UNITED ARTISTS THEATRE CIRCUIT INC /MD/, 424B3, 1999-04-02

UNITED ARTISTS THEATRE CIRCUIT INC /MD/
424B3, 1999-04-02
MOTION PICTURE THEATERS

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Registration Number 333-1024
Rule 424 (b)(3)

PROSPECTUS SUPPLEMENT

Dated April 2, 1999

to the Prospectus, Dated July 15, 1997

UNITED ARTISTS THEATRE CIRCUIT, INC.

Form of prospectus is attached hereto

<PAGE>

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998
Commission file number: 333-1024

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ________________

UNITED ARTISTS THEATRE CIRCUIT, INC.
(exact name of registrant as specified in charter)

Maryland 13-1424080
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

9110 E. Nichols Avenue, Suite 200
Englewood, CO 80112
- ---------------------------------- -----------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (303) 792-3600

Securities registered pursuant to Sectio 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
---- ----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X

State the aggregate market value of the voting stock held by non-affiliates of
the registrant. N/A.

The number of shares outstanding of $1.00 par value common stock at March 26,
1999 was 100 shares.

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UNITED ARTISTS THEATRE CIRCUIT, INC.

Annual Report on Form 10-K

December 31, 1998

TABLE OF CONTENTS

PART I

<TABLE>
<CAPTION>
Page
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<S> <C>
Item 1 - Business 3

Item 2 - Properties 13

Item 3 - Legal Proceedings 13

Item 4 - Submission of Matters to a Vote of Security Holder 13

PART II

Item 5 - Market for Registrant's Common Equity and Related Stockholder
Matters 14

Item 6 - Selected Financial Data 14

Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 15

Item 7(A) - Quantitative and Qualitative Disclosures About Market Risk 25

Item 8 - Financial Statements and Supplementary Data 25

Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 25

PART III

Item 10 - Directors and Executive Officers of the Registrant 44

Item 11 - Executive Compensation 45

Item 12 - Security Ownership of Certain Beneficial Owners and Management 49

Item 13 - Certain Relationships and Related Transactions 51

PART IV

Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 52

Signatures

</TABLE>

<PAGE>

CAUTIONARY STATEMENT REGARDING
FORWARD LOOKING STATEMENTS

CERTAIN OF THE MATTERS DISCUSSED IN THIS FORM 10-K MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SECURITIES ACT OF 1993, AS
AMENDED AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE UNCERTAINTIES AND OTHER FACTORS AND THE
ACTUAL RESULTS AND PERFORMANCE OF UATC MAY BE MATERIALLY DIFFERENT FROM
FUTURE RESULTS OR PERFORMANCE EXPRESSED OR IMPLIED BY SUCH STATEMENTS.
CAUTIONARY STATEMENTS REGARDING THE RISKS ASSOCIATED WITH SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, THOSE STATEMENTS
INCLUDED UNDER "BUSINESS", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK." CERTAIN OF SUCH RISKS AND UNCERTAINTIES
RELATE TO THE HIGHLY LEVERAGED NATURE OF UATC, THE RESTRICTIONS IMPOSED ON
UATC BY CERTAIN INDEBTEDNESS, THE SENSITIVITY OF UATC TO ADVERSE TRENDS IN
THE GENERAL ECONOMY, THE HIGH DEGREE OF COMPETITION IN UATC'S INDUSTRY, THE
VOLATILITY OF UATC'S QUARTERLY RESULTS AND UATC'S SEASONALITY, THE DEPENDENCE
OF UATC ON FILMS AND DISTRIBUTORS AND ON ITS ABILITY TO OBTAIN POPULAR MOTION
PICTURES, THE CONTROL OF UATC BY THE MERRILL LYNCH CAPITAL PARTNERS, INC. AND
THE DEPENDENCE OF UATC ON KEY PERSONNEL, AMONG OTHERS.

ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO UATC ARE
EXPRESSLY QUALIFIED BY THE FOREGOING CAUTIONARY STATEMENTS.

PART I

ITEM 1. BUSINESS

(a) GENERAL DEVELOPMENT OF BUSINESS

United Artists Theatre Company ("the Parent") (formerly known as OSCAR I
Corporation), a Delaware corporation and an affiliated company OSCAR II
Corporation ("OSCAR II") were formed in February 1992 for the purpose of
acquiring United Artists Theatre Circuit, Inc. ("UATC") and United Artists
Realty Company ("UAR") from an affiliate of Tele-Communications, Inc.
("TCI"). OSCAR II was subsequently merged into OSCAR I Corporation.

United Artists is owned by Merrill Lynch Capital Partners, Inc. ("MLCP"), a
private equity investment fund managed by Stonington Partners, Inc., certain
institutional investors, and certain members of United Artists' management.
On May 12, 1992, the Parent purchased all of the outstanding common stock of
UATC from the affiliate of TCI (the "Acquisition").

UATC, a Maryland corporation, was initially founded in 1926 by shareholders
including Mary Pickford, Douglas Fairbanks, Sam Goldwyn and Joe Schenck. In
addition to the development of its theatre operations, in the early 1960s
UATC, through a separate subsidiary, invested in the cable television
business.

In 1986, an affiliate of TCI acquired a controlling interest in UATC's then
parent company, United Artists Communications, Inc. ("UACI"), which owned
both the theatre and cable businesses. To separately finance its significant
real estate holdings to provide capital for reinvestment, UAR and two of its
subsidiaries, United Artists Properties I Corp. ("Prop I") and United Artists
Properties II Corp. ("Prop II"), were formed and several all of UATC's
fee-owned theatre properties were transferred to those entities and then
leased back to UATC. The theatre land and buildings were then mortgaged as
part of various mortgage bond financings.

From 1986 through 1989, UATC's growth was the result of the acquisition of
several regional theatre circuits predominately in Pennsylvania, Georgia,
North and South Carolina, Louisiana, Arkansas, Mississippi, Arizona, Nevada
and Colorado. Subsequent to these acquisitions UATC was the largest operator
of theatres in North America with 2,695 screens. From 1989 to the present
UATC has continued to consolidate the previously acquired operations through
the construction of new facilities and the sale or closure of several older,
smaller theatres.

In 1989 UATC changed its name to United Artists Entertainment Company ("UAE")
in conjunction with the acquisition of United Cable Television Corporation.
In December 1991, TCI's affiliate acquired the remaining outstanding shares
of UAE and pursued divestiture of UATC and UAR which was completed in May
1992.

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Subsequent to the Acquisition by MLCP, UATC increased its investments in new
domestic theatres, invested internationally and invested in certain
businesses that it believed were synergistic with its theatre operations.
These new businesses included virtual reality entertainment centers and the
Satellite Theatre Network-TM-, a network of theatres that can be used for
business meetings during non-peak theatrical business hours.

In December of 1996, subsequent to the departure of UATC's then CEO, UATC
initiated a more focused operating and capital investment strategy. This
strategy was designed to improve the efficiency and quality of its core
operating theatre business and increase its market share within its key
domestic markets. As part of this strategy, substantially all of its
international operations were sold, its entertainment center business were
discontinued and certain domestic markets and theaters that were
underperforming or non-strategic were sold or earmarked for sale. The
proceeds from the sale of the international and domestic assets have been
used to repay debt and reinvested into new theatres and the expansion or
renovation of existing successful theatres in key markets. In conjunction
with this change in focus in 1996 and 1997, UATC restructured its corporate
functions and has reduced its running rate corporate expenses by over $13.5
million per annum, or 37%.

The current corporate structure of the Parent and UATC are as follows:

(b) NARRATIVE DESCRIPTION OF BUSINESS

UATC is a leading motion picture exhibitor in North America and, in the
United States, operates 2,184 screens at 319 theatres located in 24 states.
UATC licenses films from all major and substantially all independent film
distributors and derives revenues primarily from theatre admissions and
concession sales. UATC operates screens in eight of the ten largest
demographic market areas ("DMAs") in the United States and approximately
45.4% of its screens are located in the top 20 DMAs. Approximately 31.1% of
UATC's screens (680 screens) have been constructed since January 1, 1992.
UATC believes that it is one of the largest single exhibitors, based on
number of screens, in many of its core areas of operation and that this
market position provides several operating benefits. Theatre operations in
six states (California, New York, Pennsylvania, Florida, Texas, and Colorado)
accounted for approximately 58.3% and 56.6% of UATC's total theatres and
screens, respectively, at December 31, 1998 and 61.6% of UATC's theatrical
revenue for the year ended December 31, 1998.

In December 1996, UATC implemented a corporate restructuring and refocused
its investment strategy on its core U.S. business. Since that time UATC has:
(i) reduced its corporate general and administrative expenses; (ii) improved
its operations in its core areas of operation through the development of new
theatres and the refurbishing or expansion of certain existing key theatres;
(iii) implemented operational improvements; and (iv) accelerated the
divestitures of underperforming and non-strategic theatres.

UATC has invested more than $430.9 million since January 1, 1992 toward
improving the quality of its asset base by, among other things, renovating
existing theatres and constructing new state-of-the-art theatres.
Approximately 31.1% of UATC screens have been constructed since January 1,
1992. Virtually all of the theatres UATC has built since 1997 are
state-of-the-art, 10 to 16 screen multiplex theatres with stadium seating,
high-backed rocking seats, digital sound, expanded concession areas and other
state-of-the-art design features and amenities and many existing theatres are
being, or will be, upgraded with stadium seating and other state-of-the-art
features. All new theatres currently planned will also include these
state-of-the-art amenities. As compared to the prior generation of
non-stadium theatres, UATC believes that these theatres provide a higher
quality entertainment experience for

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patrons and significant operating efficiencies and improved economics for
UATC. At December 31, 1998, UATC operated 24 theatres (245 screens) which
offered stadium seating. At December 1998, approximately 87.9% of UATC's
screens were located in theatres with five or more screens. UATC's average
number of screens per theatre has increased 41.7% from 4.8 at January 1, 1992
to 6.8 at December 31, 1998.

INDUSTRY OVERVIEW

More than 530 participants in the domestic motion picture theatre exhibition
business operate approximately 34,000 screens in North America. In 1998, the
top ten companies operated approximately 53.0% of the total screens as
compared to 31.0% in 1986. The remainder of the domestic motion picture
theatre exhibition industry is highly fragmented, with the remaining 47.0% of
the screens being operated by approximately 520 exhibitors. UATC has one of
the largest shares of total screens with approximately 6.4% of all screens in
North America.

Exhibitors have generally turned to multi-screen formats with smaller
auditoriums. Typically, multi-screen theatres ("multiplexes") have six or
more screens per theatre, although in some instances multiplexes may have as
many as 30 screens in a single theatre. The multiplex format provides
numerous benefits for theatre operators, including allowing facilities
(concession stands and restrooms) and operating costs (lease rentals,
utilities and personnel) to be allocated over a larger base of screens and
patrons. Multiplexes have varying seating capacities (typically from 100 to
500 seats) that allow for multiple showtimes of the same film and a variety
of films with differing audience appeal to be shown. They also provide the
flexibility to shift films to larger or smaller auditoriums depending on
their popularity. To limit crowd congestion and maximize the efficiency of
floor and concession staff, the starting times of films at multiplexes are
staggered. The growth in the number of screens operated nationally has
accelerated significantly over the past years with a 7.2% increase in each of
1997 and 1998. In contrast, the annual average rate of increase since 1978
was only approximately 4.9%. Because auditorium size is generally smaller in
a multi-plex theatre, the number of seats has increased at a much slower rate
than screens.

Certain trends in the theatre exhibition industry favor larger, better
capitalized companies, creating an environment for new construction and
consolidation. Foremost among these trends is larger exhibitors actively
seeking and building multiplexes or megaplexes. Moreover, many smaller
theatre owners who operate older cinemas without state-of-the-art stadium
seating and projection and sound equipment may not have the capital required
to maintain or upgrade their circuits. The growth of the number of screens,
strong domestic consumer demand and growing foreign theatrical and domestic
and foreign ancillary revenue opportunities have led to an increase in the
volume of major film releases. The greater number of screens has allowed
films to be produced for and marketed to specific audience segments (e.g.,
horror films for teenagers) without using capacity required for mainstream
product.

The greater number of screens has also prompted distributors to increase
promotion of new films. Not only are there more films in the market at any
given time, but the multiplex format allows for much larger simultaneous
national theatrical release. In prior years a studio might have released
1,000 prints of a major film, initially releasing the film only in major
metropolitan areas, then gradually releasing it in smaller cities and towns
nationwide. Today studios might release over 3,000 prints of a major film and
open it nationally in one weekend. These national openings have made up-front
promotion of films critical to attract audiences and stimulate word of mouth
advertising.

Motion pictures are generally made available through various distribution
methods at various dates after the theatrical release date. The release dates
of motion pictures in these other "distribution windows" begin four to six
months after the theatrical release date with video cassette rentals,
followed generally by off-air or cable television programming including
pay-per-view, pay television, other basic cable and broadcast network
syndicated programming. These new distribution windows have given producers
the ability to generate a greater portion of a film's revenues through
channels other than theatrical release. This increased revenue potential
after a film's initial domestic release has enabled major studios and certain
independent producers to increase film production and theatrical advertising.
The additional non-theatrical revenue has also allowed for higher individual
film production and marketing costs. The total cost of producing and
distributing a picture averaged approximately $52.7 million in 1998 compared
with approximately $17.5 million in 1986. The average cost to advertise and
promote a picture averaged approximately $25.3 million in 1998 as compared
with $6.7 million in 1986.

These higher costs have made a large successful theatrical release more
important. Distributors strive for a successful opening run at the theatre to
establish a film and substantiate the film's revenue potential both
internationally and through other release windows. The value of home video
and pay cable distribution agreements

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frequently depends on the success of a film's theatrical release.
Furthermore, the studios' revenue-sharing percentage and ability to control
who views the product within each of the distribution windows generally
declines as one moves farther from the theatrical release window. Because
theatrical distribution remains the cornerstone of a film's financial
success, it is the focal distribution window for the public's evaluation of
films and motion picture promotion.

Although it cannot provide any assurance, management expects that the overall
supply of films will continue to increase. Over the past four years there has
been an increase of approximately 8.6% in the number of motion pictures rated
by the Classification and Rating Administration. There has also been an
increase in the number of major studios and reissues of films as well as an
increased popularity of films made by independent producers. During the past
four years the number of large budget films and the level of marketing
support provided by the production companies has risen, as evidenced by the
increase in average production costs and average advertising costs per film
of 53.7% and 57.5%, respectively, from 1994 to 1998.

BUSINESS AND OPERATING STRATEGY

UATC's operating and capital investment strategy is to focus on improving the
quality of its key operating theatres and the quality of its daily
operations. Key elements include:

REFOCUS OVERHEAD AND CAPITAL INVESTMENT STRATEGY: In December 1996, UATC
implemented a corporate restructuring and refocused its investment strategy
on its core U.S. business. UATC's core business strategy focuses management's
attention and capital resources on those geographic areas where UATC intends
to strengthen and defend its current position. UATC has also implemented
operational improvements and overhead reductions intended to increase UATC's
results of operations and has sold or closed several underperforming or
non-strategic theatres. The corporate restructuring plan resulted in a higher
level of focus by UATC on its domestic theatrical business and a reduction of
corporate general and administrative expenses of 37.1% from a running rate of
$36.4 million for the year ended December 31, 1997 to $22.9 million for the
year ended December 31, 1998.

REBUILD OR EXPAND EXISTING KEY THEATRE LOCATIONS AND DEVELOP NEW THEATRES:
UATC plans to continue increasing its number of screens and operating margins
by focusing its capital investment activities on the renovation or expansion
of existing theatres in its core areas of operation. All currently planned
theatre renovations and expansions will include, among other things, the
addition of stadium seating. The theatres selected for renovation and
expansion will be those that have favorable historical operating results and
for which a renovation or expansion will provide the theatre with a
competitive advantage.

UATC will also build several new state-of-the-art theatres within its core
areas of operation. UATC is developing higher margin multiplexes of 12 to 18
screens and is seeking to increase concession sales through, among other
things, more efficient theatre design. UATC is also constructing its new
theatres with stadium seating, digital sound, more comfortable seats and
other popular design features and amenities. UATC believes that these
theatres will have an optimal relationship between the number of screens (12
to 18) and the size of the auditoriums (125 to 400 seats). These theatres are
designed to increase the revenue per square foot generated by the facility
and reduce the cost per square foot of constructing and operating the
theatres. This multiplex strategy, in combination with an emphasis on
concession sales, is designed to improve revenue and profitability by
enhancing attendance and concession sales, theatre utilization and operating
efficiencies and provide more efficient clustering around regional and
district management centers. UATC believes that theatres which are larger
than 18 screens tend to have a higher level of return risk because they
require a larger capital investment and require a larger drawing area (thus,
more potential competition) to be successful, generally resulting in a
diminishing return on capital investment for the incremental screens.

During 1998, UATC opened 13 new theatres (157 screens), added stadium seating
to two theatres (22 screens), and renovated two additional theatres. Seven of
its new theatres (83 screens) opened were expansions, rebuilds or
replacements of existing theatres that contained 30 screens. During 1999,
UATC currently plans to open five new theatres (68 screens), and renovate and
add stadium seating to three existing theatres (36 screens).

MANAGE INDIVIDUAL THEATRE CAPITAL REQUIREMENTS: Even though UATC plans to
continue to develop several new state-of-the-art theatres each year, it
intends to reduce individual theatre financial leverage and capital
requirements by focusing on expanding, renovating and rebuilding many of its
key locations. In many cases, these existing key locations can be transformed
into state-of-the-art multiplex stadium seating theatres without competing
against other operators for the location and incurring higher rent and
excessive preconstruction costs. Furthermore, existing

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structures can be utilized while being refurbished to help reduce overall
construction costs. UATC's renovation of theatres in successful locations
eliminates much of the geographic and location risk related to a project's
success.

In order to reduce the overall investment in new theatres, UATC has entered
into "build to suit" and other landlord leasing arrangements or sale and
leaseback transactions. UATC also intends to continue to sell non-strategic
and underperforming assets and expects to redeploy capital to its core U.S.
business. This strategy is intended to provide increased liquidity from the
disposal of non-cash flow producing investments and theatres with limited
growth potential.

DIVEST OR FIND ALTERNATE USES FOR UNDERPERFORMING THEATRES. UATC's 1996
corporate restructuring was also designed to rationalize underperforming or
non-strategic assets by: (i) terminating leases for underperforming theatres;
(ii) selling real estate underlying non-strategic or underperforming
theatres; (iii) divesting theatres in non-core areas; (iv) exchanging
theatres in non-core areas for theatres in core areas; and (v) finding new
operating techniques or alternative uses for underperforming theatres. During
1998, UATC sold the majority of its remaining international theatrical
exhibition assets for $3.0 million of cash, $0.5 million of stock of the
acquiring company and a $3.0 million note. In addition, UATC sold certain
non-operating real estate assets and closed or sold 32 underperforming or
non-strategic theatres (137 screens) for which net cash proceeds of $7.0
million were received. Many of the theatres closed or sold were not
profitable or were located in areas that are not part of UATC's long-term
strategic plans. UATC has identified 63 operating theatres and owned real
estate (434 screens) that are not considered strategically important or are
underperforming. UATC plans to sell or close these theatres during the next
several years, although there can be no assurance that UATC will be able to
accomplish such divestitures or closings.

IMPLEMENT OPERATIONAL IMPROVEMENTS. UATC has recognized theatre and
concession operating efficiencies through a heightened focus on increasing
concession sales, managing theatre payrolls and other variable costs and
increased staff training. Concession sales per capita increased by
approximately 7.2% in 1998 versus 1997 and 5.6% annually from 1993 to 1998.
Management believes that there are opportunities to achieve additional
operating efficiencies by disposing of underperforming theatres, renovating
and expanding certain existing theatres, developing new multiplex stadium
theatres, and continuing to control theatre level operating expenses. The
area of focus for 1999 for those theatres identified as underperforming or
non-strategic will primarily be to implement operating techniques to improve
their operating results as a theatre, find other uses or divestiture.

