<PAGE>   1
                                       1
                                                                    Exhibit 13.1

GC COMPANIES, INC.

DEAR SHAREHOLDERS:

During fiscal 1998, we made substantial progress in transforming GC Companies
from a traditional domestic theatre business to a more balanced company with
increased prospects for future growth. GC Companies emerges in fiscal 1999
with three important components -- domestic and international theatre circuits
and an investment management capability. Together, these components provide
the potential for both high returns on capital employed and corporate growth.
Throughout the year, the Company engaged in forming strategic alliances and
implementing crucial financial initiatives intended to provide the solid
foundation to achieve long-term profitable growth.

     Corporate transformations do not often come without pain. The Company was
spun out from Harcourt General in 1993 with a single cash generating domestic
theatre business. Your management has always recognized the difficult
competitive dynamics of the U.S. business and has allocated the corporate
capital accordingly. In 1998, despite the strategic and prudent managerial
actions taken over the years, the dynamics of the domestic theatre marketplace
played out negatively on our financial results, and we took a restructuring
charge to appropriately provide for the nature of our problems in the domestic
business. During the year, the industry-wide megaplex build-up has led to
erosion of the patronage base of our existing units, particularly in our
non-core, geographic markets. During the past several years, this competitive
building has resulted in significant additions to the total industry screen
count. Since these new screens are being added at a faster rate than the
increase in total industry demand, we anticipate that intense competition for
domestic box office receipts and the dilution of the existing installed base of
theatre patronage will continue. To achieve profitable growth in this
challenging environment, we developed a balanced strategy based on three
principles: paring down our circuit to a strong, regionally focused domestic
theatre circuit; expanding international theatre operations; and investing in
opportunities that provide substantial returns. We are pleased to report that
during fiscal 1998 GC Companies made substantial strides in implementing this
strategy. 

A BALANCED APPROACH TO GROWTH 

DOMESTIC THEATRES 

We remain committed to our fundamental theatre strategy, which is to build
high-impact, state-of-the-art megaplexes in densely populated urban and suburban
areas. However, we have chosen to pursue this strategy in the future by focusing
on our original strengths in the core northeast and midwest markets, while
closing or selling older and less profitable non-core units.

       Attending carefully to the financial substance of our business,
in October 1998 we established an asset impairment reserve to enable us to
divest older, less profitable theatre units and reallocate our resources
toward more profitable opportunities. We believe this action strengthens us
financially and better positions GC Companies for the long-term. This step
should also position GC Companies to react appropriately to strong
competitive pressures -- particularly in southern and western domestic theatre
markets -- that have affected our overall financial performance during the
past year.

              The charge consists primarily of approximately $28.6 million
relating to the write-down of the net book value of certain domestic theatres
and approximately $39.6 million of reserves for the estimated costs of
exiting leases for certain theatres. The Company will continue to evaluate
its future plans for this group of theatres, which may include closing
additional theatres, selling theatres or subleasing these properties.

              Within the domestic environment, we have identified several niche
initiatives, which look promising for our future. One such venture is our
Sundance Cinemas partnership, a stand-alone theatre circuit dedicated
specifically to the exhibition of the growing number and popularity of
independently produced films. Through Sundance Cinemas, we plan to open a select
number of these units across the country in urban, suburban and college
locations. Sundance Cinemas has identified four locations expected to be opened
before the end of calendar 2000. Finally, in 1998 we opened the first Premium 
Cinema, designed to provide a first class, luxury theatre experience, complete
with valet service, first class amenities and expanded food and beverage 
offerings.

INTERNATIONAL THEATRES 

During fiscal 1998, we entered a new phase in the implementation of our
international theatre strategy. Specifically, we leveraged existing
international theatre assets to rapidly build a substantial theatre circuit
capable of capitalizing on the burgeoning opportunities in the South American
marketplace.

<PAGE>   2
                                       2


              In July of 1998, GC Companies and Hoyts Cinema Group formed a
50/50 joint venture creating Hoyts General Cinema South America, a
stand-alone theatre circuit in South America. Under the terms of the
agreement, GC Companies, Inc. and Hoyts Cinema Group each contributed their
existing South American theatre assets to the joint venture.

              By the end of calendar 2000, the joint venture expects to have as
many as 24 theatres with more than 248 screens. This number includes an
additional 102 screens in Argentina -- making this joint venture the number one
exhibitor in that growing market. The total screen count also includes an
additional 27 screens in Brazil and 34 screens in Chile. These anticipated
openings, coupled with our theatre assets in Mexico, positions GC Companies as a
leading exhibitor in Latin America, providing an attractive, long-term,
value-building opportunity for the Company.

              As a result of our efforts toward a more balanced theatre
operation, the Company's theatre circuit presently consists of 1,082 screens at
149 locations in 24 states as well as 132 screens at 14 locations in South
America and Mexico. This compares to 1,113 screens at 175 locations in 24 states
as well as 53 screens at five locations in Mexico and Argentina at the end of
fiscal 1997. 

INVESTMENT PORTFOLIO 

GC Companies' investment portfolio provides business diversity to theatre
operations. The group's mission: build shareholder value by investing in
opportunities that have the potential to provide substantial returns.

              Fiscal 1998 was an active year in this regard and we are pleased
to report that our investment group continued to deliver positive results.
During the year, one of our portfolio companies, Global TeleSystems Group, Inc.,
an international telecommunications company, successfully completed an initial
public offering of common stock listing its shares on the NASDAQ National
Market(R). This particular investment demonstrates the benefit of
enhancing shareholder value through investment opportunities.

              In addition to the Company's investment in Global TeleSystems
Group, Inc., the portfolio includes minority investments in GrandVision, an
optical superstore that is publicly traded on the French Exchange; Fuelman, a
leading provider of vehicle fleet management information services; American
Capital Access, a financial guaranty insurance company; Kabelmedia, a German
cable television system operator; and Teletrac, a wireless location and two-way
messaging company. The aggregate carrying value of this investment portfolio at
October 31, 1998 was approximately $140.0 million. 

FINANCIAL REVIEW 

Although we are not pleased with our financial results in fiscal 1998, we
believe that we have taken important steps towards building for the future. By
concentrating on select domestic markets while pursuing international theatre
opportunities and seeking value-added returns for our investments, we have laid
the foundation for long-term value growth.

              GC Companies reported a net loss of $41.6 million, or $5.39 per
diluted share for fiscal 1998, compared with net earnings of $14.8 million, or
$1.90 per diluted share, for fiscal 1997. Our fiscal 1998 results include the
recognition of an asset impairment charge of approximately $68.2 million ($40.9
million after taxes). Revenues for fiscal 1998 were $407.4 million compared with
$445.1 million last year. GC Companies had an operating loss of $66.9 million
for fiscal 1998, compared with operating earnings of $11.8 million in fiscal
1997, primarily as a result of the impairment charge recorded in the fourth
quarter of fiscal 1998 and lower patronage during fiscal 1998.

              We are confident in our ability to profitably grow the Company and
create shareholder value based not only on the intrinsic strengths of GC
Companies but also on our domestic and international opportunities. Today, GC
Companies is an enterprise with more than 75 years of theatre management
experience, a regional domestic theatre focus, significant potential within
international theatre markets and a results-driven investment group. 

              We wish to thank all of our employees, customers and shareholders
for their contributions. We look forward to sharing GC Companies' progress with
you as we seek to implement our strategy to meet our goals for 1999 and beyond.

Sincerely,

/s/ Richard A. Smith                                     /s/ Robert A. Smith
-----------------------                                  -----------------------
Richard A. Smith                                         Robert A. Smith
Chairman and                                             President and
Chief Executive Officer                                  Chief Operating Officer

January 15, 1999

<PAGE>   3
                                       3


SELECTED FINANCIAL DATA

GC COMPANIES, INC.

