Attached files
file | filename |
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EX-32.3 - SECTION 906 CEO CERTIFICATION - UCDP FINANCE INC | d223036dex323.htm |
EX-31.1 - SECTION 302 CEO CERTIFICATION - UCDP FINANCE INC | d223036dex311.htm |
EX-31.4 - SECTION 302 CFO CERTIFICATION - UCDP FINANCE INC | d223036dex314.htm |
EX-32.4 - SECTION 906 CFO CERTIFICATION - UCDP FINANCE INC | d223036dex324.htm |
EX-32.2 - SECTION 906 CFO CERTIFICATION - UCDP FINANCE INC | d223036dex322.htm |
EX-32.1 - SECTION 906 CEO CERTIFICATION - UCDP FINANCE INC | d223036dex321.htm |
EX-31.2 - SECTION 302 CFO CERTIFICATION - UCDP FINANCE INC | d223036dex312.htm |
EX-31.3 - SECTION 302 CEO CERTIFICATION - UCDP FINANCE INC | d223036dex313.htm |
EXCEL - IDEA: XBRL DOCUMENT - UCDP FINANCE INC | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 333-108661-01
UNIVERSAL CITY DEVELOPMENT PARTNERS, LTD.
UCDP FINANCE, INC.
(Exact name of registrants as specified in their charters)
FLORIDA | 59-3128514 | |
FLORIDA | 42-1581381 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
1000 UNIVERSAL STUDIOS PLAZA ORLANDO, FL |
32819-7610 | |
(Address of principal executive offices) | (Zip Code) |
(407) 363-8000
(Registrants telephone number, including area code)
Indicate by check mark whether the Registrants (1) have 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 Registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether each Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether each Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether either Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practical date. As of November 2, 2011, there were 100 shares of common stock of UCDP Finance, Inc., outstanding. Not applicable to Universal City Development Partners, Ltd.
Universal City Development Partners, Ltd. and UCDP Finance, Inc. are direct or indirect wholly owned subsidiaries of NBCUniversal Media, LLC. UCDP Finance, Inc. is utilized for the sole purpose of acting as a co-issuer of the Registrants 8 7/8% Senior Notes due 2015 (the 2015 Notes) and 10 7/8% Senior Subordinated Notes due 2016 (the 2016 Notes, together with the 2015 Notes, the Notes). UCDP Finance, Inc. does not and will not conduct any operations or hold any assets of any kind and will not have any future revenues. Universal City Development Partners, Ltd. and UCDP Finance, Inc. met the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and are therefore filing this form with the reduced disclosure format.
Table of Contents
2
Table of Contents
PART I FINANCIAL INFORMATION
Universal City Development Partners, Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands) |
September 30, 2011 |
December 31, 2010 |
||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 73,272 | $ | 259,033 | ||||
Accounts receivable, net |
25,503 | 30,745 | ||||||
Receivables from related parties |
2,962 | 656 | ||||||
Inventories |
59,920 | 55,009 | ||||||
Prepaid expenses and other assets |
12,525 | 7,531 | ||||||
|
|
|
|
|||||
Total current assets |
174,182 | 352,974 | ||||||
Property and equipment, at cost: |
||||||||
Land and land improvements |
507,234 | 505,914 | ||||||
Buildings and building improvements |
1,526,232 | 1,522,333 | ||||||
Equipment, fixtures and furniture |
1,325,407 | 1,313,922 | ||||||
Construction in process |
39,058 | 12,071 | ||||||
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|
|
|
|||||
Total property and equipment, at cost: |
3,397,931 | 3,354,240 | ||||||
Less accumulated depreciation |
(1,734,187 | ) | (1,640,786 | ) | ||||
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|
|
|
|||||
Property and equipment, net |
1,663,744 | 1,713,454 | ||||||
Other assets: |
||||||||
Investments in unconsolidated entities |
10,833 | 9,213 | ||||||
Intangible assets, net |
45,885 | 50,330 | ||||||
Deferred finance costs, net |
9,687 | 21,081 | ||||||
Other assets |
8,763 | 8,563 | ||||||
|
|
|
|
|||||
Total other assets |
75,168 | 89,187 | ||||||
|
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|
|||||
Total assets |
$ | 1,913,094 | $ | 2,155,615 | ||||
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|
Continued on next page.
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Table of Contents
Universal City Development Partners, Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets (Continued)
(Unaudited)
(In thousands) |
September 30, 2011 |
December 31, 2010 |
||||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued liabilities |
$ | 124,268 | $ | 124,662 | ||||
Unearned revenue |
91,219 | 74,614 | ||||||
Payables to related parties |
20,317 | 18,993 | ||||||
Current portion of capital leases and financing obligations |
4,021 | 5,801 | ||||||
Current portion of long-term borrowings |
| 90,000 | ||||||
|
|
|
|
|||||
Total current liabilities |
239,825 | 314,070 | ||||||
Long-term liabilities: |
||||||||
Long-term borrowings |
402,632 | 1,405,168 | ||||||
Long-term borrowings due to related parties |
450,000 | | ||||||
Capital leases and financing obligations, net of current portion |
24,742 | 27,110 | ||||||
Other |
7,916 | 7,996 | ||||||
|
|
|
|
|||||
Total long-term liabilities |
885,290 | 1,440,274 | ||||||
Equity: |
||||||||
Partners equity: |
||||||||
UCSP |
783,278 | 198,014 | ||||||
Blackstone |
| 198,014 | ||||||
|
|
|
|
|||||
Total Partners equity |
783,278 | 396,028 | ||||||
Noncontrolling interest in UCRP |
4,701 | 5,243 | ||||||
|
|
|
|
|||||
Total equity |
787,979 | 401,271 | ||||||
|
|
|
|
|||||
Total liabilities and equity |
$ | 1,913,094 | $ | 2,155,615 | ||||
|
|
|
|
See accompanying notes.
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Table of Contents
Universal City Development Partners, Ltd. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
(In thousands) |
September 30, 2011 |
September 26, 2010 |
September 30, 2011 |
September 26, 2010 |
||||||||||||
Total operating revenues |
$ | 393,512 | $ | 363,567 | $ | 1,094,470 | $ | 769,634 | ||||||||
Costs and operating expenses: |
||||||||||||||||
Theme park operations |
61,415 | 54,034 | 172,444 | 145,647 | ||||||||||||
Theme park selling, general and administrative |
39,066 | 42,229 | 142,416 | 143,641 | ||||||||||||
Theme park cost of products sold |
45,835 | 42,625 | 127,292 | 90,744 | ||||||||||||
Special fee payable to Universal City Studios Productions and consultant fee |
26,846 | 24,431 | 73,857 | 51,232 | ||||||||||||
Depreciation and amortization |
35,583 | 32,029 | 101,677 | 87,655 | ||||||||||||
Other |
45,933 | 41,227 | 137,142 | 98,745 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total costs and operating expenses |
254,678 | 236,575 | 754,828 | 617,664 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
138,834 | 126,992 | 339,642 | 151,970 | ||||||||||||
Other expense (income): |
||||||||||||||||
Interest expense |
17,101 | 30,022 | 76,226 | 86,384 | ||||||||||||
Interest income |
(32 | ) | (85 | ) | (207 | ) | (122 | ) | ||||||||
Loss on extinguishment of debt |
44,983 | | 44,983 | | ||||||||||||
Expenses associated with debt refinancing |
| | | 3,310 | ||||||||||||
Income from investments in unconsolidated entities |
(1,385 | ) | (714 | ) | (3,105 | ) | (1,717 | ) | ||||||||
|
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|
|
|
|
|
|
|||||||||
Total other expense, net |
60,667 | 29,223 | 117,897 | 87,855 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
78,167 | 97,769 | 221,745 | 64,115 | ||||||||||||
Less: net income attributable to the noncontrolling interest in UCRP |
303 | 505 | 1,821 | 1,457 | ||||||||||||
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|
|||||||||
Net income attributable to the Partners |
$ | 77,864 | $ | 97,264 | $ | 219,924 | $ | 62,658 | ||||||||
|
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|
|
|
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|
See accompanying notes.
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Table of Contents
Universal City Development Partners, Ltd. and Subsidiaries
Condensed Consolidated Statement of Changes in Equity
(Unaudited)
UCDPs Partners | Noncontrolling interest in UCRP |
Total Equity |
||||||||||||||
(In thousands) |
UCSP | Blackstone | ||||||||||||||
Balance at December 31, 2010 |
$ | 198,014 | $ | 198,014 | $ | 5,243 | $ | 401,271 | ||||||||
Distributions to noncontrolling interest in UCRP |
| | (2,363 | ) | (2,363 | ) | ||||||||||
Distributions to Partners and Holdings |
(38,422 | ) | (38,422 | ) | | (76,844 | ) | |||||||||
UCSPs acquisition of Blackstones equity in UCDP |
230,622 | (230,622 | ) | | | |||||||||||
Contributions from NBCUniversal |
244,170 | | | 244,170 | ||||||||||||
Net income |
148,894 | 71,030 | 1,821 | 221,745 | ||||||||||||
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|
|||||||||
Balance at September 30, 2011 |
$ | 783,278 | $ | | $ | 4,701 | $ | 787,979 | ||||||||
|
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|
|
|
|
|
See accompanying notes.
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Table of Contents
Universal City Development Partners, Ltd. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended | ||||||||
(In thousands) |
September 30, 2011 |
September 26, 2010 |
||||||
Cash flows from operating activities |
||||||||
Net cash and cash equivalents provided by operating activities |
$ | 375,127 | $ | 247,749 | ||||
Cash flows from investing activities |
||||||||
Property and equipment acquisitions |
(38,990 | ) | (94,020 | ) | ||||
|
|
|
|
|||||
Net cash and cash equivalents used in investing activities |
(38,990 | ) | (94,020 | ) | ||||
Cash flows from financing activities |
||||||||
Payment of distributions to Partners and Holdings |
(76,844 | ) | | |||||
Receipt of contributions from Holdings |
| 346 | ||||||
Receipt of contributions from NBCUniversal |
244,170 | | ||||||
Payments associated with extinguishment of debt |
(21,111 | ) | | |||||
Distributions to the noncontrolling interest in UCRP |
(2,363 | ) | (2,002 | ) | ||||
Payments for financing costs |
| (8,565 | ) | |||||
Proceeds from the issuance of the NBCUniversal Note |
600,000 | | ||||||
Payments on long-term borrowings due to related parties |
(150,000 | ) | | |||||
Payments on long-term borrowings, capital lease and financing obligations |
(1,115,750 | ) | (14,518 | ) | ||||
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|
|
|
|||||
Net cash and cash equivalents used in financing activities |
(521,898 | ) | (24,739 | ) | ||||
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|
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|
|||||
Net (decrease) increase in cash and cash equivalents |
(185,761 | ) | 128,990 | |||||
Cash and cash equivalents at beginning of period |
259,033 | 45,157 | ||||||
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|
|||||
Cash and cash equivalents at end of period |
$ | 73,272 | $ | 174,147 | ||||
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Supplemental disclosures of noncash information |
||||||||
Capital lease and financing obligations |
$ | | $ | 875 | ||||
|
|
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|
|||||
Increase (decrease) in accrued liabilities associated with capital expenditures |
8,532 | (25,281 | ) | |||||
|
|
|
|
|||||
Disposal of fully depreciated assets |
5,431 | 111 | ||||||
|
|
|
|
See accompanying notes.