ENHANCE STUDIO/DISTRIBUTOR RELATIONSHIPS. Management intends to continue to
enhance and balance its studio relationships to obtain the optimal number of
marketable motion pictures at film rental percentages that are consistent
with prior results. UATC believes that it will continue to increase the
number of prints it obtains from each studio as it increases the number of
its screens in selected key locations and leverages its attractive theatre
locations through the renovation and expansion of certain existing theatres
and the development of new, larger (in terms of screens), higher margin
theatres. To the extent that theatrical exhibition remains the primary
distribution channel for new motion picture releases and the overall number
of movies produced continues to increase, management believes that UATC's
focus on its core areas will provide it with access to more prints of each
motion picture.

DEVELOP ANCILLARY REVENUE OPPORTUNITIES. UATC believes that there are
opportunities to increase its ancillary revenue from its Satellite Theatre
Network-TM- by renting theatres on a networked and non-networked basis for
corporate meetings, seminars, product and customer research and other
entertainment uses. Through its VIP/Premier program, UATC seeks to enhance
theatre attendance by selling large groups of tickets to businesses and
groups through coupon books as well as gift certificates. On-screen
advertising also provides an additional opportunity to increase revenue and
profitability.

OPERATIONS

OVERVIEW

The following table summarizes the screens and theatres in which UATC owned
more than a 50% interest at the end of each of the last five years:

December 31,
---------------------------------------------------------
1994 1995 1996 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Number of Theatres 413 406 366 338 319
Number of Screens 2,254 2,310 2,203 2,172 2,184
Average Screens per Theatre 5.5 5.7 6.0 6.4 6.8
</TABLE>

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UATC also manages four other theatres (11 screens) in the United States in
which it owns a 50% or less interest and owns 10% interests in each of two
corporate entities, one of which operates two theatres (seven screens) in
Singapore and the other of which operates two theatres (14 screens) in
Thailand.

Almost all of UATC's theatres are multiplexes, with an average of 6.8 screens
per theatre. In comparison to a single screen theatre, multiplex theatres
allocate facilities such as concession stands and restroom facilities, and
operating costs such as rent, utilities and personnel, over a larger base of
screens and patrons. Multiplexes allow for a variety of films with different
audience appeal to be shown in the same theatre and permit multiple showtimes
of popular films. Multiplexes also provide the flexibility to shift films to
larger or smaller auditoriums depending on the film's popularity. To limit
crowd congestion and maximize staff efficiency, UATC's theatres stagger the
starting times of films. UATC believes that multiplex and "megaplex" theatres
designed with 12 to 18 screens generally provide the optimal balance of
return on invested capital and adequate screen numbers for patrons and film
distribution companies, as compared to theatres with more than 18 screens.

As set forth in the following table, although UATC operates several smaller
theatres (in terms of number of screens), approximately 87.9% of UATC's
screens as of December 31, 1998 were in theatres containing five or more
screens:

Number of Screens Number of % of % of
per Theatre Theatres Total Screens Total Revenue
----------------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Greater than 10 35 20.3% 21.4%
9 - 10 56 24.7 26.8
7 - 8 61 21.5 20.0
5 - 6 81 21.4 19.8
3 - 4 58 10.1 9.0
1 - 2 28 2.0 3.0
</TABLE>

REVENUE

UATC's principal sources of revenue from its theatres are derived from
theatrical admissions and concession sales. For the year ended December 31,
1998, theatrical admissions and concession sales comprised approximately
68.7% and 28.5% of UATC's revenue, respectively. The remaining 2.8% of
revenue for this period was derived primarily from on-screen advertising, the
Satellite Theatre Network-TM-, electronic video games located in theatre
lobbies and other miscellaneous sources.

UATC's admissions revenue is based on the level of theatrical attendance and
the mix of tickets sold. Theatre attendance is dependent primarily upon the
ability to license the most popular films. UATC's ticket prices vary
throughout the circuit depending upon such things as local competition,
whether the theatre is showing first run or second run movies and the local
economy in which the theatre operates. Reduced ticket prices are typically
charged for senior citizens, children and matinee showings. The mix of
tickets sold is primarily related to the types of movies available to and
exhibited by UATC. Admission prices are typically evaluated on a semi-annual
basis and are adjusted after taking into consideration such things as the
prices at competitive theatres, the nature of the theatre and the local
economy. Admissions revenue is recorded net of applicable sales taxes.

Concession sales are a significant factor in the overall profitability of a
theatre. UATC's primary concession products are varying sizes of popcorn,
soft drinks, candy and certain other products such as nachos and hot dogs.
UATC also sells specialty foods such as pizza, pretzels, cookies, ice cream,
bottled water and fruit juices in many of its theatres. Popcorn, soft drinks
and packaged candy are generally sold in three or four (including children's)
sizes. Retail prices for concession items vary by the size of the offering
and are generally market sensitive. Concession sales are recorded net of
applicable sales taxes.

To further increase its concession sales, UATC has introduced new products
and initiated programs intended to increase both the percentage of patrons
who purchase concessions and the amount of concessions purchased by each
patron. To achieve these goals UATC has implemented training programs for all
concession employees, remodeled concession stands at certain existing
theatres to make them more visible, attractive and efficient, constructed new
theatres with increased concession capacity, expanded concession menus in
selected locations, installed bulk candy stands in most theatres and adopted
certain seasonal and event-oriented promotional programs. Theatre managers
and assistant managers are motivated to increase concession sales through
concession commission programs that represent a significant portion of their
total compensation.

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FILM LICENSING

UATC obtains licenses to exhibit films by directly negotiating with film
distributors on a film-by-film and theatre-by-theatre basis. UATC licenses
films through its booking offices located in New York and Los Angeles.
Individuals in the booking offices are responsible for booking films for
theatres in their assigned regions. This regional film booking structure
allows UATC to maintain better relationships with the film distributors'
regional representatives and provides better insight to the regional film
tastes of its patrons. UATC licenses films from all of the major and
independent film distributors and is not overly dependent on any one film
distributor for film product.

UATC licenses the majority of its first run films from distributors owned by
the major and independent film production companies. Each film distributor
establishes geographic areas known as "film zones," and typically allocates
each of its films to only one theatre within each film zone. In most cases
where there is more than one exhibitor in a film zone this allocation process
is based on long standing relationships between the distributor and exhibitor
with respect to that theatre or is done on an alternating basis. In certain
very limited cases where several exhibitors operate in a single film zone,
films are allocated based on an exhibitor bidding process. The size of a film
zone is based primarily upon population density. UATC operates in a total of
262 film zones and believes that it is the only exhibitor in 118 of these
zones and, therefore, does not currently compete with other exhibitors for
licensing specific film product at a given time in such film zones.

Film licenses typically specify rental fees equal to the higher of a
percentage of (i) gross box office receipts or (ii) adjusted box office
receipts. Under the gross box office receipts formula, the film distributor
receives a specified weekly percentage of the gross box office receipts.
Under the adjusted box office receipts formula, the film distributor receives
a specified percentage of the excess of box office receipts over a
periodically negotiated amount of theatre "house" expenses. In a very limited
number of cases, UATC may be required to pay a non-refundable guarantee or
make film rental advances in order to obtain certain film licenses.

The terms of the film licenses (and hence the film rental costs) with many
film distributors are historically finalized after exhibition of the film in
a process known as "settlement." The settlement process considers, among
other things, the actual success of a film relative to original expectations,
an exhibitor's commitment to the film and the exhibitor's relationship with
the film distributor. UATC has historically been able to license a majority
of the motion pictures available; however, there is no guarantee that this
will continue.

MARKETING AND ADVERTISING

UATC relies principally upon newspaper advertisements, newspaper film
schedules and word of mouth to inform its patrons of film titles and
exhibition times. UATC utilizes local newspaper advertisements to promote its
theatres and inform its patrons of the films being played and show times.
UATC typically pays for this type of advertisement. In most areas,
multi-media advertisements for upcoming film releases are paid by the film's
distributor. In many areas there is a "co-op" arrangement whereby the
exhibitors and distributors share in the cost of film advertisement in
newspapers. Film distributors will also typically pay for radio and
television spots to promote certain motion pictures and special events.

Prior to the opening of a new theatre, UATC typically initiates a marketing
campaign that advertises and promotes the new theatre for several weeks to
several months prior to the theatre's opening date. When a theatre is
performing below management's expectations, UATC may also initiate a
newspaper marketing campaign with the objective of increasing attendance at
the theatre.

THEATRE PROPERTIES

The majority of UATC's theatres are located in free-standing buildings or are
"anchor" tenants in regional malls or strip centers. Typically, UATC's
third-party leases have remaining terms ranging from 10 to 25 years and
provide for options to extend for up to 20 additional years at UATC's
election. The leases provide for annual base rent and many require additional
rent based upon a percentage of the leased theatres' revenue over a certain
breakpoint. Certain of the leases provide for escalating minimum annual
rentals. The leases typically require UATC to pay for property taxes,
insurance and certain of the lessors' overhead costs. UATC expects that in
the normal course of business, desirable leases that expire will be renewed
or replaced by other leases, although such renewals or replacements may be on
different terms. UATC owns directly or through its subsidiaries substantially
all of the theatre equipment used in all of its theatres.

CONSTRUCTION. UATC intends to devote significant resources to adding
additional screens to existing theatres and refurbishing or rebuilding
existing theatres to strengthen its position in existing areas. UATC believes
that

9
<PAGE>

renovating, expanding or completely rebuilding certain of its existing
theatre locations provides it with a significant competitive advantage in
many of the large metropolitan areas where the availability of suitable
theatre sites is limited. The capital costs associated with renovating or
expanding an existing theatre are usually significantly less than for
constructing a new theatre.

UATC's new theatre construction strategy focuses on selecting sites in its
existing core areas of operation and enhancing the theatre-goer's experience
by building state-of-the-art theatres. Each new location is selected after
considering UATC's relative strength in the particular area, the number of
existing competitive screens, growth potential of the area and the minimum
threshold population within a certain radius of the theatre. As part of its
construction strategy, UATC intends to construct or lease stadium theatres
that have a favorable balance between the number of screens (12 to 18) and
the size of the auditoriums (125 to 400 seats). UATC believes that this
balance will allow UATC to provide an adequate number of screens for film
distributors and increased entertainment value to patrons afforded by larger
auditoriums. In addition to increasing the number of screens in certain
locations, UATC is also constructing all of its new theatres with stadium
seating, more comfortable seats, analog and digital stereo sound systems and
other state-of-the-art design features and amenities.

As a result of new construction and the sale or closure of older, smaller
theatres, approximately 31.1% of UATC's screens have been constructed since
January 1, 1992 and approximately 50.7% of theatres operated on January 1,
1992 have been sold or closed. As a result of this new construction and the
sale or closure of older, smaller theatres, UATC's average number of screens
per theatre has increased 41.7% from 4.8 screens at January 1, 1992 to 6.8
screens at December 31, 1998.

UATC has historically financed, and plans to continue to finance, a
significant portion of the cost of construction of new theatres by entering
into long-term leases or sale and leaseback transactions. UATC's long-term
leases typically have initial terms of 15 to 25 years with renewal options
and require the landlord to provide a significant portion of the up-front
construction costs. As a result, capital expenditures are often only required
for equipment and certain tenant finishes, thereby reducing the required net
capital expenditures.

GEOGRAPHIC POSITIONING. Geographic positioning and operating efficiencies are
key elements of UATC's operating strategy. Geographic clustering at both the
regional and local levels is important in providing UATC with access to
attractive new theatre development opportunities and enhancing film buying
and operating efficiencies. UATC achieves operating efficiencies by
concentrating regional corporate operations around fewer strategic markets
and reducing its number of less profitable, non-strategic theatres.

Theatrical exhibitors depend upon strong geographic positioning to obtain the
most attractive film rental arrangements because film bookings are negotiated
on a theatre-by-theatre basis. Strong geographic positioning in terms of both
number of screens and locations enhances the attractiveness of a theatre
exhibitor to film distributors, in part because of the exhibitor's ability to
influence the local success of a film release.

UATC's theatres are located in large and medium sized metropolitan areas in
California, southern New York (primarily New York City and Long Island), New
Jersey, Florida, Texas, eastern Pennsylvania (including Philadelphia),
Louisiana, Colorado (primarily Denver), and Georgia. UATC believes that it
has strong positions in many of these major metropolitan areas. The six
states that represent the largest geographic concentration of theatres and
screens operated accounted for approximately 58.3% and 56.6% of UATC's total
theatres and screens, respectively, at December 31, 1998 and generated
approximately 61.6% of UATC's theatrical revenue for the year ended December
31, 1998 were as follows:

Total Number Total Number % of
of Theatres of Screens Theatrical Revenue
------------ ------------ ------------------
<S> <C> <C> <C>
California 55 327 18.7%
New York 31 205 14.1
Pennsylvania 26 146 8.4
Florida 25 217 7.5
Texas 24 190 7.0
Colorado 25 151 5.9

</TABLE>

COMPETITION

UATC competes for the public's leisure time and disposable income with all
forms of entertainment including sporting events, concerts, live theatre and
restaurants. UATC is also subject to varying degrees of competition from
other theatre circuits and independent theatres, some of which may have
greater access to capital resources.

10
<PAGE>

The motion picture exhibition industry is highly competitive, particularly
with respect to film licensing, attracting patrons and acquiring or leasing
new theatre sites. Some of UATC's competitors may be better established in
certain areas where UATC's theatres are located. Competition for patrons
occurs locally and depends upon factors such as: (i) which films a particular
theatre is showing; (ii) location of theatres; (iii) comfort and quality of
theatres; and (iv) ticket prices. Film patrons are not "brand" conscious and
generally choose a theatre because of film selection, location and quality of
the theatre.

Competition among theatre circuits for licensing popular films occurs locally
and is based on the prestige and location of an exhibitor's theatres, quality
of the theatres (especially projection and sound quality), seating capacity
and the exhibitor's ability and willingness to promote the films. UATC
believes that promoting good relations with film distribution and production
companies is important to consistently obtain the best mix of available films.

Where real estate is readily available there are few barriers preventing
competitors from opening theatres near one of UATC's theatres, which may have
a material adverse effect on UATC's theatre. In addition, "megaplexes"
(theatres with 14 or more screens) have been built or are planned to be built
by competitors in certain areas in which UATC operates which may result in
excess capacity and adversely affect attendance and pricing at existing
theatres in these areas.

Alternative motion picture exhibition delivery systems, including cable
television, video cassettes, satellite and pay per view, also exhibit filmed
entertainment after its theatrical release. While the further expansion of
such delivery systems (such as video on demand) could have a material adverse
effect upon UATC's business and results of operations, no such adverse effect
has yet been experienced.

Recent consolidation in the industry has included the merger of Sony Corp.'s
Loews Theatres Exhibit Group with Cineplex Odeon Corp. and the merger of Act
III Cinemas Inc. with Regal Cinemas Inc. Such consolidation could increase
the level of competition for the industry.

SATELLITE THEATRE NETWORK-TM-

In an effort to utilize its existing theatres more effectively during periods
of low attendance (such as mornings and weekdays), UATC has developed a
business unit called the Satellite Theatre Network-TM-. The Satellite Theatre
Network-TM- rents theatre auditoriums for seminars, corporate training,
business meetings and other educational or communication uses, product and
customer research and other entertainment uses. Theatre auditoriums are
rented individually or on a networked basis. To provide the "broadcasting"
network or "teleconferencing" equipment, a network of theatres has been
created by installing high quality (high definition-like) video projection
equipment within theatres that are networked via the combination of satellite
delivery from a single location or multiple locations and telephonic
communication.

As of December 31, 1998, the Satellite Theatre Network-TM- included 31
theatres permanently equipped with electronic video capability and an
additional 288 theatres that were being rented for individual non-networked
uses. All of UATC's theatres can be "networked" through the use of temporary
equipment. Because the Satellite Theatre Network-TM- utilizes existing
theatre facilities and its operations within the theatre are managed by
existing personnel, very little incremental capital or personnel expenditures
are required. Marketing and sales of the Satellite Theatre Network-TM-
services is performed on a national basis by staff located in the corporate
headquarters in Englewood, Colorado. UATC recorded $5.5 million, $6.2
million, and $6.0 million of revenue from the Satellite Theatre Network-TM-
for the years ended December 31, 1998, 1997, and 1996, respectively.

As of September 1, 1998 UATC was issued a United States Patent (No.
5,801,754) with respect to the inter-active theatre network system.

MANAGEMENT

UATC operates its theatres from its Englewood, Colorado corporate
headquarters, two regional operating offices, fourteen district operating
offices and two film booking offices. All of UATC's district offices and
regional operating offices are located within theatres.

There is active communication between the theatres and division management
and corporate management, which allows management to react on a daily basis
to revenue and staffing information. Division management provides guidance in
scheduling, staffing, screen allocation and other operating decisions.
Management personnel with UATC's marketing and concessions operations are
also continually involved with theatre management to promote strong
performance in those areas. This structure allows the theatre manager to
focus solely on the daily operations

11
<PAGE>

of the theatre. A primary responsibility of the theatre manager is improving
efficiency and managing costs at the local theatre level.

Corporate and divisional management assists in the daily operations of UATC's
theatres by booking and settling films, training new and existing employees,
setting admission and concessions pricing policies, selecting concession
products, advertising theatres and showtimes, selecting new theatre sites and
negotiating national purchasing contracts. Corporate management also assists
in theatre development and construction and capital raising activities and
provides cash management, accounting, tax and management information services.

UATC's reporting systems provide management and each theatre manager with
daily, weekly and monthly operating reports for individual theatres. This
allows management to monitor theatre manager performance and progress in
attaining certain identifiable goals. UATC's computer system, installed in
all of its theatres, allows UATC to centralize all theatre-level
administrative functions at its two regional operating offices and corporate
headquarters. The system allows regional and corporate management to monitor
ticket revenue and concession sales on a daily basis. All accounting,
reporting and management information systems are centralized at the corporate
headquarters.

As of December 31, 1998, UATC employed approximately 10,000 employees, of
whom approximately 1,200 were full-time. Approximately 30.6% of UATC's
employees (substantially all of who are part-time employees who work in the
theatres) are paid based on the applicable state and Federal minimum wage
regulations. Approximately 125 employees (primarily consisting of film
projectionists) are covered by two collective bargaining agreements.

SEASONALITY

UATC's theatrical results of operations are subject to seasonal fluctuations
in theatre attendance, which corresponds to holiday school vacation periods
and a greater availability of popular motion pictures during the period from
Memorial Day through Labor Day and during the Easter, Thanksgiving and
Christmas holiday seasons.

GOVERNMENT REGULATION

The distribution of motion pictures is regulated by Federal and state
anti-trust laws and has been the subject of numerous anti-trust cases.
Consent decrees resulting from one of the most significant cases, to which
UATC was not a party, have an impact on the theatrical exhibition business.
Those consent decrees bind certain major film distributors and require the
films of such distributors to be offered and licensed to exhibitors,
including UATC, on a theatre-by-theatre basis. Consequently, UATC cannot
assure itself of a supply of films by entering into long-term agreements with
major film distributors, but must compete for its film licenses on a
film-by-film and theatre-by-theatre basis.

The Americans With Disabilities Act of 1990 ("ADA") and certain state
statutes, among other things, require that places of public accommodation,
including theatres (both existing and newly constructed), be accessible to
and that assistive listening devices be available for use by certain patrons
with disabilities. With respect to access to theatres, the ADA may require
that certain modifications be made to existing theatres to make such theatres
accessible to certain theatre patrons and employees who are disabled. The ADA
requires that theatres be constructed in such a manner that persons with
disabilities have full use of the theatre and its facilities and reasonable
access to work stations. The ADA provides for a private right of action and
reimbursement of plaintiff's attorneys' fees and expenses under certain
circumstances. UATC has established a program to review and evaluate UATC's
theatres and to make any changes that may be required by the ADA. In 1995,
UATC settled the lawsuit styled CONNIE ARNOLD ET AL. VS. UATC, filed in 1991.
This lawsuit involved allegations that certain of UATC's theatres lacked
accessibility to persons with mobility disabilities in violation of the ADA.
In the settlement agreement, UATC, the plaintiffs and the Department of
Justice established standards of modifications that must be made to UATC's
theatres throughout the United States to make them more accessible to persons
with disabilities. UATC believes that the cost of complying with the ADA and
the settlement agreement in the CONNIE ARNOLD case will not have a material
adverse effect on UATC's financial position, liquidity or results of
operations.

