<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: 333-56985
                                                                       333-56999


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

    For the transition period from ______________ to ________________

                         UNITED ARTISTS THEATRE COMPANY
               (exact name of registrant as specified in charter)

           Delaware                                               84-1198391
-------------------------------                             -------------------
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                             Identification No.)

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

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

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

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

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.

As of March 26, 1999, 11,551,383 shares of Class A Common Stock, 365,871 shares
of Class B Common Stock (including options to acquire 332,696 shares of Class B
Common Stock exercisable within 60 days of such date) and 10,542 shares of Class
C Common Stock were outstanding.

<PAGE>

                         UNITED ARTISTS THEATRE COMPANY

                           Annual Report on Form 10-K

                                December 31, 1998

                                TABLE OF CONTENTS

                                     PART I

<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
<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 Holders                           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                           47

Item 11        -  Executive Compensation                                                        48

Item 12        -  Security Ownership of Certain Beneficial Owners and Management                52

Item 13        -  Certain Relationships and Related Transactions                                54


                                     PART IV

Item 14        -  Exhibits, Financial Statement Schedules, and

                           Reports on Form 8-K                                                  55

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

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

                                     PART I

ITEM 1.  BUSINESS

(a)  GENERAL DEVELOPMENT OF BUSINESS

United Artists Theatre Company ("United Artists") (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, United Artists purchased all of the outstanding common stock 
of UATC from the affiliate of TCI (the "Acquisition").

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

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

From 1986 through 1989, 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.

                                       3
<PAGE>

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.

Subsequent to the Acquisition by MLCP, United Artists 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 United Artists' then CEO,
United Artists initiated a more focused operating and capital investment
strategy. This strategy was designed to improve the efficiency and quality of
its core operating theatre business and increase its market share within its key
domestic markets. As part of this strategy, substantially all of its
international operations were sold, its entertainment center business was
discontinued and certain domestic markets and 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, United Artists restructured its corporate functions and has
reduced its running rate corporate expenses by over $13.0 million per annum, or
36%.

(b)  NARRATIVE DESCRIPTION OF BUSINESS

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

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

United Artists has invested more than $455.8 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 United Artists screens have been constructed since
January 1, 1992. Virtually all of the theatres United Artists has built since
1997 are state-of-the-art, 10 to 16 screen multiplex theatres with stadium
seating, high-backed rocking seats, digital sound, expanded concession areas and
other state-of-the-art design features and amenities. All new theatres currently
planned will also include these state-of-the-art amenities and many existing
theatres are being, or will be, upgraded with stadium seating and other
state-of-the-art features. As compared to the prior generation of non-stadium
theatres, United Artist believes that these theatres provide a higher quality
entertainment experience for patrons and significant operating efficiencies and
improved economics for United Artists. At December 31, 1998, United Artists
operated 24 theatres (245 screens) which offered stadium seating. At December
1998, approximately 87.9% of United Artists' screens were located in theatres
with five or more screens. United Artists' 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

                                       4
<PAGE>

highly fragmented, with the remaining 47.0% of the screens being operated by
approximately 520 exhibitors. United Artists has one of the largest shares of
total screens with approximately 6.4% of all screens in North America.

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

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

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

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

These higher costs have made a large successful theatrical release more 
important. Distributors strive for a successful opening run at the theatre to 
establish a film and substantiate the film's revenue potential both 
internationally and through other release windows. The value of home video 
and pay cable distribution agreements frequently depends on the success of a 
film's theatrical release. Furthermore, the studios' revenue-sharing 
percentage and ability to control who views the product within each of the 
distribution windows generally declines as one moves farther from the 
theatrical release window. Because theatrical distribution remains the 
cornerstone of a film's financial success, it is the focal distribution 
window for the public's evaluation of films and motion picture promotion.

Although it cannot provide any assurances, management expects that the 
overall supply of films will continue to increase. Over the past four years 
there has been an increase of approximately 8.6% in the number of motion 
pictures rated by the Classification and Rating Administration. There has 
also been an increase in the number of major studios and reissues of films as 
well as an increased popularity of films made by independent producers. 
During the past four years the number of large budget films and the level of 
marketing support provided by the

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production companies has risen, as evidenced by the increase in average 
production costs and average advertising costs per film of 53.7% and 57.5%, 
respectively, from 1994 to 1998.

BUSINESS AND OPERATING STRATEGY

United Artists' operating and capital investment strategy is to 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, United 
Artists implemented a corporate restructuring and refocused its investment 
strategy on its core U.S. business. United Artists' core business strategy 
focuses management's attention and capital resources on those geographic 
areas where United Artists intends to strengthen and defend its current 
position. United Artists has also implemented operational improvements and 
overhead reductions intended to increase United Artists' 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 United Artists on its domestic theatrical business and a reduction 
of corporate general and administrative expenses of 36.8% from a running rate 
of $37.0 million for the year ended December 31, 1996 to $23.4 million for 
the year ended December 31, 1998.

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

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

During 1998, United Artists opened 13 new theatres (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, United Artists 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 United Artists 
plans to continue to develop several new state-of-the-art theatres each year, 
it intends to reduce individual theatre financial leverage and capital 
requirements by focusing on expanding, renovating and rebuilding many of its 
key locations. In many cases, these existing key locations can be transformed 
into state-of-the-art multiplex stadium seating theatres without competing 
against other operators for the location and incurring higher rent and 
excessive preconstruction costs. Furthermore, existing structures can be 
utilized while being refurbished to help reduce overall construction costs. 
United Artists' renovation of theatres in successful locations eliminates 
much of the geographic risk related to a project's success.

In order to reduce the overall investment in new theatres, United Artists has 
entered into "build to suit" and other landlord leasing arrangements or sale 
and leaseback transactions. United Artists also intends to continue to sell 
non-strategic and 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. United Artists' 
1996 corporate restructuring was also designed to rationalize underperforming 
or non-strategic assets by: (i) terminating leases for underperforming 
theatres; (ii) selling real estate underlying non-strategic or 
underperforming theatres; (iii) divesting theatres in non-

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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, United Artists sold the majority of 
its remaining international theatrical exhibition assets for $3.0 million of 
cash, $0.5 million of stock of the acquiring company and a $3.0 million note. 
In addition, United Artists sold certain non-operating real estate assets and 
closed or sold 32 underperforming or non-strategic theatres (137 screens) for 
which net cash proceeds of $16.0 million were received. Many of the theatres 
closed or sold were not profitable or were located in areas that are not part 
of United Artists' long-term strategic plans. United Artists has identified 
63 operating theatres and owned real estate (434 screens) that are not 
considered strategically important or are underperforming. United Artists 
plans to sell or close these theatres during the next several years, although 
there can be no assurance that United Artists will be able to accomplish such 
divestitures or closings.

IMPLEMENT OPERATIONAL IMPROVEMENTS. United Artists has recognized theatre and 
concession operating efficiencies through 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. United Artists believes that it will continue to increase 
the number of prints it obtains from each studio as it increases the number 
of its screens in 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 United 
Artists' focus on its core areas will provide it with access to more prints 
of each motion picture.

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

OPERATIONS

OVERVIEW

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

<TABLE>
<CAPTION>
                                                           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>

United Artists 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 United Artists' 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, United Artists' theatres stagger the
starting times of films. United Artists believes that multiplex and "megaplex"
theatres designed with 12 to 18

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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 United Artists operates several
smaller theatres (in terms of number of screens), approximately 87.9% of United
Artists' screens as of December 31, 1998 were in theatres containing five or
more screens:

<TABLE>
<CAPTION>

       Number of Screens          Number of                % of                  % of
          per Theatre             Theatres             Total Screens         Total Revenue
          -----------             --------             -------------         -------------
      <S>                        <C>                  <C>                   <C>  
        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

United Artists' 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 68.6%
and 28.5% of United Artists' revenue, respectively. The remaining 2.9% 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.

United Artists' admissions revenue is based on the level of theatrical
attendance and the mix of tickets sold. Theatre attendance is dependent
primarily upon the ability to license the most popular films. United Artists'
ticket prices vary throughout the circuit depending upon such things as local
competition, whether the theatre is showing first run or second run movies and
the local economy in which the theatre operates. Reduced ticket prices are
typically charged for senior citizens, children and matinee showings. The mix of
tickets sold is primarily related to the types of movies available to and
exhibited by United Artists. Admission prices are typically evaluated 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. United Artists' primary concession products are varying sizes of
popcorn, soft drinks, candy and certain other products such as nachos and hot
dogs. United Artists also sells specialty items such as pizza, pretzels,
cookies, ice cream, bottled water and fruit juices in many of its theatres.
Popcorn, soft drinks and packaged candy are generally sold in three or four
(including children's) sizes. Retail prices for concession items vary by the
size of the offering and are generally market sensitive. Concession sales are
recorded net of applicable sales taxes.

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

FILM LICENSING

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

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<PAGE>

United Artists licenses the majority of its first run films from distributors
owned by the major and independent film production companies. Each film
distributor establishes geographic areas known as "film zones," and typically
allocates each of its films to only one theatre within each film zone. In most
cases where there is more than one exhibitor in a film zone this allocation
process is based on long standing relationships between the distributor and
exhibitor with respect to that theatre or is done on an alternating basis. In
certain very limited cases where several exhibitors operate in a single film
zone, films are allocated based on an exhibitor bidding process. The size of a
film zone is based primarily upon population density. United Artists operates in
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, United Artists may
be required to pay a non-refundable guarantee or make film rental advances in
order to obtain certain film licenses.

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

MARKETING AND ADVERTISING

United Artists relies principally upon newspaper advertisements, newspaper film
schedules and word of mouth to inform its patrons of film titles and exhibition
times. United Artists utilizes local newspaper advertisements to promote its
theatres and inform its patrons of the films being played and show times. United
Artists typically pays for this type of advertisement. In many 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, United Artists typically initiates a
marketing campaign that advertises and promotes the new theatre for several
weeks to several months prior to the theatre's opening date. When a theatre is
performing below management's expectations, United Artists may also initiate a
newspaper marketing campaign with the objective of increasing attendance at the
theatre.

THEATRE PROPERTIES

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

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

United Artists' new theatre construction strategy focuses on selecting sites in
its existing core areas of operation and enhancing the theatre-goer's experience
by building state-of-the-art theatres. Each new location is selected after
considering United Artists' relative strength in the particular area, the number
of existing competitive screens, growth potential of the area and the minimum
threshold population within a certain radius of the theatre. As part of 

                                       9

<PAGE>

its construction strategy, United Artists intends to construct or lease stadium
theatres that have a favorable balance between the number of screens (12 to 18)
and the size of the auditoriums (125 to 400 seats). United Artists believes that
this balance will allow United Artists to provide an adequate number of screens
for film distributors and increased entertainment value to patrons afforded by
larger auditoriums. In addition to increasing the number of screens in certain
locations, United Artists is also constructing 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 United Artists' 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, United Artists' 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.

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

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

Theatrical exhibitors depend upon strong geographic positioning to obtain the
most attractive film rental arrangements because film bookings are negotiated on
a theatre-by-theatre basis. Strong geographic positioning in terms of both
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.