7
Table of Contents
Universal City Development Partners, Ltd. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2011
(Unaudited)
1. General
Basis of presentation
The accompanying unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures which are normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to those rules and regulations. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the financial position and the results of operations for the interim periods. The results for the interim periods are not necessarily indicative of the results that can be expected for a full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2010 and the notes thereto, filed with the Securities and Exchange Commission under cover of Form 10-K.
The accompanying unaudited condensed consolidated financial statements include the consolidated amounts of Universal City Development Partners, Ltd. (UCDP); Universal City Travel Partners d/b/a Universal Parks & Resorts Vacations (UPRV); UCDP Finance, Inc. (UCDP Finance); Universal Orlando Online Merchandise Store (UOOMS); and Universal City Restaurant Partners, Ltd. (UCRP) (collectively, the Company). All significant intercompany balances and transactions have been eliminated upon consolidation.
Prior to July 1, 2011, UCDPs ultimate owners were Universal City Property Management II LLC (Universal CPM) and Blackstone Capital Partners (Blackstone, together with Universal CPM, the Partners). Through Universal City Florida Holding Co. I (Holding I) and Universal City Florida Holding Co. II (Holding II, collectively with Holding I, Holdings), the Partners each held 50% interests in UCDP. Universal CPM is a wholly owned subsidiary of Universal City Studios Productions LLLP (UCSP, formerly known as Vivendi Universal Entertainment or VUE), which in turn is a subsidiary of NBCUniversal Media, LLC. NBCUniversal Media, LLC is a wholly owned subsidiary of NBCUniversal, LLC (NBCUniversal Holdings). Through NBCUniversal Holdings, Comcast Corporation (Comcast) owns 51% of NBCUniversal Media, LLC, while General Electric Company (GE) owns the remaining 49%. Within these condensed consolidated financial statements, NBCUniversal refers to NBCUniversal Media, LLC and its affiliates. Prior to July 1, 2011, both Partners shared in profits and losses, contributions and distributions of UCDP in accordance with their ownership percentages. However, on July 1, 2011, NBCUniversal completed its acquisition of Blackstones 50% equity interest in UCDP for approximately $1,019,000,000. As a result, UCDP is now a wholly owned consolidated subsidiary of NBCUniversal. NBCUniversals acquisition fair value accounting has not been pushed down to the assets and liabilities of UCDP due to the 2015 Notes and the 2016 Notes that remain outstanding.
Period end
The three months ended September 30, 2011 contained 92 days, while the three months ended September 26, 2010 contained 91 days. The nine months ended September 30, 2011 contained 273 days, while the nine months ended September 26, 2010 contained 269 days. Effective the first quarter of 2011, the Companys fiscal calendar was changed from a 13-week format to a traditional calendar with quarter ending dates of March 31, June 30, September 30 and December 31. Although this will not impact the total number of days in the Companys fiscal year, it may alter the number of days within a given quarter.
Seasonality and other factors impacting comparability
Based on the seasonality of attendance, the results for the three months and nine months ended September 30, 2011 and September 26, 2010 are not necessarily indicative of results for the full year. Additionally, on June 18, 2010, the Company opened The Wizarding World of Harry PotterTM, a sixth themed island within Universals Islands of Adventure. Accordingly, comparisons of the operating results and cash flows for the nine months ended September 30, 2011 and September 26, 2010 were impacted by this event.
Inventories
The major components of inventories are as follows (in thousands):
September 30, 2011 |
December 31, 2010 |
|||||||
Merchandise |
$ | 25,408 | $ | 19,279 | ||||
Food and beverage |
4,547 | 5,301 | ||||||
Operating supplies and maintenance parts |
33,711 | 33,438 | ||||||
Less: reserves |
(3,746 | ) | (3,009 | ) | ||||
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|
|
|||||
Total |
$ | 59,920 | $ | 55,009 | ||||
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|
|
Intangible assets
Intangible assets primarily consist of the rights to use certain characters and trademarks. Intangible assets are recorded at net present value and amortized on a straight-line basis over periods ranging from 9 to 20 years, which have a weighted-average amortizable life of 13 years. Intangible assets totaled $45,885,000 and $50,330,000, respectively, as of September 30, 2011 and December 31, 2010. This included $19,580,000 and $15,135,000 in accumulated amortization, respectively, as of September 30, 2011 and December 31, 2010. Amortization expense amounted to $1,451,000 and $1,408,000, respectively, during the three months ended September 30, 2011 and September 26, 2010, while amortization expense amounted to $4,445,000 and $2,460,000 during the nine months ended September 30, 2011 and September 26, 2010, respectively. Amortization of existing intangible assets will be approximately $5,896,000 for 2011 and $5,804,000 for each of the four years thereafter.
Change in estimate
Due to changes in facts and circumstances in the normal course of business, portions of existing assets will be disposed of prior to their original estimated useful lives. As a result, depreciation of existing assets will be accelerated to reflect their remaining useful lives. For the three months ended September 30, 2011 and September 26, 2010, the Company incurred additional depreciation expenses of $4,120,000 and $609,000, respectively, relating to accelerating the life of various assets. Similarly, during the nine months ended September 30, 2011 and September 26, 2010, respectively, the Company incurred additional depreciation expenses of $6,779,000 and $2,235,000.
Financial instruments
The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments. The estimated fair values of other financial instruments subject to fair value disclosures, determined based on quotes from major financial institutions, and the related carrying amounts are as follows (in thousands):
September 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
Long-term borrowings (including current portion) (1) |
$ | 402,632 | $ | 452,481 | $ | 1,495,168 | $ | 1,566,300 | ||||||||
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(1) | Amounts as of September 30, 2011 exclude $450,000,000 payable under the NBCUniversal Note (as defined in Note 2 below). |
Recent accounting pronouncements
Not applicable.
Other Comprehensive Income (Loss)
During the three months and nine months ended September 30, 2011 and September 26, 2010, the Company did not have any transactions resulting in Total Other Comprehensive Income.
8
Table of Contents
2. Long-term borrowings
Indebtedness consisted of the following (in thousands, except percentages):
Interest Rate | Maturity Date | September 30, 2011 |
December 31, 2010 |
|||||||||||
Senior secured credit facilities |
(1 | ) | November 6, 2014 | $ | | $ | 891,000 | |||||||
NBCUniversal Note |
(2 | ) | July 1, 2016 | 450,000 | | |||||||||
2015 Notes |
8.875 | % | November 15, 2015 | 260,000 | 400,000 | |||||||||
2016 Notes |
10.875 | % | November 15, 2016 | 146,250 | 225,000 | |||||||||
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|
|
|||||||||||
Gross principal payable |
856,250 | 1,516,000 | ||||||||||||
Unamortized discounts |
(3,618 | ) | (20,832 | ) | ||||||||||
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|
|||||||||||
Total debt |
$ | 852,632 | $ | 1,495,168 | ||||||||||
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(1) | Subsequent to the April 30, 2010 amendment, the interest rate on the term loans of the senior secured credit facilities was either a base rate (calculated as the highest of the prime rate in effect on such day, the sum of 1/2 of 1.00% plus the federal funds rate, and LIBOR plus 1.00%, provided that the base rate will never be less than 2.75%) or LIBOR (provided that LIBOR will never be less than 1.75%), in each case plus a specified margin. The specified margin was 2.75% in the case of base rate loans and 3.75% in the case of LIBOR loans. |
(2) | The NBCUniversal Note bears interest at LIBOR plus 250 basis points. As of September 30, 2011, this equated to a rate of 2.8%. |
Current debt structure
On July 1, 2011, UCDP issued to NBCUniversal a $600,000,000 unsecured note due July 1, 2016 (the NBCUniversal Note), the proceeds of which, together with available cash on hand, were used to refinance and repay all amounts outstanding ($801,000,000) under UCDPs senior secured credit facilities, which were terminated. In relation to the termination of the senior secured credit facilities, the Company recorded a loss on extinguishment of $16,568,000 which was primarily related to the write-off of $12,835,000 of unamortized original issuance discounts and $3,663,000 of unamortized deferred finance costs. During the three months ended September 30, 2011, the Company made prepayments totaling $150,000,000 on the NBCUniversal Note.
On August 1, 2011, UCDP completed its redemption of $140,000,000 aggregate principal amount of its 2015 Notes and $78,750,000 aggregate principal amount of its 2016 Notes. Following the redemption, $260,000,000 principal amount of UCDPs 2015 Notes and $146,250,000 of UCDPs 2016 Notes remain outstanding. To facilitate the redemption of the 2015 Notes and the 2016 Notes, the Company received a contribution of $244,170,000 from NBCUniversal on August 1, 2011. In relation to the redemption of the 2015 Notes and the 2016 Notes, the Company recorded a loss on extinguishment of $28,415,000 which was primarily related to the payment of a call premium in the amount of $20,989,000 in addition to the write-off of $5,368,000 of unamortized deferred finance costs and $2,006,000 of unamortized original issuance discounts. See Note 9 for a discussion of subsequent events that conformed the covenants and events of default contained in the indentures governing the 2015 Notes and the 2016 Notes to those contained in NBCUniversals outstanding public debt.
Prior debt structure
The term loans under the senior secured credit facilities were subject to mandatory prepayments of 100% of the net cash proceeds from certain asset sales and from the sale or issuance of indebtedness, in each case subject to certain exceptions including the Notes, and of 50% of the Companys excess cash flow (as defined in the senior secured credit agreement) for each fiscal year on or after December 31, 2010. During the nine months ended September 30, 2011, the Company made a $90,000,000 principal payment on the senior secured credit facilities, which was equal to 50% of the excess cash flow for the year ended December 31, 2010. As permitted under the senior secured credit agreement, the Company elected to have this payment satisfy the quarterly principal installment requirement, which was equal to 0.25% of the original gross principal balance, for all future quarters.