OTHER

UATC has not expended material amounts on research and development during the
past three years.

There is no customer or affiliated group of customers to which sales are made
in an amount that exceeds 10% of UATC's consolidated revenue.

12
<PAGE>

Compliance with Federal, state and local laws and regulations which have been
enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, has
had no material effect upon UATC's financial position, liquidity or results
of operations.

ITEM 2. PROPERTIES

UATC leases its executive office located in Englewood, Colorado and certain
of its regional operating and film booking offices. The following table
summarizes the theatres operated by UATC at December 31, 1998:

Total Number Total Number
of Theatres of Screens
------------ ------------
<S> <C> <C>
Owned and Operated Theatres:
Owned 9 39
Leased:
From third parties 281 1,960
From UAR and Prop I 29 185
----- -----
Total owned and leased theatres 319 2,184
Managed theatres 4 11
- --
Total theatres operated 323 2,195
----- -----
----- -----
</TABLE>

Of the 319 owned and operated theatres, five theatres (11 screens) are held
through a corporation that is owned 75% by UATC and four theatres (33
screens) are held by three partnerships, each owned 51% by UATC. The
remaining owned and operated theatres are held directly by UATC or its
wholly-owned subsidiaries. The managed theatres include four theatres (11
screens) located in the United States. As of December 31, 1998, UATC also had
a 10% interest in two Asian theatre exhibition joint venture companies that
operate four theatres (21 screens) in Singapore and Thailand.

UATC leases the land, building and equipment in the theatres owned by UAR and
Prop I in accordance with two master affiliate leases. The UAR and Prop I
master leases expire in 2003 and provide for options to extend the leases at
UATC's option for up to an additional ten years.

UATC owns directly or through its subsidiaries substantially all of the
theatre equipment used in its fee-owned theatres and theatres leased from
unaffiliated third parties.

ITEM 3. LEGAL PROCEEDINGS

UATC is involved in various pending and threatened legal proceedings
involving allegations concerning contract breaches, torts, employment
matters, environmental issues, anti-trust violations, local tax disputes and
miscellaneous other matters. In addition, there are other various claims
against UATC relating to certain of the leases held by UATC. Although it is
not possible to predict the outcome of these proceedings, UATC believes that
such legal proceedings will not have a material adverse effect on UATC's
financial position, liquidity or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER

There were no matters submitted to a vote of the security holder during the
quarter ended December 31, 1998.

13
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

UATC's common stock is held entirely by the Parent and there is no market for
the common stock.

UATC has not paid a cash dividend on its common stock during the past two
years. UATC is restricted by certain debt covenants as to the amount of
dividends that it can declare and pay on its common stock.

ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected financial data relating to the results
of operations for the years ended December 31, 1998, 1997, 1996, 1995 and
1994, and balance sheets as of December 31, 1998, 1997, 1996, 1995 and 1994
(dollars in millions, except revenue per weighted average operating theatre):

Years Ended December 31,
-------------------------
1998 1997* 1996* 1995* 1994
----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Revenue $ 661.3 682.7 675.6 648.0 623.1
------- ----- ----- ----- -----
------- ----- ----- ----- -----
EBITDA (1) $ 79.6 85.2 73.6 74.9 81.6
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Depreciation and amortization $ 51.1 56.3 71.4 65.4 63.1
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Operating income before provision
for asset impairments $ 28.5 28.9 2.2 9.5 18.5
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Provision for asset impairments $ 32.9 30.4 8.7 21.0 --
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Operating income (loss) $ (4.4) (1.5) (6.5) (11.4) 18.5
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Gain (loss) on disposition of assets $ 0.2 21.9 1.3 (13.9) (9.7)
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Discontinued operations $ 19.5 5.3 1.4 0.6 --
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Extraordinary loss $ (7.9) -- -- -- --
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Net loss $ (65.0) (27.8) (46.6) (68.9) (27.9)
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Net loss available to common stockholder $ (74.0) (51.6) (67.5) (87.2) (44.0)
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Net loss available to common stockholder
before provisions for impairments, gain (loss)
on disposition of assets, discontinued
operations, and extraordinary loss $ (13.9) (37.8) (58.7) (51.7) (34.3)
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Capital expenditures $ 115.4 65.8 65.8 89.3 47.0
------- ----- ----- ----- -----
------- ----- ----- ----- -----
BALANCE SHEET DATA AT YEAR END:
Total assets $ 568.2 506.0 548.1 594.2 602.6
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Total debt $ 376.5 362.2 389.0 383.2 320.2
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Preferred stock
$ -- 193.9 170.1 149.2 130.9
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Weighted avg. operating screens(2) 2,160 2,204 2,299 2,270 2,202
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Weighted avg. operating theatres(2) 327 354 395 409 414
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Weighted avg. operating screens
Per operating theatre 6.6 6.2 5.8 5.6 5.3
------- ----- ----- ----- -----
------- ----- ----- ----- -----
Revenue per weighted average
operating theatre (000's) $ 2,022 1,929 1,710 1,584 1,505
------- ----- ----- ----- -----
------- ----- ----- ----- -----
</TABLE>

(1) Earnings before interest, taxes, depreciation and amortization plus
other non-recurring or non-cash operating credits or charges.
(2) Weighted average operating theatres and screens represent the number of
theatres and screens operated weighted by the number of days operated
during the period.

*Restated to reflect the entertainment business center business segment as
discontinued operations.

14
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis of UATC's financial condition and results
of operations should be read in conjunction with UATC's Consolidated Financial
Statements and related notes thereto. Such financial statements provide
additional information regarding UATC's financial activities and condition.

RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

The following table summarizes certain operating data of UATC's theatres
(dollars in millions, except admissions per weighted average operating
theatre, admissions per weighted average operating screen and concession
sales per weighted average operating theatre):

Years Ended Years Ended
December 31, % December 31, %
--------------- Increase ----------------- Increase
1998 1997* (Decrease) 1997* 1996* (Decrease)
---- ----- -------- ------ ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating theatres (1)
Revenue:
Admissions $454.4 473.9 (4.1%) 473.9 466.5 1.6%
Concession sales 188.5 189.6 (0.6) 189.6 185.1 2.4
Other 18.4 19.2 (4.2) 19.2 24.0 (20.0)
Operating expenses:
Film rental and advertising expenses 248.5 262.5 (5.3) 262.5 257.2 2.1
Concession costs 28.0 30.2 (7.3) 30.2 29.3 3.1
Other operating expenses:
Personnel expense 96.2 95.5 0.7 95.5 96.4 (0.9)
Occupancy expense:
Rent excluding sale and leaseback 77.7 77.4 0.4 77.4 74.6 3.8
Sale and leaseback rentals 15.1 13.4 12.7 13.4 11.6 15.5
Misc. operating expenses 93.3 94.0 (0.7) 94.0 96.5 (2.6)
Weighted avg. operating theatres(2) 327 354 (7.6) 354 395 (10.4)
Weighted avg. operating screens(2) 2,160 2,204 (2.0) 2,204 2,299 (4.1)
Weighted avg. screens per
avg. theatre 6.6 6.2 6.1 6.2 5.8 6.9
Admissions per weighted avg.
operating theatre $1,389,602 1,338,701 3.8 1,338,701 1,181,013 13.4
Admissions per weighted avg.
operating screen $210,370 215,018 (2.2) 215,018 202,914 6.0
Concession sales per weighted
avg. operating theatre $576,453 535,593 7.6 535,593 468,608 14.3
</TABLE>

(1) The operating theatres include revenue and expenses of all theatres
operated by UATC that are more than 50% owned.
(2) Weighted average operating theatres and screens represent the number of
theatres and screens operated weighted by the number of days operated
during the period.

*Restated to reflect the entertainment center business segment as discontinued
operations.

15
<PAGE>

REVENUE FROM OPERATING THEATRES FOR THE YEAR ENDED DECEMBER 31, 1998
COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

ADMISSIONS: Admissions revenue decreased 4.1% during 1998 as compared to
1997. This decrease was primarily due to a 7.2% decline in attendance,
partially offset by a 3.4% increase in the average ticket price. The decrease
in attendance was primarily due to decreases in the number of weighted
average theatres and screens operated, and the effect of new competitive
theatre openings in certain areas. The increase in the average ticket price
was primarily due to certain selective price increases in late 1997 and the
summer of 1998. Admissions per weighted average operating theatre increased
3.8% during 1998, while admissions per weighted average operating screen
decreased 2.2% during 1998. These admissions fluctuations were due primarily
to the opening of several new theatres which have higher admissions and more
screens per theatre, the sale or closure of several less productive theatres
and the increases in ticket prices, partially offset by a decrease in average
screen size and the increased number of total new screens in certain areas.

CONCESSION SALES: Concession sales revenue decreased 0.6% during 1998 as
compared to 1997. This decrease was primarily due to the decreased attendance
discussed above, partially offset by a 7.2% increased in the average
concession sale per patron. Concession sales per weighted average operating
theatre increased 7.6% during 1998 as compared to 1997. The increases in the
average concession sale per patron and concession sales per weighted average
operating theatre were primarily due to certain selective price increases
during 1998, UATC's increased emphasis on sales staff training, the opening
of several new theatres with more efficient concession operations and the
sale or closure of several less productive theatres.

The following table sets forth the admissions and concession sales revenue
for theatres operated throughout all of 1998 and 1997 (dollars in millions):

Theatres Screens 1998 1997 % Decrease
-------- ------- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Theatres operated throughout
both periods 296 1,914
Admissions $389.5 423.7 (8.1)%
Concession sales 160.7 168.5 (4.6)
</TABLE>

This "same theatre" analysis eliminates the effect of new theatre openings,
sales or closures during 1998 or 1997.

OTHER: Other revenue is derived primarily from on-screen advertising, revenue
generated by the Satellite Theatre Network-TM-, electronic video games
located in theatre lobbies, theatre rentals, and other miscellaneous sources.
Other revenue decreased 4.2% during 1998 as compared to 1997 primarily as a
result of UATC operating 7.6% fewer theatres and a 2.5% decrease in revenue
from on-screen advertising and an 11.4% decrease in Satellite Theatre
Network-TM- revenue.

REVENUE FROM OPERATING THEATRES FOR THE YEAR ENDED DECEMBER 31, 1997
COMPARED TO THE YEAR ENDED DECEMBER 31, 1996

ADMISSIONS: Admissions revenue increased 1.6% during 1997 as compared to
1996, despite a 10.4% decline in the average number of theatres operated.
This increase was primarily due to a 7.0% increase in the average ticket
price, partially offset by a 5.0% decrease in attendance. The increase in the
average ticket price for 1997 was primarily due to an increase in the
percentage of full priced tickets purchased and certain selective increases
in ticket prices during 1997 and late 1996. The decrease in attendance for
1997 was primarily due to decreases in the number of weighted average
theatres and screens operated during the year. Admissions per weighted
average operating theatre and screen increased 13.4% and 6.0%, respectively,
during 1997 as compared to 1996. These admissions increases were primarily
due to an increase in the number of films released, the success of those
films and the opening of several new theatres which have higher admissions
per theatre and screen, the sale or closure of several less productive
theatres, and the 1997 and late 1996 increases in ticket prices, partially
offset by decreased attendance.

CONCESSION SALES: Concession sales revenue increased 2.4% during 1997 as
compared to 1996. This increase was primarily due to a 7.8% increase in the
average concession sale per patron, partially offset by the decreased
attendance discussed above. Concession sales per weighted average operating
theatre increased 14.3% during 1997 as compared to 1996. The increases in the
average concession sale per patron and concession sales per weighted average
operating theatre were primarily due to certain selective price increases
during 1997 and late

16
<PAGE>

1996, UATC's increased emphasis on sales staff training, the opening of
several new theatres with more efficient concession operations, the sale or
closure of several less productive theatres and the introduction of new
concession menu items at certain theatres.

The following table sets forth the admissions and concession sales revenue
for theatres operated throughout all of 1997 and 1996 (dollars in millions):

Theatres Screens 1997 1996 % Increase
-------- ------- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Theatres operated throughout
both periods 312 1,922
Admissions $412.1 410.8 0.3%
Concession sales 162.0 160.5 0.9
</TABLE>

This "same theatre" analysis eliminates the effect of new theatre openings,
sales or closures during 1997 or 1996.

OTHER: Other revenue decreased 20.0% during 1997 as compared to 1996
primarily as a result of UATC operating fewer weighted average operating
theatres and a decrease in revenue from on-screen advertising.

OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1998
COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

FILM RENTAL AND ADVERTISING EXPENSES: Film rental and advertising expenses
decreased 5.3% during 1998 as compared to 1997. Film rental and advertising
expenses as a percentage of admissions revenue were 54.7% for 1998 and 55.4%
for 1997 primarily due to the reduced admissions revenues discussed above.
The decrease in film rental and advertising expenses as a percentage of
admissions revenue for 1998 was primarily due to the longer run of several
major films released in late 1997 and during 1998. Typically, film rental as
a percentage of admissions revenue increases when a higher percentage of a
film's total admissions is collected in the opening weeks of a film's run.

CONCESSION COSTS: Concession costs include direct concession product costs
and concession promotional expenses. Such costs decreased 7.3% during 1998 as
compared to 1997 primarily due to the reduced concession sales discussed
above. Concession costs as a percentage of concession sales were 14.9% for
1998 and 15.9% for 1997. The decrease in concession costs as a percentage of
concessions revenue for 1998 was primarily due to the rebidding or
restructuring of the product and distribution contracts associated with many
of UATC's concession supply products and slightly lower promotional expenses.

PERSONNEL EXPENSE: Personnel expense includes the salary and wages of the
theatre manager and all theatre staff, commissions on concession sales,
payroll taxes and employee benefits. Personnel expense increased 0.7% during
1998 as compared to 1997. This increase in personnel expense in 1998 was
primarily due to an increase in the Federal (and certain state) minimum wage
in late 1997, which increased the average wage paid to theatre staff by 7.5%
during 1998. This increase in the average wage rate was partially offset by
the decrease in attendance discussed above, fewer weighted average operating
theatres and screens and more efficient theatre staffing. Personnel expense
as a percentage of admissions and concession sales revenue was 15.0% in 1998
and 14.4% for 1997, reflecting the effect of the higher minimum wage rate and
only moderate concession and ticket price increases.

OCCUPANCY EXPENSE: UATC's typical theatre lease arrangement provides for a
base rental as well as contingent rental that is a function of the underlying
theatre's revenue over an agreed upon breakpoint. Total occupancy expense
increased 2.2% during 1998 as compared to 1997. This increase in 1998 relates
to higher rentals on newly opened theatres, partially offset by the decrease
in the number of weighted average operating theatres. Occupancy expense
includes non-cash charges relating to the effect of escalating leases which
have been "straight lined" for accounting purposes of $4.0 million and $3.7
million for 1998 and 1997, respectively.

MISCELLANEOUS OPERATING EXPENSES: Miscellaneous operating expenses consist of
utilities, repairs and maintenance, insurance, real estate and other taxes,
supplies and other miscellaneous operating expenses. Miscellaneous operating
expenses decreased 0.7% during 1998 as compared to 1997. This decrease in
1998 relates primarily to reductions in utility and insurance costs and fewer
weighted average theatres, partially offset by slightly higher repairs and
maintenance, supplies, and real estate taxes.

17
<PAGE>

OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997
COMPARED TO THE YEAR ENDED DECEMBER 31, 1996

FILM RENTAL AND ADVERTISING EXPENSES: Film rental and advertising expenses
increased 2.1% during 1997 as compared to 1996 primarily due to the increased
admissions revenue discussed above. Film rental and advertising expenses as a
percentage of admissions revenue were 55.4% for 1997 and 55.1% for 1996. The
increase in film rental and advertising expenses as a percentage of
admissions revenue for 1997 was primarily due to the shorter run of several
major films released in the second quarter of 1997, partially offset by
slightly lower advertising expenses. Advertising expenses were lower as a
result of more efficient buying of print advertising by UATC and distributors
and to fewer number of theatres operated.

CONCESSION COSTS: Concession costs increased 3.1% during 1997 as compared to
1996 primarily due to the increased concession sales discussed above.
Concession costs as a percentage of concession sales were 15.9% for 1997 and
15.8% for 1996. The slight increase in concession costs as a percentage of
concession sales for 1997 was primarily due to an increase in the cost of
certain commodity priced items such as corn seed and oil.

PERSONNEL EXPENSE: Personnel expense decreased 0.9% during 1997 as compared
to 1996. This decrease in personnel expense in 1997 was primarily due to more
efficient theatre staffing and fewer weighted average operating theatres,
partially offset by the increases in the Federal (and certain state) minimum
wage in late 1996 and late 1997. These minimum wage increases resulted in a
7.4% increase in the average hourly wage paid to theatre staff in 1997 versus
1996. Despite the increases in the Federal minimum wage in 1997 and 1996,
personnel expense as a percentage of admissions and concession sales revenue
decreased to 14.4% in 1997 from 14.8% in 1996. These improved payroll
statistics relate to more efficient staffing and some increases in ticket and
concession sales. UATC's personnel expense efficiencies have also been
positively impacted by the closure or sale of several less efficient theatres
and the opening of several new larger, more efficient multiplex theatres and
reduced expenses for fringe benefits.

OCCUPANCY EXPENSE: Total occupancy expense increased 5.3% during 1997 as
compared to 1996. This increase in 1997 relates to higher contingent rentals,
rentals on newly opened theatres and rentals related to the sale and
leaseback transaction completed in late 1996, partially offset by the
decrease in the number of weighted average operating theatres. Occupancy
expense includes non-cash charges relating to the effect of escalating leases
which have been "straight lined" for accounting purposes of $3.7 million and
$3.1 million for 1997 and 1996, respectively.

MISCELLANEOUS OPERATING EXPENSES: Miscellaneous operating expenses decreased
2.6% during 1997 as compared to 1996. This decrease in 1997 relates primarily
to reduced utilities, repairs and maintenance and insurance associated with
fewer weighted average theatres, partially offset by additional expenses
associated with the Satellite Theatre Network-TM-.

OTHER EXPENSES FOR THE YEARS ENDED DECEMBER 1998, 1997 AND 1996

GENERAL AND ADMINISTRATIVE EXPENSE AND RESTRUCTURING CHARGE

General and administrative expense consists primarily of costs associated
with corporate theatre administrative and operating personnel, Satellite
Theatre Network-TM- sales and marketing staff and other support functions
located at UATC's corporate headquarters, two film booking and regional
operating offices and 14 district theatre operations offices (generally
located in theatres). At the end of 1996, UATC initiated a corporate
restructuring plan intended to provide a higher level of focus on UATC's
domestic theatrical business at a lower annual cost. As a result of this
corporate restructuring plan which was substantially completed in January
1997, general and administrative expenses decreased $0.8 million for 1998 as
compared to 1997 and $10.8 million for 1997 as compared to 1996. During 1997
and 1996, UATC recorded $0.8 million and $1.9 million, respectively, of
restructuring charges relating to severance and other expenses related to
UATC's corporate restructuring.

DEPRECIATION AND AMORTIZATION AND PROVISIONS FOR IMPAIRMENTS

Depreciation and amortization expense includes the depreciation of theatre
buildings and equipment, the amortization of theatre lease costs and certain
non-compete agreements. Depreciation and amortization decreased $5.2 million
for 1998 as compared to 1997, and $15.1 million for 1997 as compared to 1996.
These decreases were primarily due to lower amortization from non-compete
agreements which were fully amortized during 1997 and changing the useful
lives of certain assets during 1998, partially offset by increased
depreciation on newly opened theatres. UATC recorded approximately $9.0
million and $24.0 million of amortization expense during

18
<PAGE>

1997 and 1996, respectively, on non-compete agreements and certain other
assets acquired as part of the Acquisition which were fully amortized in May
1997.