<TABLE>
<CAPTION>
(Unaudited)                                            Fiscal Years(1)
                                 -------------------------------------------------------------
(Dollar amounts in thousands
except for per share amounts)       1998         1997         1996         1995         1994
----------------------------------------------------------------------------------------------
<S>                              <C>          <C>          <C>          <C>          <C>      
Revenues                         $ 407,386    $ 445,133    $ 443,984    $ 450,306    $ 451,383
Operating earnings (loss)          (66,898)      11,822       20,373       18,001      122,066
Investment income (loss), net       (1,917)      13,880       10,107       (2,316)       1,640
Interest expense                    (1,048)        (586)        (639)        (631)        (648)
Gain (loss) on disposition
    of non-operating assets            593         (100)        (617)        (300)         (12)
                                 ---------    ---------    ---------    ---------    ---------
Earnings (loss) before taxes       (69,270)      25,016       29,224       14,754       23,046
Income tax benefit (provision)      27,708      (10,257)     (11,982)      (6,049)      (9,449)
                                 ---------    ---------    ---------    ---------    ---------
Net earnings (loss)              $ (41,562)   $  14,759    $  17,242    $   8,705    $  13,597
                                 ---------    ---------    ---------    ---------    ---------

Weighted average common
    shares outstanding:
         Basic                       7,710        7,728        7,816        7,811        7,796
                                 ---------    ---------    ---------    ---------    ---------
         Diluted                     7,710        7,768        7,858        7,865        7,858
                                 ---------    ---------    ---------    ---------    ---------
Earnings (loss) per
    common share:
         Basic                   $   (5.39)   $    1.91    $    2.21    $    1.11    $    1.74
                                 ---------    ---------    ---------    ---------    ---------
         Diluted                 $   (5.39)   $    1.90    $    2.19    $    1.11    $    1.73
                                 ---------    ---------    ---------    ---------    ---------
Depreciation and amortization    $  19,180    $  19,229    $  19,369    $  19,367    $  19,649
Total assets                     $ 389,961    $ 339,600    $ 314,303    $ 300,067    $ 296,658
Portfolio investment assets      $ 139,931    $  87,078    $  50,187    $  44,977    $  23,454
Long-term capital
    lease obligations            $   1,722    $   2,254    $   3,059    $   3,623    $   4,179
Revolving credit facility        $  16,775    $      --    $      --    $      --    $      --
Other long-term liabilities      $  33,523    $  31,912    $  29,029    $  28,156    $  28,016
Number of movie screens
         Domestic                    1,045        1,113        1,159        1,180        1,211
         International(2)              120           53           --           --           --
Number of locations
         Domestic                      150          175          189          196          208
         International(2)               13            5           --           --           --
</TABLE>

(1)  The selected financial data are derived from the financial statements of
     the Company.

(2)  International theatres represent the Company's investment in international
     theatre affiliates in South America and Mexico which are accounted for
     under the equity method.

<PAGE>   4
                                       4


MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

YEAR ENDED OCTOBER 31, 1998 COMPARED WITH YEAR ENDED OCTOBER 31, 1997

Net earnings (loss) decreased $56.3 million to a loss of $41.6 million in 1998
from earnings of $14.8 million in 1997. The loss in 1998 included a $28.6
million pre-tax impairment charge on theatre assets, a pre-tax charge of $39.6
million primarily relating to the cost of exiting certain leases, a $12.8
million pre-tax gain related to the sale of a theatre in Texas and $1.0 million
of interest expense. Net earnings in 1997 included a pre-tax gain of $9.0
million from a share-for-share exchange of GC Companies' (GCC or the Company)
minority investment in Vision Express into GrandOptical-PhotoService and a
subsequent sale of a portion of those shares. GCC's 1997 net earnings also
included a $10.3 million pre-tax gain on the sale of seven theatre units in
Oklahoma, a $7.4 million pre-tax impairment loss relating to the Company's
theatre circuit and $4.3 million of dividend and interest income from short-term
investments. Theatre operations showed a loss of $58.6 million in 1998 compared
to a profit of $18.9 million in 1997. Operating earnings (loss) after corporate
expenses for 1998 were $66.9 million, a decrease of $78.7 million from $11.8
million in 1997.

THEATRE REVENUES

Revenues of $407.4 million were 8.5% below 1997 revenues of $445.1 million.
This decrease was principally due to a 12.4% reduction in patronage partially
offset by a 7.1% increase in concession sales per patron and a 3.3% increase
in average ticket price. The decrease in patronage was mainly attributable to
competitor impacts in certain markets and a reduction in screens, primarily
the result of the theatres closed in the fourth quarter of 1998. The opening
of megaplexes by the Company's competitors have tended to, and are projected
to, draw audiences away from certain of the Company's older multiplex theatre
locations. The Company operated domestically 1,045 screens at 150 locations
at October 31, 1998 compared with 1,113 screens at 175 locations at October
31, 1997. The growth in concession sales per person was principally due to
the continued roll out of new products, increased consumption and certain
price increases. The increase in the average ticket price was due to
increases in ticket prices in certain markets during the year.

COST OF THEATRE OPERATIONS

Cost of theatre operations (film rentals, concessions, theatre operations and
administrative expenses and depreciation and amortization) decreased 4.4% to
$411.3 million in 1998 from $430.0 million in the previous year. As a
percentage of revenues, the cost of theatre operations was 101.0% in 1998
compared to 96.6% in 1997 primarily due to higher theatre operations and
administrative expenses.

The theatre operations and administrative expenses, as a percentage of
revenues, were 56.8% in 1998 compared to 52.0% in 1997. The percentage
increase was principally due to increased occupancy costs as a result of the
Company's operating leasing arrangement for new assets and increased costs
associated with the new units opened in 1998, higher variable labor costs
primarily due to a full year's impact of the minimum wage increase in 1997,
costs associated with the start-up of the Sundance Cinema theatres and
repairs required during the year at certain of our older locations. These
increases were partially offset by the settlement of certain litigation,
which had previously been accrued for, resulting in a credit to the cost of
theatre operations of $1.6 million in the third quarter of 1998. In addition,
concession margins improved primarily due to product mix.

GAIN (LOSS) ON IMPAIRMENT OR DISPOSITION OF THEATRE ASSETS

During the ordinary course of business, management makes determinations that
impact both the recoverability of theatre assets and potential lease termination
charges. Such decisions have impacted operations in both 1997 and 1998. As part
of the Company's annual budgeting process, management reviews the long-lived
assets used in the theatre business for impairment. This analysis takes place at
the individual theatre level, which management believes is the lowest level for
which there are identifiable cash flows. In addition, management will review
internal management reports as well as monitor current and potential future
competition in its markets for indicators of impairment of individual theatre
assets. As a result of this analysis, management will determine whether
impairment has occurred, whether a write-down of the asset carrying value to
fair value is required and whether to abandon or continue to operate the
theatre. The impairment

<PAGE>   5

                                       5

GC COMPANIES, INC.


loss is measured as the amount by which the carrying value of the asset exceeds
the fair value, which is based on management's estimates. The primary technique
to determine fair value is to discount the future cash flows of the theatre.
There is considerable management judgement necessary to determine the future
cash flows of a theatre, and accordingly, actual results could vary
significantly from such estimates.

Over the last year, significant industry construction development has caused the
Company to reassess the value and utility of certain theatre locations through
its internal evaluation process described above. There has been an increase in
competition in certain markets as a result of the opening of megaplexes by
competitors, which have tended to, and are projected to, continue to draw
audiences away from certain older multiplex theatre locations that the Company
operates, particularly in the southern and western United States.

The evaluation described above resulted in an impairment charge of approximately
$7.4 million in certain marginal markets in 1997 and an impairment charge of
approximately $28.6 million in 1998.

There were also charges in 1998 totaling $39.6 million primarily relating to the
monies either spent or anticipated to be spent to exit certain leases. The
Company accrued approximately $15.2 million primarily for the cost to exit
certain leases for the theatres closed during the fourth quarter of 1998 and
accrued approximately $24.4 million for the cost to exit the existing leases of
theatres management intends on abandoning in the next 12 months. The Company's
reserves established for leases on properties it intends to abandon reflect
management's best estimate of the potential costs associated with exiting the
existing lease. While the estimates are based on analysis of the facilities,
correspondence with the landlords, exploratory discussions with sublessees and
market conditions, there has been limited experience to consider in preparing
such estimates. The amounts the Company will eventually be obligated for could
differ materially from the amounts assumed in arriving at the original reserve.
The Company has made approximately $3.2 million of cash payments for the cost of
exiting leases and other costs through October 31, 1998.

In 1998, the above-mentioned charges were partially offset primarily by the
disposition of a theatre in Texas in October 1998, resulting in a gain of $12.8
million.

In August 1997, the Company sold seven theatres it operated in Oklahoma for
$15.8 million realizing a gain of $10.3 million, which offset the above
impairment charge recorded in that year.

CORPORATE EXPENSES

Corporate expenses decreased 9.8% to $6.2 million in 1998 from $6.8 million
in the previous year. The decrease is primarily attributable to costs
incurred in 1997 associated with the Company's acquisition of five theatres
with 53 screens in Mexico and Argentina. This decrease was partially offset
by the increased personnel and travel costs associated with the Company's
investment group.