3. Fair value measurements
The Company follows accounting guidance that defines fair value, establishes a consistent framework for measuring fair value and expands disclosures for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. This guidance specifies that fair value is an exit price, representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1. | Observable inputs such as quoted prices in active markets for identical assets or liabilities; | |
Level 2. | Inputs, other than quoted prices included within Level 1, that are observable either directly or indirectly; and | |
Level 3. | Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
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Table of Contents
As of September 30, 2011 and December 31, 2010, the Company did not have assets or liabilities valued using inputs that fall within Level 1, Level 2 or Level 3 of the three-tier hierarchy.
4. Accounts payable and accrued liabilities
The following presents major components of accounts payable and accrued liabilities (in thousands) as of:
September 30, 2011 | December 31, 2010 | |||||||
Accounts payable |
$ | 8,272 | $ | 13,574 | ||||
Capital expenditures |
11,993 | 3,461 | ||||||
Marketing and advertising |
7,426 | 5,862 | ||||||
Interest |
14,617 | 15,424 | ||||||
Compensation and benefits |
32,559 | 43,465 | ||||||
Operating accruals |
14,373 | 21,012 | ||||||
Consulting fees |
8,730 | 7,662 | ||||||
Property and sales tax |
18,013 | 6,426 | ||||||
Other |
8,285 | 7,776 | ||||||
|
|
|
|
|||||
Total |
$ | 124,268 | $ | 124,662 | ||||
|
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|
|
5. Capital leases and financing obligations
Intangible assets and equipment, fixtures and furniture included approximately $39,931,000 and $44,591,000, related to financing obligations and capital leases as of September 30, 2011 and December 31, 2010, respectively. This included $9,064,000 and $4,404,000 in accumulated depreciation and amortization as of September 30, 2011 and December 31, 2010, respectively. At September 30, 2011, future minimum payments due under financing obligations and capital leases totaled approximately $28,763,000 (net of $8,911,000 in interest). Future minimum payments include $5,577,000, $5,032,000, $4,174,000 and $13,980,000, due in 2012, 2013, 2014, and years subsequent to 2014, respectively.
6. Related party transactions
Long-term borrowings due to related parties
For a discussion of the long-term borrowings due to related parties, see Note 2. Long-term borrowings and the related discussion of the NBCUniversal Note.
Universal City Studios Productions special fee
Under the terms of UCDPs partnership agreement, a special fee is payable to UCSP through Universal CPM equal to 5.25% of certain revenue, as defined, generated by Universal Studios Florida and Universals Islands of Adventure. During the three months ended September 30, 2011 and September 26, 2010, the Company paid fees to UCSP of $17,871,000 and $10,971,000, respectively, while during the nine months ended September 30, 2011 and September 26, 2010, the Company paid fees of $47,887,000 and $27,111,000, respectively. In addition, at September 30, 2011 and December 31, 2010, respectively, the amount payable to related parties included $18,276,000 and $15,969,000 related to the current portion of special fees payable to UCSP.
Distributions
During the nine months ended September 30, 2011, the Company made distributions to the Partners of $31,582,000, which represented the Partners expected payments of income taxes based on the Companys financial results. This distribution was required under the Companys partnership agreement. Additionally, during the nine months ended September 30, 2011, the Company made a distribution to the Partners in the amount of $44,758,000 as previously allowed by the excess cash flow provisions of the senior secured credit facilities. Also, during the nine months ended September 30, 2011, the Company made a distribution to Holdings in the amount of $504,000.
Advisory services agreements
UCDP has an Advisory Services Agreement (Services Agreement) in which the Partners provide UCDP with advisory and consulting services in connection with the ongoing strategic and operational oversight of UCDPs affairs in such areas as financing structures, public and private offerings of debt and equity securities and property dispositions and acquisitions. In connection with the Services Agreement, UCDP paid each Partner $1,250,000 annually. On July 1, 2011, this agreement was amended to terminate all of Blackstones rights and obligations under such agreement. Accordingly, the Company recorded a charge of $625,000 during the nine months ended September 30, 2011 related to the unamortized portion of Blackstones 2011 fee.
10
Table of Contents
7. Commitments and contingencies
Litigation
The Company is threatened with or involved in various legal actions and claims incidental to the conduct of its business. Management does not expect these legal actions and claims to have a material impact on the Companys results of operations, financial position or cash flows.
Consultant agreement
UCDP has an agreement (the Consultant Agreement) with Steven Spielberg (the Consultant) under which UCDP pays a fee for consulting services and exclusivity equal to a percentage of certain gross revenues from the attractions and certain other facilities owned or operated, in whole or in part, by UCDP. The accompanying condensed consolidated statements of operations include consulting fee expense under the Consultant Agreement of $8,730,000 and $7,947,000 during the three months ended September 30, 2011 and September 26, 2010, respectively. Similarly, consulting fees under the Consultant Agreement during the nine months ended September 30, 2011 and September 26, 2010 amounted to $24,027,000 and $16,690,000, respectively.
Under the terms of the Consultant Agreement, the Consultant is also entitled to a fee based on a percentage of gross revenues of comparable projects, which are gated motion picture and/or television themed attractions owned or operated, in whole or in part, by UCDP, or any of UCDPs partners or any of their affiliates, other than in Universal City, California. As of September 30, 2011, the only operating theme parks that are deemed to be comparable projects under the Consultant Agreement are Universal Studios Japan in Osaka, Japan and Universal Studios Singapore on Sentosa Island, Singapore. The Consultant may also be entitled to participate in certain sales of equity by the Companys partners and to participate in certain real estate development activities of the Companys partners or their affiliates. Universal Studios Company LLC (USC), an indirect wholly owned subsidiary of NBCUniversal Media, LLC and the indirect parent of UCSP, has guaranteed UCDPs obligations under the Consultant Agreement for the benefit of the Consultant, and UCSP has assumed USCs obligations under that guarantee and has agreed to indemnify UCDP for any liability under the Consultant Agreement related to any comparable project that is not owned or controlled by UCDP. Accordingly, fees with respect to Universal Studios Japan and Universal Studios Singapore are paid by an affiliate of UCSP and are not paid by UCDP. However, if such comparable project fees were not paid by that party, UCDP would be required to make the payments and seek indemnification from UCSP.
On October 18, 2009, the Company executed an amendment to the Consultant Agreement (the 2009 Amendment). Prior to the 2009 Amendment, starting in June 2010, the Consultant had the right, upon 90 days notice, to terminate the Companys obligation to make periodic payments thereunder and receive instead one cash payment equal to the fair market value of the Consultants interest in the revenue streams in the Orlando parks and any comparable projects that were open at that time for at least one year (the Put Payment). Under the terms of the 2009 Amendment, the earliest exercise date for the Put Payment is June 2017. If the Put Payment is exercised, the Consultant will be precluded from competing or consulting with another theme park for a period of five years after exercise, and the Consultant Agreement allows the Company the right to use ideas generated during the term of the Consultant Agreement without further payment. In addition, the 2009 Amendment established a formula-based method that includes a risk premium of 6.5% with respect to the Orlando parks to determine the amount of the Put Payment and modified terms related to comparable projects so that in addition to the existing comparable parks, three contemplated comparable parks are vested immediately for purposes of the quarterly consulting fee payments but each such contemplated comparable park must still be open for at least one year at the time the Put Payment is exercised in order for such project to be included in the Put Payment. The Consultant Agreement allows the Consultant to make a one-time election to fix the values for certain, but not all, inputs into the aforementioned formula to establish a minimum amount for the one-time payment to the Consultant (the Alternative Payment) in the event that the date the Consultant gives notice to terminate his right to receive compensation under the Consultant Agreement is at least 90 days before March 31, 2018. Although the Consultant made this election on January 15, 2010, the actual amount of the Alternative Payment cannot be determined prior to the Consultant exercising his right to receive the Put Payment, as the Alternative Payment amount is dependent on a discount rate that will set 90 days after the date on which the Consultant exercises his right to receive the Put Payment. The discount rate is based on the actual treasury rate on such date plus a risk premium. However, based on a sensitivity analysis of possible treasury and comparable rates for the United States and Japan ranging from 0% to 15%, the Company estimates that the Alternative Payment for its parks could range from $160,000,000 to $290,000,000, and the Alternative Payment for Universal Studios Japan could range from $135,000,000 to $245,000,000. This range has been calculated based on hypothetical treasury rates, and the Company cannot provide assurance as to the timing or amount of the Put Payment or the Alternative Payment. These payments may be higher or lower than the range provided above and any such deviation could be material. Any such payment will only be finally determinable once the Consultant exercises his right to receive the Put Payment and the payment becomes due. The 2009 Amendment also provided the Consultant a second-priority lien, which was automatically and unconditionally released in connection with the termination of the Companys senior secured credit facilities (see Note 2), over UCDPs real and tangible personal property (including a mortgage on the Companys real property up to $400,000,000) to secure the Companys periodic and one-time payment obligations and such amendment caps the Companys ability to incur secured borrowings to an amount equal to the greater of $975,000,000 and 3.75x UCDPs EBITDA (as defined in the senior secured credit facilities). In connection with the 2009 Amendment, NBCUniversal Media, LLC guaranteed the Companys obligations under the Consultant Agreement and the Company amended its partnership agreement to increase the special fee payable to UCSP thereunder through June 2017 from 5.0% to 5.25%. Upon the sale of any portion of UCSPs or certain of its affiliates respective interest in UCDP, the Consultant may have the right to sell in such sale an equal portion of his compensation rights under the Consultant Agreement to the prospective purchasers.
11
Table of Contents
8. Guarantor information
The Companys payment obligations under the 2016 Notes and the 2015 Notes are fully and unconditionally guaranteed, jointly and severally, by the following domestic wholly owned subsidiaries: UPRV and UOOMS. The following is condensed consolidating financial information as of September 30, 2011 and December 31, 2010 and for the three months and nine months ended September 30, 2011 and September 26, 2010 for UCDP and UCDP Finance, Inc. (collectively the Parent), the combined guarantor subsidiaries of UCDP (collectively, the Guarantors), and the non-guarantor subsidiary of UCDP (collectively, the Non-Guarantors).