Provisions for impairments relates to non-cash charges for the differences
between the historical book value of individual theatres (in some cases
groups of theatres) and the discounted cash flow expected to be received from
the operation or future sale of the individual theatre (or groups of
theatres). UATC recorded non-cash provisions for asset impairments of $32.9
million, $30.4 million, and $8.7 million during the years ended December 31,
1998, 1997, and 1996, respectively.

OPERATING INCOME (LOSS)

UATC incurred operating losses of $4.4 million, $1.5 million and $6.5 million
during 1998, 1997 and 1996, respectively. The increase in the operating loss
during 1998 was primarily due to reduced revenue, partially offset by reduced
general and administrative expenses and depreciation and amortization. The
decrease in the operating loss during 1997 was primarily due to increased
revenue, reduced general and administrative expenses and depreciation and
amortization, partially offset by increased provisions for impairments.

INTEREST, NET

Interest, net decreased $6.4 million in 1998 as compared to 1997 and
decreased $0.3 million in 1997 as compared to 1996. The 1998 decrease was
primarily due to lower average debt balances as a result of the 1998
refinancing of UATC's senior secured notes with senior subordinated notes
issued by the Parent. The 1997 decrease was primarily due to a slightly lower
average outstanding debt balance. UATC capitalized $1.5 million of interest
during 1998 to various construction projects.

GAIN ON DISPOSITION OF ASSETS, NET

In 1998, UATC sold the majority of its remaining international theatrical
exhibition assets for $3.0 million of cash, $0.5 million of stock of the
acquiring company and a $3.0 million note. In addition, UATC sold certain
other operating theatres and non-operating real estate for which net cash
proceeds of $7.0 million were received. In conjunction with these sales, UATC
recognized $0.2 million of gains. During April 1997, UATC sold its 50%
interest in a Hong Kong theatre company to its partner for approximately
$17.5 million and during September 1997, UATC sold its theatre investments in
Mexico and the majority of its theatre assets in Argentina for approximately
$25.0 million. In addition, various non-strategic or underperforming
operating theatres and real estate assets were sold for net cash proceeds of
approximately $17.0 million. As a result of these 1997 sales UATC recognized
$21.9 million of gains. During 1996, UATC sold certain theatres for which
cash proceeds of $20.5 million were received and $1.3 million of gains were
recognized.

INCOME TAX EXPENSE

Income tax expense consists of current state and Federal income taxes of
UATC's is less than 80%-owned consolidated subsidiaries. On February 10,
1998, the Parent filed a private letter ruling with the Internal Revenue
Service (the "IRS") requesting an extension of time to file a Section 197
election. This election allows for the amortization of various intangible
assets over 15 years. On June 8, 1998, the IRS granted the Parent's request
and, on August 6, 1998, the Parent filed a Section 197 election along with
its amended 1993 income tax return. As the Parent and UATC had previously
been amortizing certain intangible assets acquired as part of the Acquisition
over a five year period, the effect of the Section 197 election was to reduce
the Parent's and UATC's net operating loss carryforward and increase the basis
of certain intangible assets, which will be amortized, and provide for future
tax deductions. The Section 197 election also enabled the Parent to conclude
the IRS audit for the years ending December 31, 1992, 1993 and 1994. As a
result of the audit the net operating loss was reduced further by various
items which were reclassified as Section 197 assets. These items will be
amortized and will provide the Parent and UATC with additional future
deductions. As UATC had fully reserved the deferred tax asset associated with
its net operating loss carryforward, there is no financial statement impact
associated with the reduction in its net operating loss carryforward. At
December 31, 1998, UATC has a net operating loss carryforward of
approximately $175.4 million. The Parent's income tax returns for the years
ended December 31, 1995, 1996 and 1997 are currently being audited by the
IRS. The outcome of this audit may reduce the amount of the Parent's and
UATC's net operating loss carryforward and/or change the basis (and thus
future tax depreciation) related to certain assets. The Parent and UATC
believe that the result of the audit will not have a material adverse effect
on their financial condition or results of operation.

DISCONTINUED OPERATIONS

During 1998, UATC established a plan to dispose of its entertainment center
business operations. The net loss from the discontinued operations was $13.8
million, $5.3 million, and $1.4 million for 1998, 1997, and 1996,
respectively. Included in the net loss from discontinued operations was
interest expense of $1.1 million, $1.2

19
<PAGE>

million, and $0.7 million for 1998, 1997, and 1996, respectively. The
anticipated loss from disposition was $5.7 million during 1998 which
represents future losses. Additionally, the net loss from discontinued
operations included non-cash provisions for asset impairments is $10.2
million and $1.0 million for 1998 and 1997, respectively.

EXTRAORDINARY ITEM

As a result of the repayment of UATC's existing bank credit facility (the
"Bank Credit Facility") and senior secured notes (the "Senior Secured Notes")
during 1998, UATC recognized an extraordinary loss on the early
extinguishment of debt of $7.9 million, consisting of a $3.6 million
prepayment premium on the Senior Secured Notes and approximately $4.3 million
of unamortized deferred loan costs.

NET LOSS AVAILABLE TO COMMON STOCKHOLDER

UATC incurred a net loss available to common stockholder of $74.0 million
compared to net losses available to common stockholder of $51.6 million and
$67.5 million for 1997 and 1996 respectively. The increase in the 1998 net
loss relates primarily to charges for the discontinuance of the entertainment
center operations, the extraordinary expense for the early extinguishment of
debt, and the gain on the disposition of assets during 1997. The decrease in
the 1997 net loss relates primarily to the gain on the disposition of assets
during 1997, partially offset by increased non-cash provisions for asset
impairments and reduced operating results for the discontinued operations.
Excluding these unusual items, the net losses available to common
stockholders for 1998, 1997, and 1996 would have been as follows (dollars in
millions):

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss available to common stockholder........... $ (74.0) (51.6) (67.5)
Provisions for impairment.......................... 32.9 30.4 8.7
Gain on disposition of assets...................... (0.2) (21.9) (1.3)
Discontinued operations............................ 19.5 5.3 1.4
Loss on early extinguishment of debt............... 7.9 - -
---- ---- ----
$ (13.9) (37.8) (58.7)
---- ---- ----
---- ---- ----
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

For the year ended December 31, 1998, net cash provided by UATC's operating
activities was $56.2 million. This net cash provided by operating activities
in addition to $62.9 million of cash provided by financing activities and
$2.7 million of cash on hand was used to fund $115.4 million of capital
expenditures for 1997 and 1998 theatre openings and future projects and
on-going maintenance expenditures and $6.4 million of other investing
activities.

Substantially all of UATC's admissions and concession sales revenue is
collected in cash. Due to the unfavorable interest rate spread between bank
facility borrowings and cash investments, UATC seeks to use all of its
available cash to repay its revolving bank borrowings and borrow under those
facilities as cash is required. UATC benefits from the fact that film
expenses (except for films that require advances) are usually paid 15 to 45
days after the admissions revenue is collected.

On April 21, 1998, the Parent completed the offering of $225.0 million of its
9.75% senior subordinated notes due April 15, 2008, and the offering of $50.0
million of its floating rate senior subordinated notes due October 15, 2007
(collectively, the "Senior Subordinated Notes"), and entered into a $450.0
million bank credit facility (the "New Bank Credit Facility") with a final
maturity of April 21, 2007.

The proceeds from the offerings of the Senior Subordinated Notes and a
portion of the borrowings under the New Bank Credit Facility were used to
repay the outstanding borrowings of $272.5 million under UATC's Bank Credit
Facility and to fund the redemption of the Parent's preferred stock
(approximately $159.2 million) and the redemption of UATC's $125.0 million
Senior Secured Notes at 102.875% of par value plus accrued but unpaid
interest of $0.8 million.

The net proceeds from the offerings of the Senior Subordinated Notes in
excess of the redemption value of the Parent's preferred stock (approximately
$108.1 million) was contributed to UATC as additional common equity by the
Parent. Additionally, UATC's preferred stock (which was held by the Parent)
was converted into additional common equity.

20
<PAGE>

As a result of the repayment of the Bank Credit Facility and the redemption
of the Senior Secured Notes, UATC recognized an extraordinary loss on the
early extinguishment of debt during 1998 of $7.9 million, consisting of the
$3.6 million prepayment premium on the Senior Secured Notes and approximately
$4.3 million of unamortized deferred loan costs.

On November 1, 1998, borrowings of approximately $45.7 million under the New
Bank Credit Facility were used to repay and retire the Prop I mortgage notes.
The annual interest savings attributable to the differential interest rates
on the 11.15% Prop I mortgage notes and the current borrowing rate of
approximately 8.0% will be approximately $1.5 million.

In December 1996, UATC initiated a new investment strategy that focuses on
the development of new theatres and renovations (including stadium seating
retrofits) and expansions of existing high revenue theatres in the U.S. where
UATC has a significant operating presence. As part of this increased focus on
its U.S. operations, UATC has restructured and realigned its corporate
overhead functions and has sold substantially all of its international
theatre exhibition investments. The proceeds received from the sale of
international investments and corporate overhead savings were redeployed into
new theatre developments and the renovation and expansion of existing key
theatres in UATC's core areas of operation and used to repay existing debt.

As part of its strategic plan, UATC intends to continue to dispose of,
through sale or lease terminations, certain of its non-strategic or
underperforming operating theatres and real estate in the United States. Net
proceeds, if any, from these increased disposition efforts are also expected
to be used to repay existing debt or to be redeployed into the renovation
and/or expansion of existing theatres and development of new, larger (in
terms of screens), higher margin theatres. While there can be no assurance
that such sales or lease termination efforts will be successful, negotiations
are ongoing with respect to several theatres and parcels of real estate.
During 1998, UATC closed or sold 32 theatres (137 screens). During 1998, UATC
sold the majority of its remaining international theatrical exhibition assets
for $3.0 million of cash, $0.5 million of stock in the acquiring company and
a $3.0 million note. The note earns interest at various rates between 15% and
20%, and matures December 2001. The domestic theatres that were closed or
sold were primarily smaller, older theatres that were not part of UATC's long
term strategic plans or were underperforming.

In an effort to limit the amount of investment exposure on any one project,
UATC typically develops theatre projects where both the land and building are
leased through long-term operating leases. Where such lease transactions are
unavailable, however, UATC will invest in the land and development of the
entire theatre facility (fee owned) and then seek to enter into a sale and
leaseback transaction. Regardless of whether the theatre is leased or fee
owned, in most cases the equipment and other theatre fixtures are owned by
UATC. During 1998, UATC invested approximately $7.1 million on five theatres
(52 screens) which opened in 1997, $87.7 million on the development of 13 new
theatres (157 screens) that opened in 1998, the addition of stadium seating
to two theatres (22 screens), and the renovation of two existing theatres
which opened during the period, and $1.0 million on construction of five new
theatres (68 screens) and the renovation of three theatres (36 screens)
expected to open during 1999 and $19.6 million on theatre point-of-sale
systems, corporate computer systems and recurring maintenance on certain
existing theatres.

In December 1995, UATC and UAR entered into a sale and leaseback transaction
(the "1995 Sale and Leaseback") whereby the land and buildings underlying 27
of their operating theatres and four theatres and a screen addition under
development were sold to and leased back from an unaffiliated third party. In
conjunction with the 1995 Sale and Leaseback, the buyer of the properties
issued certain publicly traded bonds. The lease of the properties by UATC
required UATC to enter into a Participation Agreement that requires UATC to
comply with certain covenants including limitations on indebtedness and
restricted payments.

In November 1996, UATC entered into a sale and leaseback transaction whereby
the building and land underlying three of its operating theatres and two
theatres under development were sold to and leased back from an unaffiliated
third party.

In December 1997, UATC entered into a sale and leaseback transaction (the
"1997 Sale and Leaseback") whereby two theatres under development were sold
to and leased back from an unaffiliated third party for approximately $18.1
million. At December 31, 1998, approximately $9.1 million of the sales
proceeds were held in escrow and will be paid under the terms of the sale and
leaseback to fund certain of the construction costs associated with the two
theatres.

21
<PAGE>

At December 31, 1998, UATC had entered into construction or lease agreements
for five new theatres (68 screens), and for renovations and the addition of
stadium seating to three existing theatres (36 screens) which UATC intends to
open (or reopen) during 1999. UATC estimates that capital expenditures
associated with these theatres and on-going theatre maintenance will
aggregate approximately $39.0 million, exclusive of the cash received from
the 1997 Sale and Leaseback. Such amounts relate only to projects in which
UATC has executed a definitive lease and all significant lease contingencies
have been satisfied. UATC expects additional capital expenditures to be made
as UATC's internally generated available cash from improved operating results
and proceeds from various asset sales becomes available. Because a
significant portion of UATC's future capital spending plans relate to the
renovation and/or expansion of existing key locations, the timing of such
commitments and expenditures are much more flexible and thus can be matched
to net cash provided by operating activities.

At December 31, 1998, UATC had approximately $365.3 million of indebtedness
outstanding under its bank credit facility and approximately $83.0 million of
unused revolving loan commitments thereunder (of which $4.1 million of which
had been used for the issuance of letters of credit).

UATC is party to interest rate collar agreements on $225.0 million of
floating rate debt which provide for a LIBOR interest rate cap ranging
between 6% and 7 1/2% per annum and LIBOR interest rate floors ranging
between 5 1/4% and 5 1/2% and expire at various dates through August 2001.
The terms of the New Bank Credit Facility require UATC to obtain interest
rate hedges on a certain portion of its indebtedness thereunder. Amounts paid
to the counterparties to the interest rate collar agreements are recorded as
an increase to interest expense and amounts received from the counterparties
to the interest rate collar agreements are recorded as a reduction of
interest expense.

The level of continued investing activities by UATC is dependent on, among
other factors, its on-going operating liquidity and other sources of
liquidity. One measure commonly used in the theatrical industry to measure
operating liquidity is referred to as "Interest Coverage." Interest Coverage
is the ratio of Operating Cash Flow (defined as EBITDA - earnings before
interest, taxes, depreciation, amortization - plus other non-recurring or
non-cash operating credits or charges) to interest expense (excluding
amortization of deferred loan costs). Following is a calculation of Operating
Cash Flow and Interest Coverage for each of the last three years, including a
reconciliation of Operating Income to Operating Cash Flow. Additionally,
information from the statements of cash flow is presented for each of the
last three years in the following table (dollars in millions):

1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Operating loss from continuing operations................ $ (4.4) (1.5) (6.5)
Depreciation and amortization............................ 51.1 56.3 71.4
Provisions for asset impairments......................... 32.9 30.4 8.7
Non-cash rent............................................ 4.0 3.7 3.1
Severance, litigation and restructuring expenses......... 0.3 0.8 1.9
----- ----- -----
Operating Cash Flow.................................... $ 83.9 89.7 78.6
----- ----- -----
----- ----- -----

Interest Expense......................................... $ 31.2 35.7 35.4
----- ----- -----
----- ----- -----

Interest Coverage Ratio.................................. 2.7 2.5 2.2
----- ----- -----
----- ----- -----

Statements of Cash Flow Information:
Net cash provided by operating activities................. $ 56.2 48.7 28.4
Net cash used in investing activities..................... (121.8) (14.7) (57.9)
Net cash provided by (used in) financing
activities.............................................. 62.9 (33.0) 6.7
----- ----- -----
Net cash flow............................................. $ (2.7) 1.0 (22.8)
----- ----- -----
----- ----- -----
</TABLE>

As shown above, UATC's Interest Coverage Ratio increased from 2.5 times for
1997 to 2.7 times for 1998 primarily due to decreased interest expense
associated with the 1998 refinancing of UATC's Senior Subordinated Notes with
the Parent's Senior Subordinated Notes. The Interest Coverage Ratio increased
from 2.2 times for 1996 to 2.5 times for 1997 primarily due to increased
Operating Cash Flow.

Operating Cash Flow set forth above is one measure of value and borrowing
capacity commonly used in the theatrical exhibition industry and is not
intended to be a substitute for Operating Cash Flow as defined in UATC's

22
<PAGE>

debt agreements or for cash flows provided by operating activities, a measure
of performance provided herein in accordance with generally accepted
accounting principles, and should not be relied upon as such. The Operating
Cash Flow as set forth above does not take into consideration certain costs
of doing business, and as such, should not be considered in isolation to
other measures of performance.

Another measure of liquidity is net cash provided by operating activities as
set forth above. Net cash provided by operating activities was $56.2 million,
$48.7 million and $28.4 million for 1998, 1997 and 1996, respectively. This
measurement sets forth the net cash from the operations provided by UATC's
operations which was available for UATC's liquidity needs after taking into
consideration certain additional costs of doing business which are not
reflected in the Operating Cash Flow calculations discussed above.

UATC believes that the net cash provided by operations and borrowings
available under the New Bank Credit Facility will be sufficient to fund its
future cash requirements. UATC expects that future cash requirements will
principally be for repayments of indebtedness, working capital requirements
and capital expenditures. UATC's future operating performance and ability to
service its current indebtedness will be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond UATC's control. Additionally, UATC's ability to incur additional
indebtedness may be limited by covenants contained in the Participation
Agreement relating to the 1995 Sale and Leaseback discussed above.

OTHER

UATC's revenues have been seasonal, coinciding with the timing of releases of
motion pictures by the major distributors. Generally, the most successful
motion pictures have been released during the summer extending from Memorial
Day to Labor Day and the holiday season extending from Thanksgiving through
year-end. The unexpected emergence of a hit film during other periods can
alter this traditional trend. The timing of such film releases can have a
significant effect on UATC's results of operations, and the results of one
quarter are not necessarily indicative of results for the next quarter or for
the same period in the following year.

Historically, the principal impact of inflation and changing prices upon UATC
has been with respect to the construction of new theatres, the purchase of
theatre equipment and the utility and labor costs incurred in connection with
continuing theatre operations. Film rental fees, which are the largest
operating expense incurred by UATC, are customarily paid as a percentage of
admissions revenue and hence while the film rental fees may increase on an
absolute basis the percentages are not directly affected by inflation.
Inflation and changing prices have not had a significant impact on UATC's
total revenues and results of operations.

YEAR 2000

UATC has initiated a review of its internal information systems for potential
year 2000 transition problems. There exists the possibility that some
equipment reliant upon computer chips that have a date sensitive component
will not operate correctly after December 31, 1999 and that system failures
could occur. UATC's review encompasses this type of equipment, segmented into
three broad areas: computer based systems in UATC's theatres; computer based
systems at UATC's administrative offices; and products and services provided
by outside vendors.

COMPUTER BASED SYSTEMS IN UATC'S THEATRES: UATC's theatres utilize a number
of computerized systems that may encounter year 2000 problems. Some of the
systems that experience year 2000 problems include the point-of-sale ("POS")
system, the projection and sound system, the energy management system and
other ancillary systems. The POS system records sales transactions, issues
admission tickets and relays the daily operational information to UATC's
corporate computer system. UATC initiated a plan to replace its outdated POS
system in 1993. The new POS system has been tested and is expected to be year
2000 compliant. At December 31, 1998, replacement of UATC's POS system was
approximately 50% complete. UATC expects that by December 31, 1999 all of its
operating theatres will be equipped with the new POS system. If the new POS
system were to malfunction or fail, manual backup systems currently in place
at the theatres could be utilized.

23
<PAGE>

Most all of the UATC's theatres are equipped with projection and sound
systems and energy management systems which are automated. If either the
projection and sound systems or energy management systems were to malfunction
or fail as a result of a year 2000 problem, manual backup systems currently
in place at the theatres could be utilized.

Certain theatres utilize other systems that may experience a malfunction or
failure as a result of a year 2000 problem. These systems include elevators,
escalators and fire and sprinkler systems. Failure of any of these systems
should not be material to the operations of the theatres taken as a whole.

