings by or against the Company
involving alleged breaches of contracts, torts, violations of antitrust laws,
and miscellaneous other causes of action. In the opinion of management, these
legal proceedings will not have a material adverse effect on the Company's
financial position.
The Company serves as guarantor for certain obligations of affiliates. At
December 31, 1990, guarantees of $5.4 million were outstanding. Letters of
credit in the amount of $14.3 million were outstanding at December 31, 1990 in
connection with tax benefit transfer transactions and the granting of cable
system franchises.
Pursuant to a February 1990 agreement, certain minority owners of one of the
Company's cable subsidiaries have the right, at any time during the 60 days
following February 15, 1991, to cause the Company to purchase all or a portion
of their partnership interests for aggregate consideration of approximately
$28.5 million. It is anticipated that any such purchase, if required, would
be funded by borrowings under existing credit facilities.
53
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12), Continued
The Company purchases programming under contractual agreements with TCI.
Payments by the Company were approximately $89.0 million, $50.9 million and
$27.7 million for the years ended December 31, 1990, 1989 and 1988.
The Company conducts a significant portion of its theatre operations in leased
premises. These real property leases have noncancellable terms expiring at
various dates after December 31, 1990. Many leases have renewal options.
Most of the leases provide for contingent rentals based on operating results
and require the payment of taxes, insurance, and other costs applicable to the
property.
Rental expense, net of sublease rentals, for operating leases was as follows:
Years Ended December 31,
1990 1989 1988
(amounts in millions)
Minimum rentals $ 73.5 63.6 49.2
Contingent rentals 5.7 6.6 6.7
Total $ X70.22 55.9
At December 31, 1990, minimum lease commitments under noncancellable operating
leases are approximately as follows: 1991 - $69.9 million; 1992 - $66.4
million; 1993 - $63.1 million; 1994 - $59.9 million; and 1995 - $56.9 million.
With the exception of premises that are the subject of the theatre
restructuring plan (see note 4) it is expected that in the normal course of
business, leases that expire will be renewed or replaced by other leases;
thus, it is anticipated that future minimum lease commitments will not be
materially less than the amounts shown for 1990.
(13) Employee Stock Ownership Plan
In 1987, the Company adopted an Employee Stock Ownership Plan (the Plan) to
provide employees an opportunity for ownership in the Company. The Plan
provides for employees to contribute up to 128 of their compensation to a
trust fund for investment in either the Company's common stock or an income
accumulation fund. The Company matches 1008 of the amount contributed by the
employees for investment in the Company's common stock or 758 of the amount
contributed by the employees for investment in the income accumulation fund,
but in no event more than 108 of each employee's compensation. Contributions
to the Plan for the years ended December 31, 1990, 1989 and 1988 aggregated
$6.1 million, $4.6 million and $3.6 million, respectively.
(14) Transactions with Officers and Directors
In September 1989 and again in August 1990, the Company sold certain assets to
entities in which the Company's Chairman of the Board and certain officers
have an ownership interest, for cash proceeds of approximately $55.0 million
and $36.8 million, respectively. No gain was recognized on the transactions
as such assets were adjusted to their fair market value in conjunction with
the Merger. In addition, the Company is currently negotiating with such
entities to sell certain of its cable investments.
54
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(14), Continued
In conjunction with certain theatres acquired in 1988 the Company was
required, for regulatory reasons, to designate another entity to purchase
interests in certain of these theatres. UAB, Inc. (UAB), wholly owned by
Stephen M. Brett, Executive Vice President - Legal of the Company (previously
owned by Stewart D. Blair, Vice Chairman and Chief Executive Officer of the
Company), was designated as the purchaser. UAB is holding these theatres for
resale. The purchase price for the theatres was funded through a loan from
the Company to UAB in the amount of $6.0 million. The loan is evidenced by an
11 year promissory note which bears interest at the prime rate. Interest on
the loan is payable semi-annually in arrears commencing April 1, 1989. In
1990 and 1989, the Company wrote -off $2.8 million and $2.6 million,
respectively, of the principal amount of such loan based on an assessment of
the value of the theatre properties owned by UAB.
In addition, the Company acquired in 1989 theatres from Sameric Construction
Company of Camden, Inc. The Company was unable to own and operate certain of
these theatres and, therefore, sold such theatres to UAB II, Inc. (UAB II).
UAB II is wholly owned by Mr. Brett. UAB II is holding these theatres for
resale. UAB II purchased these theatres in exchange for UAB II's preferred
stock having a liquidation value of $4.9 million. In 1990 and 1989, the
Company wrote -off $1.5 million and $1.9 million, respectively, of its
investment in UAB II to reflect its assessment that the value of the UAB II
theatres is such that the Company may not realize the full allocated value of
this investment. This investment is included in receivables from related
parties and employees.
The Company's Executive Officers have not nor will recognize any gain or loss
from their holdings in UAB and UAB II.
(15) Information About the Companys Operations
The Company is primarily engaged in motion picture theatre and cable
television activities. The following is selected information about the
Company's operations.
55
Motion
Other
Picture
Including
Consoli-
Year ended
Theatres
Cable
Corporate
dated
December 31. 1990:
(amounts
in millions)
Revenue
S
683.1
754.1
22.8
1,460.0
Operating income (loss)
Salmi
(a)
103
_16.73)
113.2
Depreciation and
amortization
S
46.2
191.6
5.9
243.7
Capital expenditures
(including
acquisitions)
S
35.8
333.7
8
378.0
Identifiable assets
S
649.8
2.921.1
454.9
4,025.8
(a) Motion picture theatre operating
income for the
year ended
December 31,
1990 reflects a $25.6
million theatre restructuring charge.
See note (4).
55
(15), Continued
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
56
Motion
Other
Picture
Including
Consoli-
Year ended
Theatres
Cable
Corporate
dated
December 31. 1989:
(amounts
in millions)
Revenue
f
664.5
508.8
25.7
1.199.0
-.1
Operating income (loss)
f
57.0
113.2
6655.8)
104.4
Depreciation and
amortization
f
43.1
123.2
6.3i
6
Capital expenditures
(including
acquisitions)
f�61.1
8=
24.8
979.1
Identifiable assets
f
732.0
2.599.0
T46.3
4.077.3
Year ended
December 31, 1988•
Revenue
(571.7
253.6
15.7
841.0
Operating income (loss)
f
26.1)
116.0
Depreciation and
amortization
f�38.0
42.3
i4.3
84.6
Capital expenditures
(including
acquisitions)
f2
52.5i
;279.0
Identifiable assets
f 775.2
710.4
418.1
1.903.7
56
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Quarterly Results of Operations (Unaudited)
The Company's quarterly results of operations for the years ended December 31,
1990 and 1989 were as follows (amounts in millions, except per share amounts):
Year ended December 31, 1990:
Revenue
Restructuring charge (1)
Operating income (loss)
Gain (loss) on sale
of assets
Net loss
Loss per common share
Year ended December 31, 1989:
Revenue
Operating income
Gain (loss) on sale
of assets
Net loss
Loss per common share
uarter
first
Second
--Third
Fourth
$ 334.5
355_1
396 8
373.6
$ 29.7
43.2
45.0
(25.6)
(4.7)
$ .4
24.0
(11.4)
(29.3)
$ (31.7)
(5.1)
(31.9)
(90.1)
$ (.26)
(.07)
(.26)
(.68)
$ 220.0
272.7
363.6
342.7
$ 20.3
29.2
50.9
4.0
3.2
(6.8)
2.3
29.8
$ (14.6)
(41.5)
(21.4)
(26.0)
$ (.18)
(.43)
(.20)
(.18)
(1) During the fourth quarter of 1990, the Company recorded a $25.6 million
charge in connection with its December 1990 plan to restructure its theatre
operations. See note (4).
(17) Subsequent Event
On March 25, 1991, the Executive Committee of the Company's Board of Directors
adopted a resolution to transfer certain of its cost investments (including
the Company's $67.7 million investment in the Class B Cumulative Preferred
Stock of TBS) to TCI and its affiliates in exchange for cash proceeds of
approximately $43.1 million and the 13,749 shares of the Company's Convertible
Preferred Stock, Series A held by TCI. The stated liquidation value of such
Convertible Preferred Stock is $42.7 (including $1.5 million of accrued
dividends through March 31, 1991). The $9.4 million excess of the cash
proceeds and the stated liquidation value of such Convertible Preferred Stock,
over the historical cost of the transferred investments will be treated as a
direct increase to the Company's shareholder's equity in recognition of the
fact that TCI is the controlling shareholder of the Company.
Subject to the completion of definitive agreements, the above-described
exchange transaction is expected to close in the near future.
57
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding members of UAE's Board of Directors as of February 1,
1991 is set forth below. Directors are elected annually by the stockholders at the
Company's Annual Meeting.
Business Experience
Name Age During Past Five Years
Gene W. Schneider 64 Chairman of the Board of
the Company since May 1988;
Chairman of the Board and
Chief Executive Officer of
United Cable, a wholly-
owned subsidiary of the
Company since May 1989,
from 1982 to May 1989;
President and Chief
Executive Officer of United
Cable and predecessor
companies from 1953 to 1982
Stewart D. Blair 41 Vice Chairman of the Board
and Chief Executive Officer
of the Company since May
1988; President and Chief
Executive Officer of United
Artists from December 1986
to May 1989; Senior Vice
President of TCI from
June 1985 to December 1986;
Vice President of TCI from
June 1982 to June 1985
G. Chris Andersen 52 Director of the Company
since December 1988; Vice
Chairman of Paine-Webber
Incorporated since March
1990; Managing Director of
Drexel Burnham Lambert
Incorporated, investment
bankers, from 1981 to
February 1990 (2)
Robert R. Beck 50 Director of the Company
since December 1988;
Managing Director and
Senior Portfolio Manager
of the Putnam Companies, an
investment management firm,
since December 1989;
Managing Partner of Marble
Arch Partners, an investment
management firm, from
February 1985 to December
1989; Partner of State
Street Research & Manage-
ment Company, an invest-
ment management firm, from
1972 to February 1985
58
Other Public
Directorships Held
Turner Broadcasting
System, Inc.; The
Fashion Channel Network,
Inc. (1)
Turner Broadcasting
System, Inc.; American
Mobile Systems
Incorporated
Sunshine Mining Company
Joseph E. Giovanini 58 Director of the Company
since December 1988;
manages personal
investments
Marvin Jones 53 Director and Executive Vice
President of the Company
since December 1988;
Executive Vice President of
United Artists from January
1987 to May 1989; President
and Chief Executive Officer
of United Artists
Cablesystems Corporation, a
wholly-owned subsidiary of
the Company that operates its
cable television systems,
since July 1984; Senior Vice
President of that subsidiary
from 1978 to July 1984
Bob Magness 66 Director of the Company TCI; Republic Pictures
since December 1988; Corporation
Chairman of the Board of
TCI since 1973; President
of TCI and predecessor
companies from 1958 to 1973
John C. Malone 49 Director of the Company TCI; Turner Broadcasting
since December 1988; System, Inc.; The Bank
Chairman of the Board of of New York; McCaw
United Artists from December Cellular Communications,
1986 to May 1989; President Inc.
of TCI since 1973
59
Business Experience
Other Public
Name
Age
During Past Five Years
Directorships Held
Albert M. Carollo
77
Director of the Company
since December 1988;
President, Sweetwater
Television Co., Inc.
since 1955
William J. Elsner
39
Director of the Company
since May 1990; President
of United International
Holdings, a communications
company, since May 1989;
Senior Vice President and
Chief Financial Officer of
United Cable from 1985 to
May 1989
Donne F. Fisher
52
Director of the Company
TCI; General
since December 1988; Senior
Communication, Inc.;
Vice President of TCI since
First Federal
1982 and Treasurer since
Savings Bank
1970
Joseph E. Giovanini 58 Director of the Company
since December 1988;
manages personal
investments
Marvin Jones 53 Director and Executive Vice
President of the Company
since December 1988;
Executive Vice President of
United Artists from January
1987 to May 1989; President
and Chief Executive Officer
of United Artists
Cablesystems Corporation, a
wholly-owned subsidiary of
the Company that operates its
cable television systems,
since July 1984; Senior Vice
President of that subsidiary
from 1978 to July 1984
Bob Magness 66 Director of the Company TCI; Republic Pictures
since December 1988; Corporation
Chairman of the Board of
TCI since 1973; President
of TCI and predecessor
companies from 1958 to 1973
John C. Malone 49 Director of the Company TCI; Turner Broadcasting
since December 1988; System, Inc.; The Bank
Chairman of the Board of of New York; McCaw
United Artists from December Cellular Communications,
1986 to May 1989; President Inc.
of TCI since 1973
59
Business Experience Other Public
Name Age During Past Five Years Directorships Held
Allen Pinsker 61 Director and Executive Vice
President of the Company
since December 1988;
Executive Vice President of
United Artists from June
1987 to May 1989; Vice
Chairman of United Artists
Theatre Circuit, Inc., a
wholly-owned subsidiary of the
Company that operates its
motion picture theatres,
since September 1990; President
and Chief Executive Officer of
that subsidiary from January
1987 to August 1990; Vice
President of that subsidiary
since before 1985 to
December 1986
Curtis Rochelle 75 Director of the Company Lander Energy Co.
since December 1988; owner
of Rochelle Livestock
Larry E. Romrell 51 Director of the Company General Communication
since December 1988; Inc.