United Artists' theatres are located in large and medium sized metropolitan 
areas in California, southern New York (primarily New York City and Long 
Island), New Jersey, Florida, Texas, eastern Pennsylvania (including 
Philadelphia), Louisiana, Colorado (primarily Denver), and Georgia. United 
Artists believes that it has 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 United Artists' total theatres and screens, respectively, 
at December 31, 1998 and generated approximately 61.6% of United Artists' 
theatrical revenue for the year ended December 31, 1998 were as follows:

<TABLE>
<CAPTION>

                          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

United Artists competes for the public's leisure time and disposable income with
all forms of entertainment including sporting events, concerts, live theatre and
restaurants. United Artists is also subject to varying degrees of competition
from other theatre circuits and independent theatres, some of which may have
greater access to capital resources. The motion picture exhibition industry is
highly competitive, particularly with respect to film licensing, attracting
patrons and acquiring or leasing new theatre sites. Some of United Artists'
competitors may be better established in certain areas where United Artists'
theatres are located. Competition for patrons occurs locally and depends upon
factors such as: (i) which films a particular theatre is showing; (ii) location
of theatres; (iii) comfort and quality of theatres; and (iv) ticket prices. Film
patrons are not "brand" conscious and generally choose a theatre because of film
selection, location and quality of the theatre.

Competition among theatre circuits for licensing popular films occurs locally
and is based on the prestige and location of an exhibitor's theatres, quality of
the theatres (especially projection and sound quality), seating capacity

                                       10
<PAGE>

and the exhibitor's ability and willingness to promote the films. United Artists
believes that promoting good relations with film distribution and production
companies is important to consistently obtain the best mix of available films.

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

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

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

SATELLITE THEATRE NETWORK-TM-

In an effort to utilize its existing theatres more effectively during periods of
low attendance (such as mornings and weekdays), United Artists has developed a
business unit called the Satellite Theatre Network-TM-. The Satellite Theatre
Network-TM- rents theatre auditoriums for seminars, corporate training, business
meetings and other educational or communication uses, product and customer
research and other entertainment uses. Theatre auditoriums are rented
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 United
Artists' theatres can be "networked" through the use of temporary equipment.
Because the Satellite Theatre Network-TM- utilizes existing theatre facilities
and its operations within the theatre are managed by existing personnel, very
little incremental capital or personnel expenditures are required. Marketing and
sales of the Satellite Theatre Network-TM- services is performed on a national
basis by staff located in the corporate headquarters in Englewood, Colorado.
United Artists recorded $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, United Artists was issued a United States Patent (No.
5,801,754) with respect to the interactive theatre network system.

MANAGEMENT

United Artists operates its theatres from its Englewood, Colorado corporate
headquarters, two regional operating offices, fourteen district operating
offices and two film booking offices. All of United Artists' 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 United Artists' marketing and concessions operations
are also continually involved with theatre management to promote strong
performance in those areas. This structure allows the theatre manager to focus
solely on the daily operations of the theatre. A primary responsibility of the
theatre manager is improving efficiency and managing costs at the local theatre
level.

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

                                       11
<PAGE>

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

As of December 31, 1998, United Artists employed approximately 10,000 
employees, of whom approximately 1,200 were full-time. Approximately 30.6% of 
United Artists' 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

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

GOVERNMENT REGULATION

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

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

OTHER

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

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

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

                                       12
<PAGE>

ITEM 2.  PROPERTIES

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

<TABLE>
<CAPTION>

                                                  Total Number     Total Number
                                                   of Theatres      of Screens 
                                                  ------------     ------------
<S>                                               <C>              <C>  
Owned and Operated Theatres:
     Owned                                              38               224
     Leased                                            281             1,960
                                                      ----            ------
          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 United Artists and four theatres (33
screens) are held by three partnerships, each owned 51% by United Artists. The
remaining owned and operated theatres are held directly by United Artists or its
wholly-owned subsidiaries. The managed theatres include four theatres (11
screens) located in the United States. As of December 31, 1998, United Artists
also had a 10% interest in two Asian theatre exhibition joint venture companies
that operate four theatres (21 screens) in Singapore and Thailand.

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

ITEM 3. LEGAL PROCEEDINGS

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

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

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


                                       13
<PAGE>

                                     PART II

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

United Artists' common stock is privately held.

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

ITEM 6.  SELECTED FINANCIAL DATA

The following table presents selected financial data relating to the results of
operations for the 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):

<TABLE>
<CAPTION>

                                                                          Years Ended December 31,
                                                                          ------------------------
                                                       1998           1997*         1996*         1995*         1994
                                                       ----           ----          ----          ----          ----
<S>                                                 <C>              <C>           <C>           <C>           <C>
SUMMARY OF OPERATIONS DATA:

Revenue                                              $  662.1         683.8         677.1         649.1         624.0
                                                     ========         =====         =====         =====       =======
EBITDA (1)                                           $   87.9          95.6          85.0          89.2          96.1
                                                     ========         =====         =====         =====       =======
Depreciation and amortization                        $   53.9          59.0          74.2          69.2          66.7
                                                     ========         =====         =====         =====       =======
Operating income before provision
  for asset impairments                              $   34.0          36.6          10.8          20.0          29.4
                                                     ========         =====         =====         =====       =======
Provision for asset impairments                      $   36.3          35.0           9.5          21.0           - 
                                                     ========         =====         =====         =====       =======
Operating income (loss)                              $   (2.3)          1.6           1.3          (1.0)         29.4
                                                     ========         =====         =====         =====       =======
Gain (loss) on disposition of assets                 $    1.0          28.0           2.7          (5.7)         (9.8)
                                                     ========         =====         =====         =====       =======
Discontinued operations                              $  (20.3)         (5.4)         (1.5)         (0.6)          - 
                                                     ========         =====         =====         =====       =======
Extraordinary loss                                   $   (7.9)          -             -             -             -
                                                     ========         =====         =====         =====       =======
Net loss                                             $  (89.0)        (27.0)        (45.8)        (64.8)        (29.9)
                                                     ========         =====         =====         =====       =======
Net loss available to common stockholder             $  (98.0)        (50.8)        (66.7)        (83.1)        (46.0)
                                                     ========         =====         =====         =====       =======
Net loss available to common stockholder before
  provisions for impairments, gain (loss) on
  disposition of assets, discontinued
  operations, and extraordinary loss                 $  (34.5)        (38.4)        (58.4)        (55.8)        (36.2)
                                                     ========         =====         =====         =====       =======
Capital expenditures                                 $  116.9          67.4          67.1          96.5          56.7
                                                     ========         =====         =====         =====       =======
BALANCE SHEET DATA AT YEAR END:
  Total assets                                       $  579.1         563.0         612.7         665.8         717.6
                                                     ========         =====         =====         =====       =======
  Total debt                                         $  653.9         414.0         453.1         453.7         451.7
                                                     ========         =====         =====         =====       =======
  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)                      $  2,025         1,932         1,714         1,587         1,507
                                                     ========         =====         =====         =====       =======
</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 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 United Artists' financial condition and
results of operations should be read in conjunction with United Artists'
Consolidated Financial Statements and related notes thereto. Such financial
statements provide additional information regarding United Artists' financial
activities and condition.

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

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

<TABLE>
<CAPTION>

                                                 Years Ended                         Years Ended   
                                                 December 31,            %           December 31,            %
                                               -----------------     Increase      ----------------      Increase
                                               1998         1997*   (Decrease)     1997*       1996*     (Decrease)
                                               ----         ----    ----------     ----        ----      ----------
<S>                                          <C>           <C>     <C>            <C>         <C>       <C>       
Operating theatres (1) 
Revenue:
   Admissions                                 $454.4        473.9      (4.1)%      473.9       466.5         1.6%
   Concession sales                            188.5        189.6      (0.6)       189.6       185.1         2.4
   Other                                        19.2         20.3      (5.4)        20.3        25.5       (20.4)
Operating expenses:
   Film rental and advertising expenses        248.5        262.5      (5.3)       262.5       257.2         2.1
   Concession costs                             28.0         30.2      (7.3)        30.2        29.3         3.1
   Other operating expenses:
     Personnel expense                          96.2         95.5       0.7         95.5        96.4        (0.9)
     Occupancy expense:
       Rent excluding sale and leaseback        70.2         67.8       3.5         67.8        64.6         5.0
       Sale and leaseback rentals               14.5         12.8      13.3         12.8        11.0        16.4
     Misc. operating expenses                   93.4         94.3      (1.0)        94.3        96.6        (2.4)

Weighted avg. operating theatres(2)              327          354      (7.6)         354         395       (10.4)
Weighted avg. operating screens(2)             2,160        2,204      (2.0)       2,204       2,299        (4.1)
Weighted avg. screens per
  avg. theatre                                   6.6          6.2       6.1          6.2         5.8         6.9
Admissions per weighted avg.
  operating theatre                       $1,389,602    1,338,701       3.8    1,338,701   1,181,013        13.4
Admissions per weighted avg.
  operating screen                          $210,370      215,018      (2.2)     215,018     202,914         6.0
Concession sales per weighted
  avg. operating theatre                    $576,453      535,593       7.6      535,593     468,608        14.3

</TABLE>

(1)  The operating theatres include revenue and expenses of all theatres
     operated by United Artists that are more than 50% owned.

(2)  Weighted average operating theatres and screens represent the number of
     theatres and screens operated weighted by the number of days operated
     during the period.

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

                                       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% increase in the average concession
sale per patron. Concession sales per weighted average operating theatre
increased 7.6% during 1998 as compared to 1997. The increases in the average
concession sale per patron and concession sales per weighted average operating
theatre were primarily due to certain selective price increases during 1998,
United Artists' increased emphasis on sales staff training, the opening of
several new theatres with more efficient concession operations and the sale or
closure of several less productive theatres.

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

<TABLE>
<CAPTION>

                                               Theatres     Screens        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 5.4% during 1998 as compared to 1997 primarily as a result of
United Artists operating 7.6% fewer theatres and a 2.5% decrease in revenue from
on-screen advertising and an 11.4% decrease in Satellite Theatre Network-TM-
revenue.

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

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

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

                                       16

<PAGE>

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

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

<TABLE>
<CAPTION>

                                               Theatres     Screens        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 20.4% during 1997 as compared to 1996 primarily
as a result of United Artists operating fewer weighted average operating
theatres and a decrease in revenue 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 primarily due to the reduced
admissions revenue discussed above. Film rental and advertising expenses as a
percentage of admissions revenue were 54.7% for 1998 and 55.4% for 1997. The
decrease in film rental and advertising expenses as a percentage of admissions
revenue for 1998 was primarily due to the longer run of several major films
released in late 1997 and during 1998. Typically, film rental as a percentage of
admissions revenue increases when a higher percentage of a film's total
admissions is collected in the opening weeks of a film's run.

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

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

OCCUPANCY EXPENSE: United Artists' typical theatre lease arrangement provides 
for a base rental as well as contingent rental that is a function of the 
underlying theatre's revenue over an agreed upon breakpoint. Total occupancy 
expense increased 5.1% during 1998 as compared to 1997. This increase in 1998 
relates to higher rentals on newly opened theatres, partially offset by the 
decrease in the number of weighted average operating theatres. Occupancy 
expense includes non-cash charges relating to the effect of escalating leases 
which have been "straight lined" for accounting purposes of $4.0 million and 
$3.7 million for 1998 and 1997, respectively.

MISCELLANEOUS OPERATING EXPENSES: Miscellaneous operating expenses consist of 
utilities, repairs and maintenance, insurance, real estate and other taxes, 
supplies and other miscellaneous operating expenses. Miscellaneous operating 
expenses decreased 1.0% during 1998 as compared to 1997. This decrease in 
1998 relates primarily to reductions in utility and insurance costs and fewer 
weighted average theatres, partially offset by slightly higher repairs and 
maintenance, supplies, and real estate taxes.

                                       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 United Artists 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.
United Artists' personnel expense efficiencies have also been positively
impacted by the closure or sale of several less efficient theatres and the
opening of several new larger, more efficient multiplex theatres and reduced
expenses for fringe benefits.