Computer based systems at UATC's administrative offices: UATC's corporate
administrative offices utilize a number of computerized systems that may
encounter year 2000 problems. The most significant of these systems are the
financial information systems (i.e. general ledger, accounts payable, payroll
and management information systems), and the telecommunications systems.
During 1998 UATC purchased and implemented a new general ledger and accounts
payable system. An upgrade to the existing payroll system will be implemented
during 1999. These financial information systems have been tested and appear
to be year 2000 compliant. A failure of any of these systems could impact the
ability of UATC to provide accurate financial information. Such failure or
malfunction could also delay payments to both vendors and employees. While
manual systems of information gathering and monetary disbursements are
available, these backup manual systems would be very expensive to utilize.

The telecommunications systems allow UATC to obtain the daily operational
information for each of its theatres and to communicate with the theatres and
all vendors and suppliers. The telecommunication systems have been tested and
appears to be year 2000 compliant.

PRODUCTS AND SERVICES PROVIDED BY OUTSIDE VENDORS: UATC is very dependent
upon products and services provided by outside vendors. Year 2000 compliance
by these vendors is voluntary and outside of the control of UATC. The major
products and services that UATC is dependent upon vendors for are film
supply, concessions inventory and utilities. If any of these vendors were to
experience year 2000 problems, that could result in material and adverse
consequences for UATC. UATC has been advised by its major vendors that they
expect to be year 2000 compliant.

UATC is very dependent upon the banking industry for depositing daily cash
receipts and making vendor and payroll disbursements. UATC primarily utilizes
large, national banks and generally anticipates no material and adverse year
2000 problems by then. If, however, the banking industry were to experience
year 2000 problems, that could result in material and adverse consequences
for UATC.

Although this review is still in progress, UATC believes that conversion
requirements will not result in significant disruption of UATC's business
operations or have a material adverse effect on its future liquidity or
results of operations. UATC's cost associated with year 2000 upgrades and
preventative measures is expected to be less than $0.5 million. At December
31, 1998, approximately $0.1 million had been spent on year 2000 compliance
by UATC.

NEW ACCOUNTING PRONOUNCEMENTS

During 1998, the Emerging Issues Task Force (EITF) released No. 97-10, The
Effect of Leasee Involvement in Asset Construction. Issue No. 97-10 is
applicable to entities involved on behalf of an owner-lessor with the
construction of an asset that will be leased to the lessee when construction
of the asset is completed. In certain construction projects, UATC is
responsible for directly paying project costs that are in excess of an agreed
upon amount to be paid for by the owner-lessor. Generally, these project
costs paid by UATC include elements that are considered to be structural in
nature as defined by Issue No. 97-10. As a result, UATC believes it would be
considered the owner of these projects during construction. The consensus
reached in Issue No. 97-10 applies to construction projects committed to
after May 21, 1998 and also to those projects that were committed to on May
21, 1998 if construction does not commence by December 31, 1999. Unless UATC
changes the manner in which it contracts for the construction of theatres,
UATC believes that Issue No. 97-10 will require certain of its future
operating leases to be recorded as lease financing obligations. UATC is in
the process of evaluating the impact of Issue No. 97-10 on its consolidated
financial position, results of operation and cash flows.

During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting
for Derivative Instruments and Hedging Activities. The Statement expands the
definition of derivatives and requires that derivative instruments be
recorded at fair market value on

24
<PAGE>

the balance sheet and changes in the fair value be recognized in the
calculation of net income unless specific hedge accounting criteria are met.
Qualifying financial instruments to which UATC is a party include borrowings
under the New Bank Credit Facility, interest rate swap agreements and
interest rate collar agreements. The effective date for SFAS No. 133 is for
fiscal years beginning after June 15, 1999. UATC has not quantified the
impact of adopting SFAS No. 133 on its financial position, results of
operation or cash flow and has not determined the timing of adoption of SFAS
No. 133. However, SFAS No. 133 could increase volatility in net income and
comprehensive income.

During 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 ("SOP 98-1"), Reporting on Internal Use Software
and Statement of Position 98-5 ("SOP 98-5") Reporting on Start-up Costs. SOP
98-1 provides guidance on accounting for the cost of computer software
obtained for internal use and requires that certain costs of internally
generated computer software be capitalized rather than expensed. SOP 98-5
requires that entities expense the costs of start-up activities as they are
incurred. The effective date for SOP 98-1 and SOP 98-5 is for fiscal years
beginning after December 15, 1998. Adoption of SOP 98-1 and SOP 98-5 is not
expected to materially effect UATC's consolidated financial position, results
of operation or cash flow.

During 1998, FASB issued Statement of Financial Accounting Standard No. 131
("SFAS 131"), Disclosures about Segments of an Enterprise and Related
Information. SFAS 131 requires new disclosures of certain operation segments.
The effective date for SFAS 131 is for fiscal years beginning after December
15, 1997.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

UATC is subject to market risk associated with changes in interest rates on
its debt obligations. UATC manages its interest rate risk through a
combination of fixed and floating rate debt obligations and by selectively
entering into interest rate cap and interest rate collar agreements. The
table presented below provides information about UATC's financial instruments
that are sensitive to changes in interest rates (amounts in millions):

<TABLE>
<CAPTION>
FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt
Fixed Rate $2.9 2.9 1.2 0.4 0.4 3.4 11.2 11.2
Avg. Interest Rate 9.4% 9.4 8.9 7.8 7.8 7.8 8.7

Floating Rate $3.5 3.5 5.6 15.8 23.8 313.1 365.3 365.3
Avg. Interest Rate (1) (1) (1) (1) (1) (1) (1)
Interest Rate Collars
(notional amount) $75.0 - 150.0 - - - 225.0 (3.1)
Avg. Interest Rate
Interest Rate Cap (2) (2) (2) (2) (2) (2) (2)
Interest Rate Floor (3) (3) (3) (3) (3) (3) (3)

</TABLE>

(1) The weighted average floating interest rate at December 31, 1998 was 8.3%.

(2) The average interest rate cap was 6.5% through July 1999 and 6.0% through
August 2001.

(3) The average interest rate floor was 5.4% through July 1999 and 5.5% through
August 2001.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of UATC are filed under this item
beginning on page 26.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

25
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO UNITED ARTISTS THEATRE CIRCUIT, INC.:

We have audited the accompanying consolidated balance sheets of United
Artists Theatre Circuit, Inc. and subsidiaries ("UATC") as of December 31,
1998 and 1997, and the related consolidated statements of operations,
stockholder's equity (deficit) and cash flow for each of the three years in
the period ended December 31, 1998. These consolidated financial statements
are the responsibility of UATC's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Artists Theatre Circuit, Inc. and subsidiaries as of December 31, 1998 and
1997 and the results of their operations and their cash flow for each of the
three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Denver, Colorado
March 31, 1999

26
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES

Consolidated Balance Sheets
(Amounts in Millions)

<TABLE>
<CAPTION>
ASSETS December 31,
-----------------------------
1998 1997*
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................. $ 7.9 10.6
Receivables, net:
Notes............................................................................... 2.4 0.9
Other............................................................................... 18.0 13.5
-------- --------
20.4 14.4

Prepaid expenses and concession inventory.............................................. 15.2 18.4
Other assets........................................................................... 0.6 0.3
-------- --------
Total current assets................................................................. 44.1 43.7

Investments and related receivables.................................................... 8.3 15.4
Property and equipment, at cost (note 14):
Land................................................................................. 20.6 26.0
Theatre buildings, equipment and other............................................... 538.0 443.8
-------- --------
558.6 469.8
Less accumulated depreciation and
amortization (note 5).............................................................. (200.1) (162.2)
-------- --------
358.5 307.6
Intangible assets, net (note 14)....................................................... 81.3 101.5
Assets held for sale - discontinued
operations (note 15)............................................................... 3.1 13.7
Other assets, net (note 2)............................................................. 72.9 24.1
-------- --------
$ 568.2 506.0
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

Current Liabilities:
Accounts Payable:
Film rentals......................................................................... $ 28.7 29.8
Other................................................................................ 65.0 57.2
-------- --------
93.7 87.0
Accrued liabilities:
Salaries and wages................................................................... 6.1 6.7
Interest............................................................................. 2.3 5.0
Other................................................................................ 30.1 16.9
-------- --------
38.5 28.6
Current portion of long-term debt (notes 2 and 7)...................................... 6.2 32.3
-------- --------
Total current liabilities............................................................ 138.4 147.9
Other liabilities........................................................................ 29.7 30.2
Debt (notes 2 and 7)..................................................................... 370.3 329.9
Liabilities related to discontinued
operations (note 15)............................................................... 4.9 -
-------- --------
Total liabilities.................................................................... 543.3 508.0
Minority interests in equity of
consolidated subsidiaries.............................................................. 5.6 7.2
Stockholder's equity (deficit) (note 2):
Preferred stock (note 9)............................................................... - 193.9
Common stock (note 10)................................................................. - -
Additional paid-in capital............................................................. 318.0 29.0
Accumulated deficit.................................................................... (295.3) (230.3)
Cumulative foreign currency translation adjustment..................................... - (0.4)
Intercompany account .................................................................. (3.4) (1.4)
-------- --------
Total stockholder's equity (deficit)................................................. 19.3 (9.2)
-------- --------
$ 568.2 506.0
-------- --------
-------- --------
</TABLE>

*Restated

See accompanying notes to consolidated financial statements.

27
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES

Consolidated Statements of Operations
(Amounts in Millions)

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1998 1997* 1996*
------ ------ ------
<S> <C> <C> <C>
Revenue:
Admissions..................................................... $ 454.4 473.9 466.5
Concession sales............................................... 188.5 189.6 185.1
Other.......................................................... 18.4 19.2 24.0
------ ------ ------
661.3 682.7 675.6
------ ------ ------

Costs and expenses:
Film rental and advertising expenses........................... 248.5 262.5 257.2
Direct concession costs........................................ 28.0 30.2 29.3
Other operating expenses ...................................... 259.7 257.3 257.5
Sale and leaseback rentals (note 3)............................ 15.1 13.4 11.6
Affiliate lease rentals (note 11).............................. 7.5 9.6 10.0
General and administrative (notes 11
and 13)...................................................... 22.9 23.7 34.5
Restructuring charge (note 12)................................. - 0.8 1.9
Depreciation and amortization (note 5)......................... 51.1 56.3 71.4
Provisions for impairment (note 14)............................ 32.9 30.4 8.7
------ ------ ------
665.7 684.2 682.1
------ ------ ------
Operating loss from continuing operations................... (4.4) (1.5) (6.5)

Other income (expense):
Interest, net (notes 2, 7 and 11):
Interest expense............................................ (31.2) (35.7) (35.4)
Amortization of deferred loan costs......................... (1.1) (2.1) (2.2)
Interest income............................................. 2.8 1.9 1.4
------ ------ ------
(29.5) (35.9) (36.2)
Gain on disposition of assets, net (note 16)................... 0.2 21.9 1.3
Share of losses of affiliates, net............................. (0.3) (1.6) (0.5)
Minority interests in earnings of consolidated subsidiaries.... (1.3) (1.3) (0.8)
Other, net..................................................... (1.7) (2.6) (1.4)
------ ------ ------
(32.6) (19.5) (37.6)
------ ------ ------
Loss from continuing operations before income tax
expenses, discontinued operations and extraordinary item..... (37.0) (21.0) (44.1)
Income tax expense (note 17)....................................... ( 0.6) (1.5) (1.1)
------ ------ ------
Loss from continuing operations................................ (37.6) (22.5) (45.2)
Discontinued operations (note 15).................................. (19.5) (5.3) (1.4)
------ ------ ------
Loss before extraordinary item................................. (57.1) (27.8) (46.6)
Extraordinary item - loss on early
extinguishment of debt (note 2).................................. (7.9) - -
------ ------ ------
Net loss....................................................... (65.0) (27.8) (46.6)
Dividend on preferred stock (note 9)............................... (9.0) (23.8) (20.9)
------ ------ ------
Net loss available to common stockholder....................... $ (74.0) (51.6) (67.5)
------ ------ ------
------ ------ ------
</TABLE>

* Restated

See accompanying notes to consolidated financial statements

28
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES

Consolidated Statements of Stockholder's Equity (Deficit)
(Amounts in Millions)

<TABLE>
<CAPTION>
Cumulative
foreign currency
Preferred Common Additional Accumulated translation
stock stock paid-in capital deficit adjustment
--------- ------ --------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996...................... $ 149.2 - 73.7 (155.9) (0.1)
Accretion of dividends on preferred stock..... 20.9 - (20.9) - -
Net increase in intercompany account.......... - - - - -
Foreign currency translation adjustment....... - - - - (0.4)
Net loss...................................... - - - (46.6) -
--------- ------ --------------- ----------- ----------------
Balance at December 31, 1996.................... 170.1 - 52.8 (202.5) (0.5)
Accretion of dividends on preferred stock..... 23.8 - (23.8) - -
Net decrease in intercompany account.......... - - - - -
Foreign currency translation adjustment....... - - - - 0.1
Net loss...................................... - - - (27.8) -
--------- ------ --------------- ----------- ----------------
Balance at December 31, 1997.................... 193.9 - 29.0 (230.3) (0.4)
Accretion of dividends on preferred stock..... 9.0 - (9.0) - -
Dividend to parent............................ - - (13.0) - -
Equity contribution........................... - - 108.1 - -
Conversion of preferred stock................. (202.9) - 202.9 - -
Net decrease in intercompany account............ - - - - -
Foreign currency translation adjustment....... - - - - 0.4
Net loss...................................... - - - (65.0) -
--------- ------ --------------- ----------- ----------------
Balance at December 31, 1998.................... $ - - 318.0 (295.3) -
--------- ------ --------------- ----------- ----------------
--------- ------ --------------- ----------- ----------------
</TABLE>

<TABLE>
<CAPTION>
Total
Intercompany stockholder's
account equity (deficit)
------------ ----------------
<S> <C> <C>
Balance at January 1, 1996...................... 0.2 67.1
Accretion of dividends on preferred stock..... - -
Net increase in intercompany account.......... 0.4 0.4
Foreign currency translation adjustment....... - (0.4)
Net loss...................................... - (46.6)
------------ ----------------
Balance at December 31, 1996.................... 0.6 20.5
Accretion of dividends on preferred stock..... - -
Net decrease in intercompany account.......... (2.0) (2.0)
Foreign currency translation adjustment....... - 0.1
Net loss...................................... - (27.8)
------------ ----------------
Balance at December 31, 1997.................... (1.4) (9.2)
Accretion of dividends on preferred stock..... -
Dividend to parent............................ - (13.0)
Equity contribution........................... - 108.1
Conversion of preferred stock................. - -
Net decrease in intercompany account............ (2.0) (2.0)
Foreign currency translation adjustment....... - 0.4
Net loss...................................... - (65.0)
------------ ----------------
Balance at December 31, 1998.................... (3.4) 19.3
------------ ----------------
------------ ----------------
</TABLE>

See accompanying notes to consolidated financial statements.

29
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flow
(Amounts in Millions)

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1998 1997* 1996*
------ ------ -------
<S> <C> <C> <C>
Net cash provided by operating activities.................................. $ 56.2 48.7 28.4
------ ------ -------

Cash flow from investing activities:
Capital expenditures.................................................... (115.4) (65.8) (65.8)
Increase in receivable from sale and
leaseback escrow...................................................... (11.0) (12.8) (19.5)
Proceeds from sale and leaseback transaction
and escrow............................................................ 2.7 23.2 22.9
Proceeds from disposition of assets, net................................ 7.0 59.5 20.5
Change in investments and receivables from
theatre joint ventures, net........................................... 2.7 (18.3) (14.3)
Other, net.............................................................. (7.8) (0.5) (1.7)
------ ------ -------
Net cash used in investing activities.................................. (121.8) (14.7) (57.9)
------ ------ -------

Cash flow from financing activities:
Equity contribution by Parent........................................... 108.1 - -
Dividend to Parent...................................................... (13.0) - -
Debt borrowings......................................................... 630.6 150.9 129.8
Debt repayments......................................................... (500.1) (179.2) (126.3)
Repurchase of senior secured notes...................................... (128.6) - -
Increase (decrease) in intercompany account............................. (2.0) (2.0) 0.4
Increase (decrease) in cash overdraft................................... 10.5 (2.8) 6.2
(Increase) decrease in related party
receivables........................................................... (41.5) 0.4 (2.8)
Other, net.............................................................. (1.1) (0.3) (0.6)
------ ------ --------
Net cash provided by (used in) financing
activities............................................................ 62.9 (33.0) 6.7
------ ------ --------

Net increase (decrease) in cash and cash
equivalents........................................................... (2.7) 1.0 (22.8)

Cash and cash equivalents:
Beginning of period..................................................... 10.6 9.6 32.4
------ ------ --------
End of period .......................................................... $ 7.9 10.6 9.6
------ ------ --------
------ ------ --------
Reconciliation of net loss to net cash provided by
operating activities:
Net loss................................................................ $ (65.0) (27.8) (46.6)
Non-cash expense associated with
discontinued operations............................................... 16.0 2.7 0.7
Extraordinary item...................................................... 7.9 - -
Effect of leases with escalating minimum
annual rentals........................................................ 4.0 3.7 3.1
Depreciation and amortization........................................... 51.1 56.3 71.4
Provision for impairment................................................ 32.9 30.4 8.7
Gain on disposition of assets, net...................................... (0.2) (21.9) (1.3)
Share of losses of affiliates, net...................................... 0.3 1.6 0.5
Minority interests in earnings of
consolidated subsidiaries............................................. 1.3 1.3 0.8
Change in assets and liabilities:
Receivables............................................................ 5.1 2.3 (4.7)
Prepaid expenses and concession inventory.............................. 2.5 (3.0) 4.0
Other assets........................................................... (0.5) 1.6 1.1
Accounts payable....................................................... 7.6 3.2 (8.4)
Accrued and other liabilities.......................................... (6.8) (1.7) (0.9)
------ ------ --------
Net cash provided by operating activities.................................. $ 56.2 48.7 28.4
------ ------ --------
------ ------ --------
</TABLE>

*Restated

See accompanying notes to consolidated financial statements.

30
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996

(1) ORGANIZATION

On May 12, 1992, United Artists Theatre Circuit, Inc. and substantially
all of its then existing subsidiaries ("UATC") were acquired (the
"Acquisition") by United Artists Theatre Company (the "Parent") from an
indirect subsidiary of Tele-Communications, Inc. ("TCI"). The Parent is
owned by an investment fund managed by affiliates of Merrill Lynch
Capital Partners, Inc., ("MLCP") and certain institutional investors
(collectively the "Non-Management Investors"), certain institutional
investors and certain members of UATC's management.

In addition to owning all of the outstanding capital stock of UATC, the
Parent also owns all of the outstanding capital stock of United Artists
Realty Company ("UAR"). UAR and its subsidiary United Artists
Properties I Corp. ("Prop I") are the owners and lessors of certain
operating theatre properties leased to and operated by UATC. Prior to
December 13, 1995, UAR's other subsidiary, United Artists Properties II
Corp. ("Prop II") was also the owner and lessor of certain theatre
properties leased to and operated by UATC.

(2) RECAPITALIZATION

On April 21, 1998, the Parent completed the offering of $225.0 million
of its 9.75% senior subordinated notes due April 15, 2008 and the
offering of $50.0 million of its floating rate senior subordinated
notes due October 15, 2007 (collectively, the "Senior Subordinated
Notes"), and entered into a $450.0 million bank credit facility (the
"New Bank Credit Facility") with a final maturity of April 21, 2007.

The proceeds from the offerings of the Senior Subordinated Notes and a
portion of the borrowings under the New Bank Credit Facility were used
to repay the outstanding borrowings under UATC's existing bank credit
facility (the "Bank Credit Facility") (approximately $272.5 million),
and to fund the redemption of the Parent's preferred stock
(approximately $159.2 million) and the redemption of UATC's $125.0
million senior secured notes (the "Senior Secured Notes") at 102.875%
of par value plus accrued, but unpaid interest of $0.8 million.

Included in the New Bank Credit Facility was a delayed draw term loan
that was used to facilitate the repayment of certain Prop I mortgage
notes upon their maturity. On November 1, 1998, approximately $45.7
million of this delayed draw facility was used to repay and retire
these Prop I mortgage notes. (See Note 7, Debt.)