President and Chief
Executive Officer of
WestMarc Communications,
Inc., a wholly-owned
subsidiary of TCI that
operates a cable tele-
vision business and micro-
wave common carrier business,
since November 1988;
President and Chief Operating
Officer of that company from
September 1987 to November
1988; Executive Vice
President of that company
from 1972 to September 1987
Richard C. Schneider 66 Director of the Company
since December 1988; Senior
Vice President -Engineering of
United Cable from 1982 to May
1989; Vice President of United
Cable and predecessor
companies from 1953 to 1982
M
In accordance with the Merger Agreement, TCI entered into a Stockholder
Agreement, dated May 25, 1989, with the Company (the Stockholder Agreement).
Pursuant to the Stockholder Agreement, TCI is required, among other things, to vote
all shares of each class of UAE common stock beneficially owned by TCI in favor of
the election to the Board of Directors of each United Cable Director, as defined
below, provided he is then reasonably acceptable to the Nominating Committee of the
Board of Directors. TCI will also be required to vote such shares in favor of any
successor to a United Cable Director that is reasonably acceptable to the Nominating
Committee and is nominated by a majority of the United Cable Directors then in
office. The Stockholder Agreement defines a United Cable Director as each of the
seven persons who were directors of United Cable on March 8, 1988, and their
respective successors elected in accordance with the Company's Bylaws or the
Stockholder Agreement. The seven members of United Cable's Board of Directors on
March 8, 1988 were Gene W. Schneider, Richard C. Schneider, Fred A. Vierra, Albert
M. Carollo, Melvin R. Lohmann (resigned effective April 9, 1990), Joseph E.
Giovanini and Curtis Rochelle. William J. Elsner (who is also a United Cable
Director) was elected by the Board of Directors as the successor to Mr. Lohmann on
May 17, 1990.
TCI's obligations under the Stockholder Agreement will terminate when all of
the tradable rights (Rights) issued by TCI to former United Cable stockholders in
connection with the Merger have been exercised or have expired (which is scheduled
to occur no later than February 1, 1995).
61
Business Experience
Other Public
Name Age
During Past Five Years
Directorships Held
J.C. Sparkman 58
Director of the Company
The Fashion Channel
since December 1988;
Network, Inc. (1)
Executive Vice President
and Principal Operating
Officer of TCI since June
1987; Executive Vice
President and Principal
Operating Officer of
Community Tele-
Communications, Inc., a
former subsidiary of TCI
that provided services
related to the operation of
cable television systems
prior to its merger into a
subsidiary of TCI in 1987,
from 1979 to June 1987
Fred A. Vierra 59
Director of the Company
Boettcher Venture
since December 1988 and
Capital Partners, L.P.
President and Chief
Operating Officer of the
Company since May 1988;
President and Chief
Operating Officer of
United Cable from 1982
to May 1989
(1) On July 22, 1988,
The Fashion Channel Network,
Inc. filed a petition for
relief under Title 11 of the United States Code.
(2) On May 29, 1990,
Drexel Burnham Lambert Incorporated filed a petition 7
for relief under
Title 11 of the United States
Code.
In accordance with the Merger Agreement, TCI entered into a Stockholder
Agreement, dated May 25, 1989, with the Company (the Stockholder Agreement).
Pursuant to the Stockholder Agreement, TCI is required, among other things, to vote
all shares of each class of UAE common stock beneficially owned by TCI in favor of
the election to the Board of Directors of each United Cable Director, as defined
below, provided he is then reasonably acceptable to the Nominating Committee of the
Board of Directors. TCI will also be required to vote such shares in favor of any
successor to a United Cable Director that is reasonably acceptable to the Nominating
Committee and is nominated by a majority of the United Cable Directors then in
office. The Stockholder Agreement defines a United Cable Director as each of the
seven persons who were directors of United Cable on March 8, 1988, and their
respective successors elected in accordance with the Company's Bylaws or the
Stockholder Agreement. The seven members of United Cable's Board of Directors on
March 8, 1988 were Gene W. Schneider, Richard C. Schneider, Fred A. Vierra, Albert
M. Carollo, Melvin R. Lohmann (resigned effective April 9, 1990), Joseph E.
Giovanini and Curtis Rochelle. William J. Elsner (who is also a United Cable
Director) was elected by the Board of Directors as the successor to Mr. Lohmann on
May 17, 1990.
TCI's obligations under the Stockholder Agreement will terminate when all of
the tradable rights (Rights) issued by TCI to former United Cable stockholders in
connection with the Merger have been exercised or have expired (which is scheduled
to occur no later than February 1, 1995).
61
Executive officers of the Company are appointed by and serve at the discretion
of the Board of Directors. Information, as of February 1, 1991, regarding each
executive officer of the Company who is not also a director of the Company is set
forth below.
Name Age Business Experience During Past Five Years
Stephen M. Brett 50 Executive Vice President - Legal and Secretary of the
Company since December 1988; Executive Vice President
- Legal and Secretary of United Artists from December
1988 through May 1989; Vice President - Legal and
Secretary of United Artists from August 1988 to
December 1988; Partner in Sherman & Howard, a law
firm, from 1973 to July 1988.
Brendan R. Clouston 37 Executive Vice President and Chief Financial Officer
of the Company since December 1988; Executive Vice
President - Finance and Treasurer of United Artists
from December 1988 to May 1989; Senior Vice President
and Chief Financial Officer of United Artists from May
1988 to December 1988; Vice President - Finance and
Treasurer of United Artists from January 1987 to May
1988; Director of Finance of TCI from January 1983 to
January 1987.
Joel C. Cohen 46 Senior Vice President of the Company since May 1989;
Senior Vice President of United Artists from December
1988 to May 1989; Vice President of United Artists
from April 1987 to December 1988; Executive Vice
President and Chief Operating Officer of Group W
Cable, Inc., an operator of cable television systems,
from June 1986 to March 1987; Controller of Group W
Cable, Inc.'s Northeast Region from 1982 to May 1986.
Gary S. Howard 40 Senior Vice President of the Company since June 1989;
Vice President and Treasurer of the Company from May
1988 to June 1989; Vice President and Treasurer of
United Cable from 1987 to May 1989; and Treasurer of
United Cable from 1984 to 1987.
H. Jack Roemer 36 Vice President -Controller of the Company since May
1989; Vice President -Controller of United Artists
from June 1988 to May 1989; Assistant Controller of
American Television and Communications Corporation
(ATC), an owner of cable television systems, from June
1987 to June 1988; Director of Investments Accounting
of ATC from April 1984 to June 1987; Senior Tax
Manager at Ernst and Whinney, a national public
accounting firm, from September 1981 to April 1984.
Peter C. Warzel 37 Senior Vice President of the Company since May 1989;
President and Chief Executive Officer of United
Artists Theatre Circuit, Inc., a wholly-owned
subsidiary of the Company that operates its motion
picture theatres, since October 1990; Senior Vice
President - Administration, Human Resources, Corporate
Communications and Risk Management of United Artists
from December 1988 to May 1989; Vice President -
Administration, Human Resources, Corporate
Communications and Risk Management of United Artists
from March 1988 to December 1988; Director of Risk
Management for TCI from September 1982 to March 1988.
62
There are no family relations, of first cousin or closer, among the above
named directors and executive officers, by blood, marriage or adoption, except that
Gene W. Schneider and Richard C. Schneider are brothers.
To the knowledge of the Company, during the past five years none of the
persons named above has had any involvement in such legal proceedings as would be
material to an evaluation of that person's ability or integrity.
During February 1991, Mr. Larry E. Romrell was promoted to the position of
Senior Vice President of TCI. In addition to Mr. Romrell's new duties as Senior
Vice President of TCI, he will continue to act as President and Chief Executive
Officer of WestMarc, a wholly-owned subsidiary of TCI.
63
Item 11. Executive Compensation
(a) Cash Compensation. The following table shows all cash compensation for each
of the five most highly compensated executive officers of the Company whose total
cash compensation exceeded $60,000 and for all executive officers as a group,
including salaries, fees, bonuses and deferred compensation, paid or accrued for the
account of the following persons and group of persons for services rendered in all
capacities to the Company and its subsidiaries during the year ended December 31,
1990.
Name of Individual or
Number in Group
Gene W. Schneider
Stewart D. Blair
Fred Vierra
Allen Pinsker
Stephen M. Brett
All executive officers of
the Company as a group
(12 persons)
Capacities in
Which Served
Chairman of the Board
Vice Chairman of the Board
and Chief Executive Officer
President and Chief Operating
Officer and Director
Executive Vice President and
Director
Executive Vice President -
Legal and Secretary
Cash
Compensation
$ 478,690
$ 493,191 (1)
$ 323,393
$ 373,691 (2)
$ 306,880 (3)
$ 3,419,336
(1) Includes payment of $87,200 of deferred compensation accrued during
previous periods.
(2) Includes payment of $130,300 of deferred compensation accrued during
previous periods.
(3) Includes $75,000 of deferred compensation accrued during the period.
(b) Compensation Pursuant to Plans
Employee Stock Ownership Plan. As of August 3, 1989, the United Artists
Communications, Inc. Employee Stock Bonus and Stock Ownership Plan (formerly known
as the United Artists Communications, Inc. Employee Stock Bonus Plan) was converted
into the United Artists Entertainment Employee Stock Ownership Plan (the Employee
Stock Ownership Plan). The purpose of the Employee Stock Ownership Plan is to
encourage eligible employees to accumulate retirement income through savings on a
regular long-term basis and to share in the future of the Company through ownership
of shares of Class A and Class B common stock (collectively UAE Common Stock).
M
All employees (other than employees covered by collective bargaining
agreements that do not provide for such participation) and commissioned salesmen of
the Company, and of those subsidiaries of the Company that adopt the Employee Stock
Ownership Plan, are eligible to participate in the Employee Stock Ownership Plan
after completing one year of service (which includes service with United Cable,
United Artists and their respective subsidiaries prior to the Merger) and attaining
age 21. The Employee Stock Ownership Plan permits each eligible employee to
contribute up to 12% (or in the case of "highly -compensated employees," up to 10%)
of his compensation to a trust fund (the Fund), up to $7,979 of which may be
contributed for 1990 on a before -tax basis. Employee contributions are invested, at
the option of the employee, in either UAE Common Stock or a fixed income fund
managed by The Prudential Bank and Trust Company. The Company matches all employee
contributions to the Fund, up to 10% of the employee's compensation, on either a
dollar -for -dollar basis (for contributions invested in UAE Common Stock) or a $.75 -
for -dollar basis (for contributions invested in the fixed income fund). All
matching contributions are invested in UAE Common Stock. In addition to the .above
limitations, the contributions by, and on behalf of, highly compensated employees
may be further limited to comply with applicable tax law. The Employee Stock
Ownership Plan permits participants to exercise all voting rights with respect to
shares of UAE Common Stock allocated to their accounts.
Employees are fully vested in employee contributions immediately.
Contributions by the Company begin to vest after an employee's completion of three
years of service with the Company and/or its subsidiaries, and are fully vested
after six years of service. On retirement, permanent disability, death, or
termination of employment, participation in the Employee Stock Ownership Plan will
terminate, and the employee will receive a distribution of his vested interest in
the Fund, either in a lump sum or, if he qualifies, in installments over a period
not in excess of five years. In addition, subject to certain suspension penalties,
employees may withdraw during employment the value of their after-tax contributions
and, if necessary to meet a serious financial need, their before -tax contributions.
Employees who have attained the age of 59-1/2 may elect permanently to discontinue
their participation in the Employee Stock Ownership Plan by receiving a distribution
of their vested accounts.