OCCUPANCY EXPENSE: Total occupancy expense increased 6.6% during 1997 as
compared to 1996. This increase in 1997 relates to higher contingent rentals,
rentals on newly opened theatres and rentals related to the sale and leaseback
transaction completed in late 1996, partially offset by the decrease in the
number of weighted average operating theatres. Occupancy expense includes
non-cash charges relating to the effect of escalating leases which have been
"straight lined" for accounting purposes of $3.7 million and $3.1 million for
1997 and 1996, respectively.

MISCELLANEOUS OPERATING EXPENSES: Miscellaneous operating expenses decreased
2.4% during 1997 as compared to 1996. This decrease in 1997 relates primarily to
reduced utilities, repairs and maintenance and insurance associated with fewer
weighted average theatres, partially offset by additional expenses associated
with the Satellite Theatre Network-TM-.

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

GENERAL AND ADMINISTRATIVE EXPENSE AND RESTRUCTURING CHARGE

General and administrative expense consists primarily of costs associated with
corporate theatre administrative and operating personnel, Satellite Theatre
Network-TM- sales and marketing staff and other support functions located at
United Artists' corporate headquarters, two film booking and regional operating
offices and 14 district theatre operations offices (generally located in
theatres). At the end of 1996, United Artists initiated a corporate
restructuring plan intended to provide a higher level of focus on United
Artists' domestic theatrical business at a lower annual cost. As a result of
this corporate restructuring plan which was substantially completed in January
1997, general and administrative expenses decreased $0.9 million for 1998 as
compared to 1997 and $10.8 million for 1997 as compared to 1996. During 1997 and
1996, United Artists recorded $0.8 million and $1.9 million, respectively, of
restructuring charges relating to severance and other expenses related to United
Artists' corporate restructuring.

DEPRECIATION AND AMORTIZATION AND PROVISIONS FOR IMPAIRMENTS

Depreciation and amortization expense includes the depreciation of theatre
buildings and equipment, the amortization of theatre lease costs and certain
non-compete agreements. Depreciation and amortization decreased $5.1 million for
1998 as compared to 1997 and $15.2 million for 1997 as compared to 1996. These
decreases were primarily due to lower amortization from non-compete agreements
which were fully amortized during 1997 and 

                                       18
<PAGE>

changing the useful lives of certain assets during 1998, partially offset by 
increased depreciation on newly opened theatres. United Artists recorded 
approximately $9.0 million and $24.0 million of amortization expense during 
1997 and 1996, respectively, on non-compete agreements and certain other 
assets acquired as part of the Acquisition which were fully amortized in May 
1997.

Provisions for impairments relates to non-cash charges for the differences
between the historical book value of individual theatres (in some cases groups
of theatres) and the discounted cash flow expected to be received from the
operation or future sale of the individual theatre (or groups of theatres).
United Artists recorded non-cash provisions for asset impairments of $36.3
million, $35.0 million, and $9.5 million during the years ended December 31,
1998, 1997, and 1996, respectively.

OPERATING INCOME (LOSS)

United Artists incurred an operating loss of $2.3 million during 1998 versus
generating operating income of $1.6 million and $1.3 million during 1997 and
1996, respectively. The decrease in operating income during 1998 was primarily
due to reduced revenue, partially offset by reduced general and administrative
expenses and depreciation and amortization. The increase in operating income
during 1997 was primarily due to increased revenue, reduced general and
administrative expenses and depreciation and amortization, partially offset by
increased provisions for impairments.

INTEREST, NET

Interest, net increased $11.3 million in 1998 as compared to 1997 and decreased
$0.3 million in 1997 as compared to 1996. The 1998 increase was primarily due to
the redemption of United Artists' preferred stock with the proceeds from the
issuance of the Senior Subordinated Notes and a portion of the New Bank Credit
Facility. The 1997 decrease was primarily due to a slightly lower average
outstanding debt balance. United Artists capitalized $1.5 million of interest
during 1998 to various construction projects.

GAIN ON DISPOSITION OF ASSETS, NET

In 1998, United Artists sold the majority of its remaining international
theatrical exhibition assets for $3.0 million of cash, $0.5 million of stock of
the acquiring company and a $3.0 million note. In addition, United Artists sold
certain other operating theatres and non-operating real estate for which net
cash proceeds of $16.0 million were received. In conjunction with these sales,
United Artists recognized $1.0 million of gains. During April 1997, United
Artists sold its 50% interest in a Hong Kong theatre company to its partner for
approximately $17.5 million and during September 1997, United Artists sold its
theatre investments in Mexico and the majority of its theatre assets in
Argentina for approximately $25.0 million. In addition, various non-strategic or
underperforming operating theatres and real estate assets were sold for net cash
proceeds of approximately $27.5 million. As a result of these 1997 sales United
Artists recognized $28.0 million of gains. During 1996, United Artists sold
certain theatres for which cash proceeds of $23.5 million were received and $2.7
million of gains were recognized.

INCOME TAX EXPENSE

Income tax expense consists of current state and Federal income taxes of 
United Artists less than 80%-owned consolidated subsidiaries. On February 10, 
1998, United Artists filed a private letter ruling with the Internal Revenue 
Service (the "IRS") requesting an extension of time to file a Section 197 
election. This election allows for the amortization of various intangible 
assets over 15 years. On June 8, 1998, the IRS granted United Artists' 
request and, on August 6, 1998, United Artists filed a Section 197 election 
along with its amended 1993 income tax return. As United Artists had 
previously been amortizing certain intangible assets acquired as part of the 
Acquisition over a five year period, the effect of the Section 197 election 
was to reduce United Artists' net operating loss carryforward and increase 
the basis of certain intangible assets, which will be amortized, and provide 
for future tax deductions. The Section 197 election also enabled United 
Artists to conclude the IRS audit for the years ending December 31, 1992, 
1993 and 1994. As a result of the audit the net operating loss was reduced 
further by various items which were reclassified as Section 197 assets. These 
items will be amortized and will provide United Artists with additional 
future deductions. As United Artists had fully reserved the deferred tax 
asset associated with its net operating loss carryforward, there is no 
financial statement impact associated with the reduction in its net operating 
loss carryforward. At December 31, 1998, United Artists has a net operating 
loss carryforward of approximately $183.0 million. United Artists' income tax 
returns for the years ended December 31, 1995, 1996 and 1997 are currently 
being audited by the IRS. The outcome of this audit may reduce the amount of 
United Artists' net operating loss carryforward and/or change the basis (and 
thus future tax depreciation) related to certain assets. United Artists 
believes that the result of the audit will not have a material adverse effect 
on its financial condition or results of operation.

                                       19

<PAGE>

DISCONTINUED OPERATIONS

During 1998, United Artists established a plan to dispose of its entertainment
center business operations. The net loss from the discontinued operations was
$14.2 million, $5.4 million, and $1.5 million for 1998, 1997, and 1996,
respectively. Included in the net loss from discontinued operations was interest
expense of $1.1 million, $1.3 million, and $0.7 million for 1998, 1997, and
1996, respectively. The anticipated loss from disposition was $6.1 million 
during 1998 which represents future losses. Additionally, the net loss from 
discontinued operations included non-cash provisions for asset impairments is 
$10.7 million and $1.0 million, for 1998 and 1997, respectively.

EXTRAORDINARY ITEM

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

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS

United Artists incurred a net loss available to common stockholders of $98.0
million compared to net losses available to common stockholders of $50.8 million
and $66.7 million for 1997 and 1996, respectively. The increase in the 1998 net
loss relates primarily to charges for the discontinuance of the entertainment
center operations, the extraordinary expense for the early extinguishment of
debt, and the gain on the disposition of assets during 1997. The decrease in the
1997 net loss relates primarily to the gain on the disposition of assets during
1997, partially offset by increased non-cash provisions for asset impairments
and reduced operating results for the discontinued operations. Excluding these
unusual items, the net losses available to common stockholders for 1998, 1997
and 1996 would have been as follows (dollars in millions):

<TABLE>
<CAPTION>

                                                                     1998           1997            1996
                                                                     ----           ----            ----
  <S>                                                           <C>               <C>              <C>
    Net loss available to common stockholders..........          $  (98.0)          (50.8)          (66.7)
    Provisions for impairment..........................              36.3            35.0             9.5
    Gain on disposition of assets......................              (1.0)          (28.0)           (2.7)
    Discontinued operations............................              20.3             5.4             1.5
    Loss on early extinguishment of debt...............               7.9               -               - 
                                                                    ------          ------          ------
                                                                 $  (34.5)          (38.4)          (58.4)
                                                                    ======          ======          ======

</TABLE>

                         LIQUIDITY AND CAPITAL RESOURCES

For the year ended December 31, 1998, net cash provided by United Artists'
operating activities was $43.7 million. This net cash provided by operating
activities in addition to $68.2 million of cash provided by financing
activities, $2.4 million provided by other investing activities and $2.6 million
of cash on hand was used to fund $116.9 million of capital expenditures for 1997
and 1998 theatre openings and future projects and on-going maintenance
expenditures.

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

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

The proceeds from the offerings of the Senior Subordinated Notes and a portion
of the borrowings under the New Bank Credit Facility were used to repay the
outstanding borrowings of $272.5 million under UATC's Bank Credit Facility and
to fund the redemption of United Artists' 14% 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.

                                       20

<PAGE>

As a result of the repayment of the Bank Credit Facility and the redemption of
the Senior Secured Notes, United Artists recognized an extraordinary loss on the
early extinguishment of debt during 1998 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, United Artists initiated a new investment strategy that 
focuses on the development of new theatres and renovations (including stadium 
seating retrofits) and expansions of existing high revenue theatres in the 
U.S. where United Artists has a significant operating presence. As part of 
this increased focus on its U.S. operations, United Artists 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 United Artists' core areas of operation 
and used to repay existing debt.

As part of its strategic plan, United Artists intends to continue to dispose 
of, through sale or lease terminations, certain of its non-strategic or 
underperforming operating theatres and real estate 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, United Artists closed or sold 32 theatres (137 screens). During 
1998, United Artists sold the majority of its remaining international 
theatrical exhibition assets for $3.0 million of cash, $0.5 million of stock 
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 United Artists' long term strategic plans or were 
underperforming.

In an effort to limit the amount of investment exposure on any one project, 
United Artists typically develops theatre projects where both the land and 
building are leased through long-term operating leases. Where such lease 
transactions are unavailable, however, United Artists will invest in the land 
and development of the entire theatre facility (fee owned) and then seek to 
enter into a sale and leaseback transaction. Regardless of whether the 
theatre is leased or fee owned, in most cases the equipment and other theatre 
fixtures are owned by United Artists. During 1998, United Artists invested 
approximately $7.1 million on five theatres (52 screens) which opened in 
1997, $87.7 million on the development of 13 new theatres (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 
$21.1 million on theatre point-of-sale systems, corporate computers and 
systems and recurring maintenance on certain existing theatres.

In December 1995, UATC and UAR entered into 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 United 
Artists 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, United Artists 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 
United Artists intends to open (or reopen) during 1999. United Artists 
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 United Artists has executed a definitive 
lease and all significant lease contingencies have been satisfied. United 
Artists expects additional capital expenditures to be made as United Artists' 
internally generated available cash from improved operating results and 
proceeds from various asset sales becomes available. Because a significant 
portion of United Artists' future capital spending plans relate to the 
renovation and/or expansion of existing key locations, the timing of such 
commitments and expenditures are much more flexible and thus can be matched 
to net cash provided by operating activities.