The net proceeds from the offering of the Senior Subordinated Notes in
excess of the redemption value of the Parent's preferred stock
(approximately $108.1 million) was contributed to UATC as additional
common equity by the Parent. Additionally, UATC's preferred stock
(which was held by the Parent) was converted into additional common
equity.

As a result of the repayment of the Bank Credit Facility and redemption
of the Senior Secured Notes, UATC recognized an extraordinary loss on
the early extinguishment of debt during 1998 of approximately $7.9
million, consisting of the $3.6 million prepayment premium on the
Senior Secured Notes and approximately $4.3 million of unamortized
deferred loan costs.

31
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, CONTINUED

(3) SALE AND LEASEBACK TRANSACTIONS

In December 1995, UATC and UAR entered into a sale and leaseback
transaction (the "1995 Sale and Leaseback") whereby the buildings and
land underlying 27 of their operating theatres and four theatres under
development were sold to and leased back from the 1995-A United Artists
Pass Through Trust (the "Pass Through Trust"), an unaffiliated third
party. The 1995 Sale and Leaseback requires UATC to lease the
underlying theatres for a period of 21 years and one month, with the
option to extend for up to an additional 10 years. The lease of the
properties by UATC requires UATC to enter into a Participation
Agreement that requires UATC to comply with certain covenants including
limitations on indebtedness and restrictions on payments.

In November 1996, UATC entered into a sale and leaseback transaction
whereby the buildings and land underlying three of its operating
theatres and two theatres under development were sold to and leased
back from an unaffiliated third party. The lease has a term of 20 years
and nine months with options to extend for an additional 10 years.

In December 1997, UATC entered into a sale and leaseback transaction
whereby two theatres under development were sold to and leased back
from an unaffiliated third party for approximately $18.1 million. At
December 31, 1998, approximately $9.1 million of the sales proceeds
were deposited into an escrow account and are to be paid under the
terms of the sale and leaseback to fund certain of the construction
costs associated with the two theatres. The lease has a term of 22
years with options to extend for an additional 10 years.

(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
UATC and its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.

(b) NATURE OF OPERATIONS
UATC is principally engaged in the operation of motion picture
theatres.

(c) CASH AND CASH EQUIVALENTS
UATC considers investments with initial maturities of three
months or less to be cash equivalents.

(d) INVESTMENTS
Investments in which UATC's ownership is 20% to 50% are
accounted for using the equity method. Under this method, the
investment, originally recorded at cost, is adjusted to
recognize dividends received and UATC's share of net earnings
or losses of the investee as they occur. Investments in which
UATC's ownership is less than 20% are accounted for using the
cost method. Under this method, the investments are recorded
at cost and any dividends received are recorded as income.

(e) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, including
acquisition costs allocated to tangible assets acquired.
Construction costs, including applicable direct overhead and
interest, are capitalized. During the year ended December 31,
1998, UATC capitalized $1.5 million of interest related to its
various construction projects. Repairs and maintenance are
charged to operations.

32
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, CONTINUED

(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets, which range from 3
to 40 years. Leasehold improvements are amortized over the
terms of the leases, including certain renewal periods or, in
the case of certain improvements, the estimated useful lives
of the assets, if shorter. Costs associated with new theatre
construction are depreciated once such theatres are placed in
service.

(f) INTANGIBLE ASSETS
Intangible assets consist of theatre lease acquisition costs
and non-compete agreements. Amortization of theatre lease
acquisition costs and non-compete agreements is calculated on
a straight-line basis over the terms of the underlying leases
including certain renewal periods (weighted average life of
approximately 17 years) and non-compete agreements (primarily
5 years). Intangible assets and related accumulated
amortization are summarized as follows (amounts in millions):

December 31,
-------------------------
1998 1997
---------- ---------
<S> <C> <C>
Theatre lease acquisition costs................... $ 145.5 156.9

Non-compete agreements............................ - 3.0
---------- ---------
145.5 159.9
Accumulated amortization.......................... (64.2) (58.4)
---------- ---------
$ 81.3 101.5
---------- ---------
---------- ---------
</TABLE>

(g) OTHER ASSETS
Other assets primarily consist of deferred loan costs, long
term receivables and other assets. Amortization of the
deferred loan costs is calculated on a straight-line basis
over the terms of the underlying loan agreements (average life
of approximately seven years) and is included as a component
of interest expense. Amortization of the deferred acquisition
costs is calculated on a straight line basis over five years.
Other assets and related accumulated amortization are
summarized as follows (amounts in millions):

<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Deferred loan costs............................... $ 7.0 14.9
Long term receivablefrom UAR ..................... 60.1 17.6
Other long term receivables ...................... 6.0 0.3
Other............................................. 0.4 1.2
-------- --------
73.5 34.0
Accumulated amortization.......................... (0.6) (9.9)
-------- --------
$ 72.9 24.1
-------- --------
-------- --------
</TABLE>

(h) OPERATING COSTS AND EXPENSES
Film rental and advertising expenses include film rental and
co-op and directory advertising costs. Film advertising costs
are expensed as incurred. Direct concession costs include
direct concession product costs and concession promotional
expenses. Concession promotional expenses are expensed as
incurred. Other operating expenses include joint facility
costs such as employee costs, theatre rental and utilities,
which are common to both ticket sales and concession
operations. As such, other operating expenses are reported as
a combined amount as the allocation of such costs to
exhibition and concession activities would be arbitrary and
not meaningful. Rental expense for operating leases which
provide for escalating minimum annual rentals during the term
of the lease are accounted for on a straight-line basis over
the terms of the underlying leases.

33
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, CONTINUED

(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

(i) ESTIMATES
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual results
could differ from those estimates.

(j) RECLASSIFICATION
Certain prior year amounts have been
reclassified for comparability with the 1998
presentation.

(5) CHANGE IN ESTIMATED USEFUL LIVES

During 1998, UATC revised the estimated useful lives of certain
equipment and leasehold improvements to more closely reflect the actual
lives of these assets. The effect of this change in estimated useful
lives was to decrease depreciation and amortization expense for the
year ended December 31, 1998 by approximately $2.9 million.

(6) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash payments for interest for the years ended December 31, 1998, 1997
and 1996, were $35.3 million, $36.3 million, and $37.3 million,
respectively.

Cash payments by certain less than 80% owned entities for income taxes
for the years ended December 31, 1998, 1997 and 1996, were $1.8
million, $1.4 million, and $1.2 million, respectively.

UATC accrued $9.0 million, $23.8 million and $20.9 million of dividends
during the years ended December 31, 1998, 1997 and 1996, respectively,
on its preferred stock (see note 9).

During 1998, 1997 and 1996, UATC incurred $0.7 million, $1.1 million
and $1.4 million, respectively, of capital lease obligations relating
to new equipment.

(7) DEBT

Debt is summarized as follows (amount in millions):

December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
New Bank Credit Facility (a).................. $ 365.3 -
Bank Credit Facility (b)...................... - 226.5
Senior Secured Notes (b)...................... - 125.0
Other (c)..................................... 11.2 10.7
----- -----
376.5 362.2

Less current position......................... (6.2) (32.3)
----- -----
$ 370.3 329.9
----- -----
----- -----
</TABLE>

(a) The New Bank Credit Facility provides for delayed
draw term loans aggregating $350.0 million (the "Term
Loans") and a reducing revolving loan and standby
letters of credit aggregating $100.0 million (the
"Revolving Facility"). The Term Loans consist of the

34
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, CONTINUED

(7) DEBT, CONTINUED

following (i) a $70.0 million delayed draw term loan (the
"Tranche A Term Loan"); (ii) a $118.0 million delayed draw
term loan (the "Tranche B Term Loan"); and (iii) a $162.0
million delayed draw term loan (the "Tranche C Term Loan").
All of the term loans were fully funded at December 31, 1998.

Commitments available for borrowing under the Revolving
Facility reduce semi-annually commencing December 31, 2001
through April 21, 2005. The Tranche A Term Loan requires
semi-annual principal payments commencing December 31, 1998
through June 30, 2001 of 1/2% of the December 31, 1998
outstanding balance and then in escalating semi-annual
payments through April 21, 2005. The Tranche B Term Loan
requires semi-annual principal payments commencing December
31, 1998 through June 30, 2005 of 1/2% of the December 31,
1998 outstanding balance and two payments of 46.5% of the
December 31, 1998 outstanding balance on December 31, 2005 and
April 21, 2006. The Tranche C Term Loan requires semi-annual
principal payments commencing December 31, 1998 through June
30, 2006 of 1/2% of the December 31, 1998 outstanding balance
and two payments of 46% of the December 31, 1998 outstanding
balance on December 31, 2006 and April 21, 2007.

Borrowings under the New Bank Credit Facility provide for
interest to be accrued at varying rates depending on the ratio
of indebtedness to annualized operating cash flow, as defined.
Interest is payable at varying dates depending on the type of
rate selected by the Parent, but no less frequently than once
each 90 days.

The New Bank Credit Facility is guaranteed, on a joint and
several basis, by UATC and by certain of the Parent's other
subsidiaries, those being UAR and Prop I. The New Bank Credit
Facility is secured by, among other things, the capital stock
of UATC, UAR, Prop I and certain other subsidiaries of the
Parent and UATC and by an intercompany note from UATC to the
Parent established with respect to borrowings by UATC from the
Parent.

The New Bank Credit Facility contains certain provisions that
require the Parent to maintain certain financial ratios and
places limitations on, among other things, additional
indebtedness, disposition of assets and restricted payments.

(b) As discussed in Note (2), Recapitalization, the Bank Credit
Facility and the Senior Secured Notes were repaid during 1998
from proceeds of the Senior Subordinated Notes and the New
Bank Credit Facility.

(c) Other debt at December 31, 1998, consists of various term
loans, mortgage notes, capital leases and other
borrowings. This other debt carries interest rates ranging
from 7% to 12%. Principal and interest are payable at
various dates through March 1, 2006.

At December 31, 1998, UATC was party to interest rate collar
agreements on $225.0 million of floating rate debt which provide for a
LIBOR interest rate cap ranging between 6% and 7 1/2% and LIBOR
interest rate floors ranging between 5 1/4% and 5 1/2% that expire at
various dates through August 2001. UATC is subject to credit risk
exposure from non-performance of the counterparties to the interest
rate cap agreements. As UATC has historically received payments
relating to its various interest hedge agreements, it does not
anticipate such non-performance in the future. Amounts paid to the
counterparties to the interest collar agreements are recorded as an
increase to interest expense and amounts received from the
counterparties to the interest rate collar agreements are recorded as
a reduction of interest expense.

35
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, CONTINUED

(7) DEBT, CONTINUED

At December 31, 1998, the Parent had approximately $83.0 million of
Revolving Facility commitments, $4.1 million of which has been used
for the issuance of letters of credit. The Parent pays commitment fees
of 1/2% per annum on the average unused commitments.

The primary source of principal and interest payments related to the
New Bank Credit Facility and the Senior Subordinate Notes will come
from payments by UATC to the Parent. The amount of payments by UATC to
the Parent may be limited from time to time by covenants included in
the Participation Agreement relating to the 1995 Sale and Leaseback.
See Note (3), Sale and Leaseback Transactions.

Annual maturities of debt for each of the next five years and
thereafter are summarized as follows (amounts in millions):

<TABLE>
<S> <C>
1999................................................ $ 6.4
2000................................................ 6.4
2001................................................ 6.8
2002................................................ 16.2
2003................................................ 24.2
Thereafter.......................................... 316.5
-------
$376.5
-------
-------
</TABLE>

(8) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

CASH AND CASH EQUIVALENTS
The carrying amount of cash and cash equivalents approximates fair
value because of its short maturity.

FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of UATC's financial
instruments at December 31, 1998 are summarized as
follows (amounts in millions):

Carrying Estimated
Amount Fair Value
-------- ----------
<S> <C>
New Bank Credit Facility and Other Debt................... $ 376.5 376.5
-------- ----------
-------- ----------
Interest Rate Collar Agreements........................... $ - (3.1)
-------- ----------
-------- ----------
</TABLE>

New Bank Credit Facility and Other Debt: The carrying amount of UATC's
borrowings under the New Bank Credit Facility and other debt
approximates fair value because the interest rates on the majority of
this debt floats with market interest rates.

Interest Rate Collar Agreements: The fair value of UATC's interest rate
collar agreements is estimated based upon dealer quotes for similar
agreements at December 31, 1998.

(9) PREFERRED STOCK

As part of the recapitalization discussed in Note (2),
Recapitalization, the UATC preferred stock (which was held by the
Parent) was converted into additional common equity. At the May 1, 1998
conversion date, the carrying amount was approximately $202.9 million.
Dividends on the preferred stock had been accrued at a 14% per annum
rate for all periods since issuance in 1992 rather than the stated
rate of 8% through December 31, 1995, 9% through December 31, 1996 and
14% thereafter.

36
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, CONTINUED

(10) COMMON STOCK

UATC is authorized to issue 1,000 shares of its $1.00 par value common
stock. At December 31, 1998 and 1997, UATC had 100 shares of common
stock outstanding, all of which were held by the Parent.

At December 31, 1998, the Parent had three stock-based compensation
plans. UATC applies the provisions of Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for the Parent's stock option plans. No
compensation cost has been recognized by UATC for any of the Parent's
stock option plans. UATC's compensation expense would not have been
materially different had UATC recorded compensation expense for these
three stock option plans in accordance with SFAS No. 123, "Accounting
for Stock Based Compensation."

(11) RELATED PARTY TRANSACTIONS

UATC leases certain of its theatres from UAR and Prop I in accordance
with two master leases. The master leases provide for basic monthly
rentals and may require additional rentals, based on the revenue of the
underlying theatre. The lease arrangements with Prop I were entered
into in conjunction with the placement of mortgage debt financing in
1988. On November 1, 1998, the mortgage debt was repaid via a term loan
borrowing under the New Bank Credit Facility. UATC has reflected this
additional borrowing as a receivable from an affiliate at December 31,
1998.

In order to fund the cost of additions and/or renovations to the
theatres leased by UATC from UAR or Prop I, UATC has periodically made
advances to UAR. Interest on these advances, as well the borrowings
under the New Bank Credit Facility utilized to repay the Prop I
mortgage debt, accrues at the prime rate and amounted to $2.0 million,
$1.4 million, and $1.1 million for the years ended December 31, 1998,
1997 and 1996, respectively.

During 1998, UATC exchanged one fee-owned theatre property with Prop I
in return for two fee-owned theatre properties and a $1.1 million note.
During 1997, UATC exchanged two fee-owned theatre properties with Prop
I in return for a fee-owned theatre property and a $2.7 million note.
During 1996, UATC exchanged a fee-owned theatre property with Prop I in
return for two fee-owned theatre properties and a $1.5 million note.
The notes bear interest at the prime rate plus 1 1/2% and are due upon
demand.

In conjunction with the Acquisition, UATC entered into a management
agreement with UAR. Such management agreement provides for a fee to be
paid to UATC in return for certain accounting and management services.
These fees are recorded as a reduction of general and administrative
expenses in the accompanying consolidated financial statements and
approximated $0.5 million, $0.6 million, and $0.6 million for the years
ended December 31, 1998, 1997 and 1996, respectively.

(12) RESTRUCTURING CHARGE

At the end of 1996, UATC initiated a corporate restructuring plan
intended to provide a higher level of focus on UATC's domestic
theatrical business at a lower annual cost. This corporate
restructuring was substantially completed in January 1997. In
conjunction with this corporate restructuring plan, UATC recorded $0.8
million and $1.9 million of restructuring charges in 1997 and 1996,
respectively, for severance and other related expenses.

37
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, CONTINUED

(13) EMPLOYEE BENEFIT PLANS

The UATC 401(k) Savings Plan (the "Savings Plan") provides that
employees may contribute up to 10% of their compensation, subject to
Internal Revenue Service (the "IRS") limitations, to the Savings Plan.
Employee contributions are invested in various investment funds based
upon elections made by the employee. Depending on the amount of each
employee's level of contribution, the Savings Plan currently matches
up to 4% of their compensation.

Effective January 1, 1993, UATC established the UATC Supplemental
401(k) Savings Plan (the "Supplemental Plan") for certain employees who
are highly compensated as defined by the IRS and whose elective
contributions to the Savings Plan exceed the IRS limitations. Effective
January 1, 1997, UATC suspended the Supplemental Plan.

Contributions to the various employee benefit plans for the years ended
December 31, 1998, 1997 and 1996 were $0.6 million, $0.6 million, and
$2.3 million, respectively.

(14) PROVISIONS FOR IMPAIRMENT

UATC accounts for its long lived assets in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." During 1998, 1997 and 1996, UATC
recorded non-cash charges for the impairment of its long-lived assets
of $32.9 million, $30.4 million and $8.7 million, respectively. These
non-cash charges relate to the difference between the historical book
value of the individual theatres (in some cases groups of theatres) and
the discounted cash flow expected to be received from the operation or
future sale of the individual theatres (or groups of theatres).

(15) DISCONTINUED OPERATIONS

During 1998, UATC established a plan to dispose of its entertainment
center business operations. Current and prior period results for the
entertainment center business operations have been classified
separately in the accompanying statements of operations as discontinued
operations.

Net assets of the discontinued operations were $3.1 million and $13.7
million at December 31, 1998 and 1997, respectively. Liabilities
related to the discontinued operations were $4.9 million at December
31, 1998. The net loss from discontinued operations was $13.8 million,
$5.3 million, and $1.4 million, for the years ended December 31, 1998,
1997, and 1996 respectively. The anticipated loss from disposition
was $5.7 million during 1998 which represents future losses. Revenue
generated by the discontinued operations was $1.0 million, $2.4
million and $1.9 million, for the years ended December 31, 1998,
1997 and 1996, respectively. Included in the net loss from
discontinued operations was interest expense of $1.1 million, $1.2
million and $0.7 million for the years ended December 31, 1998, 1997
and 1996, respectively. Interest expense was allocated to the
discontinued operations based upon the average fixed asset balance
and UATC's average borrowing rate. The net loss from discounted
operations included non-cash provisions for asset impairments of
$10.2 million and $1.0 million for the years ended December 31, 1998
and 1997, respectively.

(16) GAIN ON DISPOSITION OF ASSETS

38
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, CONTINUED

(16) GAIN ON DISPOSITION OF ASSETS, CONTINUED

for approximately $17.5 million and, during September 1997, UATC sold
its theatre investments in Mexico and the majority of its theatre
assets in Argentina for approximately $25.0 million. During the year
ended December 31, 1997, UATC sold various other non-strategic or
underperforming theatres for net cash proceeds of approximately $17.0
million. During the year ended December 31, 1996, UATC sold certain
theatres for which cash proceeds of $20.5 million were received.

(17) INCOME TAXES

UATC and each of its 80% or more owned subsidiaries are included in the
Parent's consolidated federal income tax return. Pursuant to a tax
sharing agreement with the Parent, UATC and each of its 80% or more
owned consolidated subsidiaries are allocated a portion of the Parent's
current federal income tax expense (benefit). Such allocations are
determined as if UATC and each of its 80% or more owned consolidated
subsidiaries were separate tax paying entities within the consolidated
group. For the years ended December 31, 1998, 1997 and 1996 UATC and
each of its 80% or more owned consolidated subsidiaries were allocated
no current federal income tax expense (benefit) pursuant to such tax
sharing agreement as a result of the group's overall net loss position.

On February 10, 1998, the Parent filed a private letter ruling with the
IRS requesting an extension of time to file a Section 197 election.
This election allows for the amortization of various intangible assets
over 15 years. On June 8, 1998, the IRS granted the Parent's request
and, on August 6, 1998, the Parent filed a Section 197 election along
with its amended 1993 income tax return. As the Parent had previously
been amortizing certain intangible assets acquired as part of the
Acquisition over a five year period, the effect of the Section 197
election was to reduce the Parent's net operating loss carryforward
and to increase the basis of certain intangible assets, which will
be amortized, and provide for future tax deductions. The Section 197
election also enabled the Parent to conclude the IRS audit for the
years ending December 31, 1992, 1993 and 1994. As a result of the
audit the net operating loss was reduced further by various items
which were reclassified as Section 197 assets. These items will be
amortized and will provide the Parent and UATC with additional future
deductions. As the Parent had fully reserved the deferred tax asset
associated with its net operating loss carryforward, there is no
financial statement impact associated with the reduction in its net
operating loss carryforward.