The following table shows all contributions by the Company during the year
ended December 31, 1990 for the account of Messrs. Schneider, Blair, Vierra, Pinsker
and Brett, all participating executive officers as a group (12 persons); and all
participating employees at December 31, 1990 (3,165 persons, including participating
executive officers):
UAE Stock Award Plan. The United Artists Entertainment Company 1990
Restricted Stock Award Plan (the UAE Stock Award Plan) was approved by stockholders
on August 8, 1990.
65
Company
Contributions
Gene Schneider
$
15,000
Stewart Blair
$
15,000
Fred Vierra
$
15,000
Allen Pinsker
$
15,000
Steve Brett
$
9,691
All participating executive
officers of the Company
$
163,204
All participating employees
of the Company
$
6,081,356
UAE Stock Award Plan. The United Artists Entertainment Company 1990
Restricted Stock Award Plan (the UAE Stock Award Plan) was approved by stockholders
on August 8, 1990.
65
The purpose of the UAE Stock Award Plan .is to advance the interests of the
Company by encouraging and enabling the acquisition of a financial interest in the
Company by its officers and other employees through grants of restricted shares of
Common Stock ("Awards"). The UAE Stock Award Plan is intended to aid the Company in
retaining such officers and employees, to stimulate the efforts of such officers and
employees and to strengthen their desire to remain in the employee of the Company.
The UAE Stock Award Plan is also intended to aid in attracting persons of
exceptional abilities to become officers and employees of the Company.
The UAE Stock Award Plan is administered by the Compensation Committee of the
Board of Directors. The Compensation Committee determines each officer and employee
to whom, and the time or times at which, an Award will be granted, the number of
shares subject to the Award, any period or periods within which the shares covered
by an Award are subject to forfeiture, and all other conditions of the Award.
Recipients of Awards are not required to pay for the shares of UAE Common Stock
subject to the Awards.
Awards may be granted to officers (whether or not they are directors) and
employees of the Company or any of its subsidiaries. The total number of shares of
UAE Common Stock that may be issued pursuant to Awards may not exceed 2,000,000
(subject to anti -dilution adjustments). Shares previously issued pursuant to awards
but forfeited to the Company will again become available for Awards.
Shares of UAE Common Stock subject to Awards may not be sold, exchanged,
transferred, pledged, hypothecated, or otherwise disposed of at any time when such
shares are subject to a risk of forfeiture to the Company. The recipient of an
Award will have rights as a stockholder to receive dividends in cash or other
property or other distributions or rights in respect of all shares of UAE Common
Stock subject to an Award (whether or not they are then forfeitable) and will be
entitled to vote such shares as the record owner thereof.
If any shares of UAE Common Stock subject to an Award are subject to a risk of
forfeiture at a time when the shareholders of the Company approve either (a) any
merger or consolidation as a result of which the UAE Common Stock will be changed,
converted, or exchanged (other than a merger with a wholly-owned subsidiary of the
Company) or any liquidation of the Company or any sale or other disposition of 508
or more of the assets or earning power of the Company in a single transaction or in
a series of related transactions or (b) any merger or consolidation to which the
Company is a party. as a result of which the persons who are shareholders of the
Company immediately prior to such merger or consolidation have less than a majority
of the voting power for consolidation, then such shares shall become non -forfeitable
immediately prior to such merger, consolidation, liquidation, sale, or other
disposition.
In 1990, Awards for the number of shares of Class A common stock indicated
below were granted to the following named persons and groups: Stewart D. Blair
(34,000), Fred A. Vierra (34,000), Allen Pinsker (10,000), Steve Brett (24,200);
current executive officers as a group (11 persons) (205,800) and all employees
including current officers who are not executive officers (35 persons) (253,300).
Awards granted in 1990 start vesting in August 1991 at a rate of 208 annually.
UAE Stock Option Plan. The United Artists Entertainment Company Stock Option
Plan (the UAE Stock Option Plan) was adopted to provide an added incentive to
employees of the Company and its subsidiaries to continue in the service of those
companies and to have a "more direct interest in the future success of their
operations. Under the UAE Stock Option Plan, options to purchase up to 7,000,000
shares of Class A Common Stock, in the aggregate, may be granted to employees of the
Company and its subsidiaries. Directors are eligible to participate only if they
are also employees of the Company or its subsidiaries. Options granted pursuant to
the UAE Stock Option Plan may be either incentive stock options, within the meaning
of Section 422A of the Internal Revenue Code, or non-qualified stock options, which
do not qualify under Section 422A.
66
The UAE Stock Option Plan is administered by the Compensation Committee of the
Board of Directors. The Compensation Committee has broad discretion in
administering the UAE Stock Option Plan, and is authorized to determine the officers
and employees to whom options shall be granted, the number of shares subject to an
option, whether an option shall be an incentive option or a non-qualified option,
and the exercise price of the options.
The exercise price of all options granted under the UAE Stock Option Plan are
fixed by the Compensation Committee and may be less than the fair market value of
the Class A common stock on the date the option is granted, except that for
incentive options, the exercise price must be at least equal to 1008 of the fair
market value of the Class A common stock on the date the option is granted. Options
are not exercisable in whole or in part until one year after the date of grant. No
option granted under the UAE stock Option Plan may be exercisable for longer than 10
years (five years in the case of incentive options held by 108 stockholders) from
the date it is granted. The exercise price may be paid, in the Compensation
Committee's discretion, in cash or by the surrender of shares of either class of UAE
Common Stock already owned by the option holder, or a combination of cash and UAE
Common Stock.
In 1990, options to purchase shares of Class A common stock were granted to 14
employees (261,100). The exercise price of each option is $10.50 per share. Of the
options granted, the options for the number of shares of Class A common stock
indicated below were granted to the following named persons and group: Stewart
Blair (59,524), Fred Vierra (59,524), Steve Brett (29,524); current executive
officers as a group (11 persons) (236,192).
None of the options granted under the UAE Stock Option Plan were exercised
during 1990.
United Artists Stock Option Plans. In accordance with the Merger Agreement,
the United Artists Communications, Inc. 1982 Stock Option Plan (the 1982 Stock
Option Plan) and the United Artists Communications, Inc. 1983 Stock Option Plan (the
1983 Stock Option Plan) were terminated effective May 25, 1989, and no further
options can be granted under either plan.
Each option outstanding on May 25, 1989 (the date the Mergers were
consummated), under either the 1982 Stock Option Plan or the 1983 Stock Option Plan,
was assumed by the Company and became an option to purchase one share of each class
of UAE Common Stock for each share of United Artists Common Stock that would have
been issued by United Artists to the holder upon exercise of such option in full on
May 25, 1989.
During 1990, options to purchase 76,433 shares of each class of UAE Common
Stock, outstanding under the 1982 Stock Option Plan or the 1983 Stock Option Plan,
were exercised at a weighted average price of $7.97 per share. The net value
(market value less exercise price) of the securities acquired by all employees upon
exercise of options granted under the 1982 Stock Option Plan and the 1983 Stock
Option Plan during 1990 aggregated $999,256. No executive officers exercised
options during 1990.
United Cable Stock Option Plans. In accordance with the Merger Agreement, the
United Cable Television Corporation Incentive and Non -Qualified Stock Option and
Stock Appreciation Rights Plan (the United Cable Employee Plan) and the United Cable
Television Corporation Stock Option Plan for Non -Employee Directors (the United
Cable Directors Plan) were terminated effective May 25, 1989. No further options
can be granted under either plan.
67
Each option outstanding on May 25, 1989 (the date the Merger was consummated)
under either the United Cable Employee Plan or the United Cable Directors Plan was
assumed by the Company and became an option to purchase the number of rights units
(Rights Units), which consisted of one share of each class of UAE Common Stock and
two Rights, equal to the number of shares of United Cable common stock that would
have been issued by United Cable to the holder upon exercise of such option in full
on May 25, 1989.
During 1990, the following named persons and groups realized the net value
indicated (market value less exercise price) upon exercise during such period of
options for Rights Units outstanding under the United Cable Employer Plan: Gene W.
Schneider ($3,167,559), Richard C. Schneider ($1,343,652), all current executive
officers as a group (11 persons) ($3,167,559); and all employees who participated
under the United Cable Employee Plan, including all current officers who are not
executive officers, as a group (25 persons) ($2,507,408). During the same period,
the following named persons realized the net value indicated upon exercise of
options for Rights Units outstanding under the United Cable Directors Plan: Albert
M. Carollo ($857,412), Joseph E. Giovanini ($885,543), Melvin R. Lohmann ($604,292),
and Curtis Rochelle ($863,042).
All options granted under the United Cable Employee Plan and assumed by the
Company were exercised prior to the January 15, 1990 expiration date. All options
granted under the United Cable Directors Plan and assumed by the Company were
exercised prior to the August 21, 1990 expiration date.
EmRlovment Agreements. At the time of the Merger, the Company has entered
into a five-year employment agreement with each of Messrs. G. Schneider, Vierra,
Clouston, Jones, Pinsker, R. Schneider, Brett and Elsner.
The terms of the employment agreements of Messrs. G. Schneider, Vierra, and R.
Schneider are substantially similar. Each agreement became effective as of May 25,
1989 (the date the Merger was consummated) and provides that the employee may at any
time upon 90 days' notice convert his status from that of an employee of the Company
to a consultant. In that event, the former employee will be required to be
available 60 days per year to provide consulting services to the Company and will
receive as compensation the salary he would otherwise have received during the term
of the employment agreement, except that he may elect, upon 15 days notice, to
receive the total amount of such salary for the remaining term of such agreement in
a lump sum (without discount) at any time after converting his status from employee
to consultant. In addition, any unvested stock options held by the employee will
vest at the time of such conversion. The employment agreements provide for current
annual salaries as follows: Mr. G. Schneider ($468,500); Mr. Vierra ($315,000); and
Mr. R. Schneider ($208,200) and Mr. Elsner ($205,000). The salary of each employee
may be increased at the discretion of the Board of Directors.
Mr. Elsner converted his status from that of an employee to a consultant in
May 1989 and received the remaining salary payable to him under his employment
agreement ($1,025,000) in June 1989.
68
Mr. G. Schneider's agreement requires him, during the period he is employed by
the Company, to devote such time to the Company's affairs as is necessary to fulfill
his duties thereunder, which is not expected to exceed approximately one-third of
his time; each of the other agreements requires the person to devote full time to
such affairs while an employee. Each agreement is terminable by the Company for
cause, in which event the terminated person will receive his salary or other
benefits through the date of termination. If a person who is terminated for cause
has previously received his salary in a lump sum, no portion will be forfeitable to
the Company unless such termination is for the commission of a felony or for the
breach of a material fiduciary duty owed to the Company by such person. Upon any
termination of the employment agreement other than termination for cause or
voluntary termination by the employee, the terminated person will receive the salary
that would have been payable through the remaining term of the agreement had it not
been terminated (and he may elect to receive all of the salary that would have been
paid over such period in a lump sum without discount) and all of his unvested stock
options will immediately vest at the date of termination and expire in accordance
with the applicable plan or agreement governing such options. The agreements
contain certain restrictions on competition with the Company.
In addition, the Company pays the premiums on split -dollar life insurance
policies on the lives of Mr. G. Schneider ($1,000,000) and the wife of Mr. R.
Schneider ($700,000), and Messrs. G. Schneider and R. Schneider receive under their
employment agreements supplemental retirement benefits substantially equivalent to
what they would have received under the United Cable Supplemental Retirement Plan if
that plan had been adopted by the Company and continued with respect to each of them
rather than terminated in connection with the Merger, except that in lieu of monthly
payments for life, Messrs. G. and R. Schneider will receive the present value of
those payments in a lump sum on the earlier to occur of age 65 and the termination
of their employment with the Company (which for this purpose would not include
becoming a consultant of the Company). Assuming no increase in their compensation
and that each remains with the Company (as an employee or consultant) until age 65,
such lump sum payments would be approximately $930,000 for Mr. G. Schneider and
approximately $180,000 for Mr. R. Schneider. Mr. R. Schneider, who has attained age
65, received his lump sum payment during 1990.