At December 31, 1998, United Artists 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).

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

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

<TABLE>
<CAPTION>

                                                                   1998          1997           1996
                                                                   ----          ----           ----
  <S>                                                           <C>            <C>            <C>
   Operating loss from continuing operations................     $   (2.3)         1.6           1.3
   Depreciation and amortization............................         53.9         59.0          74.2
   Provisions for asset impairments.........................         36.3         35.0           9.5
   Non-cash rent............................................          4.0          3.7           3.1
   Severance, litigation and restructuring expenses.........          0.3          0.8           1.9
                                                                     ----        -----          ----
     Operating Cash Flow....................................     $   92.2        100.1          90.0
                                                                     ====        =====          ====
                                                                 
   Interest Expense.........................................     $   54.5         42.6          42.7
                                                                     ====         ====          ====
                                                                 
   Interest Coverage Ratio..................................          1.7          2.4           2.1
                                                                     ====         ====          ====
                                                                 
Statements of Cash Flow Information:                             
                                                                 
  Net cash provided by operating activities.................     $   43.7         51.0          30.8
  Net cash used in investing activities.....................       (114.5)        (4.6)        (55.9)
  Net cash provided by (used in) financing activities.......         68.2        (45.7)          2.7
                                                                     ----         ----          ----
  Net cash flow.............................................     $   (2.6)         0.7         (22.4)
                                                                     ====         ====          ====

</TABLE>

As shown above, United Artists' Interest Coverage Ratio decreased from 2.4 times
for 1997 to 1.7 times for 1998 primarily due to increased interest expense
associated with the redemption of the 14% preferred stock and to reduced
Operating Cash Flow. The Interest Coverage Ratio increased from 2.1 times for
1996 to 2.4 times for 1997 primarily due to increased Operating Cash Flow.

                                       22

<PAGE>

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

Another measure of liquidity is net cash provided by operating activities as set
forth above. Net cash provided by operating activities was $43.7 million, $51.0
million and $30.8 million for 1998, 1997 and 1996, respectively. This
measurement sets forth the net cash from the operations provided by United
Artists' operations which was available for United Artists' liquidity needs
after taking into consideration certain additional costs of doing business which
are not reflected in the Operating Cash Flow calculations discussed above.

United Artists believes that the net cash provided by operations and borrowings
available under the New Bank Credit Facility will be sufficient to fund its
future cash requirements. United Artists expects that future cash requirements
will principally be for repayments of indebtedness, working capital requirements
and capital expenditures. United Artists' future operating performance and
ability to service its current indebtedness will be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond United Artists' control. Additionally, 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

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

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

                                    YEAR 2000

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

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

                                       23

<PAGE>

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

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

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

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

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

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

Although this review is still in progress, United Artists believes that year
2000 conversion requirements will not result in significant disruption of United
Artists' business operations or have a material adverse effect on its future
liquidity or results of operations. Total 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 had been spent on year 2000 compliance.

                          NEW ACCOUNTING PRONOUNCEMENTS

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

                                       24

<PAGE>

in the process of evaluating the impact of Issue No. 97-10 on its 
consolidated financial position, results of operation and cash flows.

During 1998, the Financial Accounting Standards Board ("FASB") issued 
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting 
for Derivative Instruments and Hedging Activities. The Statement expands the 
definition of derivatives and requires that derivative instruments be 
recorded at fair market value on the balance sheet and changes in the 
derivative instrument's fair value be recognized in the calculation of net 
income unless specific hedge accounting criteria are met. Qualifying 
financial instruments to which United Artists is a party include the Senior 
Subordinated Notes, 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. United 
Artists has not quantified the impact of adopting SFAS No. 133 on its 
financial position, results of operation or cash flow and has not determined 
the timing of adoption of SFAS No. 133. However, SFAS No. 133 could increase 
volatility in net income and comprehensive income.

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

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

<TABLE>
<CAPTION>

                                                          EXPECTED MATURITY DATE
                                                          ----------------------
                                                                                                              FAIR 
                              1999     2000      2001     2002      2003      THEREAFTER       TOTAL         VALUE
                              ----     ----      ----     ----      ----      ----------       -----         ------
<S>                          <C>      <C>       <C>      <C>       <C>       <C>              <C>           <C>
Long-Term Debt
  Fixed Rate                  $5.3      2.9       1.2       0.4      0.4         228.4          238.6         229.6
  Avg. Interest Rate           9.0%     9.4       8.9       7.8      7.8           9.7            9.7

  Floating Rate               $3.5      3.5       5.6      15.8     23.8         363.1          415.3         415.3
  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 8.5%.
(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 United Artists 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 COMPANY:

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

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

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

                               ARTHUR ANDERSEN LLP

Denver, Colorado
March 31, 1999



                                       26

<PAGE>

                         UNITED ARTISTS THEATRE COMPANY
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets
                              (Amounts in Millions)

<TABLE>
<CAPTION>

                            ASSETS                                      December 31,
                                                                    ---------------------
                                                                      1998         1997* 
                                                                    --------     --------
<S>                                                               <C>          <C>
Current Assets:

  Cash and cash equivalents ...................................      $  8.2         10.8
  Receivables, net:
    Notes .....................................................         2.4          1.0
    Other .....................................................        18.0         13.4
                                                                     ------       ------
                                                                       20.4         14.4
  Prepaid expenses and concession inventory ...................        15.2         18.4
  Other assets ................................................         0.7          0.3
                                                                     ------       ------
     Total current assets .....................................        44.5         43.9

Investments and related receivables ...........................         8.3         15.4
Property and equipment, at cost (note 12):
    Land ......................................................        44.0         54.7
    Theatre buildings, equipment and other ....................       592.3        502.0
                                                                     ------       ------
                                                                      636.3        556.7
    Less accumulated depreciation and amortization (note 5) ...      (216.4)      (176.0)
                                                                     ------       ------
                                                                      419.9        380.7

Intangible assets, net (note 12) ..............................        81.3        101.5
Net assets of discontinued operations (note 13) ...............         3.4         14.6
Other assets, net (note 2) ....................................        21.7          6.9
                                                                     ------       ------
                                                                     $579.1        563.0
                                                                     ======       ======
                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
  Accounts payable:
    Film rentals ..............................................      $ 28.7         29.8
    Other .....................................................        65.2         57.3
                                                                     ------       ------
                                                                       93.9         87.1
  Accrued liabilities:
    Salaries and wages ........................................         6.1          6.7
    Interest ..................................................         8.3          5.6
    Other .....................................................        30.1         16.8
                                                                     ------       ------
                                                                       44.5         29.1
  Current portion of long-term debt (notes 2 and 7) ...........         8.5         81.7
                                                                     ------       ------
    Total current liabilities .................................       146.9        197.9

Other liabilities (note 3) ....................................        44.5         45.9
Debt (notes 2 and 7) ..........................................       645.4        332.3
Liabilities related to discontinued operations (note 13) ......         4.9          - 
                                                                     ------       ------
    Total liabilities .........................................       841.7        576.1

Minority interests in equity of consolidated subsidiaries .....         5.6          7.2

Stockholders' equity (deficit) (notes 2 and 9):

    Preferred stock ...........................................         -          193.9
    Common stock:
       Class A ................................................         0.1          0.1
       Class B ................................................         -            -
       Class C ................................................         -            -
    Additional paid-in capital ................................        51.1         16.4
    Accumulated deficit .......................................      (317.5)      (228.5)
    Cumulative foreign currency translation adjustment ........         -           (0.4)
    Treasury stock ............................................        (1.9)        (1.8)
                                                                     ------       ------
      Total stockholders' equity (deficit) ....................      (268.2)       (20.3)
                                                                     ------       ------
                                                                     $579.1        563.0
                                                                     ======       ======

</TABLE>

*Restated

See accompanying notes to consolidated financial statements.

                                       27

<PAGE>

                         UNITED ARTISTS THEATRE COMPANY
                                AND SUBSIDIARIES

                      Consolidated Statements of Operations
                              (Amounts in Millions)

<TABLE>
<CAPTION>

                                                                               Years Ended December 31,
                                                                               ------------------------
                                                                        1998            1997*          1996*
                                                                        ----            -----          -----
<S>                                                                 <C>               <C>            <C>
Revenue:
    Admissions.....................................................  $  454.4            473.9         466.5
    Concession sales...............................................     188.5            189.6         185.1
    Other..........................................................      19.2             20.3          25.5
                                                                         ----           ------        ------
                                                                        662.1            683.8         677.1
                                                                        -----            -----         -----
Costs and expenses:
    Film rental and advertising expenses...........................     248.5            262.5         257.2
    Direct concession costs........................................      28.0             30.2          29.3
    Other operating expenses ......................................     259.8            257.6         257.6
    Sale and leaseback rentals (note 3)............................      14.5             12.8          11.0
    General and administrative (note 11)...........................      23.4             24.3          35.1
    Restructuring charge (note 10).................................       -                0.8           1.9
    Depreciation and amortization (note 5).........................      53.9             59.0          74.2
    Provisions for impairment (note 12)............................      36.3             35.0           9.5
                                                                         ----            -----        ------
                                                                        664.4            682.2         675.8
                                                                        -----            -----         -----
       Operating loss from continuing operations...................      (2.3)             1.6           1.3

Other income (expense):
    Interest, net (notes 2 and 7):
       Interest expense............................................     (54.5)           (42.6)        (42.7)
       Amortization of deferred loan costs.........................      (1.9)            (2.2)         (2.2)
       Interest income.............................................       0.8              0.5           0.3
                                                                        -----            -----         -----
                                                                        (55.6)           (44.3)        (44.6)
    Gain on disposition of assets, net (note 14)...................       1.0             28.0           2.7
    Share of losses of affiliates, net.............................      (0.3)            (1.6)         (0.5)
    Minority interests in earnings of consolidated subsidiaries....      (1.3)            (1.3)         (0.8)
    Other, net.....................................................      (1.7)            (2.5)         (1.4)
                                                                        ------           ------        ------
                                                                        (57.9)           (21.7)        (44.6)
                                                                        ------           ------        ------
    Loss from continuing operations before income tax
      expenses, discontinued operations and extraordinary item.....     (60.2)           (20.1)        (43.3)
Income tax expense (note 15).......................................      (0.6)            (1.5)         (1.0)
                                                                        ------           ------        ------
    Loss from continuing operations................................     (60.8)           (21.6)        (44.3)
Discontinued operations (note 13)..................................     (20.3)            (5.4)         (1.5)
                                                                        ------           ------        ------
    Loss before extraordinary item.................................     (81.1)           (27.0)        (45.8)
Extraordinary item - loss on early extinguishment of debt (note 2).      (7.9)              -             - 
                                                                        ------           ------        ------
    Net loss.......................................................     (89.0)           (27.0)        (45.8)
Dividend on preferred stock (note 9)...............................      (9.0)           (23.8)        (20.9)
                                                                       -------           ------        ------
    Net loss available to common stockholder.......................  $  (98.0)           (50.8)        (66.7)
                                                                        ======           ======        ======

</TABLE>

* Restated

  See accompanying notes to consolidated financial statements

                                       28

<PAGE>

                         UNITED ARTISTS THEATRE COMPANY
                                AND SUBSIDIARIES

            Consolidated Statements of Stockholders' Equity (Deficit)
                              (Amounts in Millions)