The current state income tax expense of UATC and federal income tax
expense of UATC's less than 80%-owned consolidated subsidiaries and
deferred state and federal income tax expense are as follows (amounts
in millions):

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Current income taxes:
State expense................................... $ 0.2 0.2 0.1

Federal expense................................. 0.4 1.3 1.0
--- --- ---
0.6 1.5 1.1
Deferred income taxes:
State expense................................... - - -
Federal expense................................. - - -
--- --- ---
$ 0.6 1.5 1.1
--- --- ---
--- --- ---
</TABLE>

39
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, CONTINUED

(17) INCOME TAXES, CONTINUED

Income tax expense differed from the amount computed by applying the
U.S. federal income tax rate (35% for all periods) to loss before
income tax expense as a result of the following (amounts in millions):

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Expected tax benefit........................ $(22.5) (9.2) (15.9)
Change in valuation allowance............... 31.7 12.9 13.3
Adjustment of net operating loss
carryforward.............................. (34.2) (2.4) 0.7
Changes in basis of assets.................. 29.3 - -
Other....................................... (3.7) 0.2 3.0
------ ----- -----
$ 0.6 1.5 1.1
------ ----- -----
------ ----- -----

</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31,
1998 and 1997 are as follows (amounts in millions):

<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $ 66.6 75.0
Intangible and other assets.......................... 32.2 3.7
Accrued liabilities.................................. 6.4 3.6
Deferred revenue..................................... 4.5 -
Other................................................ 1.5 1.2
------ -----
111.2 83.5

Less: valuation allowance............................ (110.0) (78.3)
------ -----
Net deferred tax assets............................ 1.2 5.2
------ -----
Deferred tax liabilities:

Property and equipment............................... - 3.7
Other................................................ 1.2 1.5
------ -----
Net deferred tax liabilities....................... 1.2 5.2
------ -----
Net.................................................... $ - -
------ -----
------ -----

</TABLE>

At December 31, 1998, UATC had a net operating loss carryforward for
federal income tax purposes of approximately $175.4 million.

The Parent's income tax returns for the years ended December 31, 1995,
1996 and 1997 are currently being audited by the IRS. The outcome of
this audit may reduce the amount of the Parent's and UATC's net
operating loss carryforward and/or change the basis (and thus future
tax depreciation) related to certain assets. The Parent and UATC
believe that the result of the audit will not have a material adverse
effect on the financial condition or results of operation.

(18) SEGMENT INFORMATION

UATC's operations are classified into two business segments; theatre
operations and the Satellite Theatre Network-TM-. The Satellite Theatre
Network-TM- rents theatre auditoriums for seminars, corporate training,
business meetings and other educational or communication uses product
and consumer research and other entertainment uses. Theatre auditoriums
are rented individually or on networked basis.

<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, CONTINUED

(18) SEGMENT INFORMATION, CONTINUED

The following table presents certain information relating to the
theatre operations and Satellite Theatre Network-TM- segments for each
of the last three years (amounts in millions):

<TABLE>
<CAPTION>
THEATRE SATELLITE
OPERATIONS THEATRE NETWORK TOTAL
---------- --------------- -------
<S> <C> <C> <C>
1998
Revenue............................................ $ 655.8 5.5 661.3
Operating income (loss)............................ (4.8) 0.4 (4.4)
Depreciation and amortization...................... 51.0 0.1 51.1
Assets............................................. 564.3 3.9 568.2
Capital expenditures............................... 115.4 - 115.4

1997
Revenue............................................ 676.5 6.2 682.7
Operating income (loss)............................ (2.1) 0.6 (1.5)
Depreciation and amortization...................... 56.2 0.1 56.3
Assets............................................. 502.1 3.9 506.0
Capital expenditures............................... 65.8 - 65.8

1996
Revenue............................................ 669.6 6.0 675.6
Operating income (loss)............................ (5.4) (1.1) (6.5)
Depreciation and amortization...................... 71.4 - 71.4
Assets............................................. 544.2 3.9 548.1
Capital expenditures............................... 65.8 - 65.8

</TABLE>

(19) COMPREHENSIVE INCOME

Separate statements of comprehensive income have not been presented in
these financial statements as the only reconciling item between net
loss as reflected in the statements of operations and comprehensive
income would be the change in UATC's cumulative foreign currency
translation adjustment. For the years ended December 31, 1998, 1997 and
1996, the change in the cumulative foreign currency translation
adjustment was $0.4 million, $0.1 million, and $0.4 million,
respectively.

(20) COMMITMENTS AND CONTINGENCIES

UATC conducts a significant portion of its theatre and corporate
operations in leased premises. These leases have noncancelable terms
expiring at various dates after December 31, 1998. Many leases have
renewal options. Most of the leases provide for contingent rentals
based on the revenue results of the underlying theatre and require the
payment of taxes, insurance, and other costs applicable to the
property. Also, certain leases contain escalating minimum rental
provisions that have been accounted for on a straight-line basis over
the initial term of the leases.

<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, CONTINUED

(20) COMMITMENTS AND CONTINGENCIES, CONTINUED

Rent expense for theatre and corporate operations is summarized as
follows (amounts in millions):

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1998 1997* 1996*
------ ----- -----
<S> <C> <C> <C>
Minimum rental..................................... $ 87.6 85.6 82.4
Contingent rental.................................. 3.0 3.8 3.5
Effect of leases with escalating
minimum annual rentals........................... 4.0 3.7 3.1
Rent tax........................................... 0.6 0.5 0.6
------ ----- -----
$ 95.2 93.6 89.6
------ ----- -----
------ ----- -----

</TABLE>

*Restated

Approximately $15.1 million, $13.4 million and $11.6 million of the
minimum rentals reflected in the preceding table for the years ended
December 31, 1998, 1997 and 1996, respectively, were incurred pursuant
to the sale and leaseback transactions (see note 3).

Approximately $7.5 milllion, $9.5 million and $9.9 million of the
minimum rentals reflected in the preceding table for the years ended
December 31, 1998, 1997 and 1996, respectively, were incurred pursuant
to operating leases between UATC and UAR and Prop I. Additionally, $0.1
million of the contingent rentals reflected in the preceding table for
the years ended December 31, 1997 and 1996 were incurred pursuant to
such leases.

Future minimum lease payments under noncancelable operating leases for
each of the next five years and thereafter are summarized as follows
(amounts in millions):

<TABLE>
<CAPTION>
Third Party Affiliate
Leases Leases
----------- ---------
<S> <C> <C>
1999.......................... $ 88.6 2.5
2000.......................... 85.8 2.5
2001.......................... 84.0 2.5
2002.......................... 81.5 2.5
2003.......................... 79.7 1.9
Thereafter.................... 580.7 -

</TABLE>

Included in the future minimum lease payments table above are lease
payments relating to theatres which UATC intends to sell or close. To
the extent UATC is successful in disposing of these theatres, the
future minimum lease payments will be decreased.

It is expected that in the normal course of business, desirable leases
that expire will be renewed or replaced by other leases.

At December 31, 1998, UATC had entered into theatre construction and
equipment commitments aggregating approximately $39.0 million for five
new theatres (68 screens) for renovations and stadium seating to three
existing theatres (36 screens) which UATC intends to open or renovate
during 1999. Such amount relates only to projects in which UATC has
executed a definitive lease agreement and all significant lease
contingencies have been satisfied.

42
<PAGE>

UNITED ARTISTS THEATRE CIRCUIT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, CONTINUED

(20) COMMITMENTS AND CONTINGENCIES, CONTINUED

outcome of these proceedings, UATC believes that such legal proceedings
will not have a material adverse effect on UATC's financial position,
liquidity or results of operations.

The Americans with Disabilities Act of 1990 (the "ADA") and certain
state statutes, among other things, require that places of public
accommodation, including theatres (both existing and newly
constructed), be accessible to and that assistive listening devices be
available for use by certain patrons with disabilities. With respect to
access to theatres, the ADA may require that certain modifications be
made to existing theatres to make such theatres accessible to certain
theatre patrons and employees who are disabled. The ADA requires that
theatres be constructed in such a manner that persons with disabilities
have full use of the theatre and its facilities and reasonable access
to work stations. The ADA provides for a private right of action and
reimbursement of plaintiff's attorneys' fees and expenses under certain
circumstances. UATC has established a program to review and evaluate
UATC's theatres and to make any changes that may be required by the
ADA. In 1995, UATC settled the lawsuit styled CONNIE ARNOLD ET AL. VS.
UATC, filed in 1991. This lawsuit involved allegations that certain of
UATC's theatres lacked accessibility to persons with mobility
disabilities in violation of the ADA. In the settlement agreement,
UATC, the plaintiffs and the Department of Justice established
standards of modifications that must be made to UATC's theatres
throughout the United States to make them more accessible to persons
with disabilities. UATC believes that the cost of complying with the
ADA and the settlement agreement in the CONNIE ARNOLD case will not
have a material adverse effect on UATC's financial position, liquidity
or results of operations.

<PAGE>

PART III

Item 10. Directors and Executive Officers of the Registrant

Information regarding members of UATC's and the Parent's Board of Directors as
of March 19, 1999 is set forth below. Directors will serve until the next annual
meeting and until his successor is duly elected and qualified.

<TABLE>
<CAPTION>
Name Age Business Experience During Past Five Years Other Public Directorships
- ---- --- ------------------------------------------ --------------------------
<S> <C> <C> <C>
Kurt C. Hall................39 President and Chief Executive Officer since Mr. Hall is a director of Showscan
March 6, 1998. Chief Operating Officer since Entertainment, Inc.
February 24, 1997 and Executive Vice President
and Director since May 12, 1992. Mr. Hall was
Chief Financial Officer from May 12, 1992 to
March 5, 1998.

John W. Boyle...............70 Named Chairman of the Board on March 6, 1998. Mr. Boyle is a director of
Director since March 5, 1997. Mr. Boyle was Supermarkets General Holdings Corp.
Chief Financial Officer of Eckerd Corporation
from 1983 to 1995 and Vice Chairman from
1992 to 1995.

James J. Burke, Jr..........47 Director since May 12, 1992. Director of Merrill Mr. Burke is a director of AnnTaylor
Lynch Capital Partners, Inc. ("MLCP"), since 1985 Stores Corporation, Borg-Warner
and Partner and Director of Stonington Partners, Security Corporation, Education
Inc. ("SP"), since July 1993 and Partner and Management Corporation, Pathmark
Director of Stonington Partners, Inc. II ("SPII") Stores, Inc. and Supermarkets General
since 1994. Prior to July 1994, Mr. Burke was Holdings Corp.
President and Chief Executive Officer of
MLCP from 1987 to 1994, a Managing Director
of the Investment Banking Division of
Merrill Lynch & Co. ("ML&Co.") from 1985 to
1994 and a First Vice President of Merrill
Lynch Pierce Fenner and Smith, Inc. from
1988 to 1994.

Albert J. Fitzgibbons, III..53 Director since May 12, 1992. Director of MLCP Mr. Fitzgibbons is a director of
since 1988 and a Partner and a Director of SP Borg-Warner Security Corporation,
since July 1993 and a Partner and a Director of Dictaphone Corporation and Merisel,
SPII since 1994. Prior to July 1994, Mr. Inc.
Fitzgibbons was a Partner of MLCP from 1993 to
1994 and an Executive Vice President of MLCP from
1988 to 1993. Mr. Fitzgibbons was also a Managing
Director of the Investment Banking Division of
ML&Co. from 1978 to July 1994.

Robert F. End...............43 Director since February 17, 1993. Director of Mr. End is a director of Goss Graphic
MLCP since 1993 and a Partner and a Director Systems, Inc. and Packard BioScience
of SP since July 1993 and a Partner and a Company.
Director of SPII since 1994. Prior to July 1994,
Mr. End was a Partner of MLCP from 1993 to 1994
and a Vice President of MLCP from 1989 to 1993.
Mr. End was also a Managing Director of the
Investment Banking Division of ML&Co. from 1993
to July 1994.

Scott M. Shaw...............36 Director since February 17, 1993. Partner and Mr. Shaw is a director of Dictaphone
Director of SP since February 1999. Prior to Corporation and Goss Graphic Systems,
becoming a Partner and Director, Mr. Shaw was Inc.
Principal of SP since July 1993. Mr. Shaw has
also been a Partner and Director of SPII since
February 1999. Prior to July 1994, Mr. Shaw was
a Vice President of MLCP from January 1994,
an Associate of MLCP from 1991 to 1994 and
an Analyst of MLCP from 1986 to 1989. Mr.
Shaw was also a Vice President of the
Investment Banking Division of ML&Co. from
January to July 1994 and an Associate of
the Investment Banking Division of ML&Co.
from 1991 to 1994 and an Analyst of the
Investment Banking Division of ML&Co. from
1986 to 1989.

</TABLE>

44
<PAGE>

Information regarding executive officers of UATC who are not directors of
UATC as of March 19, 1999 is set forth below. Executive officers will hold
office for such term as may be prescribed by the Board of Directors and until
such person's successor is chosen and qualified or until such person's death,
resignation, or removal.

<TABLE>
<CAPTION>
Name Age Business Experience During Past Five Years
- ---- --- ------------------------------------------
<S> <C> <C>
Neil Pinsker............43 Executive Vice President. Mr. Pinsker was promoted to Executive Vice President of
UATC in charge of theatre operations in January 1999. Mr. Pinsker was most recently
Vice President of the Western region operations, and has previously directed the
east and central regional operations of UATC. Joining UATC in May of 1970, as a
third generation theatre operator, Mr. Pinsker has four decades of theatre
experience.

Gene Hardy..............48 Executive Vice President and General Counsel. Mr. Hardy was promoted to Executive
Vice President of UATC in charge of legal affairs and general counsel in September
1994. Mr. Hardy was previously the Senior Vice President and general counsel of UATC.

Michael Pade............49 Executive Vice President. Mr. Pade became Executive Vice President of UATC in
February 1997 in charge of film operations. Mr. Pade joined UATC in October 1994 as
a Senior Vice President of film operations. Prior to joining UATC, Mr. Pade worked
for Mann Theatres as the Senior Vice President in charge of domestic film booking.

Jim Ruybal..............53 Executive Vice President. Mr. Ruybal became Executive Vice President of UATC in
1992. Mr. Ruybal's duties include supervision of UATC's Satellite Theatre Network-TM-.

Bruce M. Taffet.........51 Executive Vice President. Mr. Taffet was promoted to Executive Vice President in
January 1995 and is responsible for purchasing, marketing and national concession
operations of UATC. Prior to February 1995, Mr. Taffet was the Senior Vice
President in charge of national concession operations of UATC.

Trent J. Carman.........38 Senior Vice President. Chief Financial Officer since March 6, 1998. Mr. Carman was
previously the Senior Vice President and Treasurer of UATC from September 1997 to
March 6, 1998 and was Vice President of Finance from June 1992 to September 1997.
</TABLE>

There are no family relationships between any of the directors and executive
officers named above. During the past five years, none of the directors and
executive officers named above were involved in any legal proceedings that
would be material to an evaluation of his ability or integrity.

ITEM 11. EXECUTIVE COMPENSATION

(a) COMPENSATION

The following table sets forth all compensation paid to the president and
chief executive officer and the four next most highly paid executive officers
of UATC for the years ended December 31, 1998, 1997 and 1996.

<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long-Term
Compensation
Awards/
Annual Compensation Securities Other
---------------------------- Underlying Annual All Other
Name and Salary Bonus Stock Options Compensation Compensation
Principal Positions Year ($) (1) ($) (2) # ($) (3) ($) (4)
- ------------------- ---- ------- ------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Kurt C. Hall 1998 304,866 -- 50,000 3,960 4,800
President and 1997 283,103 -- 80,000 2,877 4,684
Chief Executive Officer 1996 220,514 -- -- 920 22,182

Michael Pade 1998 258,998 7,500 20,000 3,795 --
Executive Vice President 1997 253,846 -- 12,000 6,083 41,079
1996 220,080 -- -- 5,426 --

Ralph ("Gene") Hardy 1998 195,154 5,640 12,000 -- 4,800
Executive Vice President 1997 193,361 -- 12,000 -- 4,800
1996 188,136 -- -- 2,222 18,811

Jim Ruybal 1998 186,314 1,863 10,000 989 4,800
Executive Vice President 1997 193,481 -- 12,000 1,073 4,800
1996 186,300 -- -- -- 18,630

Dennis R. Daniels (5) 1998 207,980 5,925 12,000 3,229 4,800
Executive Vice President 1997 205,130 -- 12,000 2,287 4,800
1996 195,473 -- -- 2,500 14,723

Thomas C. Elliot (6) 1998 218,462 -- 395 --
Executive Vice President 1997 215,029 -- -- 4,603 4,800
1996 204,244 -- 15,300 4,845 20,765

</TABLE>

(1) Represents annual salary, including compensation deferred by the Named
Executive Officer pursuant to the UATC 401(k) Savings Plan and the UATC
Supplemental 401(k) Savings Plan (prior to January 1, 1997).

(2) The executive officers were entitled to receive bonuses depending on the
Parent's achievement of certain performance criteria. Bonus amounts are
reflected in the year paid but relate to the performance of the previous
year.

(3) Other annual compensation consists of reimbursement of membership dues.

(4) Consists primarily of matching contributions to employee benefit plans
except for the amount attributable to Mr. Pade which was related to a loan
which was forgiven.

(5) Effective January 1999, Mr. Daniels no longer worked for UATC.

(6) Mr. Elliot resigned from UATC in 1998. Amounts received by Mr. Elliot in
1998 are in connection with his severance arrangements with UATC.

46
<PAGE>

(b) STOCK OPTION GRANTS

The following table sets forth all of the Parent's stock options granted during
1998 to the president and chief executive officer and the four next most highly
paid executive officers of UATC.

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Option Term
Options Employees in Price Per Expiration -----------------------
Name Granted 1998 Share Date 5% 10%
---- ------- ---- ----- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kurt C. Hall 50,000 18.1% $22.50 2008 $707,506 1,792,960
Michael Pade 20,000 7.2% 22.50 2008 283,003 717,184
Gene Hardy 12,000 4.3% 22.50 2008 169,802 430,310
Jim Ruybal 10,000 3.6% 22.50 2008 141,501 358,592
Dennis R. Daniels (1) 12,000 4.3% 22.50 2008 169,802 430,310

</TABLE>

(1) Effective January 1999, Mr. Daniels no longer worked for UATC.

The following table sets forth all of the Parent's stock options held by the
president and chief executive officer and the four next most highly paid
executive officers of UATC as of December 31, 1998.

<TABLE>
<CAPTION>
Number of
Share Underlying Value of
Unexercised Options at In-the-Money Options at
at December 31, 1998 December 31, 1998 (1)
Option -------------------------------- ------------------------------
Name Type Exercisable Unexercisable Exercisable Unexercisable
---- ------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Kurt C. Hall Incentive 30,250 -- $378,125 --
Performance 75,000 82,500 525,000 $658,750
Premium -- 13,750 -- --

Michael Pade Incentive 7,750 -- 90,752 --
Performance 17,500 21,250 78,750 126,292
Premium -- 3,375 -- --

Gene Hardy Incentive 7,750 -- 96,875 --
Performance 13,500 17,250 78,750 131,625
Premium -- 3,375 -- --

Jim Ruybal Incentive 13,850 -- 173,125 --
Performance 12,500 22,000 78,750 203,500
Premium -- 6,250 -- --

Dennis R. Daniels (2) Incentive 10,000 -- 125,000 --
Performance 13,500 19,625 78,750 161,312
Premium -- 6,063 -- --

</TABLE>

(1) As the Common Stock of the Parent is not publicly held, UATC has valued the
unexercised stock options using the value attributable to the stock options
granted closest to, but not after, December 31, 1998 ($22.50).