The terms of the employment agreements of Messrs. Clouston, Jones, Pinsker,
and Brett are also substantially similar. Under each of these employment
agreements, the employee may defer a specified portion of his salary. Each
agreement is terminable by the Company for cause, in which event the terminated
person will receive his salary and deferred compensation through the date of
termination. Upon any termination of the employment agreement other than
termination for cause or voluntary termination by the employee, the terminated
person will receive the salary and deferred compensation that would have been
payable through the remaining term of the agreement had it not been terminated and
all of his unvested stock options will immediately vest at the date of termination
and remain exercisable for a period of ninety days thereafter. Each agreement also
has provisions prohibiting the employee from using or divulging any confidential
information about the Company or its subsidiaries and prohibiting the employee from
competing with the Company or its subsidiaries while employed by the Company and, as
to certain of such employees, for a two-year period thereafter. The employment
agreements provide for current annual salaries as follows: Mr. Clouston ($212,500);
Mr. Jones ($275,000); Mr. Pinsker ($260,000); and Mr. Brett ($297,500). The salary
of each employee may be increased at the discretion of the Board of Directors.
(c) Other Compensation. None.
(d) Compensation of Directors. The standard arrangement pursuant to which
directors are compensated for all services as a director is as follows: (i) each
director who is not a full time employee of UAE or TCI receives an annual retainer
of $10,000; (ii) each director who is an employee of UAE or TCI does not receive
compensation for their services as a director.
69
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners. The following table sets
forth information with respect to the ownership of shares of Class A common stock
and Class B common stock, as of February 1, 1991, by each person known to the
Company to beneficially own more than 58 of either class. Shares issuable upon
conversions of convertible securities are deemed to be outstanding for the purpose
of computing the percentage ownership of the person beneficially owning such
securities, but have not been deemed to be outstanding for the purpose of computing
the percentage ownership of any other person. However, the Class A common stock
share amounts for each person named in the table do not give effect to the
conversion of any shares of Class B common stock held by such persons into shares of
Class A common stock. So far as is known to the Company, the persons indicated
below have sole voting and investment power with respect to the shares indicated as
owned by them, except as otherwise stated in the notes to the table.
Name and Address
Title
of
Amount and Nature of
Percent of
of Beneficial Owner
Class
Beneficial Ownership
Class (1)
Tele-Communications, Inc.
Class
A
40,919,626
(2)(3)
54.548
4643 S. Ulster Street
Class
B
39,609,626
(3)(4)
58.19%
Suite 600
Denver, CO 80237
Mario J. Gabelli
Class
A
1,717,231
(5)
2.33%
655 Third Avenue
Class
B
6,436,714
(5)
9.65%
New York, NY 10017
The Capital Group, Inc.
Class
A
4,591,550
(6)
6.238
333 South Hope Street
Class
B
---
---
Los Angeles, CA
(1) Based on 73,653,066
shares of
Class
A common stock
and 66,696,717
shares
of Class B common stock outstanding
on February
1, 1991.
(2) Of such shares, 28,427,836 are owned of record by TCI UA, Inc.,
9,626,720 are owned of record by TCI Development Corporation and
1,490,170 are owned of record by TCI West, Inc., indirectly wholly-owned
subsidiaries of TCI. The business address of each of these companies is
4643 S. Ulster Street, Suite 600, Denver, Colorado 80237. All of the
shares owned of record by TCI UA, Inc, and TCI Development Corporation
are pledged to a bank.
(3) Includes 1,374,900 shares of each class of UAE Common Stock issuable
upon conversion of 13,749 shares of the Company's Convertible Preferred
Stock, Series A (representing 49.98 of the outstanding shares of such
preferred stock), that are owned of record by TCI Development
Corporation.
(4) Of such shares, 27,117,836 are owned of record by TCI UA, Inc.,
9,626,720 are owned of record by TCI Development Corporation, and
1,490,170 are owned of record by TCI West, Inc. All of the shares owned
of record by TCI UA, Inc. and TCI Development Corporation are pledged to
a bank.
70
(5) Based solely on a Schedule 13D filed with the Securities and Exchange
Commission (the SEC) on June 21, 1989, as amended by Amendments No. 1, 2
and 3 thereto, by Mario J. Gabelli and various entities that he directly
or indirectly controls and for which he acts as chief investment
officer. According to such Schedule 13D, as amended, all of such shares
are beneficially owned by Mr. Gabelli and Mr. Gabelli and such entities
have sole or shared voting power and sole or shared investment power
over various portions of such shares.
(6) Based solely on a Schedule 13G filed with the SEC on February 13, 1990
by The Capital Group, Inc. According to such Schedule 13G, such shares
are beneficially owned by The Capital Group, Inc. and certain of its
subsidiaries, which have sole voting power over 2,116,170 of such shares
and sole investment power over all of such shares.
(b) Security- Ownership of Directors and Officers
Beneficial Ownership of UAE Equity Securities. The following table sets forth
information with respect to the ownership of shares of each class of UAE common
stock and of shares of the Company's 12-7/88 Cumulative Compounding Redeemable
Preferred Stock, Series A (the Preferred Stock), as of February 1, 1991, by each
director of the Company who owns shares of such stock and by all directors and
officers of the Company as a group. Shares issuable upon exercise of options (which
are vested or will vest within 60 days) are deemed to be outstanding for the purpose
of computing the percentage ownership of the person beneficially owning such
options, but have not been deemed to be outstanding for the purpose of computing the
percentage ownership of any other person. The Class A common stock share amounts
for each person and the group named in the table do not give effect to the
conversion of shares of Class B common stock held by such person or group into
shares of Class A common stock. So far as it is known to the Company, the persons
indicated below have sole voting and investment power with respect to the shares
indicated as owned by them, except as otherwise stated in the notes to the table.
Name of
Title of
Amount and Nature of
Percent of
Beneficial Owner
Class
Beneficial Ownership (1)
Class (2)
Gene W. Schneider
Class A
884,409
(3)
1.208
Class B
577,705
(3)
Preferred
267,826
(3)
5.168
Stewart D. Blair
Class A
129,563
(4)
Class B
127,036
(4)
Preferred
---
G. Chris Andersen
Class A
37,000
(5)
Class B
37,000
(5)
Preferred
---
Robert R. Beck
Class A
51,000
(6)
Class B
51,000
(6)
Preferred
---
Albert M. Carollo
Class A
651,333
(7)
Class B
443,545
(7)
Preferred
226,765
(7)
4.378
William J. Elsner
Class A
73,545
(8)
Class B
63,545
(8)
Preferred
---
71
Name of
Title of
Amount and Nature of
Percent of
Beneficial Owner
Class
Beneficial Ownership (1)
Class (2)
Joseph E. Giovanini
Class A
545,078
(9)
Class B
372,564
(9)
Preferred
186,378
(9)
3.59%
Marvin Jones
Class A
64,801
(10)
Class B
52,862
(10)
Preferred
---
Allen Pinsker
Class A
54,298
(11)
Class B
52,437
(11)
Preferred
---
Curtis Rochelle
Class A
513,210
(12)
Class B
341,982
(12)
Preferred
155,437
(12)
3.00%
Richard C. Schneider
Class A
497,747
(13)
Class B
446,749
(13)
Preferred
29,905
(13)
Fred A. Vierra
Class A
138,777
(14)
Class B
199,788
(14)
Preferred
---
All directors and officers
Class A
3,780,573
(15)
5.13%
as a group (23 persons)
Class B
2,875,045
(15)
4.31%
Preferred
868,231
(16)
16.71%
* Represents less
than 1% of
the outstanding shares of
the respective
class.
(1) Includes the interests of the named persons and group in shares of UAE
Common Stock held by the trustee of the United Artists Entertainment
Employee Stock Ownership Plan for their respective accounts. (See
Compensation Pursuant to Plans -Employee Stock Ownership Plan.)
(2) Based on 73,653,066 shares of Class A common stock, 66,696,717 shares of
Class B common stock and 5,194,800 shares of Preferred stock outstanding
on February 1, 1991.
(3) Includes 4,626 shares of Class A common stock, 3,846 shares of Class B
common stock and 1,619 shares of Preferred Stock that are owned by Mr.
Schneider's wife, and 8,816 shares of Class A common stock that are held
for the benefit of Mr. Schneider's children in a trust under which Mr.
Schneider acts as trustee.
(4) Mr. Blair holds options to purchase 125,000 shares of each class of UAE
Common Stock at a purchase price of $9.00 per share, which were granted
in October 1987 and expire in October 1997, all of which are vested.
The share amounts for Mr. Blair assume the exercise of such vested
option.
72
(5) Includes 2,000 shares of each Class of UAE Common Stock that are held
for the benefit of two of Mr. Andersen's children in trusts under which
Mr. Andersen acts as trustee. Mr. Andersen disclaims beneficial
ownership of such shares. Mr. Andersen holds options to purchase up to
35,000 shares of each class of UAE Common Stock at a purchase price of
$9.00 per share, which were granted in December 1988 and expire in
December 1998, all of which are vested. The share amounts for Mr.
Andersen assume the exercise of these options.
(6) Mr. Beck holds options to purchase 35,000 shares of each class of UAE
Common Stock at a purchase price of $9.00 per share, which were granted
in December 1988 and expire in December 1998, all of which are vested.
The share amounts for Mr. Beck assume the exercise of these options.
(7) Includes 415,278 shares of Class A common stock, 227,740 shares of Class
B common stock, and 129,580 shares of Preferred Stock that are owned by
Sweetwater Television Co., Inc., of which Mr. Carollo is President and
together with members of his family, owns all of the capital stock.
(8) All of such shares are owned jointly by Mr. Elsner and his wife.
(9) Includes 150,888 shares of Class A common stock, 102,799 shares of Class
B common stock, and 58,490 shares of Preferred Stock that are owned by
Mr. Giovanini's wife and 197,994 shares of Class A common stock, 121,777
shares of Class B common stock, and 69,289 shares of Preferred Stock
that are owned by Giovanini Investments, Ltd., of which Mr. Giovanini is
a general partner.
(10) Mr. Jones holds options to purchase 50,000 shares of each class of UAE
Common stock at a purchase price of $9.00 per share, which were granted
in October 1987 and expire in October 1997, all of which are vested.
Mr. Jones holds options to purchase an additional 30,000 shares of Class
A common stock at a purchase price of $19.00 per share, which were
granted in June 1989 and expire in June 1994. Options to purchase
10,000 are vested. The share amounts for Mr. Jones assumes the exercise
of his vested options.
(11) Mr. Pinsker holds options to purchase 50,000 shares of each class of UAE
Common Stock at a purchase price of $9.00 per share, which were granted
in October 1987 and expire in October 1997, all of which are vested..
The share amounts for Mr. Pinsker assume the exercise of such vested
options.
(12) Includes 5,114 shares of Class A common stock, 2,530 shares of Class B
common stock, and 1,440 shares of Preferred Stock that are owned by Mr.
Rochelle's wife.
(13) Includes 85,647 shares of Class A common stock, 53,108 shares of Class B
common stock, and 5,108 shares of Preferred Stock that are owned by Mr.
Schneider's wife, 28,171 shares of each of Class A common stock and
28,171 shares of Class B common stock, and 16,029 shares of Preferred
Stock that are owned by the Gladys C. Schneider Revocable Trust, of
which Mr. Schneider is a co -trustee, 8,815 shares of Class A common
stock that are held for the benefit of Mr. Schneider's children in a
trust under which Mr. Schneider is co -trustee, and 25,052 shares of
Class A common stock and 15,408 shares of Class B common stock, and
8,768 shares of preferred stock that are held for the benefit of Mr.
Schneider's children in a trust under which Mr. Schneider is trustee.
(14) All of such shares are owned jointly by Mr. Vierra and his wife.
(15) See footnotes (3) through (14), inclusively, above.
(16) See footnotes (3), (7), (9), (12), and (13), above.
73
Beneficial Ownership of TCI Equity Securities. The following table sets forth
information with respect to the ownership of shares of TCI Class A common stock and
TCI Class B common stock (collectively referred to herein as TCI Common Stock) and
Rights, as of February 1, 1991, by each director of the Company who owns shares of
TCI Common Stock or Rights and by all directors and officers of the Company as a
group. Shares issuable upon exercise of options (which are vested or will vest
within 60 days) are deemed to be outstanding for the purpose of computing the
percentage ownership of the person beneficially owning such options, but have not
been deemed to be outstanding for the purpose of computing the percentage ownership
of any other person. The TCI Class A Common Stock share amounts for each person and
the group named in the table do not give effect to the conversion of any shares of
Class B common stock held by such person or group into shares of TCI Class A common
stock. So far as is known to the Company, the persons indicated below have sole
voting and investment power with respect to the securities indicated as owned by
them, except as otherwise stated in the notes to the table. TCI may be deemed to be
the parent of the Company by virtue of its beneficial ownership, as of February 1,
1991, of approximately 57.0% of the voting power of all shares of UAE Common Stock
then outstanding.