<TABLE>
<CAPTION>

                                                                                                                   Cumulative
                                                        Common      Common      Common   Additional              foreign currency
                                            Preferred    stock       stock       stock     paid-in   Accumulated   translation
                                              stock     Class A     Class B     Class C    capital     deficit      adjustment
                                            ---------   --------    -------     -------    -------     -------      ----------
<S>                                        <C>         <C>         <C>        <C>        <C>       <C>           <C>
Balance at January 1, 1996 ................  $ 149.2         0.1        -          -         61.1      (155.7)       (0.1)  
  Accretion of dividends on preferred stock     20.9         -          -          -        (20.9)        -           -
  Foreign currency translation adjustment .      -           -          -          -          -           -          (0.4)  
  Net loss ................................      -           -          -          -          -         (45.8)        -     
                                              ------      ------     ------     ------     ------      ------      ------   
Balance at December 31, 1996 ..............    170.1         0.1        -          -         40.2      (201.5)       (0.5)  
  Accretion of dividends on preferred stock     23.8         -          -          -        (23.8)        -           -     
  Foreign currency translation adjustment .      -           -          -          -          -           -           0.1   
  Purchase of treasury stock ..............      -           -          -          -          -           -           -     
  Net loss ................................      -           -          -          -          -         (27.0)        -     
                                              ------      ------     ------     ------     ------      ------      ------   
Balance at December 31, 1997 ..............    193.9         0.1        -          -         16.4      (228.5)       (0.4)  
  Accretion of dividends on preferred stock      9.0         -          -          -         (9.0)        -           -     
  Redemption of preferred stock ...........   (202.9)        -          -          -         43.7         -           -     
  Foreign currency translation adjustment .      -           -          -          -          -           -           0.4   
  Purchase of treasury stock ..............      -           -          -          -          -           -           -     
  Net loss ................................      -           -          -          -          -         (89.0)        -     
                                              ------      ------     ------     ------     ------      ------      ------   
Balance at December 31, 1998 ..............  $   -           0.1        -          -         51.1      (317.5)        -     
                                              ======      ======     ======     ======     ======      ======      ======

<CAPTION>

                                                             Total
                                              Treasury   stockholders'   
                                               stock    equity (deficit) 
                                               -----    ---------------
<S>                                           <C>      <C>
Balance at January 1, 1996 ................       -           54.6 
  Accretion of dividends on preferred stock       -            -   
  Foreign currency translation adjustment .       -           (0.4)
  Net loss ................................       -          (45.8)
                                               ------       ------ 
Balance at December 31, 1996 ..............       -            8.4 
  Accretion of dividends on preferred stock       -            -   
  Foreign currency translation adjustment .       -            0.1 
  Purchase of treasury stock ..............      (1.8)        (1.8)
  Net loss ................................       -          (27.0)
                                               ------       ------ 
Balance at December 31, 1997 ..............      (1.8)       (20.3)
  Accretion of dividends on preferred stock       -            -   
  Redemption of preferred stock ...........       -         (159.2)
  Foreign currency translation adjustment .       -            0.4 
  Purchase of treasury stock ..............      (0.1)        (0.1)
  Net loss ................................       -          (89.0)
                                               ------       ------ 
Balance at December 31, 1998 .............   $   (1.9)      (268.2)
                                               ======       ====== 

</TABLE>

See accompanying notes to consolidated financial statements.

                                       29

<PAGE>

                         UNITED ARTISTS THEATRE COMPANY
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flow
                              (Amounts in Millions)

<TABLE>
<CAPTION>

                                                                                       Years Ended December 31,
                                                                                       ------------------------
                                                                                  1998         1997*        1996*
                                                                                 ------       ------       ------
<S>                                                                             <C>          <C>          <C>
Net cash provided by operating activities .................................      $ 43.7         51.0         30.8
                                                                                 ------       ------       ------
Cash flow from investing activities:
   Capital expenditures ...................................................      (116.9)       (67.4)       (67.1)
   Increase in receivable from sale and leaseback escrow ..................       (11.0)       (12.8)       (19.5)
   Proceeds from sale and leaseback transaction and escrow ................         2.7         23.2         22.9
   Proceeds from disposition of assets, net ...............................        16.0         70.0         23.5
   Change in investments and receivables from theatre joint ventures, net .         2.7        (18.3)       (14.3)
   Other, net .............................................................        (8.0)         0.7         (1.4)
                                                                                 ------       ------       ------
    Net cash used in investing activities .................................      (114.5)        (4.6)       (55.9)
                                                                                 ------       ------       ------
Cash flow from financing activities:
   Proceeds from issuance of senior subordinated notes ....................       265.6          -            -
   Debt borrowings ........................................................       630.6        150.9        129.8
   Debt repayments ........................................................      (549.5)      (191.5)      (132.7)
   Redemption of preferred stock ..........................................      (159.2)         -            -
   Repurchase of senior secured notes .....................................      (128.6)         -            -
   Increase (decrease) in cash overdraft ..................................        10.5         (2.8)         6.2
   Other, net .............................................................        (1.2)        (2.3)        (0.6)
                                                                                 ------       ------       ------
    Net cash provided by (used in) financing activities ...................        68.2        (45.7)         2.7
                                                                                 ------       ------       ------
    Net increase (decrease) in cash and cash equivalents ..................        (2.6)         0.7        (22.4)

Cash and cash equivalents:
   Beginning of period ....................................................        10.8         10.1         32.5
                                                                                 ------       ------       ------
   End of period ..........................................................      $  8.2         10.8         10.1
                                                                                 ======       ======       ======

Reconciliation of net loss to net cash provided by operating activities:
   Net loss ...............................................................      $(89.0)       (27.0)       (45.8)
   Non-cash expenses associated with discontinued operations ..............        16.6          2.7          0.7
   Extraordinary item .....................................................         7.9          -            -
   Effect of leases with escalating minimum annual rentals ................         4.0          3.7          3.1
   Depreciation and amortization ..........................................        53.9         59.0         74.2
   Provisions for impairment ..............................................        36.3         35.0          9.5
   Gain on disposition of assets, net .....................................        (1.0)       (28.0)        (2.7)
   Share of losses of affiliates, net .....................................         0.3          1.6          0.5
   Minority interests in earnings of consolidated subsidiaries ............         1.3          1.3          0.8
   Change in assets and liabilities:
     Receivables ..........................................................         5.1          2.4         (4.4)
     Prepaid expenses and concession inventory ............................         2.4         (3.0)         4.0
     Other assets .........................................................         0.4          1.9          1.3
     Accounts payable .....................................................         7.5          3.3         (8.4)
     Accrued and other liabilities ........................................        (2.0)        (1.9)        (2.0)
                                                                                 ------       ------       ------
     Net cash provided by operating activities ............................      $ 43.7         51.0         30.8
                                                                                 ======       ======       ======

</TABLE>

*Restated

  See accompanying notes to consolidated financial statements.

                                       30

<PAGE>

                         UNITED ARTISTS THEATRE COMPANY
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996

(1)      ORGANIZATION

         United Artists Theatre Company ("United Artists"), a Delaware
         corporation, was formed in February 1992 for the purpose of purchasing
         United Artists Theatre Circuit, Inc. ("UATC") from an affiliate of
         Tele-Communications, Inc. ("TCI"). United Artists is owned by an
         investment fund managed by affiliates of Merrill Lynch Capital
         Partners, Inc. ("MLCP"), certain institutional investors, and certain
         members of United Artists' management. On May 12, 1992, United Artists
         purchased all of the outstanding common stock of UATC from an affiliate
         of TCI (the "Acquisition").

         UATC, a Maryland corporation, was initially founded in 1926 by
         shareholders including Mary Pickford, Douglas Fairbanks, Sam Goldwyn
         and Joe Schenck. From its founding through its first 40 years, UATC
         developed its theatre operations. In the early 1960s, UATC, through a
         separate subsidiary, invested in the cable television business. In
         1986, an affiliate of TCI acquired a controlling interest in UATC's
         then parent company, United Artists Communications, Inc. ("UACI") which
         owned both the theatre and cable business. UACI subsequently changed
         its name in 1989 to United Artists Entertainment Company ("UAE") in
         conjunction with the acquisition of United Cable Television
         Corporation. In December 1991, TCI's affiliate acquired the remaining
         outstanding shares of UAE.

         In addition to its ownership of UATC, United Artists owns all of the
         outstanding capital stock of United Artists Realty Company ("UAR"), a
         Delaware corporation. UAR and its subsidiary United Artists Properties
         I Corp. ("Prop I") are the owners and lessors of certain operating
         theatre properties leased to and operated by UATC.

(2)      RECAPITALIZATION

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

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

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

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

                                       31

<PAGE>

                         UNITED ARTISTS THEATRE COMPANY
                                AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(3)      SALE AND LEASEBACK TRANSACTIONS

         In December 1995, UATC and UAR entered into a sale and leaseback
         transaction (the "1995 Sale and Leaseback") whereby the buildings and
         land underlying 27 of their operating theatres and four theatres under
         development were sold to and leased back from the 1995-A United Artists
         Pass Through Trust (the "Pass Through Trust"), an unaffiliated third 
         party. United Artists realized a net gain of approximately 
         $12.1 million as a result of the 1995 Sale and Leaseback. For financial
         statement purposes this gain has been deferred and will be recognized 
         over the term of the lease as a reduction of rent expense. The 1995 
         Sale and Leaseback requires UATC to lease the underlying theatres for 
         a period of 21 years and one month, with the option to extend for up 
         to an additional 10 years. The lease of the properties by UATC required
         UATC to enter into a participation agreement that requires UATC to 
         comply with certain covenants including limitations on indebtedness 
         and restrictions on payments.

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

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

(4)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

         (e)      PROPERTY AND EQUIPMENT
                  Property and equipment are stated at cost, including
                  acquisition costs allocated to tangible assets acquired.
                  Construction costs, including applicable direct overhead, are
                  capitalized.

                                       32

<PAGE>

(4)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

                  During the year ended December 31, 1998, United Artists
                  capitalized $1.5 million of interest related to its various
                  construction projects. Repairs and maintenance are charged to
                  operations.

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

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

<TABLE>
<CAPTION>

                                                                                            December 31,   
                                                                                       --------------------
                                                                                       1998            1997
                                                                                       ----            ----
                <S>                                                                 <C>              <C>
                  Theatre lease acquisition costs.............................       $ 145.5           156.9
                  Non-compete agreements......................................           -               3.0
                                                                                       ------         ------
                                                                                       145.5           159.9
                  Accumulated amortization....................................         (64.2)          (58.4)
                                                                                       ------         ------
                                                                                     $  81.3           101.5
                                                                                       ======         ======

</TABLE>

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

<TABLE>
<CAPTION>

                                                                                            December 31,    
                                                                                      --------------------
                                                                                      1998            1997
                                                                                      ----            ----
                 <S>                                                              <C>                <C>
                  Deferred loan costs...........................................   $   16.4            16.1
                  Long term receivables.........................................        6.1             0.5
                  Other.........................................................        0.4             1.2
                                                                                      -----           -----
                                                                                       22.9            17.8
                  Accumulated amortization......................................       (1.2)          (10.9)
                                                                                      -----           -----
                                                                                   $   21.7             6.9
                                                                                      =====           =====

</TABLE>

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

                                       33

<PAGE>

(4)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

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

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

(5)      CHANGE IN ESTIMATED USEFUL LIVES

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

(6)      SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

         Cash payments for interest for the years ended December 31, 1998, 1997
         and 1996, were $53.4 million, $42.8 million, and $44.6 million,
         respectively.