INVESTMENT INCOME (LOSS), NET

The Company recorded an investment loss of $1.9 million in 1998 compared to
investment income of $13.9 million in 1997. The Company's investment loss in
1998 included performance-based compensation of $8.8 million earned by
certain employees as a result of the successful completion of the initial
public offering by Global TeleSystems Group, Inc. (GTS) in February 1998, the
equity losses of $0.7 million of investments accounted for under the equity
method and included as part of portfolio investments and the $0.5 million of
equity losses of theatre affiliates. These losses were partially offset by
the $6.8 million gain recognized on the GTS shares designated as trading
securities and $1.3 million of interest and dividend income earned on the
Company's short-term investment portfolio. The investment income in 1997
included a pre-tax gain of $9.0 million from a fourth-quarter share-for-share
exchange of GCC's minority investment in Vision Express into
GrandOptical-PhotoService and a subsequent sale of a portion of those shares,
a fourth-quarter pre-tax gain of $0.6 million resulting from the release of
escrow related to the sale of the Company's radio group investment in 1996 and 
$4.3 million of dividend and interest income earned on the Company's short-term 
investment portfolio.

<PAGE>   6
                                       6

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTEREST EXPENSE

The Company's interest expense increased to $1.0 million in 1998 from $0.6
million in 1997. The increase was due to borrowings under its revolving
credit facility in the fourth quarter of 1998 primarily for theatre expansion
domestically and internationally.

INCOME TAX BENEFIT (PROVISION)

The Company's effective tax rate was 40.0% in 1998, a reduction from the
41.0% in 1997 due to lower state taxes.

YEAR ENDED OCTOBER 31, 1997 COMPARED WITH YEAR ENDED OCTOBER 31, 1996

Net earnings decreased 14.4% to $14.8 million in 1997 from $17.2 million in
1996. Net earnings in 1997 included a pre-tax gain of $9.0 million from a
share-for-share exchange of the Company's minority investment in Vision
Express into GrandOptical-PhotoService and a subsequent sale of a portion of
those shares. GCC's 1997 net earnings also included a $10.3 million pre-tax
gain on the sale of seven theatre units in Oklahoma, a $7.4 million pre-tax
impairment loss relating to the Company's theatre circuit and $4.3 million of
dividend and interest income from short-term investments. Net earnings in
1996 included a pre-tax gain of $9.5 million from the sale of GCC's radio
group investment, a pre-tax charge of $2.5 million related to the write-down
of the Company's remaining investment in a children's clothing retailer, and
$3.8 million of dividend and interest income from short-term investments.
Theatre operating earnings decreased to $18.9 million in 1997 from $26.2
million in 1996. Operating earnings after corporate expenses for 1997 were
$11.8 million, a decrease of 42.0% from $20.4 million in 1996.

THEATRE REVENUES

Revenues of $445.1 million were slightly above 1996 revenues of $444.0
million. This increase was principally due to a 1.9% increase in average
ticket price, a 3.3% increase in concession sales per person and a 13.0%
increase in ancillary revenues substantially offset by a 2.4% decline in
patronage. The increase in concession sales per patron was due to price
increases on select products, new product offerings and increased
consumption. The decrease in patronage from 1996 was the result of increased
competition in the marketplace. Screens in the United States are increasing
at a faster rate than patrons. As a result, the industry's screen utilization
is declining. At October 31, 1997, the Company operated domestically 1,113
screens compared to 1,159 screens at October 31, 1996.

COST OF THEATRE OPERATIONS

Cost of theatre operations, including theatre general and administrative
expenses, increased 2.9% to $430.0 million in 1997 from $417.9 million in the
previous year. As a percentage of revenues, the cost of theatre operations
was 96.6% in 1997 compared to 94.1% in 1996. The percentage increase was
principally a result of lower concession margins, higher variable labor costs
primarily due to the impact of the minimum wage increase in 1997, higher
occupancy costs due to the Company's operating lease financing arrangement
for new assets and increased costs associated with the new units opened in
1997, and increased information technology expenses.

GAIN (LOSS) ON IMPAIRMENT OR DISPOSITION OF THEATRE ASSETS

The 1997 gain on disposition of theatre assets is primarily attributable to a
$10.3 million pre-tax gain recognized on the sale of seven theatre units in
Oklahoma in August 1997. This gain was partially offset by a $7.4 million
pre-tax impairment loss recorded in the fourth quarter of 1997 relating to
the Company's theatre circuit. GCC reassessed the value of a number of its
theatre locations as a result of the emergence of new competition in the
marketplace. The opening of megaplexes by the Company's competitors have
tended to, and are projected to, continue to draw audiences away from certain
older multiplex theatre locations that the Company owns. As a result, the
Company recognized a loss on this impairment.

<PAGE>   7
                                       7

GC COMPANIES, INC.


CORPORATE EXPENSES

Corporate expenses increased 17.5% to $6.8 million in 1997 from $5.8 million
in the previous year. The increase is primarily attributable to costs
associated with the Company's acquisition of five theatres with 53 screens in
Mexico and Argentina. In addition, growth of the Company's investment group
resulted in increased personnel and travel costs.

INVESTMENT INCOME (LOSS), NET

The Company recorded investment income of $13.9 million in 1997 compared to
$10.1 million in 1996. The investment income in 1997 included a pre-tax gain
of $9.0 million from a fourth-quarter share-for-share exchange of GCC's
minority investment in Vision Express into GrandOptical-PhotoService and a
subsequent sale of a portion of those shares, a fourth-quarter pre-tax gain
of $0.6 million resulting from the release of escrow related to the sale of
its radio group investment in 1996 and $4.3 million of dividend and interest
income earned on the Company's short-term investment portfolio. The Company's
investment income in 1996 included a pre-tax net gain of $9.5 million
recorded in the fourth quarter relating to the sale of the Company's radio
group investment, a second-quarter pre-tax charge of $2.5 million related to
the write-off of the Company's remaining investment in a children's clothing
retailer, a $0.6 million pre-tax charge recorded in the first quarter
representing the Company's share of losses incurred by its radio group
investment when such investment was accounted for under the equity method,
and $3.8 million of dividend and interest income. The realized portion of the
Vision Express investment produced a time-weighted pre-tax cash on cash
return of 25% in 1997 with the radio group investment providing a return of
92% in 1996.

INCOME TAX EXPENSE

The Company's effective tax rate was 41.0% in 1997, unchanged from 1996.

LIQUIDITY AND CAPITAL RESOURCES 

DOMESTIC THEATRES 

Virtually all of GCC's revenues are collected in cash, principally through
theatre admissions and concession sales. Because revenues are received in cash
prior to the payment of related expenses, the Company has an operating float,
which partially finances its operations. 

The Company has undertaken an internal process of identifying theatre assets
that are underperforming. This analysis has resulted in a non-cash charge to the
consolidated statement of operations for impairment of theatre assets of $28.6
million and actual or anticipated cash outlays relative to the shut-down of
specifically identified theatre units around the country of $39.6 million. This
review process will continue and the Company, from time to time, may be required
to make additional, substantial one-time cash outflows. At the same time, the
Company has a regional strategy of both expanding and replacing older units in
existing markets and constructing new megaplexes.

During the past year, the Company has added four screens to an existing location
in Massachusetts, opened a new 14-screen theatre in Columbia, South Carolina as
well as opened an 18-screen megaplex near Chicago, Illinois, which included the
first Premium Cinema offering first-class amenities and state-of-the-art
technology. Also, the Company opened a 16-screen theatre in Redondo Beach,
California and a 14-screen theatre in Philadelphia, Pennsylvania; these two new
theatres replaced three older units having a total of 13 screens. In addition to
the three older units replaced, the Company closed 26 smaller units with 121
screens during the year. As of October 31, 1998, the Company operated 1,045
screens at 150 locations in 24 states compared to 1,113 screens at 175 locations
as of October 31, 1997. In the first quarter of 1999, the Company opened 69
screens at five locations. During the next calendar year, the Company has
commitments to open eight additional new megaplexes with approximately 131
screens.

Capital outflows have been minimized on these projects due to an agreement with
a major financial institution to provide operating leases for up to $250 million
of assets over five years for its theatre expansion program. Since the inception
of this leasing arrangement in 1996, the Company has entered into $57.0



<PAGE>   8
                                       8

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

million of operating leases with the financial institution. Availability of this
lease arrangement is in part dependent upon the ability of the financial
institution to syndicate leases to third party financial institutions. A
receivable due from this financial institution may arise from time to time
throughout the year from the Company initially advancing monies for leased
assets as the financial institution's agent. On a periodic basis, these advances
are reimbursed by the financial institution. At October 31, 1998, the Company
had an outstanding receivable of $21.7 million related to the five theatres
being constructed and opened in the first quarter of 1999.

The Company has significant lease commitments. Lease payments totaled $71.2
million in 1998 and minimum lease payments are expected to approximate $64.4
million in 1999.

During 1998, the Company made expenditures of $19.8 million for leasehold
improvements, furniture and equipment purchases, and information service-related
projects including a theatre management information system and financial
reporting systems. Domestic capital expenditures are expected to approximate
$21.3 million during fiscal 1999.