Name of
Title of
Amount and
Nature of
Percent of
Beneficial Owner
Class
Beneficial Ownership (1)
Class (2)
Gene W. Schneider
Class A
20,000
Class B
---
Rights
803,984
(3)
2.678
Robert R. Beck
Class A
14,000
Class B
24,000
Rights
---
Albert M. Carollo
Class A
---
Class B
---
Rights
455,480
(4)
1.508
William J. Elsner
Class A
---
Class B
---
Rights
415
Donne F. Fisher
Class A
253,346
(5)
Class B
146,592
Rights
---
Joseph E. Giovanini
Class A
---
Class B
---
Rights
362,152
(6)
1.208
Marvin Jones
Class A
900
Class B
---
Rights
---
Bob Magness
Class A
2,818,198
(7)(9)(10)
Class B
28,682,076
(7)(8)(10)
58.968
Rights
---
John C. Malone
Class A
5,426
Class B
3,402,000
(8)(11)
6.998
Rights
---
Curtis Rochelle
Class A
---
Class B
---
Rights
5,060
(12)
74
Name of
Title of
Amount and
Nature of
Percent of
Beneficial Owner
Class
Beneficial Ownership (1)
Class (2)
Larry E. Romrell
Class A
12,902
(13)
Class B
588
Rights
---
Richard C. Schneider
Class A
---
Class B
---
Rights
893,498
(14)
2.97%
J.C. Sparkman
Class A
219,535
(15)
Class B
---
Rights
---
Fred A. Vierra
Class A
---
Class B
---
Rights
140,000
(16)
All directors and officers
Class A
3,342,305
(17)
1.07%
as a group (23 persons)
Class B
32,255,256
(18)
67.99%
Rights
2,660,585
(19)
8.85%
* Represents less than 1% of the outstanding shares of the respective
class or less than 1% of the outstanding Rights.
(1) Does not include the interests of those persons for whose account the
trustee of the Tele-Communications, Inc. Employee Stock Purchase Plan
holds shares of TCI common stock.
(2) Based on 310,504,465 shares of TCI Class A common stock, 47,444,626
shares of TCI Class B common stock, and 30,069,120 Rights outstanding on
February 1, 1991.
(3) Includes 2,570 Rights that are owned by Mr. Schneider's wife.
(4) Includes 455,480 Rights that are owned by Sweetwater Television Co.,
Inc., of which Mr. Carollo is President and, together with members of
his family, owns all of the capital stock.
(5) Mr. Fisher holds options to purchase 200,000 shares of TCI Class A
common stock at $10.00 per share, which were granted in June 1988 and
expire in June 1993. All of such options are vested. The share amounts
shown for Mr. Fisher assume the exercise of these options.
(6) Includes 126,598 Rights that are owned by Mr. Giovanini's wife, and
235,554 Rights are owned by Giovanini Investments, Ltd., of which Mr.
Giovanini is a general partner.
(7) Mr. Magness, as executor of the Estate of Betsy Magness, is the
beneficial owner of all shares of TCI Common Stock held of record by the
Estate of Betsy Magness. The share amounts for Mr. Magness include
2,105,332 shares of TCI Class A common stock and 6,346,212 shares of TCI
Class B common stock as to which Mr. Magness is beneficial owner as
executor.
(8) Pursuant to their amended employment agreements with TCI, Mr. Magness
and Dr. Malone each hold options to purchase up to 1,200,000 shares of
TCI Class B common stock at an adjusted purchase price of $1.10 per
share, exercisable through December 31, 1991. The number of shares of
TCI Class B common stock shown for Mr. Magness and Dr. Malone assume the
exercise of those options.
75
(9) Mr. Magness owns 25% beneficially and of record, and an additional 25%
beneficially as executor of the Estate of Betsy Magness, of the stock of
KGBB, Inc., a Colorado corporation which holds 1,200,000 shares of TCI
Class A common stock, and as a result may be deemed to have shared
voting and investment power over such shares. The share amounts for Mr.
Magness include 600,000 shares of TCI Class A common stock indirectly
beneficially owned by Mr. Magness due to his record and beneficial
shareholdings in KGBB, Inc.
(10) Mr. Magness and Kearns -Tribune Corporation (Kearns) are parties to a
buy -sell agreement, entered into in October 1968, as amended, under
which neither party may dispose of their shares of TCI Common Stock
without notification of the proposed sale to the other, who may then buy
such shares at the offered price, sell all of their shares of TCI common
Stock to the other at the offered price or exchange one of their shares
of TCI Class A common stock for each share of TCI Class B common stock
held by the other and purchase any remaining shares of TCI Class B
common stock at the offered price. There are certain exemptions,
including transfers to specified persons or entities, certain public
sales of TCI Class A common stock, and the exchange of shares of TCI
Class A common stock for shares of TCI Class B common stock.
(11) The number of shares of TCI Class B common stock shown for Dr. Malone
includes 690,000 shares held by his wife, Mrs. Leslie Malone. Dr.
Malone disclaims beneficial ownership of such shares.
(12) Includes 5,060 Rights that are owned by Mr. Rochelle's wife.
(13) Mr. Romrell holds options to purchase 10,000 shares of TCI Class A
common stock at a purchase price of $17.25 per share, which expire in
November 1994. All of such options are vested. The share amounts for
Mr. Romrell assume the exercise of such options.
(14) Includes 106,216 Rights that are owned by Mr. Schneider's wife, 56,342
Rights that are owned by the Gladys C. Schneider Revocable Trust, of
which Mr. Schneider is co -trustee, and 30,816 Rights that are held for
the benefit of Mr. Schneider's children in a trust under which Mr.
Schneider is trustee.
(15) Mr. Sparkman holds options to purchase 200,000 shares of TCI Class A
common stock at a purchase price of $10.00 per share, which expire in
June 1993. All of such options are vested. The share amount for Mr.
Sparkman assumes the exercise of such options.
(16) Mr. Vierra owns all of such Rights jointly with his wife.
(17) See footnotes (5), (7), (9), (10), (13) and (15), above.
(18) See footnotes (7), (8), (10), and (11), above.
(19) See footnotes (3), (4), (6), (12), (14) and (16), above.
Item 13. Certain Relationships and Related Transactions
The Company purchases certain programming for its cable television systems
from Satellite Services, Inc. (SSI), a wholly-owned subsidiary of TCI. Under
license agreements entered into by SSI with certain program suppliers, affiliates of
TCI are permitted to obtain programming directly from SSI at rates which may be more
favorable than those available directly from the suppliers themselves. SSI provides
programming to those affiliates at SSI's cost plus an administrative fee. The
Company and its subsidiaries paid SSI approximately $89.0 million for programming
under this arrangement during 1990.
76
On April 25, 1990, the Company entered into a Keep Well Agreement with its
then -subsidiary, NorKabel A/S, a Norwegian joint stock company (NorKabel) which owns
cable television systems being developed in Norway, and the agents for the banks
lending funds to NorKabel under a Senior Loan Facility and a Mezzanine Loan
Facility. Pursuant to the Keep Well Agreement, the Company agreed to lend up to
50.0 million Norwegian Kroner to NorKabel if a breach of the financial undertakings
in NorKabel's loan documents occurred. On August 30, 1990, the Company sold to
United Communications International [a general partnership of which a subsidiary of
United International Holdings, a Colorado general partnership (UIH) has an
approximate 288 interest] the Company's approximate 868 ownership interest in
NorKabel. The aggregate purchase price for the Company's interest in NorKabel was
approximately $36.8 million which was equal to the Company's investment in NorKabel
plus interest at the rate of 108 per annum.
On December 17, 1990, the Company was notified by the agents for the banks
that the financial undertakings were breached and that the Company must lend
NorKabel 50.0 million Norwegian Kroner pursuant to the terms of the Keep Well
Agreement. On January 31, 1991, the loan was made. NorKabel's obligation to repay
the loan is represented by a Subordinated Note denominated in the U.S. Dollar
equivalent of the 50.0 million Norwegian Kroner on the date of the loan, which was
approximately $8.5 million. The Note bears interest at the rate of 158 per annum
until July 1, 1992, and thereafter it bears interest at 308 per annum (but is
subordinated to the obligations of NorKabel to its lenders under the Senior and
Mezzanine Loan Facilities). To secure the obligations of NorKabel under the Note,
UIH, granted the Company a security interest in distributions arising from its
interest in the securities of UI Video Holdings, Inc. (the entity which owns UIH's
interest in certain Blockbuster Video rental stores) (UIVH) and in certain other
securities of UIVH, and agreed to purchase, to the extent of such distributions and
proceeds of such other securities, amounts outstanding under the Note.
The Company has entered into a Stock Purchase and Funding Agreement with
United International Holdings, Inc., a subsidiary of UIH (UIHI), for the sale of the
Company's interest in an entity developing cable systems in Israel. The purchase
price will be equal to the Company's investment in the Israeli systems
(approximately $4.4 million) plus 108 interest per annum on such investment. It is
anticipated that the Company will be paid its purchase price with a convertible
promissory note from the entity purchasing the Company's interest. The note will
bear interest at 108 per annum, mature in 1997, and be convertible after
December 31, 1991 into the proportionate interest the notes represent of the total
contributions to the purchasing entity. Since September 1989, UIHI has provided
management to the Company for the systems, being paid only its direct, out-of-pocket
expenses. In addition, UIHI has provided all capital funds that the Company would
have had to provide since September 1989, which amount to approximately $4.3
million. UIHI or its assigns also have agreed to perform all the Company's
obligations under related existing agreements.
In 1989 the.Company sold its interest in an entity developing cable systems in
Sweden to an affiliate of UIH as disclosed in the Company's 1989 Form 10-K. The
Company and such affiliate of UIH are currently negotiating the amount of post -
closing adjustments owed to the Company from the sale.
Investors in UIH include Gene W. Schneider, Chairman of the Board and a
director of the Company, Fred A. Vierra, President and Chief Operating Officer and a
director of the Company, Richard C. Schneider, Joseph E. Giovanini, Curtis Rochelle,
and William J. Elsner, directors of the Company, and Gary S. Howard, Senior Vice
President of the Company. All of the foregoing persons, other than Mr. Howard, were
executive officers, members of the United Cable Board of Directors, or both, prior
to the Mergers. Mr. Howard was an officer of United Cable prior to the Mergers.
All of the assets sold (or to be sold) to UIH had been owned by United Cable prior
to the Mergers and are among those assets that the Company views as inconsistent
with its business plan.
77
The Company had a loan outstanding, as of December 31, 1989, in the aggregate
principal amount of $6.0 million to UAB, Inc. (UAB) . The loan is evidenced by a
promissory note that bears interest at a bank's prime rate and is due October 1,
1999. In addition, during 1989 the Company purchased from UAB II, Inc. (UAB II)
preferred stock having a liquidating value of $4.9 million. UAB and UAB II are
wholly owned by Stephen M. Brett, Executive Vice President -Legal and Secretary of
the Company (UAB was previously owned by Stewart D. Blair, Vice Chairman and Chief
Executive Officer of the Company). UAB and UAB II were formed to acquire certain
theatres that the Company had contracted for but was unable to purchase due to
regulatory reasons. The loan and investment were provided by the Company to permit
UAB and UAB II to acquire such theatres and to provide both entities with working
capital. UAB and UAB II are holding these theatres for resale. In 1990 the Company
wrote -off an additional $2.8 million against the principal amount of the loan to UAB
and an additional $1.5 million of its investment in UAB II to reflect the Company's
assessment of the value of the theatres owned by each company. Mr. Brett (and
previously Mr. Blair) receives no compensation or other benefits from his
affiliation with UAB and UAB II.
On March 25, 1991, the Executive Committee of the Company's Board of Directors
adopted resolutions to enter into agreements to transfer certain of its cost
investments (including the Company's $67.7 million investment in the Class B
Cumulative Preferred Stock of Turner Broadcasting System, Inc.) to TCI and its
affiliates in exchange for cash proceeds of approximately $43.1 million and the
13,749 shares of the Company's Convertible Preferred Stock, Series A (the UAE
Preferred Shares) held by TCI. The cash proceeds to be received by the Company
reflect a negotiated price of $85.8 million (including $7.7 million of accrued
dividends payable in cash) less the stated liquidation value of $42.7 million
(including $1.5 million of accrued dividends through March 31, 1991) of the UAE
Preferred Shares.
The approximate $9.4 million excess of the cash proceeds and the stated
liquidation value of such Convertible Preferred Stock over the historical cost of
the transferred investments will be treated as a direct increase to the Company's
shareholder's equity in recognition of the fact that TCI is the controlling
shareholder of the Company.