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

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

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

(7)      DEBT

         Debt is summarized as follows (amount in millions):

<TABLE>
<CAPTION>

                                         December 31, 1998      December 31, 1997
                                         -----------------      -----------------
         <S>                            <C>                    <C>
          New Bank Credit Facility (a) .      $365.3                   -
          Senior Subordinated  Notes (b)       275.0                   -
          Senior Secured Notes (c) .....         -                   125.0
          Bank Credit Facility (c) .....         -                   226.5
          UAR Promissory Notes (d) .....         2.4                  10.7
          Other (e) ....................        11.2                   5.6
          Prop I Mortgage Notes (f) ....         -                    46.2
                                              ------                ------
                                               653.9                 414.0
          Less current portion .........        (8.5)                (81.7)
                                              ------                ------
                                              $645.4                 332.3
                                              ======                ======

</TABLE>

                                       34

<PAGE>

(7)       DEBT, CONTINUED

          (a)     The New Bank Credit Facility provides for delayed draw term
                  loans aggregating $350.0 million (the "Term Loans") and a
                  reducing revolving loan and standby letters of credit
                  aggregating $100.0 million (the "Revolving Facility"). The
                  Term Loans consist of the following: (i) a $70.0 million
                  delayed draw term loan (the "Tranche A Term Loan"); (ii) a
                  $118.0 million delayed draw term loan (the "Tranche B Term
                  Loan"); and (iii) a $162.0 million delayed draw term loan (the
                  "Tranche C Term Loan"). All of the term loans were fully
                  funded at December 31, 1998.

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

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

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

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

          (b)     The Senior Subordinated Notes consist of $225.0 million of
                  9.75% notes due April 15, 2008 (the "Fixed Rate Subordinated
                  Notes") and $50.0 million of floating rate notes due October
                  15, 2007 (the "Floating Rate Subordinated Notes"). Interest on
                  the Fixed Rate Subordinated Notes is due semi-annually.
                  Interest on the Floating Rate Subordinated Notes is due
                  quarterly and is calculated based upon the three month LIBOR
                  rate plus 4.375%.

                  The Fixed Rate Subordinated Notes may be redeemed at the
                  option of United Artists, in whole, or in part, any time on or
                  after April 15, 2003. The Floating Rate Subordinated Notes may
                  be redeemed at any time at the option of United Artists, in
                  whole or in part, any time on or after April 15, 1999. Upon a
                  change of control (as defined in the respective indentures
                  (the "Indentures") under which the Senior Subordinated Notes
                  were issued), the holders of the Senior Subordinated Notes
                  have the right to require United Artists to purchase all or
                  any portion of such holders Senior Subordinated Notes at a
                  purchase price equal to 101% of the principal amount thereof
                  together with accrued and unpaid interest, if any, to the date
                  of purchase.

                                       35

<PAGE>

(7)      DEBT, CONTINUED

                  The Indentures contain certain covenants that place
                  limitations on, among other things, the incurrence of
                  additional indebtedness by United Artists and any of its
                  subsidiaries, the payment of dividends, the redemption of
                  capital stock, the making of investments, the issuance of
                  capital stock of subsidiaries, the creation of dividend and
                  other restrictions affecting subsidiaries, transactions with
                  affiliates, asset sales and certain mergers and
                  consolidations.

                  The Senior Subordinated Notes are unsecured, senior
                  subordinated obligations of United Artists and are
                  subordinated in right of payment to all existing and future
                  senior indebtedness of United Artists including borrowings
                  under the New Bank Credit Facility. The Fixed Rate
                  Subordinated Notes rank PARI PASSU with the Floating Rate
                  Subordinated Notes.

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

          (d)     In connection with the acquisitions of certain theatres prior
                  to the Acquisition, UAR issued non-interest bearing promissory
                  notes to the sellers. Principal on the promissory notes is due
                  quarterly through October 1999. For financial statement
                  purposes, the promissory notes were discounted at UAR's
                  effective borrowing rate on the date the promissory notes were
                  executed. The undiscounted amount payable under the promissory
                  notes at December 31, 1998, was approximately $2.4 million.

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

          (f)     As discussed in Note (2), Recapitalization, additional
                  commitments under the New Bank Credit Facility were designated
                  for the retirement of the Prop I mortgage notes that matured
                  on November 1, 1998. On November 1, 1998, approximately $45.7
                  million of borrowings under the New Bank Credit Facility were
                  used to retire the Prop I mortgage notes and $12.5 million of
                  letters of credit were cancelled.

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

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

                                       36

<PAGE>

(7)       DEBT, CONTINUED

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

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

<TABLE>
                <S>                                                  <C>
                 1999..............................................   $    8.8
                 2000..............................................        6.4
                 2001..............................................        6.8
                 2002..............................................       16.2
                 2003..............................................       24.2
                 Thereafter........................................      591.5
                                                                       -------
                                                                      $  653.9
                                                                       =======
</TABLE>

(8)      DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

<TABLE>
<CAPTION>
                                                                    Carrying      Estimated
                                                                     Amount      Fair Value
                                                                     -------     -----------
        <S>                                                        <C>          <C>
         New Bank Credit Facility and Other Debt................... $  378.9         378.9
                                                                       =====        ======
         Senior Subordinated Notes................................. $  275.0         266.0
                                                                       =====        ======
         Interest Rate Collar Agreements........................... $      -          (3.1)
                                                                       =====        ======
</TABLE>

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

         Senior Subordinated Notes: The fair value of United Artists' Senior
         Subordinated Notes is estimated based upon quoted market prices at
         December 31, 1998.

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

(9)      STOCKHOLDERS' EQUITY

         PREFERRED STOCK
         As part of the recapitalization discussed in Note (2),
         Recapitalization, proceeds from the Senior Subordinated Notes and a
         portion of the borrowings under the New Bank Credit Facility were used
         to fund the redemption of United Artists' preferred stock on May 1,
         1998. At the redemption date, the

                                       37

<PAGE>

(9)      STOCKHOLDERS' EQUITY, CONTINUED

         actual redemption value of the preferred stock was approximately $159.2
         million. The carrying amount of the preferred stock at the redemption
         date was approximately $43.7 million more than the redemption value as
         dividends had been accrued at a 14% per annum rate for all periods
         since issuance in 1992 rather than the stated rate of 8% through
         December 31, 1995, 9% through December 31, 1996 and 14% thereafter.
         This difference has been shown as an increase in additional paid-in
         capital in the accompanying financial statements. United Artists is
         authorized to issue 5,000,000 shares of preferred stock.

         COMMON STOCK
         At December 31, 1998, United Artists had outstanding 11,551,383 shares
         of Class A common stock, $0.01 par value per share, 36,225 shares of
         Class B common stock, $0.01 par value per share and has granted 10,542
         shares of Class C common stock, $0.01 par value to certain members of
         management, all of which are vested. The Class A and Class B shares are
         identical except that the Class B shares do not have any voting rights.
         The Class C shares vest over a four-year period and are identical to
         the Class B common stock except for a $9.50 per share liquidation
         preference in favor of the holders of the Class A and Class B common
         stock.

         United Artists is authorized to issue 23,200,000 shares of Class A
         common stock, 1,818,000 shares of Class B common stock and 57,000
         shares of Class C common stock.

         STOCK OPTIONS
         In connection with the Acquisition, the United Artists Management Stock
         Plan was established. The United Artists Management Stock Plan
         established three types of options, those being: the Incentive Options
         (the "Incentive Plan"), Performance Options (the "Performance Plan"),
         and Premium Options (the "Premium Plan" and collectively, the "Option
         Plans"). The options covered under the Incentive Plan vest in equal
         amounts each year through the fifth anniversary of the date of grant,
         while options covered under the Performance and Premium Plans vest
         based on certain calculations of United Artists' value or the
         investment returns received by the Class A common stockholders. Each
         option granted under either the Incentive or Performance Plans may be
         exercised for one Class B share at an exercise price equal to the
         estimated market value of the Class B share at the date of grant
         provided that such options have been vested under the terms of the
         respective plan. Each option granted under the Premium Plan may be
         exercised for one Class B share at an exercise price, which increases
         from $30 to $233, provided that such options have vested under the
         terms of the Premium Plan. All options granted expire 10 years after
         the date of grant.

         United Artists applies the provisions of Accounting Principles Board
         Opinion No. 25, "Accounting for Stock Issued to Employees," and related
         Interpretations in accounting for its Option Plans. No compensation
         cost has been recognized by United Artists for any of the Option Plans.
         United Artists' compensation expense would not have been materially
         different had United Artists recorded compensation expense for its
         Option Plans in accordance with SFAS No. 123, "Accounting for Stock
         Based Compensation," and accordingly, the pro forma net loss disclosure
         as if SFAS No. 123 had been applied are not presented.

                                       38

<PAGE>

(9)      STOCKHOLDERS' EQUITY, CONTINUED

         A summary of United Artists' Incentive Plan as of December 31, 1998,
         1997 and 1996, and changes during those years is presented below:

<TABLE>
<CAPTION>

                                                    1998                       1997                       1996           
                                           -----------------------   ------------------------   ------------------------
                                                      Weighted Avg.             Weighted Avg.               Weighted Avg.
                                                        Exercise                  Exercise                    Exercise
                                            Shares       Price        Shares        Price        Shares        Price
                                            ------       -----        ------        -----        ------        -----
         <S>                              <C>        <C>             <C>       <C>              <C>         <C>
          Outstanding at January 1         130,833       $10.12       544,320       $10.06       594,720       $10.05
            Granted                            -            -             -            -           6,600       $10.79
            Exercised                          -            -             -            -             -            -
            Forfeited                      (27,700)      $10.00      (413,487)      $10.04       (57,000)      $10.00
                                           -------                   --------                    -------
          Outstanding at December 31       103,133       $10.10       130,833       $10.12       544,320       $10.06
                                           =======                   ========                    =======

</TABLE>

         The following table summarizes information about the Incentive Plan at
         December 31, 1998:

<TABLE>
<CAPTION>

                                                Options Outstanding                 Options Exercisable
                                        -------------------------------------       -------------------
                                                               Weighted Avg.
                                          Number                 Remaining                 Number
               Exercise Price           Outstanding          Contractual Life            Exercisable
               --------------           -----------          ----------------            -----------
              <S>                      <C>                  <C>                         <C>
                   $10.00                   90,133                  3.5                     90,133
                   $10.79                   13,000                  5.9                     13,000
                                           -------                                         -------
                                           103,133                  3.8                    103,133
                                           =======                                         =======

</TABLE>

         A summary of United Artists' Performance Plan as of December 31, 1998,
         1997 and 1996, and changes during those years is presented below:

<TABLE>
<CAPTION>

                                                    1998                       1997                       1996           
                                           -----------------------   ------------------------   ------------------------
                                                      Weighted Avg.             Weighted Avg.               Weighted Avg.
                                                        Exercise                  Exercise                    Exercise
                                            Shares       Price        Shares        Price        Shares        Price
                                            ------       -----        ------        -----        ------        -----
         <S>                              <C>        <C>             <C>       <C>              <C>         <C>
         Outstanding at January 1           311,875      $11.31       528,975      $10.05        573,450       $10.04
           Granted                          276,625      $22.50       197,250      $12.00          5,900       $10.79
           Exercised                           -            -            -            -             -             -
           Forfeited                        (31,475)        -        (414,350)     $10.04       (50,375)       $10.00
                                           --------                 ---------                   --------
         Outstanding at December 31         557,025      $16.64       311,875      $11.31        528,975       $10.05
                                           ========                 =========                   ========

</TABLE>

The following table summarizes information about the Performance Plan at
December 31, 1998:

<TABLE>
<CAPTION>

                                                Options Outstanding                 Options Exercisable
                                        -------------------------------------       -------------------
                                                               Weighted Avg.
                                          Number                 Remaining                 Number
               Exercise Price           Outstanding          Contractual Life            Exercisable
               --------------           -----------          ----------------            -----------
              <S>                      <C>                  <C>                         <C>
                   $10.00                   79,275                  3.5                          0
                   $10.79                   11,125                  5.8                          0
                   $12.00                  190,000                  8.3                    118,751
                   $22.50                  276,625                  9.0                    138,313
                                           -------                                         -------
                                           557,025                  7.8                    257,064
                                           =======                                         =======

</TABLE>

                                       39

<PAGE>



(9)      STOCKHOLDERS' EQUITY, CONTINUED

         A summary of United Artists Premium Plan as of December 31, 1998, 1997
         and 1996, and changes during those years is presented below:

<TABLE>
<CAPTION>

                                                    1998                       1997                       1996           
                                           -----------------------   ------------------------   ------------------------
                                                      Weighted Avg.             Weighted Avg.               Weighted Avg.
                                                        Exercise                  Exercise                    Exercise
                                            Shares       Price        Shares        Price        Shares        Price
                                            ------       -----        ------        -----        ------        -----
         <S>                              <C>        <C>             <C>       <C>              <C>         <C>
          Outstanding at January 1          56,431       $90.50       265,403       $66.00       287,791       $48.25
            Granted                            -            -             -            -           2,800       $48.25
            Exercised                          -            -             -            -             -            -
            Forfeited                      (11,612)      $90.50      (208,972)      $66.00       (25,188)      $48.25
                                           -------                   --------                    -------
          Outstanding at December 31        44,819       $90.50        56,431       $66.00       265,403       $48.25
                                           =======                   ========                    =======
          Options Exercisable at
              December 31                        0                          0                          0
                                           =======                   ========                    =======

</TABLE>

         As of December 31, 1998, the 44,819 Premium Plan options had an
         exercise price of $90.50 and a weighted average remaining contractual
         life of 3.8 years.

(10)     RESTRUCTURING CHARGE

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

(11)     EMPLOYEE BENEFIT PLANS

         The UATC 401(k) Savings Plan (the "Savings Plan") provides that
         employees may contribute up to 10% of their compensation, subject to
         IRS limitations, to the Savings Plan. Employee contributions are
         invested in various investment funds based upon elections made by the
         employee. Depending on the amount of each employee's level of
         contribution, the Savings Plan currently matches up to 4.0% of their
         compensation.

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

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

                                       40

<PAGE>

(12)     PROVISIONS FOR IMPAIRMENT

         United Artists accounts for its long-lived assets in accordance with
         SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
         for Long-Lived Assets to be Disposed Of." For the years ended December
         31, 1998, 1997 and 1996, United Artists recorded non-cash charges for
         the impairment of its long-lived assets of $36.3 million, $35.0 million
         and $9.5 million, respectively. These non-cash charges relate to the
         difference between the historical book value of the individual theatres
         (in some cases groups of theatres) and the discounted cash flow
         expected to be received from the operation or future sale of the
         individual theatres (or groups of theatres).

(13)     DISCONTINUED OPERATIONS

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

         Net assets of the discontinued operations were $3.4 million and $14.6
         million at December 31, 1998 and 1997, respectively. Liabilities
         related to the discontinued operations were $4.9 million at December
         31, 1998. The net loss from discontinued operations was $14.2 million,
         $5.4 million, and $1.5 million for the years ended December 31, 1998,
         1997, and 1996, respectively. The anticipated loss from disposition 
         was $6.1 million during 1998 which represents future losses. Revenue 
         generated by the discontinued operations was $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, $1.3 
         million and $0.7 million for the years ended December 31, 1998, 
         1997, and 1996, respectively. Interest expense was allocated to the 
         discontinued operations based upon the average fixed asset balance 
         and United Artists' average borrowing rate. The net loss from 
         discounted operations included non-cash provisions for asset 
         impairments of $10.7 million and $1.0 million for the years ended 
         December 31, 1998 and 1997, respectively.

(14)      GAIN ON DISPOSITION OF ASSETS

         In 1998, United Artists sold the majority of its remaining
         international theatrical exhibition assets for $3.0 million of cash,
         $0.5 million of stock of the acquiring company and a $3.0 million note.
         In addition, United Artists sold certain other operating theatres and
         non-operating real estate for which net cash proceeds of $16.0 million
         were received. During April 1997, United Artists sold its 50% interest
         in Hong Kong theatre company to its partner for approximately $17.5
         million and, during September 1997, UATC sold its theatre investments
         in Mexico and the majority of its theatre assets in Argentina for
         approximately $25.0 million. During the year ended December 31, 1997,
         United Artists sold various other non-strategic or underperforming
         theatres for net cash proceeds of approximately $27.5 million. During
         the year ended December 31, 1996, United Artists sold certain theatres
         and other assets for which cash proceeds of $23.5 million were
         received.

(15)     INCOME TAXES

         Consolidated subsidiaries in which United Artists' owns less than 80%
         file separate federal income tax returns. The current and deferred
         federal and state income taxes of such subsidiaries are determined as
         if they were separate tax paying entities within the consolidated
         group. For the years ended December 31, 1998, 1997 and 1996 United
         Artists and each of its 80% or more owned consolidated subsidiaries
         were allocated no current federal income tax expense (benefit) pursuant
         to such tax sharing agreement as a result of the group's overall net
         loss position.

                                       41

<PAGE>

(15)     INCOME TAXES, CONTINUED

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

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

<TABLE>
<CAPTION>

                                                                 Years Ended December 31,
                                                             ------------------------------
                                                              1998        1997        1996
                                                             ------      ------      ------
        <S>                                                 <C>         <C>         <C>
         Current income taxes:
           State expense...................................  $ 0.2         0.2        0.1
           Federal expense.................................    0.4         1.3        1.0
                                                              -----        ---        ---
                                                               0.6         1.5        1.1
         Deferred income taxes:
           State expense...................................     -           -          -
           Federal expense.................................     -           -          -
                                                              -----        ---       ----
                                                             $ 0.6         1.5        1.1
                                                              -----        ---       ----
                                                              -----        ---       ----

</TABLE>

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

<TABLE>
<CAPTION>

                                                                 Years Ended December 31,
                                                             ------------------------------
                                                              1998        1997        1996
                                                             ------      ------      ------
        <S>                                                 <C>         <C>         <C>
         Expected tax benefit.............................. $ (30.9)      (8.9)     (15.7)
         Change in valuation allowance.....................    35.0       11.1       16.1
         Adjustment of net operating loss carryforward ....   (30.0)       0.1        2.9
         Increase in basis of assets.......................    29.3        -          -
         Other.............................................    (2.8)      (0.8)      (2.2)
                                                            -------      ------      -----
                                                            $  0.6         1.5        1.1  
                                                            -------      ------      -----
                                                            -------      ------      -----
</TABLE>

                                       42

<PAGE>

(15)     INCOME TAXES, CONTINUED

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

<TABLE>
<CAPTION>

                                                                                     1998         1997
                                                                                     ----         ----
        <S>                                                                        <C>           <C>
         Deferred tax assets:
           Net operating loss carryforwards.....................................    $ 69.7         75.1
           Intangible and other assets..........................................      32.2          3.7
           Accrued liabilities..................................................       6.4          3.6
          Deferred gain on sale and leaseback...................................       2.6          3.5
          Property and equipment................................................       1.8            -
          Deferred revenue......................................................       4.5            -
          Other.................................................................       1.1          1.2
                                                                                    -------       ------
                                                                                     118.3         87.1
           Less:  valuation allowance...........................................    (115.5)       (80.5)
                                                                                    -------       ------
             Net deferred tax assets............................................       2.8          6.6  
                                                                                    -------       ------
         Deferred tax liabilities:
           Property and equipment...............................................       -             3.5
           Deferred intercompany gains..........................................       1.6           1.6
           Other................................................................       1.2           1.5
                                                                                    -------       ------
             Net deferred tax liabilities.......................................       2.8           6.6
                                                                                    -------       ------
         Net....................................................................    $  -             -  
                                                                                    -------       ------
                                                                                    -------       ------
</TABLE>

         At December 31, 1998, United Artists had a net operating loss
         carryforward for federal income tax purposes of approximately $183.0
         million.

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

(16)     SEGMENT INFORMATION

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

                                        43

<PAGE>

SEGMENT INFORMATION, CONTINUED

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

<TABLE>
<CAPTION>

                                                                 THEATRE              SATELLITE
                                                                OPERATIONS          THEATRE NETWORK         TOTAL
                                                                ----------          ---------------         -----
        <S>                                                    <C>                 <C>                     <C>
                                1998

         Revenue............................................      $ 656.6                  5.5              662.1
         Operating income (loss)............................         (2.7)                 0.4               (2.3)
         Depreciation and amortization......................         53.8                  0.1               53.9
         Assets.............................................        575.2                  3.9              579.1
         Capital expenditures...............................        116.9                  -                116.9
                                                                  
                                1997                              
                                                                  
         Revenue............................................        677.6                  6.2              683.8
         Operating income (loss)............................          1.0                  0.6                1.6
         Depreciation and amortization......................         58.9                  0.1               59.0
         Assets.............................................        559.1                  3.9              563.0
         Capital expenditures...............................         67.4                  -                 67.4
                                                                  
                                1996                              
                                                                  
         Revenue............................................        671.1                  6.0              677.1
         Operating income (loss)............................          2.4                 (1.1)               1.3
         Depreciation and amortization......................         74.2                  -                 74.2
         Assets.............................................        608.8                  3.9              612.7
         Capital expenditures...............................         67.1                  -                 67.1
                                                            

</TABLE>

(17)     COMPREHENSIVE INCOME

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

(18)     COMMITMENTS AND CONTINGENCIES

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

                                       44

<PAGE>

(18)     COMMITMENTS AND CONTINGENCIES, CONTINUED

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

<TABLE>
<CAPTION>

                                                                  Years Ended December 31,
                                                              --------------------------------
                                                               1998           1997*       1996*
                                                              ------          ----        ----
        <S>                                                  <C>            <C>          <C>
         Minimum rental.....................................  $ 79.5          75.4        71.7
         Contingent rental..................................     3.0           3.7         3.4
         Effect of leases with escalating
           minimum annual rentals...........................     4.0           3.7         3.1
         Rent tax...........................................     0.6           0.5         0.6
                                                                ----          ----        ----
                                                              $ 87.1          83.3        78.8
                                                                ----          ----        ----
                                                                ----          ----        ----
</TABLE>

         *Restated

         Approximately $14.5 milllion, $12.8 million and $11.0 million of the
         minimum rentals reflected in the preceding table for the years ended
         December 31, 1998, 1997 and 1996, respectively, were incurred pursuant
         to the sale and leaseback transactions (see note 3).