During the year, the Company sold certain theatre assets for $19.8 million,
including, among other things, a theatre in Texas, theatre assets in
Pennsylvania and land in Indiana. In addition, the Company closed 29 theatre
units with a total of 134 screens in 1998. In connection with the impairment
charge recorded in the fourth quarter of 1998, the Company also recorded a
charge totaling $39.6 million primarily relating to monies either spent or
anticipated to be spent to exit certain leases. The Company has made
approximately $3.2 million of cash payments for the cost of exiting certain
leases and other related costs through October 31, 1998.

In 1997, the Company formed a joint venture with The Sundance Group to create
Sundance Cinemas, a stand-alone theatre circuit dedicated to the exhibition of
the growing number of independent films. The joint venture plans to open a
significant number of state-of-the-art Sundance Cinemas across the country in
urban, suburban and college locations, aiming to add substantially to the number
of screens dedicated to specialty films. GCC contributed approximately $2.7
million in cash toward this venture in 1998 and anticipates contributing cash of
approximately $5.0 million and properties to this venture in 1999. The first
Sundance theatre is anticipated to open in calendar 1999.

In March 1998, the Company announced a joint venture with Cinema Grill to
convert several of General Cinema's older theatres into new cinemas offering
sit-down dining during the movies. Under this agreement, the joint venture will
convert up to three existing General Cinema locations before expanding to
further theatres. GCC expects to contribute cash of approximately $1.4 million
and properties to the venture. The Company anticipates opening its first Cinema
Grill theatre in Seattle, Washington during the second quarter of 1999.

INTERNATIONAL THEATRES

During the year, the Company opened two theatres with 26 screens in Argentina, a
unit with 10 screens in Mexico and entered into a joint venture to operate a
six-screen theatre in Uruguay. Effective July 1, 1998, the Company entered into
an agreement to form a 50/50 joint venture with Hoyts Cinema Group creating
Hoyts General Cinema South America (HGCSA), a stand-alone theatre circuit, which
will pursue theatre opportunities in South America. Pursuant to this, the assets
of the Company's Argentine and Uruguay operations were contributed to this joint
venture. During the year, the Company contributed $24.3 million toward its
international operations in South America and Mexico.

In December 1998, HGCSA opened a theatre with 12 screens and plans to open an
additional 102 screens in Argentina, an additional 27 screens in Brazil and an
additional 34 screens in Chile by the end of calendar 2000. The theatre
expansion will be financed through capital contributions by the partners of the
joint venture and debt financing. The joint venture has entered into a $75
million debt financing arrangement with a local bank, which is secured by the
several guaranty of the joint ventures' partners. Availability of this

<PAGE>   9
                                       9

GC COMPANIES, INC.



financing beyond $25.0 million is subject to syndication to third-party
financial institutions. The Company plans to contribute approximately $7.3
million toward its international operations in fiscal 1999.

INVESTMENT PORTFOLIO

The Company invested an additional $1.3 million in October 1998 in the
wireless location and two-way messaging company bringing the total invested
in that company to $8.3 million.

In addition, the Company invested $11.0 million in February 1998 in a leading
provider of fleet management information services. Through its proprietary
systems and network, the company currently provides services to commercial
vehicle operators throughout the United States.

OTHER

The Company received proceeds of $7.0 million from the liquidation of certain
short-term investments during the year.

The Company borrowed $16.8 million during the fourth quarter under its
revolving credit agreement with two banks. The revolving credit agreement has
been amended to extend the term of the agreement through January 25, 2002.
Under this agreement the Company may borrow up to $50.0 million. The Company
is able to select a floating interest rate based on the primary bank's base
interest rate or to fix interest rates for up to six months. The fixed
interest rates are based on the Eurodollar rate plus a margin that ranges
from 0.625% to 1.25% based on the level of total debt to cash flow earnings
as defined in the amended agreement. The agreement contains provisions
requiring the maintenance of a minimum net worth, a fixed coverage charge,
restrictions on the payment of dividends and limitations on the issuance of
debt.

In December 1997, the Company's Board of Directors authorized the renewal of
the Company's program to repurchase up to one million shares of the Company's
common stock over the ensuing 12 months. No shares were purchased over the
12-month period.

The Company believes that cash generated from operations, asset sales under
agreement, cash and short-term investments on hand of $15.5 million, amounts
available under the Company's revolving credit agreement, the operating lease
arrangement and the joint venture debt financing will be sufficient to fund
operating requirements, capital expenditures and the Company's investment
activities for the foreseeable future.

YEAR 2000

The year 2000 issue is primarily the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such
computer systems will be unable to interpret dates beyond the year 1999,
which could cause a system failure or other computer errors leading to a
disruption in the operation of such systems. In 1996, the Company developed a
strategic plan to update its information systems in order to meet business
needs, move away from a mainframe processing environment and create a new
system infrastructure. As a result of this plan, several major processing
systems were replaced or significantly upgraded during 1997 and 1998, and
are, for the most part, Year 2000 compliant, including certain point of sale
systems, theatre timekeeping and financial reporting systems. In 1998, the
Company established a project team to coordinate existing Year 2000
activities and address remaining Year 2000 issues.

During 1998, the Company developed a plan to devote the necessary resources
to identify and modify systems potentially impacted by Year 2000, or
implement new systems to become Year 2000 compliant in a timely manner. The
Company has completed the identification and assessment portion of its plan
and is now focused on remediation or replacement of non-compliant systems.
Concurrent with this phase is the testing of new systems prior to
implementation. The Company is on track to complete the remediation, testing
and implementation of replacement systems by mid-1999. In addition, the
Company is in the process of contacting suppliers and vendors seeking
information about their internal compliance efforts. The Company's risks
involved with not solving the Year 2000 issue include, but are not limited
to, the following: loss of local or regional electric power, loss of
telecommunication services, delays or cancellations in getting film product,


<PAGE>   10
                                       10

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

bank errors and computer errors by vendors or our internal systems. The
Company is in the process of developing contingency plans for key areas which
might be affected by the Year 2000 problem. The total cost of executing this
Year 2000 plan is estimated at $2.0 million. The Company's aggregate cost
does not include time and costs that may be incurred by the Company as a
result of the failure of any third parties, including suppliers, to become
Year 2000 ready or costs to implement any contingency plans. This estimate is
based on the Company's current assessment of its Year 2000 compliance needs
and is subject to change as the Company proceeds with its compliance efforts.

SEASONALITY

GCC's revenues and operating earnings are significantly affected by the
commercial success of the films that are exhibited. Major film distributors
typically release the films that they anticipate will be the most commercially
successful during GCC's first and third fiscal quarters. Accordingly, a
significant portion of GCC's revenues and operating earnings from theatre
operations occur in those periods.

IMPACT OF INFLATION

GCC adjusts its prices to maintain profit levels, and will continue to do so
as competitive conditions permit. In general, management believes that the
impact of inflation is not material to the financial condition or results of
operations of the Company.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information," and
SFAS No. 132, "Employees' Disclosures about Pensions and Other Post-Retirement
Benefits." SFAS No. 131 was adopted in fiscal 1998. SFAS No. 130 and 132 will be
adopted for the Company's fiscal 1999 financial statements. The effect of
adopting these two standards is not expected to be material to the Company's
financial position or results of operations; however, they both will require
additional disclosure. SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was also recently issued. The Company is not required to
implement this standard until fiscal 2000. Its requirements are complex and its
scope far-reaching. The Company has not completed its evaluation of the impact
of this standard on the financial statements. In addition, the American
Institute of Certified Public Accountants (AICPA) recently issued Statement of
Position (SOP) 98-5, "Reporting the Costs of Start-Up Activities," which must be
adopted by the Company in fiscal 2000. The Company is currently evaluating this
standard and has not determined the impact its adoption will have on the
financial statements.

FORWARD-LOOKING STATEMENTS

From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to shareholders, press releases, oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates,"
"expects," "will continue," "estimates," "projects" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.

The results contemplated by the Company's forward-looking statements are subject
to certain risks, trends and uncertainties that could cause actual results to
vary materially from anticipated results, including without limitation, delays
in obtaining leases for new megaplex locations, construction risks and delays,
the lack of strong film product, the impact of competition, costs of exiting
leases, risks associated with international operations, construction risks and
delays associated with Sundance Cinemas and Cinema Grill theatres, market and
other risks associated with the Company's investment activities and other
factors described herein.

<PAGE>   11
                                       11



CONSOLIDATED BALANCE SHEETS

GC COMPANIES, INC.