Condensed consolidating balance sheet
(in thousands)
September 30, 2011 | ||||||||||||||||||||
Parent | Guarantors | Non-Guarantors | Eliminations | Total | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 50,945 | $ | 21,867 | $ | 460 | $ | | $ | 73,272 | ||||||||||
Other current assets |
103,032 | 1,495 | 1,311 | (4,928 | ) | 100,910 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
153,977 | 23,362 | 1,771 | (4,928 | ) | 174,182 | ||||||||||||||
Property and equipment, at cost |
3,382,320 | 1,429 | 14,182 | | 3,397,931 | |||||||||||||||
Less accumulated depreciation |
(1,724,622 | ) | (1,124 | ) | (8,441 | ) | | (1,734,187 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total property and equipment, net |
1,657,698 | 305 | 5,741 | | 1,663,744 | |||||||||||||||
Other assets: |
||||||||||||||||||||
Investments in unconsolidated entities |
21,154 | | | (10,321 | ) | 10,833 | ||||||||||||||
Intangible assets, net |
41,630 | | 4,255 | | 45,885 | |||||||||||||||
Other assets |
18,450 | | | | 18,450 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other assets |
81,234 | | 4,255 | (10,321 | ) | 75,168 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 1,892,909 | $ | 23,667 | $ | 11,767 | $ | (15,249 | ) | $ | 1,913,094 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 122,104 | $ | 1,642 | $ | 624 | $ | (102 | ) | $ | 124,268 | |||||||||
Other current liabilities |
102,237 | 16,405 | 1,741 | (4,826 | ) | 115,557 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
224,341 | 18,047 | 2,365 | (4,928 | ) | 239,825 | ||||||||||||||
Long-term liabilities: |
||||||||||||||||||||
Long-term borrowings |
852,632 | | | | 852,632 | |||||||||||||||
Other long-term liabilities |
32,658 | | | | 32,658 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total long-term liabilities |
885,290 | | | | 885,290 | |||||||||||||||
Equity: |
||||||||||||||||||||
Partners equity |
783,278 | 5,620 | 9,402 | (15,022 | ) | 783,278 | ||||||||||||||
Noncontrolling interest in UCRP |
| | | 4,701 | 4,701 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
783,278 | 5,620 | 9,402 | (10,321 | ) | 787,979 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 1,892,909 | $ | 23,667 | $ | 11,767 | $ | (15,249 | ) | $ | 1,913,094 | |||||||||
|
|
|
|
|
|
|
|
|
|
Condensed consolidating balance sheet
(in thousands)
December 31, 2010 | ||||||||||||||||||||
Parent | Guarantors | Non-Guarantors | Eliminations | Total | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 238,330 | $ | 19,882 | $ | 821 | $ | | $ | 259,033 | ||||||||||
Other current assets |
99,729 | 2,537 | 1,203 | (9,528 | ) | 93,941 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
338,059 | 22,419 | 2,024 | (9,528 | ) | 352,974 | ||||||||||||||
Property and equipment, at cost |
3,339,055 | 1,245 | 13,940 | | 3,354,240 | |||||||||||||||
Less accumulated depreciation |
(1,631,928 | ) | (1,057 | ) | (7,801 | ) | | (1,640,786 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total property and equipment, net |
1,707,127 | 188 | 6,139 | | 1,713,454 | |||||||||||||||
Other assets: |
||||||||||||||||||||
Investments in unconsolidated entities |
14,666 | | | (5,453 | ) | 9,213 | ||||||||||||||
Intangible assets, net |
45,640 | | 4,690 | | 50,330 | |||||||||||||||
Other assets |
29,644 | | | | 29,644 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other assets |
89,950 | | 4,690 | (5,453 | ) | 89,187 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 2,135,136 | $ | 22,607 | $ | 12,853 | $ | (14,981 | ) | $ | 2,155,615 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 121,381 | $ | 2,707 | $ | 853 | $ | (279 | ) | $ | 124,662 | |||||||||
Other current liabilities |
177,453 | 19,690 | 1,514 | (9,249 | ) | 189,408 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
298,834 | 22,397 | 2,367 | (9,528 | ) | 314,070 | ||||||||||||||
Long-term liabilities: |
||||||||||||||||||||
Long-term borrowings |
1,405,168 | | | | 1,405,168 | |||||||||||||||
Other long-term liabilities |
35,106 | | | | 35,106 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total long-term liabilities |
1,440,274 | | | | 1,440,274 | |||||||||||||||
Equity: |
||||||||||||||||||||
Partners equity |
396,028 | 210 | 10,486 | (10,696 | ) | 396,028 | ||||||||||||||
Noncontrolling interest in UCRP |
| | | 5,243 | 5,243 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
396,028 | 210 | 10,486 | (5,453 | ) | 401,271 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 2,135,136 | $ | 22,607 | $ | 12,853 | $ | (14,981 | ) | $ | 2,155,615 | |||||||||
|
|
|
|
|
|
|
|
|
|
12
Table of Contents
Condensed consolidating statement of operations
(in thousands)
Three Months Ended September 30, 2011 | ||||||||||||||||||||
Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Operating revenues: |
||||||||||||||||||||
Total operating revenues |
$ | 365,895 | $ | 39,385 | $ | 5,637 | $ | (17,405 | ) | $ | 393,512 | |||||||||
Costs and operating expenses: |
||||||||||||||||||||
Theme park operations |
61,415 | | | | 61,415 | |||||||||||||||
Theme park selling, general and administrative |
39,066 | | | | 39,066 | |||||||||||||||
Theme park cost of products sold |
45,835 | | | | 45,835 | |||||||||||||||
Other costs and operating expenses |
83,748 | 37,001 | 5,018 | (17,405 | ) | 108,362 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total costs and operating expenses |
230,064 | 37,001 | 5,018 | (17,405 | ) | 254,678 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
135,831 | 2,384 | 619 | | 138,834 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other expense (income): |
||||||||||||||||||||
Interest expense |
17,094 | | 7 | | 17,101 | |||||||||||||||
Loss on extinguishment of debt |
44,983 | | | | 44,983 | |||||||||||||||
Other income |
(1,410 | ) | (7 | ) | | | (1,417 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other expense (income), net |
60,667 | (7 | ) | 7 | | 60,667 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
75,164 | 2,391 | 612 | | 78,167 | |||||||||||||||
Less: net income attributable to the noncontrolling interest in UCRP |
| | | 303 | 303 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to the Partners |
$ | 75,164 | $ | 2,391 | $ | 612 | $ | (303 | ) | $ | 77,864 | |||||||||
|
|
|
|
|
|
|
|
|
|
Condensed consolidating statement of operations
(in thousands)
Three Months Ended September 26, 2010 | ||||||||||||||||||||
Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Operating revenues: |
||||||||||||||||||||
Total operating revenues |
$ | 334,563 | $ | 39,236 | $ | 6,137 | $ | (16,369 | ) | $ | 363,567 | |||||||||
Costs and operating expenses: |
||||||||||||||||||||
Theme park operations |
54,034 | | | | 54,034 | |||||||||||||||
Theme park selling, general and administrative |
42,229 | | | | 42,229 | |||||||||||||||
Theme park cost of products sold |
42,625 | | | | 42,625 | |||||||||||||||
Other costs and operating expenses |
72,273 | 36,664 | 5,119 | (16,369 | ) | 97,687 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total costs and operating expenses |
211,161 | 36,664 | 5,119 | (16,369 | ) | 236,575 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
123,402 | 2,572 | 1,018 | | 126,992 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other expense (income): |
||||||||||||||||||||
Interest expense |
30,014 | | 8 | | 30,022 | |||||||||||||||
Other income, net |
(782 | ) | (17 | ) | | | (799 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other expense (income) |
29,232 | (17 | ) | 8 | | 29,223 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
94,170 | 2,589 | 1,010 | | 97,769 | |||||||||||||||
Less: net income attributable to the noncontrolling interest in UCRP |
| | | 505 | 505 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to the Partners |
$ | 94,170 | $ | 2,589 | $ | 1,010 | $ | (505 | ) | $ | 97,264 | |||||||||
|
|
|
|
|
|
|
|
|
|
Condensed consolidating statement of operations
(in thousands)
Nine Months Ended September 30, 2011 | ||||||||||||||||||||
Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Operating revenues: |
||||||||||||||||||||
Total operating revenues |
$ | 1,013,279 | $ | 109,932 | $ | 19,042 | $ | (47,783 | ) | $ | 1,094,470 | |||||||||
Costs and operating expenses: |
||||||||||||||||||||
Theme park operations |
172,444 | | | | 172,444 | |||||||||||||||
Theme park selling, general and administrative |
142,416 | | | | 142,416 | |||||||||||||||
Theme park cost of products sold |
127,292 | | | | 127,292 | |||||||||||||||
Other costs and operating expenses |
240,534 | 104,548 | 15,377 | (47,783 | ) | 312,676 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total costs and operating expenses |
682,686 | 104,548 | 15,377 | (47,783 | ) | 754,828 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
330,593 | 5,384 | 3,665 | | 339,642 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other expense (income): |
||||||||||||||||||||
Interest expense |
76,203 | | 23 | | 76,226 | |||||||||||||||
Loss on extinguishment of debt |
44,983 | | | | 44,983 | |||||||||||||||
Other income |
(3,285 | ) | (27 | ) | | | (3,312 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other expense (income), net |
117,901 | (27 | ) | 23 | | 117,897 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
212,692 | 5,411 | 3,642 | | 221,745 | |||||||||||||||
Less: net income attributable to the noncontrolling interest in UCRP |
| | | 1,821 | 1,821 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to the Partners |
$ | 212,692 | $ | 5,411 | $ | 3,642 | $ | (1,821 | ) | $ | 219,924 | |||||||||
|
|
|
|
|
|
|
|
|
|
Condensed consolidating statement of operations
(in thousands)
Nine Months Ended September 26, 2010 | ||||||||||||||||||||
Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||
Operating revenues: |
||||||||||||||||||||
Total operating revenues |
$ | 712,682 | $ | 71,256 | $ | 17,058 | $ | (31,362 | ) | $ | 769,634 | |||||||||
Costs and operating expenses: |
||||||||||||||||||||
Theme park operations |
145,647 | | | | 145,647 | |||||||||||||||
Theme park selling, general and administrative |
143,641 | | | | 143,641 | |||||||||||||||
Theme park cost of products sold |
90,744 | | | | 90,744 | |||||||||||||||
Other costs and operating expenses |
185,178 | 69,695 | 14,121 | (31,362 | ) | 237,632 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total costs and operating expenses |
565,210 | 69,695 | 14,121 | (31,362 | ) | 617,664 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
147,472 | 1,561 | 2,937 | | 151,970 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other expense (income): |
||||||||||||||||||||
Interest expense |
86,362 | 1 | 21 | | 86,384 | |||||||||||||||
Other expense (income), net |
1,497 | (26 | ) | | | 1,471 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other expense (income) |
87,859 | (25 | ) | 21 | | 87,855 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
59,613 | 1,586 | 2,916 | | 64,115 | |||||||||||||||
Less: net income attributable to the noncontrolling interest in UCRP |
| | | 1,457 | 1,457 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to the Partners |
$ | 59,613 | $ | 1,586 | $ | 2,916 | $ | (1,457 | ) | $ | 62,658 | |||||||||
|
|
|
|
|
|
|
|
|
|
13
Table of Contents
Condensed consolidating statement of cash flows
(in thousands)
Nine Months Ended September 30, 2011 | ||||||||||||||||||||
Parent | Guarantors | Non-Guarantors | Eliminations | Total | ||||||||||||||||
Cash flows from operating activities |
||||||||||||||||||||
Net cash and cash equivalents provided by operating activities |
$ | 370,714 | $ | 2,169 | $ | 4,607 | $ | (2,363 | ) | $ | 375,127 | |||||||||
Cash flows from investing activities |
||||||||||||||||||||
Property and equipment acquisitions |
(38,564 | ) | (184 | ) | (242 | ) | | (38,990 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash and cash equivalents used in investing activities |