The terms of these transactions were negotiated between executive officers of
TCI, on the one hand, and executive officers of the Company, on the other hand.
Subject to the completion of definitive agreements, the above-described
exchange and assignment are expected to close in the near future.
78
PART IV
Item 14. Exhibits Financial Statement Schedules. and Reuorts on Form 8-K
79
Page
(a) 1. Financial Statements
Number
Included in Part II of this Report:
Independent Auditors' Report
31
Consolidated Balance Sheets -
December 31, 1990 and 1989
32
Consolidated Statements of Operations -
Years ended December 31, 1990, 1989 and 1988
34
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1990, 1989 and 1988
35
Consolidated Statements of Cash Flows -
Years ended December 31, 1990, 1989 and 1988
37
Notes to Consolidated Financial Statements -
December 31, 1990, 1989 and 1988
38
79
Other schedules are omitted as they are not required or are not applicable or the
required information is shown in the applicable consolidated financial statements or
notes thereto.
80
Page
Number
2. Financial Statement Schedules
Independent Auditors'
Report
84
Schedule
I:
Cost Investments - December 31, 1990
85
Schedule
II:
Amounts Receivable from Related
Parties and Employees Other Than
Related Parties - Years ended
December 31, 1990, 1989 and 1988
86
Schedule
III:
Condensed Information as to the
Financial Position of the Registrant,
December 31, 1990 and 1989;
Condensed Information as to the
Operations and Cash Flows of the
Registrant - Years ended
December 31, 1990, 1989 and 1988
87
Schedule
V:
Property and Equipment -
Years ended December 31, 1990, 1989 and 1988
90
Schedule
VI:
Accumulated Depreciation and
Amortization of Property and Equipment -
Years ended December 31, 1990, 1989 and 1988
91
Schedule
VII:
Guarantees of Securities of Other Issuers -
December 31, 1990
92
Schedule
VIII:
Valuation and Qualifying Accounts -
Years ended December 31, 1990, 1989 and 1988
93
Schedule
IX:
Short Term Borrowings - December 31, 1990
94
Schedule
X:
Supplementary Statements of Operations Information -
Years ended December 31, 1990, 1989 and 1988
95
Other schedules are omitted as they are not required or are not applicable or the
required information is shown in the applicable consolidated financial statements or
notes thereto.
80
6
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:
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession:
(a) Letter Agreement dated February 9, 1989 to amend the Amended and
Restated Agreement and Plan of Reorganization and Merger, dated as
of March 8, 1988 by and among United Artists Communications, Inc.,
United Cable Television Corporation and Tele-Communications, Inc.
was filed with Form 10-K for the fiscal year ended December 31,
1988 and is incorporated herein by reference.
(b) Amended and Restated Agreement and Plan of Reorganization and
Merger dated as of March 8, 1988 by and among United Artists
Communications, Inc., United Cable Television Corporation and
Tele-Communications, Inc. was filed with Form 10-Q for the quarter
ended September 30, 1988 and is incorporated herein by reference.
(c) Plan of Reorganization and Agreement of Merger, dated as of May 1,
1987, among United Artists Communications, Inc., a Maryland
corporation, United Artists Communications, Inc., a Delaware
corporation, and United Artists Mergerco, Inc., a Maryland
corporation, was filed in the Company's Registration Statement on
Form S-4, dated May 14, 1987 and is incorporated herein by
reference.
3. Articles of Incorporation and Bylaws:
(a) Restated Certificate of Incorporation, dated May 23, 1988, as
amended April 13, 1989.
(b) Bylaws, dated as of May 25, 1988.
(c) Stockholder Agreement as of May 25, 1989, between United Artists
Entertainment Company, a Delaware corporation and Tele-
Communications, Inc., a Delaware corporation, was filed in the
Company's Registration Statement on Form S-4, dated May 25, 1989,
and is incorporated herein by reference.
4. Instruments defining the rights of security holders, including
debentures:
(a) Indenture, dated as of September 1, 1987, between the Registrant
and Irving Trust Company, Trustee was filed with Form 8-K dated
September 11, 1987 and is incorporated herein by reference.
(b) Form of Convertible Subordinated Debenture filed with the
Underwriting Agreement, dated September 11, 1987, between the
Registrant and Drexel Burnham Lambert Incorporated on Form 8-K
dated September 11, 1987 is incorporated herein by reference.
(c) First Supplemental Indenture dated as of May 25, 1989, among
United Artists Entertainment Company, United Artists
Communications, Inc., and Irving Trust Company, as Trustee, was
filed with Form 8-K dated June 13, 1989 and is incorporated herein
by reference.
81
(d) The following documents are incorporated herein by reference from
Form 10-Q for the quarter ended June 4, 1987.
(1) Amendment, Assignment, Assumption, and Release Agreement
among Teachers Insurance and Annuity Association of America,
United Artists Cablesystems Corporation and United Artists
Communications, Inc., dated as of June 18, 1987 relating to
the Note Purchase Agreement dated January 1, 1982 and
amended and restated as of May 12, 1987.
(2) Amendment, Assignment, Assumption, and Release Agreement
among Aetna Life Insurance Company, United Artists
Cablesystems Corporation and United Artists Communications,
Inc., dated as of June 18, 1987 relating to the Note
Purchase Agreement dated January 1, 1982 and amended and
restated as of May 12, 1987.
(3) Amendment, Assignment, Assumption, and Release Agreement
among Aetna Life Insurance Company, United Artists
Cablesystems Corporation and United Artists Communications,
Inc., dated as of June 18, 1987 relating to the Note
Purchase Agreements dated as of May 12, 1987.
(4) Amendment, Assignment, Assumption, and Release Agreement
among Teachers Insurance and Annuity Association of America,
United Artists Cablesystems Corporation and United Artists
Communications, Inc., dated as of June 18, 1987 relating to
the Note Purchase Agreement dated October 1, 1983 and
amended and restated as of May 12, 1987.
(e) The following agreements are incorporated herein by reference from
Form 10-K for the fiscal year ended December 31, 1988.
(1) Credit Agreement, dated as of November 18, 1988, among
United Artists Holdings, Inc., United Artists Cablesystems
Corporation, United Artists Theatre Circuit, Inc., United
Cable Television Corporation, the banks named therein and
Chemical Bank, as Agent.
(2) Revolving Credit Agreement, dated as of November 18, 1988,
among United Artists Holdings, Inc., United Artists
Cablesystems Corporation, United Artists Theatre Circuit,
Inc., United Cable Television Corporation, the banks named
therein and Societe Generale, as Agent.
(3) Credit Agreement, dated as of November 18, 1988, among
United Artists Holdings, Inc., United Artists Cablesystems
Corporation, United Artists Theatre Circuit, Inc., United
Cable Television Corporation, the banks named therein, the
Bank of New York, as Co -Agent, and The Toronto -Dominion Bank
Trust Company, as Agent.
(4) Basic Terms and Conditions of Note Purchase, dated as of
November 18, 1988 and related Amended and Restated Note
Purchase Agreements, each dated as of November 18, 1988,
among United Artists Holdings, Inc., United Artists
Cablesystems Corporation, United Artists Theatre Circuit,
Inc., United Cable Television Corporation and, respectively,
The Mutual Life Insurance Association of America and
Teachers Insurance and Annuity Association of America.
82
(5) Credit Agreement dated as of February 23, 1989 among United
Artists Cablesystems Corporation, the Bank named therein and
Chemical Bank, as Agent.
(6) Indenture of Mortgage and Deed of Trust from United Artists
Properties I Corp., as grantor to The Connecticut Bank and
Trust Company, National Association and Les Amato as
Trustees, dated as of October 1, 1988.
(f) Loan Agreement dated October 12, 1988 by and among Daniels &
Associates, Inc., NCNB National Bank of North Carolina and Mellon
Bank, N.A. is incorporated herein by reference to Exhibit 10(a) of
Form 10-Q for the quarter ended October 31, 1988 of Daniels &
Associates, Inc. (Commission File No. 0-23410) dated December 14,
1988.
10. Material contracts:
(a) Employment contracts between the Company and the indicated
principal officer and director filed as indicated are incorporated
herein by reference as follows:
(1) John H. Rowley filed with Form 10-Q for the quarter ended
(b) Credit Agreement dated as of August 15, 1990, by and among United
Artists Entertainment Company, United Artists Theatre Circuit,
Inc. and The Bank of New York, as Agent, et al., incorporated by
reference from Exhibit 10(d) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1990.
(c) Credit Agreement dated as of August 15, 1990, among United Cable
Television Corporation, Chemical Bank, as agent, Citibank, N.A.,
and Continental Bank, N.A. as co -agents, et al., incorporated by
reference from Exhibit 10(e) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1990.
(d) Credit Agreement dated as of August 15, 1990, among UACC Midwest,
Inc. and The Toronto -Dominion Bank Trust Company, as Agent, et
al., incorporated by reference from Exhibit 10(f) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1990.
(e) Note Purchase Agreement dated as of August 15, 1990; UACC Midwest,
Inc.; $300,000,000; 10.248 Senior Secured Promissory Notes due
June 30, 2000, incorporated by reference from Exhibit 10(g) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990.
83
December 8, 1983.
(2)
A.C. Childhouse filed with Form
10-Q for the quarter
ended
December 8, 1983.
(3)
Robert A. Naify filed with Form
10-Q for the quarter
ended
December 8, 1983.
(4)
Marshall Naify filed with Form
10-Q for the quarter
ended
March 1, 1984.
(5)
Allen M. Pinsker filed with Form 10-K for the fiscal
year
ended August 31, 1987.
(b) Credit Agreement dated as of August 15, 1990, by and among United
Artists Entertainment Company, United Artists Theatre Circuit,
Inc. and The Bank of New York, as Agent, et al., incorporated by
reference from Exhibit 10(d) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1990.
(c) Credit Agreement dated as of August 15, 1990, among United Cable
Television Corporation, Chemical Bank, as agent, Citibank, N.A.,
and Continental Bank, N.A. as co -agents, et al., incorporated by
reference from Exhibit 10(e) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1990.
(d) Credit Agreement dated as of August 15, 1990, among UACC Midwest,
Inc. and The Toronto -Dominion Bank Trust Company, as Agent, et
al., incorporated by reference from Exhibit 10(f) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1990.
(e) Note Purchase Agreement dated as of August 15, 1990; UACC Midwest,
Inc.; $300,000,000; 10.248 Senior Secured Promissory Notes due
June 30, 2000, incorporated by reference from Exhibit 10(g) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990.
83
(f) The Amended and Restated Note Purchase Agreements among UACC
Midwest, Inc., United Artists Holdings, Inc., United Artists
Theatre Circuit, Inc., United Cable Television Corporation, United
Artists Cablesystems Corporation, and the Purchasers, dated
August 15, 1990, incorporated by reference from Exhibit 10(h) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990.
(g) Revolving Credit Agreement among Micro -Cable Communications Corp.,
as Borrower and Societe Generale, as Agent, and The Long -Term
Credit Bank of Japan, Ltd., as Co -Agent, et al, dated as of August
15, 1990, incorporated by reference from Exhibit 10(i) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990.
(h) Loan Agreement dated as of August 15, 1990, among Micro -Cable
Communications Corp. and Lil Hong Kong Limited Diamond Lease
(Cayman) Ltd., Mitsui Leasing (U.S.A.) Inc. and Orix USA
Corporation, incorporated by reference from Exhibit 10(j) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990.
(i) Note dated October 4, 1988 between UAB, Inc. and United Artists
Realty Company, filed herewith.
(j) Preferred stock certificate of UAB II, Inc., filed herewith.
22. Significant subsidiaries of the Registrant.
24. Consent of KPMG Peat Marwick.
(b) Reports on Form 8-K during the quarter ended December 31, 1990:
None.
84
K0 Peat Marwick
Certified Public Accountants
2300 ARCO Tower
707 Seventeenth Street
Denver, CO 80202
ll x'1!•1 .WR
The Board of Directors and Stockholders
United artists Entertainment Company:
Under date of March 26, 1991, we reported on the consolidated balance sheets of United Artists
Entertainment Company and subsidiaries as of December 31, 1990 and 1989, and the related
consolidated statements of operations, stockholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1990, as contained in the annual report on Form 10-K
for the year 1990. In connection with our audits of the aforementioned consolidated financial
statements, we have also audited the related financial statement schedules as listed in the
accompanying index. These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, the related financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
Denver, Colorado
March 26, 1991
W
Member Firm of
Klyriveld Peat Marwick Goerdeler
KPMG Peat Marwick
SCHEDULE I
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Cost Investments
December 31, 1990
(Amounts in
Millions, Except Share Amounts)
Number of Cost of
Market
Carrying
Issuer
Shares Issue
Value
Value
Turner Broadcasting System, Inc.