<TABLE>
<CAPTION>
                                                                            October 31,
                                                                       -------------------
(In thousands except par value)                                          1998       1997
------------------------------------------------------------------------------------------
<S>                                                                    <C>        <C>     
ASSETS
Current assets
         Cash and cash equivalents                                     $  2,479   $ 30,038
         Short-term investments                                          12,989     20,014
         Marketable equity securities                                    78,162         --
         Receivable due from financing institution                       21,735      3,754
         Other current assets                                             7,565      5,619
         Income tax receivable                                           12,618         --
         Deferred income taxes                                               --      2,981
                                                                       -------------------
             Total current assets                                       135,548     62,406

Property and equipment, net                                             112,599    154,576

Portfolio investments                                                    61,769     87,078
Investment in international theatre affiliates                           59,495     13,000
Other assets                                                              6,590     22,540
Deferred income taxes                                                    13,960         --
                                                                       -------------------
                                                                       $389,961   $339,600
                                                                       -------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
         Current maturities of long-term obligations                   $    639   $    697
         Trade payables                                                  32,907     32,671
         Liability for early lease terminations                          36,579         --
         Other current liabilities                                       89,680     79,163
         Deferred income taxes                                           11,793         --
                                                                       -------------------
             Total current liabilities                                  171,598    112,531

Long-term liabilities
         Capital lease obligations                                        1,722      2,254
         Other long-term liabilities                                     33,523     31,912
         Revolving credit facility                                       16,775         --
                                                                       -------------------
             Total long-term liabilities                                 52,020     34,166
Deferred income taxes                                                        --      6,183

Commitments and contingencies

Shareholders' equity
         Common stock - $.01 par value
             Authorized - 25,000 shares
             Issued and outstanding - 7,710 and 7,705 shares                 77         77
         Additional paid-in capital                                     137,049    136,646
         Unrealized gain on marketable equity securities, net of tax     20,782         --
         Retained earnings                                                8,435     49,997
                                                                       -------------------
             Total shareholders' equity                                 166,343    186,720
                                                                       -------------------
                                                                       $389,961   $339,600
                                                                       -------------------
</TABLE>

See Notes to Consolidated Financial Statements. 

<PAGE>   12
                                       12




CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                 Years Ended October 31,
                                                          -----------------------------------
(In thousands except for per share amounts)                  1998         1997         1996
---------------------------------------------------------------------------------------------
<S>                                                       <C>          <C>          <C>      
Revenues
         Admissions                                       $ 271,999    $ 301,349    $ 302,852
         Concessions                                        124,317      132,633      131,500
         Other                                               11,070       11,151        9,632
                                                           --------     --------     --------
                                                            407,386      445,133      443,984
Costs and expenses
         Film rentals                                       138,565      155,316      155,441
         Concessions                                         21,975       23,865       22,999
         Theatre operations and administrative expenses     231,556      231,634      220,065
         Depreciation and amortization                       19,180       19,229       19,369
         Gain (loss) on impairment or disposition
             of theatre assets                              (56,844)       3,566           77
         Corporate expenses                                   6,164        6,833        5,814
                                                           --------     --------     --------
Operating earnings (loss)                                   (66,898)      11,822       20,373
Investment income (loss), net                                (1,917)      13,880       10,107
Interest expense                                             (1,048)        (586)        (639)
Gain (loss) on disposition of non-operating assets              593         (100)        (617)
                                                           --------     --------     --------
Earnings (loss) before income taxes                         (69,270)      25,016       29,224
Income tax benefit (provision)                               27,708      (10,257)     (11,982)
                                                           --------     --------     --------
Net earnings (loss)                                       $ (41,562)   $  14,759    $  17,242
                                                           --------     --------     --------

Net earnings (loss) per share:
         Basic                                            $   (5.39)   $    1.91    $    2.21
                                                           --------     --------     --------
         Diluted                                          $   (5.39)   $    1.90    $    2.19
                                                           --------     --------     --------
Weighted average shares outstanding:
         Basic                                                7,710        7,728        7,816
                                                           --------     --------     --------
         Diluted                                              7,710        7,768        7,858
                                                           --------     --------     --------
</TABLE>

See Notes to Consolidated Financial Statements.


<PAGE>   13
                                       13


CONSOLIDATED STATEMENTS OF CASH FLOWS

GC COMPANIES, INC.
<TABLE>
<CAPTION>
                                                                      Years Ended October 31,
                                                                 --------------------------------
(In thousands)                                                     1998        1997        1996
-------------------------------------------------------------------------------------------------
<S>                                                              <C>         <C>         <C>     
Cash flows from operating activities
         Net earnings (loss)                                     $(41,562)   $ 14,759    $ 17,242
         Adjustments to reconcile net earnings (loss) to net
             cash (used) provided by operating activities
               Depreciation and amortization                       19,180      19,229      19,369
               Deferred income taxes                              (19,224)     (6,817)     (1,192)
               Equity in losses of theatre affiliates                 539          --          --
               (Gain) loss from portfolio investments                 724      (9,585)     (6,307)
               Gain on marketable equity securities
                 designated as trading                             (6,815)         --          -- 
               (Gain) loss on impairment or disposition
                 of theatre assets                                 19,672      (3,466)        540
               Other non-cash activities                            2,075      (1,170)     (1,311)
               Changes in assets and liabilities
                 Liabilities for early lease terminations          36,579          --          --
                 Income tax receivable                            (12,618)         --          -- 
                 Trade payables                                    (3,434)      2,157      (2,580)
                 Other current assets and liabilities              (9,564)     28,563     (14,822)
                                                                 --------    --------    -------- 
         Net cash (used) provided by operating activities         (14,448)     43,670      10,939
                                                                 --------    --------    -------- 
Cash flows from investing activities
         Capital expenditures                                     (19,788)    (18,742)    (10,750)
         Proceeds from the disposition of theatre assets           19,805      18,824         758
         Proceeds from the (purchase of) or liquidation
             of short-term investments                              7,025     (18,448)     33,747
         Proceeds from the sale of portfolio investments               --      15,825      22,825
         Purchase of portfolio investments                        (12,315)    (42,073)    (20,195)
         Incremental investments in international
             theatre affiliates                                   (24,325)    (36,598)         --
         Other investing activities                                   131         815        (897)
                                                                 --------    --------    --------                              
         Net cash (used) provided by investing activities         (29,467)    (80,397)     25,488
                                                                 --------    --------    -------- 

Cash flows from financing activities
         Proceeds from borrowings on revolving credit facility     16,775          --          --
         Repurchase of common stock                                    --      (4,307)         --
         Other financing activities                                  (419)       (673)       (681)
                                                                 --------    --------    -------- 
         Net cash provided (used) by financing activities          16,356      (4,980)       (681)
                                                                 --------    --------    -------- 
         Net change in cash and cash equivalents                  (27,559)    (41,707)     35,746

Cash and cash equivalents at beginning of year                     30,038      71,745      35,999
                                                                 --------    --------    -------- 

Cash and cash equivalents at end of year                         $  2,479    $ 30,038    $ 71,745
                                                                 --------    --------    -------- 
</TABLE>

See Notes to Consolidated Financial Statements.


<PAGE>   14
                                       14




CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                           Unrealized
                                                                                            Gain on
                                                       Common Stock         Additional     Marketable
                                                  ----------------------      Paid-in        Equity        Retained
(In thousands)                                    Shares          Amount      Capital      Securities     Earnings         Total
---------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>         <C>           <C>            <C>            <C>
Balance at October 31, 1995                        7,812        $      78    $ 136,324     $     --       $  22,302     $ 158,704
         Net earnings                                 --               --           --           --          17,242        17,242
         Other equity transactions                     4               --           35           --              --            35
                                                   ------------------------------------------------------------------------------
Balance at October 31, 1996                        7,816               78      136,359           --          39,544       175,981
         Net earnings                                 --               --           --           --          14,759        14,759
         Repurchase of common stock                 (119)              (1)          --           --          (4,306)       (4,307)
         Other equity transactions                     8               --          287           --              --           287
                                                   ------------------------------------------------------------------------------
Balance at October 31, 1997                        7,705               77      136,646           --          49,997       186,720
         Net loss                                     --               --           --           --         (41,562)      (41,562)
         Unrealized gain on
             available-for-sale
             securities, less applicable
             taxes of $13,855                         --               --           --       20,782              --        20,782
         Other equity transactions                     5               --          403           --              --           403
                                                   ------------------------------------------------------------------------------
Balance at October 31, 1998                        7,710        $      77    $ 137,049    $  20,782          $8,435     $ 166,343
                                                   ------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

<PAGE>   15
                                       15


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

GC Companies, Inc. (GCC or the Company) operates a motion picture exhibition
business and manages a pool of the Company's capital for investments. It
operates motion picture businesses in the United States, South America and
Mexico. Its investment portfolio includes both domestic and European holdings.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF PRESENTATION

The consolidated financial statements include the accounts of GCC and all of its
majority-owned subsidiaries. Where GCC has the ability to exercise significant
influence over the operating and financial policies of companies in which GCC
has invested, those investments are accounted for under the equity method, and
GCC's share of the net earnings or losses of those companies are included in
"Investment income (loss)" in the consolidated statements of operations and
reported on a one-month lag. These investments are included under the captions
"Portfolio investments" and "Investments in international theatre affiliates."
Other investments which do not have readily determinable fair values because of
a lack of quoted market prices are carried at cost less impairment, if
applicable. These investments are included under the caption "Portfolio
investments." Investments with readily determinable fair values are accounted
for in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." These investments are included under the caption
"Marketable equity securities." All significant intercompany accounts and
transactions have been eliminated in consolidation.