(38,564 | ) | (184 | ) | (242 | ) | | (38,990 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities |
||||||||||||||||||||
Payment of distributions |
(76,844 | ) | | (4,726 | ) | 4,726 | (76,844 | ) | ||||||||||||
Receipt of contributions from NBCUniversal |
244,170 | | | | 244,170 | |||||||||||||||
Proceeds from NBCUniversal Note |
600,000 | | | | 600,000 | |||||||||||||||
Distributions to noncontrolling interest in UCRP |
| | | (2,363 | ) | (2,363 | ) | |||||||||||||
Payments associated with extinguishment of debt |
(21,111 | ) | | | | (21,111 | ) | |||||||||||||
Payments on long-term borrowings, capital lease and financing obligations |
(1,265,750 | ) | | | | (1,265,750 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash and cash equivalents used in financing activities |
(519,535 | ) | | (4,726 | ) | 2,363 | (521,898 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net (decrease) increase in cash and cash equivalents |
(187,385 | ) | 1,985 | (361 | ) | | (185,761 | ) | ||||||||||||
Cash and cash equivalents at beginning of period |
238,330 | 19,882 | 821 | | 259,033 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at end of period |
$ | 50,945 | $ | 21,867 | $ | 460 | $ | | $ | 73,272 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Condensed consolidating statement of cash flows
(in thousands)
Nine Months Ended September 26, 2010 | ||||||||||||||||||||
Parent | Guarantors | Non-Guarantors | Eliminations | Total | ||||||||||||||||
Cash flows from operating activities |
||||||||||||||||||||
Net cash and cash equivalents provided by operating activities |
$ | 224,329 | $ | 21,434 | $ | 3,988 | $ | (2,002 | ) | $ | 247,749 | |||||||||
Cash flows from investing activities |
||||||||||||||||||||
Property and equipment acquisitions |
(93,937 | ) | | (83 | ) | | (94,020 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash and cash equivalents used in investing activities |
(93,937 | ) | | (83 | ) | | (94,020 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities |
||||||||||||||||||||
Payment of distributions |
| | (4,004 | ) | 4,004 | | ||||||||||||||
Receipt of contributions from Holdings |
346 | | | | 346 | |||||||||||||||
Distributions to noncontrolling interest in UCRP |
| | | (2,002 | ) | (2,002 | ) | |||||||||||||
Payments on long-term borrowings, capital lease and financing obligations |
(14,518 | ) | | | | (14,518 | ) | |||||||||||||
Payments for financing costs |
(8,565 | ) | | | | (8,565 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash and cash equivalents used in financing activities |
(22,737 | ) | | (4,004 | ) | 2,002 | (24,739 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net increase (decrease) in cash and cash equivalents |
107,655 | 21,434 | (99 | ) | | 128,990 | ||||||||||||||
Cash and cash equivalents at beginning of period |
43,313 | 1,481 | 363 | | 45,157 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents at end of period |
$ | 150,968 | $ | 22,915 | $ | 264 | $ | | $ | 174,147 | ||||||||||
|
|
|
|
|
|
|
|
|
|
9. Subsequent Event
On October 7, 2011, NBCUniversal announced the successful completion of its consent solicitation and offer to guarantee $260,000,000 of the Companys 2015 Notes and $146,250,000 of the Companys 2016 Notes. In exchange for NBCUniversals full and unconditional guarantee of the 2015 Notes and the 2016 Notes, a majority of the holders of each series of Notes agreed to amendments that conform the Notes covenants and events of default to those contained in NBCUniversals outstanding public debt securities.
14
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview related to financial results
On October 7, 2011, NBCUniversal Media, LLC and its affiliates (NBCUniversal Media, LLC and its affiliates collectively, NBCUniversal) announced the successful completion of its consent solicitation and offer to guarantee our 2015 Notes and 2016 Notes. In exchange for NBCUniversals full and unconditional guarantee of the 2015 Notes and the 2016 Notes, a majority of the holders of each series of Notes agreed to amendments that conform the Notes covenants and events of default to those contained in NBCUniversals outstanding public debt securities. Because our public debt securities are fully and unconditionally guaranteed by NBCUniversal, once NBCUniversal files its 2011 annual report with the SEC, we will no longer file separate annual, quarterly or other reports with the SEC, including our annual report for the year ended December 31, 2011. NBCUniversal will include in its SEC reports summary information about our results of operations and certain consolidating financial information.
On July 1, 2011, NBCUniversal completed its acquisition of the remaining 50% equity interest in us from affiliates of Blackstone Group L.P. (collectively, Blackstone) for approximately $1,019 million. As a result, we are now a wholly owned consolidated subsidiary of NBCUniversal. Also, on July 1, 2011, we issued to NBCUniversal a $600 million unsecured note due July 1, 2016 (the NBCUniversal Note), the proceeds of which, together with available cash on hand, were used to refinance and repay all amounts outstanding ($801 million) under our senior secured credit facilities, which were terminated. The NBCUniversal Note bears interest at LIBOR plus 250 basis points. On August 1, 2011, we completed our redemption of $140 million aggregate principal amount of our 2015 Notes and $79 million aggregate principal amount of our 2016 Notes. To facilitate the redemption of the 2015 Notes and the 2016 Notes, we received a contribution of approximately $244 million from NBCUniversal on August 1, 2011. These transactions resulted in a considerable deleveraging of our business. As a result, at September 30, 2011, we had $73 million in Cash And Cash Equivalents, while we owed $856 million on our gross long-term indebtedness.
Our operating results have improved significantly since the opening of The Wizarding World of Harry PotterTM on June 18, 2010. For the first nine months of 2011, both paid theme park admissions and total per capita spending increased when compared to 2010. The increase in volume and guest spending resulted in 42% growth in Total Operating Revenues, which increased $325 million to $1,094 million compared to 2010. Net Income totaled $222 million in the first nine months of 2011 as compared to $64 million in the prior year. Operating Income totaled $340 million during 2011 which was up $188 million compared to 2010. Due to changes in our fiscal calendar, the first nine months of 2011 contained four additional days compared to 2010.
Seasonality
Theme park attendance follows a seasonal pattern which coincides closely with holiday and school schedules. The year begins with the end of the peak Christmas and New Years holiday period. When children return to school, attendance levels subside. During the March to April timeframe, spring break and Easter vacation periods drive seasonally high attendance. Since the peak spring break period fluctuates from year to year between the end of the first quarter and the beginning of the second quarter, historical quarterly financial information might not be comparable. May is a traditionally slow attendance period. June marks the beginning of the summer attendance peak when local schools are out for the summer. This peak attendance period continues throughout the month of June, as schools outside of Florida finish their terms. The peak summer period includes the entire month of July and the first few weeks in August, when the local schools begin to go back into session. Attendance levels continue to decline through Labor Day, when schools outside of Florida begin. Excluding special events such as Rock the Universe in September and Halloween Horror Nights in October, the period from September through November is seasonally slow, with an attendance spike around Thanksgiving week. Attendance falls again after Thanksgiving weekend, and does not pick up until the third week of December, when the peak Christmas and New Years holiday period begins. The Atlantic Ocean hurricane season begins in June and ends in November of each year. Historically, hurricanes have had little impact on Orlando theme parks. Since opening in 1990, our parks have been closed only five days due to the inclement weather caused by hurricanes, four of which occurred during the 2004 and 2005 hurricane seasons.
Based on the seasonality of our attendance, the results for the three months and nine months ended September 30, 2011 and September 26, 2010 are not necessarily indicative of results for the full year.
Critical accounting policies and estimates
In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles. Results could differ significantly from those estimates under different assumptions and conditions. We believe that the application of these accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. For a summary of all of our accounting policies, including our critical accounting policies, see Note 2 in our audited consolidated financial statements for the year ended December 31, 2010 filed with the Securities and Exchange Commission under cover of Form 10-K. Besides what is disclosed within this document, there have been no material developments with respect to the critical accounting policies discussed in detail in our Form 10-K for the year ended December 31, 2010 within Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Period end
The three months ended September 30, 2011 contained 92 days, while the three months ended September 26, 2010 contained 91 days. The nine months ended September 30, 2011 contained 273 days, while the nine months ended September 26, 2010 contained 269 days. Effective the first quarter of 2011, our fiscal calendar was changed from a 13-week format to a traditional calendar with quarter ending dates of March 31, June 30, September 30 and December 31. Although this will not impact the total number of days in our fiscal year, it may alter the number of days within a given quarter.
15
Table of Contents
Results of operations
Three Months Ended September 30, 2011 Compared to Three Months Ended September 26, 2010
The following table summarizes our results of operations during the three months ended September 30, 2011 and September 26, 2010 (in thousands except percentages):
Three Months Ended | %
Change Favorable/ (Unfavorable) |
|||||||||||
September 30, 2011 |
September 26, 2010 |
|||||||||||
Operational data: |
||||||||||||
Statement of operations data: |
||||||||||||
Total operating revenues |
$ | 393,512 | $ | 363,567 | 8.2 | % | ||||||
Costs and operating expenses: |
||||||||||||
Operating costs and expenses |
219,095 | 204,546 | (7.1 | %) | ||||||||
Depreciation and amortization |
35,583 | 32,029 | (11.1 | %) | ||||||||
|
|
|
|
|
|
|||||||
Total costs and operating expenses |
254,678 | 236,575 | (7.7 | %) | ||||||||
|
|
|
|
|
|
|||||||
Operating income |
138,834 | 126,992 | 9.3 | % | ||||||||
Non-operating expense, net |
60,667 | 29,223 | NM | |||||||||
|
|
|
|
|
|
|||||||
Net income |
78,167 | 97,769 | (20.0 | %) | ||||||||
Less: net income attributable to the noncontrolling interest in UCRP |
303 | 505 | 40.0 | % | ||||||||
|
|
|
|
|
|
|||||||
Net income attributable to the Partners |
$ | 77,864 | $ | 97,264 | (19.9 | %) | ||||||
|
|
|
|
|
|
NMNot meaningful
Total Operating Revenues increased $29.9 million, or 8%, compared to the third quarter of 2010, primarily due to higher per capita spending. Ticket revenue on a per-paid-admission basis increased as a result of changes in our ticket offerings and selective price changes to maximize yield. Similarly, merchandise revenue on a per-turnstile-admission basis increased primarily due to guest spending on products related to The Wizarding World of Harry PotterTM. We also experienced growth compared to the prior year in our aged pass sales which benefited from increased quantities of unredeemed tickets sold in 2010.