Class B common stock
5,355,882 $ 43.2
60.2
43.2
Class B preferred stock
2,727,274 67.7
73.6
67.7 (a)
Class C preferred stock
2,829,268 88.5
191.0
88.5
QVC Network, Inc.
Common stock
442,644 3.6
1.9
3.6
Series B preferred stock
41,818 .4
1.8
.4
Series C preferred stock
104,489 ---
4.4
---
Other
51.6
70.0
51.6 (b)
$25.50
402.9
255.0
(a) The Turner Broadcasting System, Inc. Class B preferred stock is included in
assets held for sale at December 31, 1990.
(b) Approximately $38.0 million of other cost investments are included in assets
held for sale at December 31, 1990.
86
SCHEDULE II
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Amounts Receivable from Related Parties
and Employees Other Than Related Parties
(Amounts in Millions)
(a) Amounts include accrued interest on note receivable balances.
87
Balance at
Balance at
beginning
Deductions
end of
Name of Debtor
of Year
Additions
Cottections
Write-offs
year (a)
Year ended December
31, 1990:
Ron Rierson
=
Russell Skinner
.2
•..
•••
.2
UAB, Inc.
3.8
---
...
(2.8)
1.0
UAB 11, Inc.
3.0
(1.5)
1.5
S� 7�.0
��
3)
2.8
Year ended December
31, 1989:
Stewart Blair
f .4
."-
(•4)
Brendan Clouston
.1
"'
(.1)
••.
...
Marvin Jones
.3
...
(.3)
••.
...
Marvin Roseman
.6
.1
" '
(-7)
John Field
.2
•••
(.2)
.
Russell Skinner
.2
""
...
...
.2
UAB, Inc.
6.1
.6
(.3)
(2.6)
3.8
UAB 11, Inc.
4.9
(1.9)
3.0
Ste
)
5.2)
7.0
Year ended December
31, 1988:
Stewart Blair
S .3
.1
4
Brendan Clouston.
1
" '
'"
" '
1
Marvin Jones
3
...
" '
3
Marvin Roseman
.3
.3
•-•
•--
.6
John Field
•..
.2
.--
•..
.2
Russell Skinner
---
2
•••
...
.2
UAB, Inc.
--
6.1
--
...
6.1
S 1.0
6.9
---
-
7.9
(a) Amounts include accrued interest on note receivable balances.
87
SCHEDULE III
Page 1 of 3
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Condensed Information as to the Financial Position of the Registrant
December 31,
(Amounts in Millions)
Assets
Cash
Receivables:
Notes receivable from consolidated subsidiaries
Interest and other
Investments, at cost
Investments in and advances to consolidated subsidiaries
Deferred financing costs and other assets, net
Liabilities and Stockholders' Equity
Dividends payable
Accrued interest payable
Debt:
Revolving credit facility
Notes payable to banks
6-3/8% convertible debentures
Note payable to consolidated subsidiary
Other
Other liabilities
Total liabilities
Redeemable preferred stock
Stockholders' equity (see detail on
pages 35 and 36)
88
1990 1989
$ .3 ---
522.0
122.0
18.7
.9
540.7
122.9
2.0
3.0
780.2
1,191.5
2.4
3.6
$1.325.6
1.321.0
$ 3.2
3.2
15.7
2.5
400.0
---
---
153.0
---100.0
114.3
112.4
1.7
516.0
36.5_.4
1.9
11.5
536.8
382.6
182.5
182.5
606.3 755.9
$161&.5
1.321.0
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Condensed Information as to the Operations of the Registrant
Years ended December 31,
(Amounts in Millions)
Management costs reimbursed by
consolidated subsidiaries
Interest expense
Interest income on notes receivable from
consolidated subsidiaries
Operating income
Other income (expense):
Share of earnings (losses) of consolidated
subsidiaries and other investees, net
Write-down of preferred stock investment
Gain on sale of investment
Earnings (loss) before income taxes
Deferred income tax expense
Net earnings (loss)
89
SCHEDULE III
Page 2 of 3
1990 1989 1988
$ 20.1 35.5 13.8
(35.2) ( 35.5) (13.8)
15.1
(167.9)
$) )
(95.4) 4.1
(1.5)
(1.9) ---
10.6
(158.8)
(97.3) 4.1
---
6.2 1.8
2.3
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Condensed Information as to the Cash Flows of the Registrant
Years ended December 31,
(Amounts in Millions)
Net cash provided by operating activities:
Cash flows from investing activities:
Acquisition of United Cable Television
Corporation
Acquisition of Daniels & Associates, Inc.
Loans to consolidated subsidiaries
Investments in and advances from
consolidated subsidiaries, net
Other, net
Net cash provided by (used in)
investing activities
Cash flows from financing activities:
Net borrowings under credit facilities
Redemption of 6-3/8% convertible debentures
Payment of notes payable to
Tele-Communications, Inc.
Redeemable preferred stock dividends
Advances from consolidated subsidiaries,
net
Other
Net cash provided by (used in)
financing activities
Net increase in cash
Reconciliation of net earnings (loss) to
net cash provided by operating activities:
Net earnings (loss)
Share of losses (earnings) of
consolidated subsidiaries and
other investees
Loan costs
Deferred income taxes
Other, net
Net cash provided by operating activities
SCHEDULE III
Page 3 of 3
1990 1989 1988
$ 17.6 (6.1) 7.2
--- (942.4) ---
--- (4.5) (109.4)
(400.0) (122.0) ---
243.4 1,144.7 65.8
(5.0) -
(161.6) 75.8 (43.6)
248.7
151.3
---
(100.0)
---
---
(289.8)
---
(18.7)
(8.1)
---
1.9
76.9
35.5
12.4
.9
144.3
(69.7)
36.4
$� 3
---
$ (158.8)
(103.5)
2.3
167.9
95.4
(4.1)
(3.3)
(2.7)
---
---6.2
1.8
11.8
(1.5)
7.2
$17.6
x(6.1)
7.2
Note: See note (3) to the consolidated financial statements for significant noncash
investing and financing activities.
90
SCHEDULE V
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Property and Equipment
(Amounts in Millions)
91
Balance at
Balance
beginning
Additions
Retirements
at end
Classification
of period
at cost
or sales
of geriod
Year ended December 31, 1990:
$ 123.3
3.6
(9.2)
117.7
Land
Theatre buildings, equipment
592.3
36.7
(96.3)
532.7
and other
Theatre lease acquisition costs
140.1
3.5
(14.7)
128.9
Cable distribution systems
1,173.7
303.0
(44.0)
1,432.7
Cable support equipment
100.9
36.7
(.9)
136.7
$ 2,130.3
383.5
(165.1)
2.348.7
Year ended December 31, 1989:
Land
$ 111.1
16.0
(3.8)
123.3
Theatre buildings, equipment
and other
533.4
83.8
(24.9)
592.3
Theatre lease acquisition costs
140.3
---(.2)
140.1
Cable distribution systems
371.0
813.0
(10.3)
1,173.7
Cable support equipment
35.6
66.3
(1.0)
100.9
$ 1.191.4
979.1
(40.2)
2.130.3
Year ended December 31, 1988:
Land
$ 66.0
45.3
(.2)
111.1
Theatre buildings, equipment
and other
408.9
128.8
(4.3)
533.4
Theatre lease acquisition costs
115.4
24.9
---
140.3
Cable distribution systems
305.3
67.7
(2.0)
371.0
Cable support equipment
23.3
12.3
---
35.6
$�
279.0
(6.5)
1.191.4
91
SCHEDULE VI
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Accumulated Depreciation and Amortization of
Property and Equipment
(Amounts in Millions)
Additions
Year ended
Balance at
charged to
Balance
December 31, 1988:
beginning
costs and
Retirements
at end
Classification
of period
expenses
or sales Other (a)
of period
equipment and
Year ended
other $
December 31, 1990:
31.0
(1.6)
--- 142.5
Theatre lease
Theatre buildings,
acquisition costs
equipment and
8.2
---
--- 16.3
Cable distribution
other
$ 166.9
37.6
(37.7) ---
166.8
Theatre lease
29.7
(.8) ---
126.1
Cable support
acquisition costs
26.2
11.0
(1.0) ---
36.2
Cable distribution
2.6
---
--- 12.3
$
systems
209.3
131.4
(14.4) (12.9)
313.4
Cable support
equipment
15.6
17.2
(11.6) 12.9
34.1
$ 418.0
197.2
(64.7) -
550.5
Year ended
December 31, 1989:
Theatre buildings,
equipment and
other
$ 142.5
34.6
(10.2) ---
166.9
Theatre lease
acquisition costs
16.3
9.9
--- ---
26.2
Cable distribution
systems
126.1
92.0
(8.8) ---
209.3
Cable support
equipment
12.3
4.9
(1.6) --
15.6
$ 297.2
141.4
(20.6) �--
418.0
Year ended
December 31, 1988:
Theatre buildings,
equipment and
other $
113.1
31.0
(1.6)
--- 142.5
Theatre lease
acquisition costs
8.1
8.2
---
--- 16.3
Cable distribution
systems
97.2
29.7
(.8) ---
126.1
Cable support
equipment
9.7
2.6
---
--- 12.3
$
228.1
71.5
(2.4) ---
297.2
(a) Amounts represent a transfer to correct a prior period classification error.
92
SCHEDULE VII
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Guarantees of Securities of Other Issuers
December 31, 1990
Title of issue
Name of issuer of securities
of each class
Total amount
guaranteed by person for which
of securities
guaranteed and
Nature of
statement is filed
guaranteed
outstanding
guarantees
(amounts in
millions)
Newport News Cablevision
Principal and
Limited Partnership
Bank loan
$ 2.0
interest
American Cable of Redlands
Principal and
Joint Venture
Bank loan
1.0
interest
K -Prime Partners Limited
General
Funding
Partnership
liabilities
2.4
Commitment
$ 5.4
Note - Columns which would have been answered "none" have been omitted.
93
SCHEDULE VIII
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Valuation and Qualifying Accounts
(Amounts in Millions)
Balance at
beginning
Description of period
Allowance for doubtful receivables:
Year ended December 31, 1990 $ 3.2
Year ended December 31, 1989 1.0
Year ended December 31, 1988 1.1
94
Additions
charged to Write-offs Balance
costs and net of at end
expenses recoveries of period
12.0 (10.2) 5.0
5.4 (3.2) 3.2
1.9 (2.0) 1.0
Schedule IX
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Short Term Borrowings
Year Ended December 31, 1990
(Amounts in Millions, Except Percentage Amounts)
Note: The initial sale of commercial paper occurred on October Z, 1989 and the last issue matured on May 31, 1990.
95
End of
Year
Durinc the Year
Weighted
Maximum
Average
Weighted
Category of aggregate
Amount
average
amount
amount
average
short term borrowings
outstanding
interest rate
outstanding
outstanding
interest rate
Year ended December 31, 1990 -
commercial paper
S
_� 5
=
8.8Y.
Year ended December 31, 1989
commercial paper
S�
9�.1%
s��
5 27.5
9.1X
Note: The initial sale of commercial paper occurred on October Z, 1989 and the last issue matured on May 31, 1990.
95
UNITED ARTISTS ENTERTAINMENT COMPANY
AND SUBSIDIARIES
Supplementary Statements of Operations Information
(Amounts in Millions)
Repairs and maintenance
Taxes, other than payroll and income
Advertising costs
96
SCHEDULE X
Years Ended December 31.
1990 1989 1988
$ 23.4 19.4 13.1
26.7 24.9 19.6
41.9 40.3 25.0
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 ENTERTAINMENT COMPANY
Brendan R. Clouston
(Principal Financial Officer) /s/ Brendan R. Clouston
Dated: March 29, 1991
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.
Gene W. Schneider
Chairman of the Board
Dated: March 29,
1991
Ls/
Gene W.
Schneider
Stewart D. Blair
Vice Chairman and
Chief Executive
Officer
Dated: March 29,
1991
/s/
Stewart
D. Blair
G. Chris Andersen
Director
Dated: March 29,
1991
/s/
G. Chris
Andersen
Robert R. Beck
Director
Dated: March 29,
1991
/s/
Robert
R. Beck
Albert M. Carollo
Director
Dated: March 29,
1991
/s/
Albert
M. Carollo
William J. Elsner
Director
Dated: March 29,
1991
Isl
William
J. Elsner
Donne F. Fisher
Director
Dated: March 29,
1991
/s/
Donne F.