FOREIGN CURRENCY TRANSLATION

The Company's equity-based South American joint venture uses the local currency
as the functional currency and, as such, translation adjustments are not
included as a part of the earnings or losses. In calculating the Company's
interest in earnings or losses of its Mexican equity-based investment, which
resides in a hyper-inflationary economy, gains or losses on translation are
included in net earnings. In 1998, foreign translation gains included in the
equity earnings were $0.8 million.

CASH EQUIVALENTS

Cash equivalents consist of highly liquid investments with maturities of three
months or less from the date of purchase. Cash equivalents are stated at cost
plus accrued interest, which approximates market value. The Company's policy is
to invest cash with financial institutions or in instruments that have
acceptable credit ratings and to limit the amount of credit exposure to any one
financial institution or issuer.

SHORT-TERM INVESTMENTS

Short-term investments consist primarily of commercial paper, certificates of
deposit, corporate debt securities and U.S. Government securities, and are
carried at cost plus accrued interest, which approximates fair value.

MARKETABLE EQUITY SECURITIES

Marketable equity securities are stated at fair value. Unrealized holding gains
on trading securities are included in the consolidated statements of operations
under the caption "Investment income (loss), net." Unrealized holding gains and
losses on available-for-sale securities are excluded from the consolidated
statements of operations and are included as a component of shareholders' equity
under the caption "Unrealized gain on marketable equity securities, net of tax."

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation and
amortization except impaired assets, which are stated at fair market value. Also
included in property and equipment is the cost of certain internally developed
software. These costs include external direct costs of materials and services
consumed as well as payroll and payroll-related costs for employees who are
directly associated with such projects. Such policy has been consistently
employed by the Company in the past and is consistent with the precepts set
forth in the American Institute of Certified Public Accountants (AICPA)
Statement of Position 98-1,

<PAGE>   16
                                       16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of 20 to 30 years for
buildings and improvements and 3 to 20 years for equipment and fixtures.
Leasehold improvements are amortized using the straight-line method over the
lesser of the lease period or the estimated useful lives of the leasehold
improvements. When property and equipment are retired or have been fully
depreciated, the cost and the related accumulated depreciation are eliminated
from the respective accounts. Gains or losses arising from dispositions of
property and equipment are reported as income or expense.

STOCK-BASED COMPENSATION

The Company follows the precepts set forth in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for
its Common Stock incentive plan. In compliance with SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company has disclosed the required pro-forma
effect on net earnings (loss) and diluted earnings (loss) per share in Note 12.

LONG-LIVED ASSETS

On an ongoing basis, the Company evaluates the carrying value of its long-lived
assets relying on a number of factors, including operating results, future
anticipated cash flows, business plans and certain economic projections. In
addition, the Company considers nonfinancial data such as changes in the
operating environment, competitive information, market trends and business
relationships. See Note 3 for discussion of the impairment charges recorded in
1998 and 1997.

INCOME TAXES

Income taxes are calculated in accordance with SFAS No. 109, "Accounting for
Income Taxes," which requires the asset and liability method of accounting for
income taxes.

REVENUES

Revenues are recognized when admission and concession proceeds are received at
the theatres. Revenues for other services are recognized at the time those
services are rendered.

FILM RENTAL COSTS

Film rental costs are recognized as a percentage of admission revenue and in
accordance with the terms of the film agreements.

NET EARNINGS (LOSS) PER SHARE

In the first quarter of fiscal 1998, the Company adopted SFAS No. 128, "Earnings
per Share," which replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Basic earnings per share
excludes any dilutive effect of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. Prior period earnings per share have been restated
to conform to SFAS No. 128.


<TABLE>
<CAPTION>
(In thousands except per share data)                           1998        1997       1996
-------------------------------------------------------------------------------------------
<S>                                                         <C>         <C>        <C>     
Net earnings (loss) (A)                                     $(41,562)   $ 14,759   $ 17,242
Determination of shares:
         Weighted average number
             of common shares outstanding (B)                  7,710       7,728      7,816
         Diluted effect of shares issuable on exercise of
         stock options, net of shares assumed to be
         purchased out of proceeds at market price                --          40         42
Average common shares outstanding for diluted
         computation (C)                                       7,710       7,768      7,858
Net earnings (loss) per share ("EPS"):
         Basic (A/B)                                        $  (5.39)   $   1.91   $   2.21
         Diluted (A/C)                                      $  (5.39)   $   1.90   $   2.19
</TABLE>


<PAGE>   17
                                       17

                                                              GC COMPANIES, INC.

SIGNIFICANT ESTIMATES

In the process of preparing its consolidated financial statements, the Company
estimates the appropriate carrying value of certain assets and liabilities,
which are not readily apparent from other sources. The primary estimates
underlying the Company's consolidated financial statements include goodwill,
impairment charges, lease termination reserves, deferred taxes, accruals for
pension and post-retirement benefits, self insurance and other matters. Actual
results could differ from these estimates. Management bases its estimates on
historical experience and on various assumptions that are believed to be
reasonable under the circumstances.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board recently issued SFAS No. 130,
"Reporting Comprehensive Income," SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," and SFAS No. 132, "Employees'
Disclosures about Pensions and Other Post-Retirement Benefits." SFAS No. 131 was
adopted in fiscal 1998. SFAS No. 130 and 132 will be adopted for the Company's
fiscal 1999 financial statements. The effect of adopting these two standards is
not expected to be material to the Company's financial position or results of
operations; however, they both will require additional disclosure. SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was also
recently issued. The Company is not required to implement this standard until
fiscal 2000. Its requirements are complex and its scope far-reaching. The
Company has not completed its evaluation of the impact of this standard on the
financial statements. In addition, the AICPA recently issued SOP 98-5,
"Reporting the Costs of Start-Up Activities," which must be adopted by the
Company in fiscal 2000. The Company is currently evaluating this standard and
has not determined the impact its adoption will have on the financial
statements.

CHANGES IN PRESENTATION

Certain prior-year amounts have been reclassified to conform to the current-year
presentation.

3. IMPAIRMENT OR DISPOSITION OF THEATRE ASSETS

During the ordinary course of business, management makes determinations that
impact both the recoverability of theatre assets and potential lease termination
charges. Such decisions have impacted operations in both 1997 and 1998. As part
of the Company's annual budgeting process, management reviews the long-lived
assets used in the theatre business for impairment. This analysis takes place at
the individual theatre level, which management believes is the lowest level for
which there are identifiable cash flows. In addition, management will review
internal management reports as well as monitor current and potential future
competition in its markets for indicators of impairment of individual theatre
assets. As a result of this analysis, management will determine whether
impairment has occurred, whether a write-down of the asset carrying value to
fair value is required and whether to abandon or continue to operate the
theatre. The impairment loss is measured as the amount by which the carrying
value of the asset exceeds the fair value, which is based on management's
estimates. The primary technique to determine fair value is to discount the
future cash flows of the theatre. There is considerable management judgement
necessary to determine the future cash flows of a theatre, and accordingly,
actual results could vary significantly from such estimates.

Over the last year, significant industry construction development has caused the
Company to reassess the value and utility of certain theatre locations through
its internal evaluation process described above. There has been an increase in
competition in certain markets as a result of the opening of megaplexes by
competitors, which have tended to, and are projected to, continue to draw
audiences away from certain older multiplex theatre locations that the Company
operates, particularly in the southern and western United States.

The evaluation described above resulted in an impairment charge of approximately
$7.4 million in certain marginal markets in 1997 and an impairment charge of
approximately $28.6 million in 1998.

There were also charges in 1998 totaling $39.6 million primarily relating to the
monies either spent or anticipated to be spent to exit certain leases. The
Company accrued approximately $15.2 million primarily for the cost to
exit certain leases for the theatres closed during the fourth quarter of 1998
and accrued approximately 


<PAGE>   18
                                       18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$24.4 million for the cost to exit the existing leases of theatres management
intends on abandoning in the next 12 months. The Company's reserves established
for leases on properties it intends to abandon reflect management's best
estimate of the potential costs associated with exiting the existing lease.
While the estimates are based on analysis of the facilities, correspondence with
the landlords, exploratory discussions with subleases and market conditions,
there has been limited experience to consider in preparing such estimates. The
amounts the Company will eventually be obligated for could differ materially
from the amounts assumed in arriving at the original reserve. The Company has
made approximately $3.2 million of cash payments for the cost of exiting leases
and other costs through October 31, 1998.