Operating Costs And Expenses increased $14.5 million, or 7%, primarily due to incremental spend on entertainment, ride maintenance and other operating costs resulting from increased operating hours in the current quarter in addition to increased wage rates and employee benefit costs. Additionally, we added new content and entertainment for our guests in the current year due to the higher guest visitation since the opening of The Wizarding World of Harry PotterTM. We also incurred certain volume-related increases in our merchandise cost of goods, credit card fees, the special fee payable to Universal City Studios Productions, and the Consultant fee. Depreciation And Amortization increased $3.6 million, or 11%, as we accelerated depreciation on certain assets. Non-Operating Expense, Net increased $31.4 million compared to 2010 as we incurred charges totaling $45.0 million related to the extinguishment of our senior secured credit facilities and the redemption of our 2015 Notes and 2016 Notes. These charges were partially offset by reduced interest expense of $12.9 million as a result of the reduced principal balances and lower interest rates related to our long-term indebtedness.
16
Table of Contents
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 26, 2010
The following table summarizes our results of operations during the nine months ended September 30, 2011 and September 26, 2010 (in thousands except percentages):
Nine Months Ended | % Change | |||||||||||
September
30, 2011 |
September 26, 2010 |
Favorable/ (Unfavorable) |
||||||||||
Statement of operations data: |
||||||||||||
Total operating revenues |
$ | 1,094,470 | $ | 769,634 | 42.2 | % | ||||||
Costs and operating expenses: |
||||||||||||
Operating costs and expenses |
653,151 | 530,009 | (23.2 | %) | ||||||||
Depreciation and amortization |
101,677 | 87,655 | (16.0 | %) | ||||||||
|
|
|
|
|
|
|||||||
Total costs and operating expenses |
754,828 | 617,664 | (22.2 | %) | ||||||||
|
|
|
|
|
|
|||||||
Operating income |
339,642 | 151,970 | NM | |||||||||
Non-operating expense, net |
117,897 | 87,855 | (34.2 | %) | ||||||||
|
|
|
|
|
|
|||||||
Net income |
221,745 | 64,115 | NM | |||||||||
Less: net income attributable to the noncontrolling interest in UCRP |
1,821 | 1,457 | (25.0 | %) | ||||||||
|
|
|
|
|
|
|||||||
Net income attributable to the Partners |
$ | 219,924 | $ | 62,658 | NM | |||||||
|
|
|
|
|
|
NMNot meaningful
Total Operating Revenues increased $324.8, or 42%, due to a combination of increased theme park attendance and strong per capita spending compared to the first nine months of 2010. The majority of the increased volume relates to our new content and marketing efforts; however, due to changes in our fiscal calendar, the year-to-date period of 2011 contained four additional days compared to 2010. The increase in per capita spending was broad based with every category of per capita spending showing significant growth. Ticket revenue on a per-paid-admission basis increased as a result of changes in our ticket offerings and selective price changes to maximize yield. Similarly, merchandise, food and beverage revenue on a per-turnstile-admission basis increased primarily due to guest spending on new merchandise products and food and beverage offerings related to The Wizarding World of Harry PotterTM. We also experienced growth in sales of our Universal Express PlusSM product and improvement in our aged pass sales, parking and special event categories. Furthermore, higher volumes helped to increase revenues at our travel company and CityWalk operations.
Operating Costs And Expenses increased $123.1 million, or 23%, largely due to incremental spend on entertainment, ride maintenance and other operating costs resulting from increased attendance and the opening of The Wizarding World of Harry PotterTM. We also experienced increases in our operating costs due to increased wage rates and employee benefit costs. Additionally, we added new content and entertainment for our guests in the current year due to the higher guest visitation since the opening of The Wizarding World of Harry PotterTM. We also incurred certain volume-related increases in our merchandise and food and beverage cost of goods, credit card fees, the special fee payable to Universal City Studios Productions, and the Consultant fee. Similarly, costs at our CityWalk operations and travel company increased due to the increased volume noted previously. Depreciation And Amortization increased $14.0 million, or 16%, as we incurred a full nine months of depreciation and amortization associated with our new content. Non-Operating Expense, Net increased $30.0 million compared to 2010 as we incurred charges totaling $45.0 million related to the extinguishment of our senior secured credit facilities and the redemption of our 2015 Notes and 2016 Notes. These charges were partially offset by reduced interest expense of $10.2 million as a result of our lower principal balances and interest rates and a $3.3 million charge incurred in 2010 due to the refinancing of our senior secured credit facilities.
17
Table of Contents
Liquidity, capital resources and financial position
In light of the difficult economic climate and our reliance on discretionary consumer spending, our liquidity is subject to numerous risks as discussed in Item 1A. Risk factors. located within our Form 10-K for the year ended December 31, 2010.
Overview
We believe our ability to generate cash flows from operations is a key financial strength as well as our principal source of liquidity. We have generated positive cash flows from operations for each of the past five years, and we believe that we will continue to generate positive cash flows from operations in 2011 and in future years. In addition to the cash flow generated from our operations, our available cash on hand also provides liquidity. As such, we believe that we have the financial resources necessary to meet business requirements for the next 12 months. Historically, our principal liquidity requirements have been for capital expenditures, special fee payments, debt retirements, interest payments, working capital and Consultant fee payments. Our strategy includes rationalizing our land holdings, which may involve sales from time to time of non-strategic land assets. However, as of September 30, 2011 and December 31, 2010, we had no land assets that qualified as held for sale in accordance with applicable accounting guidance.
On July 1, 2011, NBCUniversal completed its acquisition of Blackstones 50% equity interest in us for approximately $1,019 million. As a result, we are now a wholly owned consolidated subsidiary of NBCUniversal. Also, on July 1, 2011, we issued to NBCUniversal a $600.0 million unsecured note due July 1, 2016, the proceeds of which, together with available cash on hand, were used to refinance and repay all amounts outstanding ($801.0 million) under our senior secured credit facilities, which were terminated. The NBCUniversal Note bears interest at LIBOR plus 250 basis points. Additionally, during the three months ended September 30, 2011, we made prepayments totaling $150.0 million on the NBCUniversal Note. On August 1, 2011, we completed our redemption of $140.0 million aggregate principal amount of our 2015 Notes and $78.8 million aggregate principal amount of our 2016 Notes. To facilitate the redemption of the 2015 Notes and the 2016 Notes, we received a contribution of approximately $244.2 million from NBCUniversal on August 1, 2011.
On October 7, 2011, NBCUniversal announced the successful completion of its consent solicitation and offer to guarantee $260.0 million of our 2015 Notes and $146.3 million of our 2016 Notes. In exchange for NBCUniversals full and unconditional guarantee of the 2015 Notes and the 2016 Notes, a majority of the holders of each series of Notes agreed to amendments that conform the Notes covenants and events of default to those contained in NBCUniversals outstanding public debt securities.
Historically, our business structure was heavily leveraged, although since July 1, 2011, we entered into certain transactions, as discussed above, which significantly reduced our long-term indebtedness. Accordingly, as of September 30, 2011, our total debt was $852.6 million. This total included $450.0 million outstanding under the NBCUniversal Note, $257.8 million outstanding under the Senior Notes ($260.0 million, net of a remaining unamortized discount of $2.2 million) and $144.8 million outstanding under the Senior Subordinated Notes ($146.2 million, net of a remaining unamortized discount of $1.4 million). As of December 31, 2010, our total debt was $1,495.2 million. This total included $876.5 million outstanding under our senior secured credit agreement ($891.0 million, net of a remaining unamortized discount of $14.5 million), $396.1 million outstanding under the Senior Notes ($400.0 million, net of a remaining unamortized discount of $3.9 million) and $222.6 million outstanding under the Senior Subordinated Notes ($225.0 million, net of a remaining unamortized discount of $2.4 million). The Senior Notes will mature on November 15, 2015, and the Senior Subordinated Notes will mature on November 15, 2016. Our Notes are guaranteed by certain of our existing domestic subsidiaries as well as by NBCUniversal. Our access to capital markets and our ability to issue various securities to raise capital could be affected by our credit ratings.
We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. Our ability to continue to fund these items and to continue to reduce debt could be adversely affected by the global recession, general slowdown in consumer spending or occurrence of other unfavorable events.
The following table summarizes key aspects in our historical financial position and liquidity (in thousands):
As of | ||||||||
September 30, 2011 |
December 31, 2010 |
|||||||
Cash and cash equivalents |
$ | 73,272 | $ | 259,033 | ||||
|
|
|
|
|||||
Unused portion of revolving credit facilities |
n/a | 75,000 | ||||||
|
|
|
|
|||||
Current portion of long-term borrowings, capital leases and financing obligations |
4,021 | 95,801 | ||||||
|
|
|
|
|||||
Special fee payable to UCSP |
18,276 | 15,969 | ||||||
|
|
|
|
|||||
Total long-term obligations (1) |
877,374 | 1,432,278 | ||||||
|
|
|
|
(1) | Long-term obligations include long-term borrowings (excluding current portions), long-term borrowings due to related parties, long-term capital leases and financing obligations but exclude amounts payable under the Consultant Agreement. For more information regarding capital leases and financing obligations, see Note 5 in Item 1. Financial Statements. |
Cash flow summary
The following table summarizes key aspects of our cash flows for the nine months ended September 30, 2011 and September 26, 2010 (in thousands):
Nine Months Ended | ||||||||
September 30, 2011 |
September 26, 2010 |
|||||||
Net cash and cash equivalents provided by operating activities |
$ | 375,127 | $ | 247,749 | ||||
|
|
|
|
|||||
Net cash and cash equivalents used in investing activities |
38,990 | 94,020 | ||||||
|
|
|
|
|||||
Cash paid for capital expenditures |
38,990 | 94,020 | ||||||
|
|
|
|
|||||
Net cash and cash equivalents used in financing activities |
521,898 | 24,739 | ||||||
|
|
|
|
18
Table of Contents
During the nine months ended September 30, 2011 and September 26, 2010, Net Cash Provided By Operating Activities was $375.1 million and $247.7 million, respectively. This increase in cash flow from operating activities of $127.4 million is primarily due to an improvement in our net income of $157.6 million. Additionally, we had incremental expenses associated with debt financings (including extinguishment transactions) of $41.7 million and incremental depreciation expense of $12.0 million, which were both included as adjustments to reconcile Net Income to Net Cash And Cash Equivalents Provided By Operating Activities. These items were partially offset by a reduction in cash flow from working capital of $83.1 million. The decrease in our working capital was primarily due to payments made in 2011 under our incentive plans, reduced growth in our deferred revenue balance during 2011 as compared to 2010, and the reduction of accrued interest as a result of the repayment of the senior secured credit facilities and the partial redemption of the 2015 Notes and 2016 Notes.