Fisher
Joseph E. Giovanini
Director
Dated: March 29,
1991
/s/
Joseph
E. Giovanini
Marvin Jones
Director and Executive
Vice President
Dated: March 29,
1991
/s/
Marvin
Jones
Bob Magness
Director
Dated: March 29,
1991
Is/
Bob Magness
John C. Malone
Director
Dated: March 29,
1991
/s/
John C.
Malone
97
Allen Pinsker
Director and Executive
Vice President
Dated: March 29, 1991
Curtis Rochelle
Director
Dated: March 29, 1991
Larry E. Romrell
Director
Dated: March 29, 1991
Richard C. Schneider
Director
Dated: March 29, 1991
J.C. Sparkman
Director
Dated: March 29, 1991
Fred A. Vierra
Director, President and
Chief Operating Officer
Dated: March 29, 1991
H. Jack Roemer
Vice President and
Controller
Dated: March 29, 1991
SIGNATURES, Continued
Is
/s/ Allen Pinsker
-/s/ Curtis Rochelle
/s/ LarU E Romrell
/s/ Richard C Schneider
/s/ J C Sparkman
/s/ Fred A Vierra
Ls/ H Jack Roemer
98
A04011,111.ISSUE DATE (MM/DD/YY)
A04011,111. CERTIFICATE OF INSURANCE 12.19_91
p�
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND
59998T NELSON & COMPANY I CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE
INSURANCE BROKERS, INC. I DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE
5251 DTC PARKWAY, SUITE 415 IIII POLICIES BELOW.
ENGLEWOOD, CO 80111 COMPANIES AFFORDING COVERAGE
NNED ARTISTS ENTERTAINMENT CO.
UNITED CABLE TV OF TREASURE VALLEY
5619 DTC PARKWAY
ENGLEWOOD, CO 80111
COMPANY ROYAL INDEMNITY INSURANCE CO.
LETTER A
COMPANY INSURANCE CO. OF NORTH AMERICA
LETTER B
COMPANYPACIFIC EMPLOYERS INSURANCE CO
LETTER C'
COMPANY D
LETTER
#62004 COMPANY E
LETTER
y
COVERAGES
THIS IS TO CERTIFY THAT THE P -� —'
OLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD
INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS
CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS,
EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
CO TYPE OF INSURANCE POLICY NUMBER POLICY EFFECTIVE POLICY EXPIRATION LIMITS
LTR. DATE (MM/DD/YY) DATE (MM/DD/YY)
GENERAL LIABILITY GENERAL AGGREGATE $1, 000, 000—
A X COMMERCIAL GENERAL LIABILITY RHN 004405 01-01-92 01-01-93 PRODUCTS-COMP/OP AGG. 1,000,000
CLAIMS MADE X OCCUR. PERSONAL & ADV. INJURY 1,000,000
OWNER'S & CONTRACTOR'S PROT. EACH OCCURRENCE 1,000,000
FIRE DAMAGE (Any one fire) $
MED. EXPENSE (Any one person) $
AUTOMOBILE LIABILITY COMBINED SINGLE� 000 000
ANY AUTO
B X ISA 002110 01-01-92 01-01-93 LIMIT 1
ALL OWNED AUTOS
r SCHEDULED AUTOS
W X HIRED AUTOS
X
I NON -OWNED AUTOS
I.
GARAGE LIABILITY
I'.
C
EXCESS LIABILITY
UMBRELLA FORM
OTHER THAN UMBRELLA FORM
C WORKER'S COMPENSATION CCS C3 7876926
AND WLR C3 7856964
EMPLOYERS' LIABILITY
OTHER
ASCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
I
CERTIFICATE HOLDER
CITY OF MERIDIAN
ATTN: CITY CLERK
,728 MERIDIAN STREET
MERIDIAN, ID 83642
BODILY INJURY $
(Per person)
BODILY INJURY $
(Per accident)
PROPERTY DAMAGE $
EACH OCCURRENCE $
AGGREGATE $
STATUTORY LIMITS
01-01-92 01-01-93 EACHACCIDENT L, 000, 000
DISEASE—POLICY LIMIT 1, 000, 000
DISEASE—EACH EMPLOYEE L, 000, 000
CANCELLATION
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE
EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO
MAIL 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE
LEFT, BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR
LIABILITY OF ANY KIND UPON THE COMP , ITS AGENT�- 0, EPRESENT IVES.
AUTHORIZED REPRESENTATIVE ✓�
J. MICHAEL O'CONNEL '- VICE PRESIDENT
ACORD 25-S (7/90) 0ACORD CORPORATION 1990
4
March 12, 1991
United Artists Cable
of Idaho
8400 Westpark Street
P.O. Box 44
Boise, ID 83744
(208) 375-8288
uvi T EDAI 1 lbl s��-
The Honorable Mayor Grant Kingsford
33 E. Idaho
Meridian, ID 83642
Dear Mayor Kingsford:
By this letter, and pursuant to the ordinance granting United Cable
Television Corporation the right to operate within the boundaries
of the City of Meridian, we would like to provide you with
notification of some adjustments to our services.
At United Artists Cable of Idaho, we are committed to providing
quality programming, high grade reception and the best in customer
service to meet the needs of the communities we serve. We have
consistently been making substantial improvements to our cable
system to better serve our customers.
Effective May 1, 1991, United Artists Cable of Idaho will adjust
Basic and Plus service rates. The new Basic service rate will be
$19.00. Plus service (ESPN, USA, TNT, The Discovery Channel,
American Movie Classics and C -Span II) will be .954. Plus service
includes additional viewing outlets and FM stereo service at no
charge, for a Whole House entertainment package.
Our premium services, HBO, Showtime, Cinemax and Disney will not be
affected.
A notification will be made to all subscribers on April 1st and
15th notifying them of these changes. In order to provide these
new service options, United Artists Cable will need to switch some
channel locations. We will notify customers of these changes with
channel cards for our new lineup.
The total price for Basic and Plus service will be $19.95, $1.00
more than the current pricing structure for both packages. Let me
take a moment to explain why this changes is necessary.
Honorable Mayor Kingsford
March 12, 1991
Page two
During the past year, cable companies have seen dramatic increases
in the programming costs we must pay to networks such as ESPN or
CNN for the right to cablecast their services. In 1990 alone these
programming costs increased 51 percent. We have consistently cut
costs to avoid passing these increases along. However, programming
costs plus growing fuel, insurance, postage and other expenses
force us to adjust our rates, our total operating expenses
increased over 15 percent in 1990 versus 1989.
It should be noted that our last formal rate increase was in May of
19901 and that following our rate adjustment, our rates will be
equal to or lower than what most other cable companies in this area
are charging.
United Artists Cable wants to make this change as simple as
possible for our subscribers. All current Plus customers will
automatically receive Basic and Plus service on May 1, 1991, so
there is no need for them to call us. Customers currently
receiving Basic and Plus service who would like the Basic service
only will be asked to notify our office by 375-8288 or 454-3061
during regular business hours, which are 8:00 a.m. to 5:00 p.m.
Monday through Saturday. There will be no charge to downgrade the
service.
At United Artists Cable, we strive to provide our community with
the best cable reception, program variety and customer service at
the lowest possible prices. We hope this new service package will
provide our subscribers with a choice, while allowing us to
continue to provide the best programming available. We will be
available to respond to any inquiries your office may receive. I
thank you in advance for you interest. Please contact me if I can
provide any further information.
Sincerely,
Wayne H. Watson
General Manager
WHW/dc
WHW14MR1
�a���� �����������L
uv� � EDAR T i�� NF -
Cable
March 1991 ♦ Meridian
ELEVEN YEARS
IN THE MAKING...
om
... And We Continue
To Grow
December December
1979 1989 1990
Number of Households 19000 46,014 48,742
Served
Number
of Program
19
30
33
Services
Miles of
Cable Installed
15
1,120
11250
Number
of Employees
50
88
103
Cost per
Program Service
52.3C,
53.2G
57.40
Cost per
1st Premium
$9.95
$10.95
$10.95
Channel
United Artists Cable
_ is Dedicated to Providing
the Best Customer Service
1990 Average
♦ Telephone Service Response Rate 93.5%
♦ Technical Assistance Calls 99.6%
Completed Within 24 Hours
— ♦ Average Response Time to 3.8 Hours
Technical Assistance Call
♦ Average Time From Order Receipt 5.1 Days
to Installation Appointment
♦ Average Completion of Installation 83.6%
Appointments
♦ Reliability of Cable Service 99.5%
- United Artists Cable
_ Improved its Service in 1990
♦ Introduced "Whole House" Entertainment Package
- Attractive, affordable package
- 33 programming services
- Free additional viewing outlets
- Free FM stereo service
_ ♦ Introduced "Plus Service"
- Represented five program services
_ ESPN, USA, TNT, AMC, C -SPAN II, The Discovery
Channel
♦ Introduced Popular Cable Packages
- Designed to fit customer preferences
"Family Favorites" (Whole House, HBO, Disney
Channel)
"Showcase" (Whole House, HBO, Showtime)
"The Works" (Whole House, HBO, Showtime,
Cinemax, Disney Channel)
Cable Service and Rates in 1991
Basic Service Plus Service
All programming ♦ ESPN, USA, TNT, Discovery,
services except AMC, C -SPAN II
Plus Service and ♦ Free Additional Viewing Outlets
Premium Channels ♦ Free FM Stereo Service
New Rates
Basic Service $19.00 per month
Plus Service .95 per month
Combined Rate $19.95 per month
Premium Channel Rates Do Not Change
(Includes HBO, Cinemax, Showtime, The Disney Channel)
tion _Cost per Month
1st Premium Channel $10.95
2nd Premium Channel 7.95
3rd Premium Channel 7.95
"The Works" (All 4) 29.95
Optional
Remote Control 3.50
(Maintenance Fee)
Protection Plus
"Protection Plus" provides reduced service
rates to those on restricted incomes.
Basic Service $16.00 per month
Plus Service .95 per month
Combined Rate $16.95 per month
Monthly Cost of First Premium Channel
The Monthly Cost of United Artists Cable's First Premium
Channel Decreased in 1988 and Has Not Increased Since.
15
CITY OF MERIDIAN FRANCHISE FEE
$11,674
85 86 87 88 89 90
YEARS
Compared to Cable Service
in Other Idaho Communities,
United Artists Cable
Provides More Value
Complete Basic Charge
Programming Additional Per
Services Outlets Month
UNITED ARTISTS 33 2 $19.95
CABLE
— Pocatello 29 1 $19.53
Coeur d'Alene 29 1 $25.00
Sun Valley 23 1 $21.25
Lewiston 23 1 $18.65
Idaho Falls 25 1 $18.33
Twin Falls 27 1 $20.00
Plus, United Artists Cable Provides
FM Stereo Service at No Additional Cost
United Artists Cable Expanded
Its Service Area in 1990
Total System Meridian
91 Projects
49.5 Miles
6 Projects
2.75 Miles
Total System Plans for 1991
97 Projects
70 Miles
United Artists Cable
1990 Accomplishments
We Grew
♦ By expanding our service area.
♦ By adding employees.
♦ By offering new and innovative programming.
♦ By creatively packaging cable services.
_ We Celebrated Idaho's Centennial
United Artists Cable, in partnership with television station
_ KTVB, formed the first-ever alliance among the state's cable
operators to telecast statewide coverage of Idaho's 100th
birthday party.
_ We Continued Our Commitment To The Community
♦ With educational projects to benefit Treasure Valley
_
students.
♦ With support of performing arts, civic, and cultural
_
events.
♦ With sponsorship of sports events.
We Renewed Our Commitment To Our Customers
♦ By conducting customer surveys.
♦ By refining our 24-hour Customer Response Center.
♦ By extending office hours.
♦ By shortening response times.
♦ By re-emphasizing employee training.
- In 1991 United Artists Cable
- Will Maintain Enhanced
Customer Benefits
♦ 33 Unique Programming Services
— ♦ 24 -Hour Customer Service Contact
— ♦ Free Technical Service Calls
— ♦ Channel 27 - Community Access Television
♦ Free Additional Outlets
-- ♦ Free FM Stereo Service
United Artists Cable Will
Continue Its Mission In 1991
In the coming year, we will strive to be a leader in providing
quality cable television entertainment by:
♦ Placing the customer first.
♦ Employing and training the best people.
♦ Dedicating our services and support to the communities
we serve.