In 1998, the above-mentioned charges were partially offset primarily by the
disposition of a theatre in Texas in October 1998, resulting in a gain of $12.8
million.

In August 1997, the Company sold seven theatres it operated in Oklahoma for
$15.8 million realizing a gain of $10.3 million, which offset the above
impairment charge recorded in that year.

4. MARKETABLE EQUITY SECURITIES

At October 31, 1998, marketable equity securities included $69.8 million in
publicly traded shares of an international telecommunications service provider,
Global TeleSystems Group, Inc. (GTS), previously included in portfolio
investments at its original cost of $25.2 million at October 31, 1997, and $8.4
million in the shares of an optical and photo service retailer, GrandVision
(formerly named GrandOptical-PhotoService), previously included in portfolio
investments at a cost of $11.5 million at October 31, 1997.

In February 1998, GTS successfully completed an initial public offering of its
common stock and, as a result, under SFAS No. 115, the Company reclassified this
investment from portfolio investments into marketable equity securities and
recorded it at its fair value. The GTS shares have been split into two separate
classifications within marketable equity securities: $59.4 million (at the
then-current value) have been classified as available-for-sale securities, and
$10.4 million (at the then-current value) have been classified as trading
securities. On the shares classified as available-for-sale, a pre-tax unrealized
holding gain for the year ended October 31, 1998 of $37.7 million has been
recorded in the balance sheet net of tax, but is not reflected in the
consolidated statements of operations. The shares classified as trading
securities have generated a pre-tax unrealized gain for the year of $6.8 million
that has been recognized in the consolidated statements of operations within the
caption "Investment income (loss), net." The combined unrealized pre-tax gain on
the total GTS shares for the year ended October 31, 1998 was $44.5 million. The
pre-tax gain on the trading securities has been offset in the consolidated
statements of operations by the estimated incentive compensation as described in
Note 17. The Company's 1.8 million shares in GTS are subject to certain other
trading restrictions under applicable law.

As of October 31, 1998, all shares of GrandVision have the current restrictions
lapse within the next 12 months and, as a result, have been reclassified from
portfolio investments into available-for-sale marketable equity securities. A
pre-tax unrealized holding loss for the year ended October 31, 1998 of $3.1
million has been recorded on the Company's consolidated balance sheet net of
tax, but has not been reflected in the consolidated statements of operations
because of the available-for-sale designation.

<PAGE>   19
                                       19

                                                             GC  COMPANIES, INC.

                                                                           
5. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following at October 31:

<TABLE>
<CAPTION>
(In thousands)
                                                   1998       1997
--------------------------------------------------------------------
<S>                                              <C>        <C>     
Cost:
         Land                                    $  1,417   $  4,581
         Building and improvements                 19,244     26,146
         Leasehold improvements                   116,484    141,652
         Furniture and fixtures                   119,557    153,639
                                                 -------------------
                                                  256,702    326,018
Less accumulated depreciation and amortization    144,103    171,442
                                                 -------------------
Net property and equipment                       $112,599   $154,576
                                                 -------------------
</TABLE>

6. PORTFOLIO INVESTMENTS

Included in portfolio investments at October 31 were the following investments
in other companies. The investments in GrandVision and GTS are accounted for as
marketable equity securities in 1998 and are discussed in Note 4. The investment
in the financial guaranty insurer and the fleet management services company are
accounted for under the equity method.

<TABLE>
<CAPTION>
(In thousands except for percentages)                       % of Ownership     1998      1997
----------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>       <C>    
American Capital Access - financial guaranty insurer           23.8          $29,031   $30,000
Global TeleSystems Group, Inc. - international                                                
    telecommunications service provider                         2.3               --    25,195
GrandVision - optical and photo retailer                        1.6               --    11,515
Fuelman - fleet management services company                    45.2           11,135        --
Kabelmedia - German cable television systems operator           9.6           13,330    13,368
Teletrac - wireless location and two-way messaging company      7.4            8,273     7,00
                                                                             -----------------
Total                                                                        $61,769   $87,078
                                                                             -----------------
</TABLE>

On October 20, 1998, the Company invested an additional $1.3 million in the
wireless location and two-way messaging company, bringing the total invested
in that company to $8.3 million.

On February 9, 1998, the Company completed an $11.0 million investment in a
leading provider of fleet management services. Through its proprietary systems
and network, the company currently provides services to commercial vehicle
operators throughout the United States. The excess of the purchase price over
the underlying equity in the net assets of the investee totaled $7.6 million and
is being amortized over 20 years.

On October 16, 1997, GCC received 193,715 shares of GrandVision common stock, a
publicly traded optical and photo service retailer listed on the Paris stock
exchange, in exchange for its shares in the optical superstore retailer,
pursuant to a September 1, 1997 merger agreement. Of the GrandVision shares
received, 92,220 shares were sold on October 21, 1997 for approximately $15.8
million, and 101,495 shares were originally restricted from sale for periods
ranging from six months to two years. The GrandVision shares held on October 31,
1997 were recorded at approximately $11.5 million. Those shares with a six-month
restriction were considered "available-for-sale" securities under SFAS No. 115.
Their cost basis approximated their fair value at October 31, 1997. In December
1997, GrandVision effected a 4 for 1 stock split. This split has increased the
number of shares held in GrandVision to 405,980.

On September 24, 1997, GCC invested $30.0 million in a newly-formed financial
guaranty insurance company. This company received a claims-paying ability rating
of "A" from three national credit rating agencies. The results of operations for
the period since the date of investment through October 31, 1997 were not
material to the consolidated financial statements.



<PAGE>   20
                                       20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On August 14, 1997, the Company invested an additional $5.0 million in the
international telecommunications service provider, bringing the total
invested in that company to $25.2 million. These shares have been
reclassified to marketable equity securities as of October 31, 1998.

Unaudited summarized information about the Company's investees accounted for
under the equity method and included in portfolio investments are as follows:


<TABLE>
<CAPTION>
                                    Financial Guaranty Insurer      Fleet Management Services
                                                 For the Year            For the Eight Months
                                      Ended September 30, 1998       Ended September 30, 1998
(In thousands)                                     (Unaudited)                    (Unaudited)
---------------------------------------------------------------------------------------------
<S>                                                  <C>                           <C>      
Current assets                                       $ 133,234                     $  21,978
Non-current assets                                      16,841                        18,271
Current liabilities                                      5,650                        11,884
Non-current liabilities                                 23,367                        13,054
Redeemable preferred stock                                  --                        16,049
Total revenues or premiums written                      23,445                        77,484
Earnings (loss) before taxes                            (1,261)                        1,319
Net earnings (loss)                                     (1,261)                          776
</TABLE>

Gains or losses recognized on these investments and others that were previously
held are discussed in Note 17.

7. INVESTMENT IN INTERNATIONAL THEATRE AFFILIATES

On September 26, 1997, the Company purchased theatre operations in Mexico and
Argentina for a cash purchase price of $36.3 million. One hundred percent of the
Argentine common stock and fifty percent of the Mexican common stock were
purchased pursuant to this transaction. The purchase price has been allocated to
assets acquired (primarily fixed assets) and liabilities assumed based on their
fair value at the date of acquisition and in accordance with the purchase method
of accounting. The excess of purchase price over net assets acquired is being
amortized by the Company over a 10-year period. The excess of purchase price
over net assets acquired and the equity investment in the Mexican entity are
included in "Investment in international theatre affiliates."

Effective July 1, 1998, the Company entered into an agreement to form a 50/50
joint venture with Hoyts Cinema Group creating Hoyts General Cinema South
America, a stand-alone theatre circuit, which will pursue theatre
opportunities in South America. Pursuant to this, the net assets of the
Argentine and Uruguay operations (totaling approximately $26.7 million) were
contributed to the joint venture. The joint venture is accounted for by the
Company under the equity method. As a result of this venture, assets and
liabilities relating to the Argentine operation presented individually on the
balance sheet as of October 31, 1997 have been condensed into the caption
"Investments in international theatre affiliates" as of October 31, 1998. In
addition, results of operations for the year ended October 31, 1998 have been
condensed into the caption "Investment income (loss), net."

8. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following at October 31:

<TABLE>
<CAPTION>
(In thousands)                                  1998      1997
---------------------------------------------------------------
<S>                                           <C>       <C>    
Rent and related charges                      $14,928   $12,541
Payroll and related benefits                    5,792     4,858
Deal-related performance-based compensation    11,212     2,756
Self insurance                                 14,451    13,710
Deferred income                                20,210    18,971
Other                                          23,087    26,327
                                              -----------------
                                              $89,680   $79,163
                                              =================
</TABLE>


<PAGE>   21
                                       21

                                                              GC COMPANIES, INC.