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

<TABLE>

        <S>                                                        <C>
         1999....................................................... $88.6
         2000.......................................................  85.8
         2001.......................................................  84.0
         2002.......................................................  81.5
         2003.......................................................  79.7
         Thereafter................................................. 580.7

</TABLE>

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

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

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

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

         The Americans with Disabilities Act of 1990 (the "ADA") and certain
         state statutes, among other things, require that places of public
         accommodation, including theatres (both existing and newly
         constructed), be accessible to and that assistive listening devices be
         available for use by certain patrons with disabilities. With respect to
         access to theatres, the ADA may require that certain modifications be
         made to existing theatres to make such theatres accessible to certain
         theatre patrons and employees who

                                       45

<PAGE>

(18)     COMMITMENTS AND CONTINGENCIES, CONTINUED

         are disabled. The ADA requires that theatres be constructed in such a
         manner that persons with disabilities have full use of the theatre and
         its facilities and reasonable access to work stations. The ADA provides
         for a private right of action and reimbursement of plaintiff's
         attorneys' fees and expenses under certain circumstances. United
         Artists has established a program to review and evaluate United
         Artists' theatres and to make any changes that may be required by the
         ADA. In 1995, United Artists settled the lawsuit styled CONNIE ARNOLD
         ET AL. VS. UATC, filed in 1991. This lawsuit involved allegations that
         certain of United Artists' theatres lacked accessibility to persons
         with mobility disabilities in violation of the ADA. In the settlement
         agreement, UATC, the plaintiffs and the Department of Justice
         established standards of modifications that must be made to United
         Artists theatres throughout the United States to make them more
         accessible to persons with disabilities. United Artists believes that
         the cost of complying with the ADA and the settlement agreement in the
         CONNIE ARNOLD case will not have a material adverse effect on United
         Artists' financial position, liquidity or results of operations.






                                       46

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding members of United Artists' 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 March    Mr. Hall is a director of Showscan
                                     6, 1998. Chief Operating Officer from                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 Chief   Supermarkets General Holdings Corp.
                                     Financial Officer of Eckerd Corporation
                                     from 1983 to 1995 and Vice Chairman from
                                     1992 to 1995.

James J. Burke, Jr........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 of SP   Systems, Inc. and Packard BioScience
                                     since July 1993 and a Partner and a Director of      Company.
                                     SPII since 1994.  Prior to July 1994, Mr. End was
                                     a Partner of MLCP from 1993 to 1994 and a Vice
                                     President of MLCP from 1989 to 1993.  Mr. End was
                                     also a Managing Director of the Investment Banking
                                     Division of ML&Co. from 1993 to July 1994.

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 a      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>

                                       47
<PAGE>

Information regarding executive officers of United Artists who are not directors
of United Artists 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>
Neal Pinsker............43         Executive Vice President.  Mr. Pinsker was promoted to Executive Vice President of
                                   United Artists in charge of theatre operations in January 1999.  Mr. Pinsker was
                                   most recently Vice President of the western region operations, and has previously
                                   directed the east and central regional operating offices of United Artists.  Joining
                                   United Artists in May of 1970, 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 United Artists in charge of legal affairs and general counsel in
                                   September 1994.  Mr. Hardy was previously the Senior Vice President and general
                                   counsel of United Artists.

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

Jim Ruybal..............53         Executive Vice President.  Mr. Ruybal became Executive Vice President of United
                                   Artists in 1992.  Mr. Ruybal's duties include supervision of United Artists'
                                   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 United Artists.  Prior to February 1995, Mr. Taffet was the Senior
                                   Vice President in charge of national concession operations of United Artists.

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 United Artists 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
United Artists for the years ended December 31, 1998, 1997 and 1996.

                                       48

<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                 --

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 United
    Artists' achievement of certain performance criteria. Bonus amounts are
    reflected in the year paid but relate to the performance of the previous
    year.

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

(4) Consists primarily of matching contributions to employee benefit plans
    except for the amount attributable to Mr. Pade in 1997 which was related to
    a forgiven loan.

(5) Effective January 6, 1999, Mr. Daniels no longer worked for United Artists.

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

                                       49

<PAGE>

(b)      STOCK OPTION GRANTS

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

<TABLE>
<CAPTION>

                                                                                                  Potential Realizable
                                                                                                    Value at Assumed
                                Number of          % of Total                                     Annual Rates of Stock
                               Securities            Options                                     Price Appreciation for
                               Underlying          Granted to       Exercise                           Option Term
                                 Options          Employees in      Price Per     Expiration     ----------------------
       Name                      Granted              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 works for United Artists

(c)      YEAR-END STOCK OPTION TABLE

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

<TABLE>
<CAPTION>

                                                       Number of
                                                   Share Underlying                        Value of
                                                Unexercised Options at             In-the-Money Options at
                            Option               at December 31, 1998                December 31, 1998 (1)
      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 United Artists is not publicly held, United Artists
     has valued the unexercised stock options using the value attributable to
     the stock options granted closest to, but not after, December 31, 1998
     ($22.50).

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

                                       50

<PAGE>

(d)      LONG-TERM INCENTIVE AWARDS

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

(e)      COMPENSATION OF DIRECTORS

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

(f)      EMPLOYEE BENEFITS PLAN

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

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

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

(g)      EMPLOYMENT AGREEMENTS

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

Under the Employment Agreements, the employee receives a base salary (as defined
in the Employment Agreements) and certain customary benefits, including health
and disability insurance, participation in employee benefit plans and certain
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.

                                       51

<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

United Artists is a Delaware corporation whose only business interest is its
ownership of UATC and UAR. United Artists' principal executive offices are
located at 9110 E. Nichols Avenue, Englewood, Colorado 80112.

United Artists has three classes of capital stock outstanding: the United
Artists Theatre Company Class A Shares, the United Artists Theatre Company Class
B Shares, and the United Artists Theatre Company Class C Shares (collectively
the "United Artists Shares"). The United Artists Shares are held of record by
416 holders. The following tables set forth certain information concerning the
beneficial ownership United Artists Shares known to United Artists 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 United Artists, for each director and all executive officers and
directors of United Artists 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.






                                       52

<PAGE>

                  UNITED ARTISTS THEATRE COMPANY COMMON STOCK

<TABLE>
<CAPTION>

NAME AND ADDRESS                     BENEFICIAL      PERCENTAGE OF      BENEFICIAL     PERCENTAGE OF      BENEFICIAL
INTEREST                              INTEREST       UNITED ARTISTS      INTEREST      UNITED ARTISTS      INTEREST
BENEFICIAL OWNER                   CLASS A SHARES    CLASS A SHARES   CLASS B SHARES   CLASS B SHARES   CLASS C SHARES
----------------                   --------------    --------------   --------------   --------------   --------------
<S>                               <C>               <C>              <C>              <C>              <C>
MLCP(1)(5)(7) .....................   8,409,761            72.8%               0              -               0
Merrill Lynch & Co, Inc.(2)(5) ....   2,082,205            18.0%               0              -               0
Institutional Investors(8) ........   1,059,417             9.2%               0              -               0
Kurt C. Hall(3)(6) ................           0               -          116,750           31.9%              0
Michael Pade(3)(6) ................           0               -           25,825            7.1%          1,622
Gene Hardy(3)(6) ..................           0               -           23,850            6.5%              0
Jim Ruybal(3)(6) ..................           0               -           33,350            9.1%              0
James J. Burke, Jr.(4)(7) .........           0               -                0              -               0
Albert J. Fitzgibbons, III(4)(7) ..           0               -                0              -               0
Robert F. End(4)(7) ...............           0               -                0              -               0
Scott Shaw(4) .....................           0               -                0              -               0
John W. Boyle(9) ..................           0               -           18,750            5.1%              0
Directors and Executive Officers as
  a group (12 persons)(6) .........           0               -          265,575           72.6%          1,622


<CAPTION>

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

                                       53

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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 United Artists.





                                       54


<PAGE>
                                     PART IV

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

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

         United Artists Theatre Company and Subsidiaries

<TABLE>
<CAPTION>

                <S>                                                                  <C>
                  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 Stockholders' 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
</TABLE>

         2.       Financial Statements Schedules

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

         3.       Exhibits

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

<TABLE>
        <S>      <C>
         3.1      Amended and Restated Certificate of Incorporation of United 
                  Artists Theatre Company (4)

         3.2      By-Laws of United Artists Theatre Company (4)

         4.1      Indenture, dated as of April 21, 1998, by and among the
                  Company and State Street Bank and Trust Company of Missouri,
                  N.A. with respect to the Floating Rate Senior Subordinated
                  Notes due 2007 (4)

         4.2      Indenture, dated as of April 21, 1998, by and among the
                  Company and State Street Bank and Trust Company of Missouri,
                  N.A. with respect to the Floating Rate Senior Subordinated
                  Notes due 2007 (4)

         4.3      Form of 9 3/4% Senior Subordinated Note (included in 
                  Exhibit 4.1) (4)

         4.4      Form of Floating Rate Senior Subordinated Note (included in 
                  Exhibit 4.2) (4)

         4.5      Form of 9 3/4% Series B Senior Subordinated Note (included in 
                  Exhibit 4.1) (4)

         4.6      Form of Floating Rate Series B Senior Subordinated Note 
                  (included in Exhibit 4.2) (4)

         10.1     Registration Rights Agreement, as of April 21, 1998, by and
                  among the Company and Merrill Lynch & Co., Merrill Lynch
                  Pierce, Fenner & Smith Incorporated, BancAmerica Robertson
                  Stephens, Morgan Stanley & Co. Incorporated, BancBoston
                  Securities Inc. and NationsBanc Montgomery Securities LLC (4)

                                       55

<PAGE>

         10.2     Registration Rights Agreement, dated as of April 21, 1998, by
                  and among the Company and Merrill Lynch & Co., Merrill Lynch
                  Pierce, Fenner & Smith Incorporated (4)

         10.3     Credit Agreement, dated as of April 21, 1998, among the
                  Company, Bank of American National Trust and Savings
                  Association, BankBoston, N.A., NationsBank Texas, N.A.,
                  Merrill Lynch Capital Corporation and Morgan Stanley Senior
                  Funding, Inc. and the lenders party thereto (4)

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

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

         10.6     Participation Agreement, dated as of December 13, 1995, among
                  United Artists Theatre Circuit, Inc., Wilmington Trust
                  Company, William J. Wade, Theatre Investors, Inc., Northway
                  Mall Associates, LLC, Wilmington Trust Company, William J.
                  Wade, Fleet National Bank of Connecticut, Alan B. Coffey and
                  Fleet National Bank of Connecticut (3)

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

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

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

         10.10    United Artists Theatre Company Stock Incentive Plan (4)

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

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

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

         10.14    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)

         10.15    United Artists Theatre Circuit 401(k) Savings Plan (1)

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

         10.17    Tax Sharing Agreement, dated as of May 12, 1992, between OSCAR
                  I Corporation and United Artists Theatre Circuit, Inc. (1)

         10.18    Employment Agreement, dated as of May 12, 1992, between the
                  Company and Kurt C. Hall (1)

         10.19    Employment Agreement Extension Letter, dated as of May 12,
                  1998, between the Company and Kurt C. Hall (4)

                                       56

<PAGE>

         10.20    Amendment to the United Artists Theatre Circuit, Inc. 401(k)
                  Savings Plan dated as of January 1, 1998 (5)

         10.21    Subsidiaries of the Company (4)

         27.1     Financial Data Schedule

</TABLE>

---------------
         (1)  Incorporated herein by reference from United Artists Theatre
              Circuit, Inc. Form S-1 dated October 5, 1992.

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

         (3)  Incorporated herein by reference from United Artists Theatre
              Circuit, Inc. Form S-2 dated January 31, 1996.

         (4) Incorporated herein by reference from Form S-4 dated June 16, 1998.

         (5)  Incorporated herein by reference from United Artists Theatre
              Circuit, Inc. 10-K for the year ended December 31, 1996.


                                       57

<PAGE>

                                   SIGNATURES

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

                                                UNITED ARTISTS THEATRE COMPANY
                                                   (Registrant)

<TABLE>
<CAPTION>

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


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

</TABLE>

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.

<TABLE>

<S>                                               <C>
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, 199                             ---------------------------------
                                                   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

</TABLE>

                                       58