(2) Effective January 1999, Mr. Daniels no longer worked for UATC.

<PAGE>

(d) LONG-TERM INCENTIVE AWARDS

No long-term incentive awards were granted to executive officers of UATC
during 1998.

(e) COMPENSATION OF DIRECTORS

Mr. Boyle received 25,000 performance options ($22.50 strike price) and
$120,000 for his services as a director during 1998 and 10,000 performance
options ($12.00 strike price) and $20,000 for his services as a director
during 1997. No other directors of the Parent or UATC received compensation
for their services as directors or committee members.

(f) EMPLOYEE BENEFITS PLAN

UATC established the United Artists Theatre Circuit, Inc. 401(k) Savings Plan
(the "Savings Plan") which allows electing employees to contribute up to
10.0% of their compensation, subject to certain IRS limitations. Depending on
the amount of each employees level of contribution, the Savings Plan
currently matches up to 4.0% of their compensation.

Effective January 1, 1993, UATC established the United Artists Theatre
Circuit, Inc. Supplemental 401(k) Savings Plan (the "Supplemental Plan") for
certain employees who are highly compensated as defined by the IRS and whose
elective contributions to the Savings Plan exceed the IRS limitations.
Through December 31, 1996, such employees were allowed to contribute to the
Supplemental Plan, provided that the aggregate contributions to the Savings
Plan and Supplemental Plan did not exceed 10.0% of their compensation.
Effective January 1, 1997, UATC suspended the Supplemental Plan.

Matching contributions to the Savings Plan and the Supplemental Plan for the
president and chief executive officer and the four other highest paid
executives have been included in the summary compensation table.

During 1998, UATC's board established a bonus plan for all non-commissioned
corporate employees that is based upon UATC achieving its operating budgets
and other financial and operating goals and the employee achieving certain
specified goals.

(g) EMPLOYMENT AGREEMENTS

UATC entered into employment agreements (each an "Employment Agreement" and
collectively, the "Employment Agreements") with each of Kurt C. Hall,
Edward C. Cooper, Gene Hardy, Robert A. McCormick, Michael L. Pade, Jim Ruybal,
Bruce M. Taffet, Trent J. Carman, Charles Fogel and Darrell C. Taylor. The
Employment Agreements with Messrs. Hardy, Ruybal and Taffet expire on
May 12, 2000.

Under the Employment Agreements, the employee receives a base salary (as
defined in the Employment Agreements) and certain customary benefits,
including health and disability insurance, participation in employee benefit
plans and certain perquisites. Each Employment Agreement provides that the
employee will be eligible to receive annual bonuses during the term of
employment, as determined by the Board of Directors.

In the event that Mr. Hall or Mr. Pade is terminated without cause, such
individual will be entitled to his base salary for two years and annual
bonuses for two years, in an amount based upon the average of the annual
bonuses awarded to him over the preceding two fiscal years.

In the event that Mr. McCormick, Mr. Cooper, Mr. Carman, Mr. Fogel or Mr.
Taylor is terminated without cause, such individual will be entitled to his
base salary for the remainder of the term of his employment agreement
following his termination but not less than 12 months and annual bonuses for
the remainder of the term of his employment agreement but not less than 12
months, in an amount based upon the average bonuses paid to him over the
preceding two fiscal years.

<PAGE>

In the event that Mr. Ruybal, Mr. Hardy or Mr. Taffet is terminated without
cause, such individual will be entitled to his base salary for the lesser of
two years or the remainder of the term of his employment agreement following
termination, but not less than 12 months and annual bonuses for the lesser of
two years or the remainder of the term of his employment agreement following
termination, but not less than 12 months, in an amount based upon the average
bonuses paid to him over the preceding two fiscal years.

It is expected that the Employment Agreements will be amended and/or extended
prior to their expiration dates. The terms of the Employment Agreements, as
amended or extended, may be different from those currently in place.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Parent owns 100% of the issued and outstanding shares of UATC's capital
stock. The Parent is a Delaware corporation whose only business interest is
its ownership of UATC and UAR. The Parent's principal executive offices are
located at 9110 E. Nichols Avenue, Englewood, Colorado 80112.

The Parent has three classes of capital stock outstanding: the United Artists
Theatre Company Class A Shares, the United Artists Theatre Company Class B
Shares, and the United Artists Theatre Company Class C Shares (collectively
the "United Artists Shares"). The United Artists Shares are held of record by
416 holders. The following tables set forth certain information concerning
the beneficial ownership of United Artists Shares known to the Parent to own
beneficially in excess of 5% of the outstanding United Artists Shares and the
president and chief executive officer and the four other highest paid
executive officers of UATC, for each director and all executive officers and
directors of UATC as a group as of March 19, 1999. Except as otherwise
indicated, all of the persons listed below have (i) sole voting power and
investment power with respect to their United Artists Shares, except to the
extent that authority is shared by spouses under applicable law and (ii)
record and beneficial ownership with respect to their United Artists Shares.

<PAGE>

UNITED ARTISTS THEATRE COMPANY COMMON STOCK
<TABLE>
<CAPTION>

NAME AND ADDRESS BENEFICIAL PERCENTAGE OF BENEFICIAL PERCENTAGE OF
INTEREST INTEREST UNITED ARTISTS INTEREST UNITED ARTISTS
BENEFICIAL OWNER CLASS A SHARES CLASS A SHARES CLASS B SHARES CLASS B SHARES
- ---------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
MLCP(1)(5)(7)...................... 8,409,761 72.8% 0 -
Merrill Lynch & Co, Inc.(2)(5)..... 2,082,205 18.0% 0 -
Institutional Investors(8)......... 1,059,417 9.2% 0 -
Kurt C. Hall(3)(6)................. 0 - 116,750 31.9%
Michael Pade(3)(6)................. 0 - 25,825 7.1%
Gene Hardy(3)(6)................... 0 - 23,850 6.5%
Jim Ruybal(3)(6)................... 0 - 33,350 9.1%
James J. Burke, Jr.(4)(7).......... 0 - 0 -
Albert J. Fitzgibbons, III(4)(7)... 0 - 0 -
Robert F. End(4)(7)................ 0 - 0 -
Scott Shaw(4)...................... 0 - 0 -
John W. Boyle(9)................... 0 - 18,750 5.1%
Directors and Executive Officers
as a group (12 persons)(6)....... 0 - 265,575 72.6%

<CAPTION>
NAME AND ADDRESS BENEFICIAL PERCENTAGE OF PERCENTAGE OF
INTEREST INTEREST UNITED ARTISTS UNITED ARTISTS
BENEFICIAL OWNER CLASS C SHARES CLASS C SHARES SHARES
- ---------------- -------------- -------------- --------------
<S> <C> <C> <C>
MLCP(1)(5)(7)...................... 0 - 70.5%
Merrill Lynch & Co, Inc.(2)(5)..... 0 - 17.5%
Institutional Investors(8)......... 0 - 8.9%
Kurt C. Hall(3)(6)................. 0 - 1.0%
Michael Pade(3)(6)................. 1,622 15.4% 0.2%
Gene Hardy(3)(6)................... 0 - 0.2%
Jim Ruybal(3)(6)................... 0 - 0.3%
James J. Burke, Jr.(4)(7).......... 0 - -
Albert J. Fitzgibbons, III(4)(7)... 0 - -
Robert F. End(4)(7)................ 0 - -
Scott Shaw(4)...................... 0 - -
John W. Boyle(9)................... 0 - 0.2%
Directors and Executive Officers
as a group (12 persons)(6)....... 1,622 15.4% 2.2%

</TABLE>

- ------------------------------------------------------

(1) United Artists Theatre Company Class A Shares beneficially owned by MLCP
are held as follows: 5,049,958.2 by Merrill Lynch Capital Appreciation
Partnership No. B-XIX, L.P. ("MLCAP B-XIX"); 46,396.0 by Merrill Lynch
Capital Appreciation Partnership No. B-XX, L.P. ("MLCAP B-XX");
3,229,723.5 by Roman Nineteen Offshore Fund N..V. ("Roman Holdings") and
83,683.3 by MLCP Associates L.P. No. 11. ("MLCP 11"). MLCP is the
indirect managing general partner of MLCAP B-XIX and MLCAP B-XX and the
general partner of MLCP 11. Affiliates of MLCP are the sole stockholders
of Roman Holdings. The address of MLCP and each of the aforementioned
record holders is South Tower, World Financial Center, New York, New
York 10080.

(2) United Artists Theatre Company Class A Shares beneficially owned by
Merrill Lynch & Co., Inc. are owned of record as follows: 1,932,204.7 by
ML IBK Positions, Inc.; 150,000.0 by Merrill Lynch KECALP L.P. 1991. The
address for ML IBK Positions, Inc. is North Tower, World Financial
Center, New York, New York 10281. The address of Merrill Lynch KECALP
L.P. 1991 is South Tower, World Financial Center, New York, New York
10080.

(3) The address for each of Messrs. Hall, Pade, Hardy, and Ruybal is 9110
East Nichols Avenue, Englewood, Colorado 80112.

(4) The address for each of Messrs. Burke, Fitzgibbons, End and Shaw is c/o
Stonington Partners, Inc., 767 Fifth Avenue, New York, New York 10153.

(5) Entities affiliated with Merrill Lynch & Co., Inc. own approximately
10,491,966 of the outstanding United Artists Theatre Company Shares,
which represents approximately 88.0% of the outstanding United Artists
Theatre Company Shares.

(6) Includes vested incentive options and Class C shares that are
exercisable within 60 days.

(7) Each of Messrs. Burke, Fitzgibbons and End are members of the Board of
Directors of MLCP, but each disclaims beneficial ownership of the United
Artists Theatre Company Shares.

(8) To the knowledge of United Artists, none of the Institutional Investors
beneficially owns 5% or more of the United Artists Theatre Company Class
A Shares.

(9) The address for Mr. Boyle is 7 North Pine Circle, Belleair, Florida 34616.

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

UATC leases four theatres from UAR and 25 theatres from Prop I. The common
stock of UAR is owned 100% by the Parent.

The lease agreement between UATC and UAR provides for an annual base rental
of approximately $2.5 million, as well as taxes, insurance, maintenance and
other related charges. Effective November 1, 1998, the lease agreement
between UATC and Prop I provides for an annual base rental of $1, as well as
taxes, insurance, maintenance and other related charges. Prior to November 1,
1998, the lease agreement between UATC and Prop I provided for an annual base
rental of approximately $5.9 million. In addition to the annual base rental
amounts, the leases provide for additional rentals based upon a percentage of
the leased theatres' revenue. The leases between UATC and UAR and Prop I
expire on October 4, 2003 and October 31, 2003, respectively, and provide for
options to extend the leases at UATC's option for up to ten years.

In order to fund the cost of additions and/or renovations to the theatres
leased by UATC from UAR or Prop I, UATC has periodically made advances to
UAR. In addition, a portion of the New Bank Credit Facility was advanced to
UAR for the repayment of the Prop I mortgage notes which matured on November
1, 1998. Interest on the advances accrues at the prime rate and amounted to
$2.0 million, $1.4 million and $1.1 million for the years ended December 31,
1998, 1997 and 1996, respectively.

During 1998, UATC exchanged on fee-owned theatre property with Prop I in
return for two fee-owned theatre properties and a $1.1 million note. During
1997, UATC exchanged two fee-owned theatre properties with Prop I in return
for a fee-owned theatre property and a $2.7 million note. During 1996, UATC
exchanged a fee-owned theatre with Prop I in return for two fee-owned theatre
properties and a $1.5 million note. The note bears interest at the prime rate
plus 1 1/2% and are due upon demand.

Pursuant to a management agreement entered into between UATC and UAR on May
12, 1992, UATC charges UAR a management fee. This management fee represents
the cost of managing and accounting for UAR's properties. For each of the
years ended December 31, 1998, 1997 and 1996, such management fees were
approximately $0.5 million, $0.6 million and $0.6 million, respectively.

Entities affiliated with MLCP own approximately 88.0% of the United Artists
Shares. Through a management agreement with MLCP, Stonington Partners, Inc.
manages the portfolio of companies owned by MLCP, including the Parent.

<PAGE>

<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. Financial Statements Included in Part II of this Report:

United Artists Theatre Circuit, Inc. and Subsidiaries

Report of Independent Public Accountants 26

Consolidated Balance Sheets 27
December 31, 1998 and 1997

Consolidated Statements of Operations 28
Years Ended December 31, 1998, 1997 and 1996

Consolidated Statements of Stockholder's Equity (Deficit) 29
Years Ended December 31, 1998, 1997 and 1996

Consolidated Statements of Cash Flow 30
Years Ended December 31, 1998, 1997 and 1996

Notes to Consolidated Financial Statements 31

2. Financial Statements Schedules

All financial statement schedules are omitted as they are not required
or are not applicable, or the required information is included in the
Consolidated Financial Statements or notes thereto.

3. Exhibits

The following exhibits are filed herewith or incorporated by
reference herein (according to the number assigned to them in Item 601
of Regulation S-K) as noted:
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
3.1 Restated Articles of Incorporation of United Artists Theatre
Circuit, Inc. (1)

3.2 By-laws of United Artists Theatre Circuit, Inc. (1)

10.1 Credit Agreement, dated as of April 21, 1998, among United
Artists Theatre Company and Bank of America National Trust
and Savings Association, BankBoston, N.A., NationsBank
Texas, N.A. and Merrill Lynch Capital Corporation and Morgan
Stanley Senior Funding, Inc. and the leaders party thereto.
(5)

10.2 Trust Indenture and Security Agreement dated as of December
13, 1995, between Wilmington Trust Company, William J. Wade
and Fleet National Bank of Connecticut, and Alan B. Coffey.
(3)

10.3 Pass Through Certificates, Series 1995-A Registration Rights
Agreement, dated as of December 13, 1995 among United
Artists Theatre Circuit, Inc., Morgan Stanley & Co.
Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated. (3)

10.4 Participation Agreement, dated as of December 13, 1995,
among United Artists Theatre Circuit, Inc., Wilmington Trust
Company, William J. Wade, Theatre Investors, Inc., Northway
Mall Associates, LLC, Wilmington Trust Company, William J.
Wade, Fleet National

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>

Bank of Connecticut, Alan B. Coffey and Fleet National Bank
of Connecticut. (3)

10.5 Pass Through Trust Agreement, dated as of December 13, 1995,
between United Artists Theatre Circuit, Inc. and Fleet
National Bank of Connecticut. (3)

10.6 Lease Agreement, dated as of December 13, 1995, between
Wilmington Trust Company and William J. Wade and United
Artists Theatre Circuit, Inc. (3)

10.7 Lease Agreement, dated as of October 1, 1988, between United
Artists Properties I Corporation and United Artists Theatre
Circuit, Inc. (1)

10.8 United Artists Theatre Company Stock Incentive Plan. (5)

10.9 Stockholders' Agreement, dated as of May 12, 1992, by and
among United Artists Theatre Company, Merrill Lynch Capital
Appreciation Partnership No. B-XIX, L.P., Roman Nineteen
Offshore Fund B.V., ML IBK Positions, Inc., MLCP Associates
L.P. No. II, Equitable Capital Private Income and Equity
Partnership II, L.P. and Equitable Deal Flow Fund, L.P. and
the holders of Options or Restricted Stock awards under the
Management Stock Option Plan. (1)

10.10 Amendment No. 1, dated as of July 15, 1992, to the
Stockholders' Agreement, dated as of May 12, 1992, by and
among United Artists Theatre Company, Merrill Lynch Capital
Appreciation Partnership No. B-XIX, L.P., Roman Nineteen
Offshore Fund B.V., ML IBK Positions, Inc., MLCP Associates
L.P. No. II, Equitable Capital Private Income and Equity
Partnership II, L.P. and Equitable Deal Flow Fund, L.P. and
the holders of Options or Restricted Stock awards under the
Management Stock Option Plan. (1)

10.11 Stock Subscription Agreement, dated as of May 12, 1992, by
and among United Artists Theatre Company, Merrill Lynch
Capital Appreciation Partnership No. B-XIX, L.P., Roman
Nineteen Offshore Fund B.V., ML IBK Positions, Inc., MLCP
Associates L.P. No. II, Equitable Capital Private Income and
Equity Partnership II, L.P. and Equitable Deal Flow Fund,
L.P. (1)

10.12 Non-Competition Agreement, dated as of May 12, 1992, by and
among Tele-Communications, Inc., United Artists Theatre
Circuit, Inc. and United Artists Theatre Company. (1)

10.13 Trademark Agreement as of May 12, 1992 by United Artists
Entertainment Company, United Artists Holdings, Inc., United
Artists Cable Holdings, Inc., United Artists Theatre Holding
Company, on the one hand and United Artists Theatre Circuit,
Inc., United Artists Realty Company, UAB, Inc., and UAB II,
Inc., on the other hand. (1)

10.14 United Artists Theatre Circuit 401(k) Savings Plan. (1)

10.15 United Artists Theatre Circuit Supplemental 401(k) Savings
Plan. (2)

10.16 Tax Sharing Agreement, dated as of May 12, 1992, between
United Artists Theatre Company and United Artists Theatre
Circuit, Inc. (1)

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
10.17 Form of Employment Agreement, dated as of May 12, 1992,
between UATC and Kurt C. Hall. (1)

10.18 Amendment to the United Artists Theatre Circuit, Inc. 401(K)
savings Plan dated as of January 1, 1997. (4)

10.19 Employment Agreement Extension Letter dated as of May 12,
1998, between United Artists Theatre Circuit, Inc. and Kurt
C. Hall. (4)

21.1 Subsidiaries of United Artists Theatre Circuit, Inc. (4)

27.1 Financial Data Schedule.

</TABLE>

(1) Incorporated herein by reference from Form S-1 dated October 5, 1992.

(2) Incorporated herein by reference from Form 10-K for the year ended
December 31, 1993.

(3) Incorporated herein by reference from Form S-2 dated January 31, 1996.

(4) Incorporated herein by reference to Form 10-K for the year ended
December 31, 1996.

(5) Incorporated herein by reference to Form S-4 for United Artists Theatre
Company, dated June 16, 1998.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

UNITED ARTISTS THEATRE CIRCUIT, INC.
(Registrant)

Director, President and Chief /S/ Kurt C. Hall
Executive Officer -------------------------
Dated: March 26, 1999 Kurt C. Hall

Chief Financial Officer /S/ Trent J. Carman
Dated: March 26, 1999 -------------------------
Trent J. Carman

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Chairman of the Board and Director /S/ John W. Boyle
Dated: March 26, 1999 ------------------------------
John W. Boyle

Director /S/ James J. Burke, Jr.
Dated: March 26, 1999 ------------------------------
James J. Burke, Jr.

Director /S/ Albert J. Fitzgibbons, III
Dated: March 26, 1999 ------------------------------
Albert J. Fitzgibbons, III

Director /S/ Robert F. End
Dated: March 26, 1999 ------------------------------
Robert F. End

Director /S/ Scott M. Shaw
Dated: March 26, 1999 ------------------------------
Scott M. Shaw

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,900
<SECURITIES> 0
<RECEIVABLES> 20,400
<ALLOWANCES> 0
<INVENTORY> 15,200
<CURRENT-ASSETS> 44,100
<PP&E> 558,600
<DEPRECIATION> (200,100)
<TOTAL-ASSETS> 568,200
<CURRENT-LIABILITIES> 138,400
<BONDS> 370,300
0
0
<COMMON> 0
<OTHER-SE> 19,300
<TOTAL-LIABILITY-AND-EQUITY> 562,600
<SALES> 188,500
<TOTAL-REVENUES> 661,300
<CGS> 28,000
<TOTAL-COSTS> 665,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (29,500)
<INCOME-PRETAX> (37,000)
<INCOME-TAX> (600)
<INCOME-CONTINUING> (37,600)
<DISCONTINUED> (19,500)
<EXTRAORDINARY> (7,900)
<CHANGES> 0
<NET-INCOME> (65,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>