Net Cash Used In Investing Activities for the nine months ended September 30, 2011 and September 26, 2010 totaled $39.0 million and $94.0 million, respectively. For both periods, the amount consisted exclusively of capital expenditures. The decrease in capital expenditures is largely due to the completion of The Wizarding World of Harry PotterTM in June 2010. We make annual investments both to provide ongoing capital support for our existing park attractions and infrastructure, and also to fund the development of new park attractions and infrastructure. We believe these investments are critical in maintaining our position of having technologically advanced theme parks and to effectively compete with our competitors. These costs can vary from one year to the next, depending on the timing of the construction cycles
During the nine months ended September 30, 2011 and September 26, 2010, Net Cash Used In Financing Activities was $521.9 million and $24.7 million, respectively. The cash outflows during the nine months ended September 30, 2011 were primarily made up of the following items: i) repayment of the $891.0 million outstanding under the senior secured credit facilities; ii) $218.8 million in combined redemptions on the 2015 Notes and 2016 Notes; iii) $150.0 million in principal payments on the NBCUniversal Note; iv) distributions to Universal City Property Management II LLC and Blackstone Capital Partners (prior to July 1, 2011, the Partners), totaling $76.8 million and v) $21.1 million in payments on financing costs. These items were partially offset by the issuance of the $600.0 million NBCUniversal Note and a $244.2 million contribution from NBCUniversal. As discussed previously, the proceeds from the NBCUniversal Note were used to repay the senior secured credit facilities, while the proceeds from the contribution were used to facilitate the redemption of the 2015 Notes and 2016 Notes. The amounts used during the nine months ended September 26, 2010 primarily related to $8.6 million in payments of financing costs that were incurred during our amendment of the senior secured credit facility in April 2010 or accrued during our refinancing in November 2009, in addition to $14.5 million in payments on our long-term obligations.
Consultant agreement
On October 18, 2009, we executed an amendment to our agreement (the Consultant Agreement), under which we pay a fee to Steven Spielberg (the Consultant) for consulting services and exclusivity equal to a percentage of certain revenues from our attractions and other facilities owned or operated, in whole or in part, by us. Under the terms of the Consultant Agreement, the Consultant is also entitled to a fee based on a percentage of gross revenues of comparable projects, which are gated motion picture and television themed attractions owned or operated, in whole or in part, by us, or any of our partners or any of their affiliates, other than in Universal City, California. At present, the only operating theme parks that are deemed to be comparable projects are Universal Studios Japan in Osaka, Japan and Universal Studios Singapore on Sentosa Island, Singapore. See Note 7 Commitments and contingencies of the accompanying notes to the condensed consolidated financial statements of the Company in Part IItem 1. Financial Statements for information on the fee expense incurred under the Consultant Agreement for the three months and nine months ended September 30, 2011 and September 26, 2010, respectively.
The Consultant Agreement does not have an expiration date, but starting in June 2017, the Consultant has the right, upon 90 days notice, to terminate UCDPs obligation to make periodic payments thereunder and receive instead one cash payment equal to the fair market value of the Consultants interest in the revenue streams or, under certain circumstances, an alternative one-time payment, in each case with respect to the Orlando parks and any comparable projects that were open at that time for at least one year (the Put Payment), which amounts could be significant. If the Put Payment is exercised, the Consultant will be precluded from competing or consulting with another theme park for a period of five years after exercise, and the Consultant Agreement allows UCDP the right to use ideas generated during the term of the Consultant Agreement without further payment. The Consultant Agreement contains a formula-based method that includes a risk premium of 6.5% with respect to the Orlando parks to determine the amount of the Put Payment. The Consultant Agreement allows the Consultant to make a one-time election to fix the values for certain, but not all, inputs into the aforementioned formula to establish a minimum amount for the one-time payment to the Consultant (the Alternative Payment) in the event that the date the Consultant gives notice to terminate his right to receive compensation under the Consultant Agreement is at least 90 days before March 31, 2018. Although the Consultant made this election on January 15, 2010, the actual amount of the Alternative Payment cannot be determined prior to the Consultant exercising his right to receive the Put Payment, as the Alternative Payment amount is dependent on a discount rate that will set 90 days after the date on which the Consultant exercises his right to receive the Put Payment. The discount rate is based on the actual treasury rate on such date plus a risk premium. However, based on a sensitivity analysis of possible treasury and comparable rates for the United States and Japan ranging from 0% to 15%, we estimate that the Alternative Payment for our parks could range from $160.0 million to $290.0 million, and the Alternative Payment for Universal Studios Japan could range from $135.0 million to $245.0 million. This range has been calculated based on hypothetical treasury rates, and we cannot provide assurance as to the timing or amount of the Put Payment or the Alternative Payment. These payments may be higher or lower than the range provided above and any such deviation could be material. Any such payment will only be finally determinable once the Consultant exercises his right to receive the Put Payment and the payment becomes due. In addition to the existing comparable parks, three contemplated comparable parks are vested immediately for purposes of the quarterly consulting fee payments, but each such contemplated comparable park must still be open for at least one year at the time the Put Payment is exercised in order for such project to be included in the Put Payment. In addition, the Consultant had a second-priority lien over UCDPs real and tangible personal property, including a mortgage on our real property up to $400.0 million, to secure UCDPs periodic and one-time payment obligations and the Notes were effectively subordinated to the Consultants interests to the extent of the value of those assets. The lien securing the Consultants interest, which was automatically and unconditionally released in connection with the termination of our senior secured credit facilities (see Note 2 in Part I. Financial InformationItem 1. Financial Statements), was junior to the lien that secured our senior secured credit facilities. The Consultant Agreement caps UCDPs ability to incur secured borrowings to an amount equal to the greater of $975.0 million and 3.75x UCDPs Covenant EBITDA (as previously defined in the senior secured credit agreement). Upon the sale of any portion of Universal City Studios Productions or certain of its affiliates (the NBCUniversal Parties) respective interest in UCDP, the Consultant may have the right to sell in such sale an equal portion of his compensation rights under the Consultant Agreement to the prospective purchasers. Our obligations under the agreement are guaranteed by NBCUniversal Media, LLC and Universal Studios Company LLC (USC), as successor to MCA Inc., and USCs obligations under that guarantee have in turn been assumed by Universal City Studios Productions LLLP (UCSP). UCSP has indemnified us against any liability under the Consultant Agreement related to any comparable project that is not owned or controlled by us. While UCDP remains ultimately liable for those obligations, historically the comparable parks have paid them directly to the Consultant. However, if such comparable parks were not to pay, UCDP would be required to make the payments and seek indemnification from UCSP. See Item 1A. Risk FactorsRisks related to our indebtednessOur ability to refinance our debt obligations, including the notes, could be adversely impacted by the Consultants right, starting in June 2017, to terminate the periodic payments under the Consultant Agreement and receive instead one payment equal to the fair market value of the Consultants interest in the Orlando parks and any comparable projects or, under certain circumstances, an alternative one-time payment, located within our Form 10-K for the year ended December 31, 2010.
Special fee requirements
Under our partnership agreement, a special fee is payable to UCSP through Universal City Property Management II LLC (Universal CPM) equal to 5.25% of certain revenue, as defined, generated by Universal Studios Florida and Universals Islands of Adventure. During the three months ended September 30, 2011 and September 26, 2010 the special fee amounted to $18.1 million and $16.5 million, respectively, while during the nine months ended September 30, 2011 and September 26, 2010 the special fee amounted to $49.8 million and $34.5 million, respectively. During the three months ended September 30, 2011 and September 26, 2010, the interest incurred on the special fee was $0.2 million and $0.1 million, respectively, while during the nine months ended September 30, 2011 and September 26, 2010, the interest incurred on the special fee was $0.4 million and $0.3 million, respectively.
Previously, under the terms of our senior secured credit agreement and the indentures governing the 2015 and 2016 Notes, the special fee related to both Universal Studios Florida and Universals Islands of Adventure could only be paid upon achievement of certain but different ratios. The most restrictive quarterly covenant for payment of the special fee was a fixed charge coverage ratio (as historically defined in the senior secured credit agreement) or a special fee ratio (as historically defined in the bond indentures) greater than or equal to 1.1 to 1.0. This ratio was met as of each of our quarter end dates throughout the period from December 31, 2009 to September 30, 2011, thus allowing the special fee to be paid. Accordingly, during the three months ended September 30, 2011 and September 26, 2010, we paid total fees of $17.8 million and $11.0 million, respectively, to UCSP. During the nine months ended September 30, 2011 and September 26, 2010, we paid total fees of $47.9 million and $27.1 million, respectively. At September 30, 2011 and December 31, 2010, the current portion of our consolidated balance sheet included $18.3 million and $16.0 million, respectively, related to special fees payable to UCSP. Pursuant to certain subordination agreements, the special fee may not have been paid if there would have been an event of default (or to the knowledge of our officers a default) under our senior secured credit facilities or the Notes.
Distributions
Under the senior secured credit agreement (which has been terminated), for years beginning on or after December 31, 2010, distributions could be made in an aggregate amount not to exceed 25% of excess cash flow if no event of default existed and the total leverage ratio was not greater than 5.5x. Additionally, the indentures governing the Notes historically limited distributions that could be made to an amount equal to our Covenant EBITDA for the period from the beginning of the first fiscal quarter commencing on or after September 28, 2009 to the end of our most recently ended fiscal quarter for which internal financial statements are available less 1.75x our consolidated cash interest expense. The Notes also had an unrestricted basket of $50.0 million available as of the date of the refinancing. The above restrictions did not apply to our ability to make a distribution to the Partners in an aggregate amount equal to our hypothetical federal income tax, as provided for in UCDPs partnership agreement. In relation to our operating results for the year ended December 31, 2010, we made distributions of $44.8 million (excluding distributions related to the Partners tax liabilities) during the nine months ended September 30, 2011.
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Covenant stipulations
Our Notes previously contained a number of covenants which were also contained in our senior secured credit agreement (see Note 9 in Part I. Financial InformationItem 1. Financial Statements for a discussion of the recently completed consent solicitation which impacted the covenants included in the indentures governing the Notes). Among other things, these covenants restricted, subject to certain exceptions, our ability, and the ability of our subsidiaries, to sell assets, incur additional indebtedness, repay other indebtedness (including the Notes), pay certain distributions, create liens on assets, make investments, loans or advances, make certain acquisitions, engage in mergers or consolidations, enter into sale and leaseback transactions, engage in certain transactions with affiliates, amend certain material agreements governing our indebtedness and change the business conducted by us and our subsidiaries. In addition, the senior secured credit agreement contained the following financial covenants: a maximum total leverage ratio; a minimum interest coverage ratio; and a limitation on capital expenditures. We believe that we were in compliance in all material respects with all financial covenants as of September 30, 2011 and December 31, 2010.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements appearing in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are made in reliance upon the protections provided by such acts for forward-looking statements. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, our Partners plans for us, business trends and other information that is not historical information. When used in this report, the words estimates, expects, anticipates, projects, plans, intends, believes, forecasts or future or conditional verbs, such as will, should, could or may and variations of such words or similar expressions, are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, managements examination of historical operating trends and data, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that managements expectations, beliefs and projections will be achieved.
Because these forward-looking statements are subject to numerous risks and uncertainties, our actual results may differ materially from those expressed in or implied by such forward-looking statements. Some of the risks and uncertainties that may cause such differences include, but are not limited to:
| the global economic environment, including the effects of the global economic downturn and its duration, severity and impact on overall consumer activity; |
| the indebtedness of us and of our subsidiaries; |
| the Consultants right to exercise the Put Payment starting in June 2017 and the impact of such right on our ability to refinance our existing indebtedness when it matures, including debt under the indentures governing the Notes; |
| competition within the Orlando theme park market; |
| the loss of material intellectual property rights used in our business; |
| the risks inherent in deriving substantially all of our revenues from one location; |
| the dependence of our business on air travel; |
| geopolitical or environmental events that could impact travel to Florida; |
| the loss of key distribution channels for ticket sales; |
| publicity associated with accidents occurring at theme parks; |
| the seasonality of our business; and |
| risks related to unfavorable outcomes of our legal proceedings. |
There may also be other factors that may cause our actual results to differ materially from those expressed in or implied by any forward-looking statements contained in this report, including those contained in Item 1A. Risk Factors, in our Form 10-K for the year ended December 31, 2010. All forward-looking statements included in this report are made only as of the date of this report, and we do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware. Investors should read this document and the documents that we incorporate by reference into this report completely and with the understanding that our actual future results may be materially different from what we expect. We may not update these forward-looking statements, even if our situation changes in the future, except as required by law. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following is a schedule as of September 30, 2011 of our fixed and variable rate debt maturities and principal payments for each of the next five years, and thereafter (in thousands, except for percentages):
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | Fair value | |||||||||||||||||||||||||
Debt (1): |
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Fixed rate debt |
$ | | $ | | $ | | $ | | $ | 260,000 | $ | 146,250 | $ | 406,250 | $ | 452,481 | ||||||||||||||||
Average interest rate |
n/a | n/a | n/a | n/a | 8.9 | % | 10.9 | % | ||||||||||||||||||||||||
Variable rate debt |
$ | | $ | | $ | | $ | | $ | | $ | 450,000 | $ | 450,000 | n/a | |||||||||||||||||
Average interest rate (2) |
n/a | n/a | n/a | n/a | n/a | 2.8 | % | |||||||||||||||||||||||||
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Total gross debt |
$ | | $ | | $ | | $ | | $ | 260,000 | $ | 596,250 | $ | 856,250 | n/a | |||||||||||||||||
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(1) | Amounts exclude discounts and therefore represent gross maturities. |
(2) | Represents the interest rate of the NBCUniversal Note as of September 30, 2011. |
We are exposed to market risks relating to fluctuations in interest rates. We may mitigate this risk by paying down additional outstanding balances on our variable rate loans, refinancing with fixed rate permanent debt or obtaining cash flow hedge instruments. We had $450.0 million of unhedged variable rate debt as of September 30, 2011. Based on these variable-rate obligations, each 1% increase or decrease in the level of interest rates would have, respectively, increased or decreased our annual interest expense and related cash payments by approximately $4.5 million. The sensitivity analysis described above contains certain simplifying assumptions (for example, it assumes a constant level of variable-rate debt for all maturities and an immediate, across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period). Therefore, although it gives an indication of our exposure to changes in interest rates, it is not intended to predict future results and our actual results will likely vary.
Item 4. Controls and Procedures
Universal City Development Partners, Ltd.
The management of Universal City Development Partners Ltd. (UCDP) carried out an evaluation, with the participation of UCDPs Principal Executive Officer and Principal Financial Officer, of the effectiveness of UCDPs disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, UCDPs Principal Executive Officer and Principal Financial Officer concluded that UCDPs disclosure controls and procedures were effective to ensure that information required to be disclosed by UCDP in the reports that it files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the rules, regulations and forms promulgated by the Securities and Exchange Commission and (ii) accumulated and communicated to management, including UCDPs Principal Executive Officer and Principal Financial Officer, in a manner sufficient to allow timely decisions regarding required disclosure.
There was no change in UCDPs internal control over financial reporting during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, UCDPs internal control over financial reporting.
UCDP Finance, Inc.
The management of UCDP Finance, Inc. (Finance) carried out an evaluation, with the participation of Finances Principal Executive Officer and Principal Financial Officer, of the effectiveness of Finances disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, Finances Principal Executive Officer and Principal Financial Officer concluded that Finances disclosure controls and procedures were effective to ensure that information required to be disclosed by Finance in the reports that it files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the rules, regulations and forms promulgated by the Securities and Exchange Commission and (ii) accumulated and communicated to management, including Finances Principal Executive Officer and Principal Financial Officer, in a manner sufficient to allow timely decisions regarding required disclosure.
There was no change in Finances internal control over financial reporting during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, Finances internal control over financial reporting.
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UCDP is threatened with or involved in various legal actions and claims incidental to the conduct of its business. Management does not expect these legal actions and claims to have a material impact on UCDPs results of operations, financial position or cash flows.
See Risk Factors beginning on page 21 of our Annual Report on Form 10-K for the year ended December 31, 2010 and page 31 of our Registration Statement on Form S-4 filed with the Securities and Exchange Commission on March 14, 2011 and August 25, 2011, respectively, for a discussion regarding some of the reasons that our actual operating results may differ materially from those that we anticipate. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K and our Registration Statement on Form S-4.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Not applicable.
a) Exhibits
3.1 | Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of Universal City Development Partners, Ltd. by and between Universal City Florida Holding Co. II and Universal City Florida Holding Co. I dated July 1, 2011 (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of Universal City Development Partners, Ltd. and UCDP Finance, Inc. filed on August 3, 2011). | |
3.2 | First Amendment to the Third Amended and Restated Agreement of General Partnership of Universal City Florida Holding Co. II by and between Parks Holdings Acquisition LLC, Parks Holdings Acquisition Sub LLC and Universal City Property Management II LLC dated July 1, 2011 (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q of Universal City Development Partners, Ltd. and UCDP Finance, Inc. filed on August 3, 2011). | |
3.3 | First Amendment to the Third Amended and Restated Agreement of General Partnership of Universal City Florida Holding Co. I by and between Parks Holdings Acquisition LLC, Parks Holdings Acquisition Sub LLC and Universal City Property Management II LLC dated July 1, 2011 (incorporated by reference to Exhibit 3.3 to the Quarterly Report on Form 10-Q of Universal City Development Partners, Ltd. and UCDP Finance, Inc. filed on August 3, 2011). | |
4.1 | Promissory Note between Universal City Development Partners, Ltd. and NBCUniversal Media, LLC dated July 1, 2011 (incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q of Universal City Development Partners, Ltd. and UCDP Finance, Inc. filed on August 3, 2011). | |
10.1 | First Amendment to the Advisory Services Agreement by and among Universal City Development Partners, Ltd., Universal City Studios Productions LLLP, as successor in interest to Vivendi Universal Entertainment LLLP and Blackstone Management Partners L.P. dated July 1, 2011 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Universal City Development Partners, Ltd. and UCDP Finance, Inc. filed on August 3, 2011). | |
31.1 | Certification of Principal Executive Officer of Universal City Development Partners, Ltd. Pursuant to Rule 13a-14(a) or Rule 15d-14(a). | |
31.2 | Certification of Principal Financial Officer of Universal City Development Partners, Ltd. Pursuant to Rule 13a-14(a) or Rule 15d-14(a). | |
31.3 | Certification of Principal Executive Officer of UCDP Finance, Inc. Pursuant to Rule 13a-14(a) or Rule 15d-14(a). | |
31.4 | Certification of Principal Financial Officer of UCDP Finance, Inc. Pursuant to Rule 13a-14(a) or Rule 15d-14(a). | |
32.1 | Certification of Principal Executive Officer of Universal City Development Partners, Ltd. Pursuant to 18 U.S.C. Section 1350. | |
32.2 | Certification of Principal Financial Officer of Universal City Development Partners, Ltd. Pursuant to 18 U.S.C. Section 1350. | |
32.3 | Certification of Principal Executive Officer of UCDP Finance, Inc. Pursuant to 18 U.S.C. Section 1350. | |
32.4 | Certification of Principal Financial Officer of UCDP Finance, Inc. Pursuant to 18 U.S.C. Section 1350. | |
101 | The following materials from the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flow, (iv) the Condensed Consolidated Statement of Equity and (v) related notes, tagged as blocks of text. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalves by the undersigned thereunto duly authorized.
UNIVERSAL CITY DEVELOPMENT PARTNERS, LTD. | ||||
Date: November 2, 2011 | By: | /s/ TRACEY L. STOCKWELL | ||
Name: | Tracey L. Stockwell | |||
Title: | Principal Financial Officer and Duly Authorized Officer | |||
UCDP FINANCE, INC. | ||||
Date: November 2, 2011 | By: | /s/ TRACEY L. STOCKWELL | ||
Name: | Tracey L. Stockwell | |||
Title: | Principal Financial Officer and Duly Authorized Officer |
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