9. LONG-TERM LIABILITIES

Other long-term liabilities consisted of the following at October 31:

<TABLE>
(In thousands)                                         1998      1997
----------------------------------------------------------------------
<S>                                                  <C>       <C>    
Deferred lease obligations                           $17,987   $20,412
Post-retirement health care benefits (see Note 15)     6,306     6,222
Other                                                  9,230     5,278
                                                     -----------------
                                                     $33,523   $31,912
                                                     =================
</TABLE>

The present value of the future minimum lease payments due under capital
lease obligations are as follows:

<TABLE>
<CAPTION>
Years ended October 31,                                      Capital Leases
---------------------------------------------------------------------------
<S>                                                            <C> 
1999                                                             $  534  
2000                                                                588  
2001                                                                619  
2002                                                                406  
2003                                                                100  
Thereafter                                                            7  
                                                                 ------
                                                                 $2,254 
                                                                 ======
</TABLE>

The net book value of property under capital leases was $0.9 million at
October 31, 1998 and $1.2 million at October 31, 1997.

10. RELATED-PARTY TRANSACTIONS

GCC was previously a 100%-owned subsidiary of Harcourt General, Inc. (Harcourt
General). Certain shareholders also function as officers of both companies and
have significant interests in both companies.

As a result of the 1993 spin-off of GCC, certain leases were transferred from
Harcourt General to GCC. Under a Reimbursement and Security Agreement that was
entered into at the time of the spin-off, GCC has agreed to indemnify Harcourt
General from losses Harcourt General could incur due to its secondary liability
on theatre leases that were transferred to GCC as part of the spin-off. In order
to secure its obligations under the Reimbursement and Security Agreement, GCC
pledged all of the stock of its theatre subsidiaries to Harcourt General. In
connection with the Harcourt General guarantee, the Company is charged a fee
based on total commitments outstanding. This fee totaled $230,000, $250,000 and
$271,000 in 1998, 1997 and 1996, respectively. In addition, GCC is required to
maintain certain financial covenants under its Reimbursement and Security
Agreement. Principally due to the charge described in Note 3 and recorded in the
fourth quarter, waivers of these financial covenants were obtained, and new
covenants and fees were established by Harcourt General resulting in an
amendment and restatement of the Reimbursement and Security Agreement dated
January 26, 1999.

Harcourt General provides certain management and other corporate services to
GCC. The fees for these services, which totaled $0.5 million in 1998, $0.5
million in 1997 and $1.1 million in 1996, were based on Harcourt General's
costs. Harcourt General's Chairman and Chief Executive Officer also serves as
the Chairman and Chief Executive Officer of the Company, and one of Harcourt
General's Presidents and Co-Chief Operating Officers serves as President and
Chief Operating Officer of GCC. The fees payable to Harcourt General have been,
and will continue to be, subject to the approval of a committee of independent
directors of GCC who are not affiliated with Harcourt General.

<PAGE>   22
                                       22


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11. REVOLVING CREDIT FACILITY

On October 31, 1998, the Company had $16.8 million outstanding under its
existing revolving credit agreement with two banks. The revolving credit
agreement enabled the Company to borrow up to $50.0 million and was due to
expire on December 31, 1998. Outstanding letters of credit at October 31, 1998
were $9.6 million. The weighted average interest rate on the revolving credit
facility for 1998 was 8.15% and the interest rate at October 31, 1998 was 8.0%.
There were no borrowings under the revolving credit facility in 1997 and 1996.

The Company was required to maintain certain financial covenants under its
revolving credit facility. Principally due to the charges recorded in the fourth
quarter of 1998 and described in Note 3, waivers were obtained from the two
banks.

The revolving credit agreement has been amended to extend the term of the
agreement through January 25, 2002. Under the amended agreement, the Company may
borrow up to $50.0 million. The Company is able to select a floating interest
rate based on the primary bank's base interest rate or fix interest rates for up
to six months. The fixed interest rates are based on the Eurodollar rate plus a
margin that ranges from 0.625% to 1.25% based on the level of total debt to cash
flow earnings as defined in the agreement. The new credit agreement contains
restrictive covenants requiring maintenance of a minimum net worth and fixed
charge coverage and also contains restrictions on the payment of dividends and
the issuance of additional debt. Because of this subsequent refinancing
arrangement, the debt has been classified as long-term in the consolidated
balance sheet.

12. SHAREHOLDERS' EQUITY

COMMON STOCK

Common Stock is entitled to dividends if declared by the Board of Directors, and
each share carries one vote. Holders of Common Stock have no cumulative voting,
redemption or preemptive rights.

COMMON STOCK INCENTIVE PLAN

The Company has a Common Stock incentive plan that provides for the granting of
stock options, stock appreciation rights, restricted stock or other stock-based
awards. Options outstanding at October 31, 1998, were granted at prices not less
than 100% of the fair market value on the date of original grant. These options
generally vest over five years and have maximum terms of ten years. Options for
66,143 shares, 69,183 shares and 70,211 shares were exercisable under all option
arrangements at October 31, 1998, 1997 and 1996, respectively. Under the
existing stock incentive plan, there were 556,263 and 484,873 shares available
for future grants at October 31, 1998 and 1997, respectively. Exercises in all
years presented have taken the form of both stock option exercises and stock
appreciation awards; the latter being granted at the time of exercise and at the
sole discretion of the Company.

<PAGE>   23
                                       23

                                                              GC COMPANIES, INC.


The following summarizes transactions under all stock option arrangements for
the years ended October 31, 1998, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                                    Weighted
                                                                     Average
                      Number of Shares   Per Share Option Price  Exercise Price
                      ---------------------------------------------------------
<S>                   <C>                <C>                     <C>
November 1, 1995          144,626        $ 15.81    -  $ 51.25      $ 25.99
         Granted           30,675                        33.75        33.75
         Exercised        (20,130)         15.81    -    35.00        21.14
         Canceled         (16,951)         15.81    -    35.00        31.90
                          -------        ---------------------      -------
October 31, 1996          138,220          15.81    -    51.25        27.69
         Granted           38,990                        34.62        34.62
         Exercised        (22,396)         15.81    -    35.00        21.25
         Canceled          (8,533)         22.34    -    35.00        31.99
                          -------        ---------------------      -------
October 31, 1997          146,281          15.81    -    51.25        30.28
         Granted           36,192          41.94    -    52.42        43.86
         Exercised        (25,839)         15.81    -    35.00        23.93
         Canceled            (530)         25.50    -    41.94        33.05
                          -------        ---------------------      -------
October 31, 1998          156,104        $ 15.81    -  $ 52.42      $ 34.45
                          -------        ---------------------      -------
</TABLE>

The following summarizes information about all stock options outstanding at
October 31, 1998:
<TABLE>
<CAPTION>
                                         Options Outstanding                      Options Exercisable
                            ---------------------------------------------   -------------------------------
                                                   Weighted-Average
                                             -----------------------------
                                    Number      Remaining                            Number         Weighted
                            Outstanding at    Contractual                    Exercisable at          Average
Range of Exercise Prices          10/31/98   Life (years)   Exercise Price         10/31/98   Exercise Price
------------------------------------------------------------------------------------------------------------
<S>                         <C>              <C>            <C>              <C>              <C>   
   $15.01 - $20.00                   5,131           3.1     $   15.81                5,131           $15.81
    20.01 -  30.00                  35,843           3.8         25.47               29,523            25.46
    30.01 -  40.00                  73,138           7.1         34.47               27,489            34.63
    40.01 -  50.00                  33,369           8.6         42.24                4,000            44.47
    50.01 -  52.42                   8,623           8.1         52.15                   --               --
                                   -------                                           ------
Total                              156,104                                           66,143
                                   -------                                           ------
</TABLE>

Had compensation cost for stock option grants issued during 1998, 1997 and 1996
been determined under the provisions of SFAS No. 123, the Company's net earnings
(loss) as well as basic and diluted earnings (loss) per share would have been as
follows:

<TABLE>
<CAPTION>
                                                       Years Ended October 31,
                                             ----------------------------------------------
(In thousands except for per share amounts)      1998              1997             1996
-------------------------------------------------------------------------------------------
<S>                                          <C>               <C>              <C>        
Net earnings (loss)                          $  (41,820)       $   14,571       $   17,152 
Basic earnings (loss) per share              $    (5.42)       $     1.89       $     2.19 
Diluted earnings (loss) per share            $    (5.42)       $     1.88       $     2.18 
</TABLE>

The pro-forma effect on net earnings (loss) as well as basic and diluted
earnings (loss) per share for 1998, 1997 and 1996 is not representative of the
pro-forma effect on net income in future years, because it does not take into
consideration pro-forma compensation expense related to grants made prior to
1996.

<PAGE>   24
                                       24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The fair value of each stock option granted in 1998, 1997 and 1996 under the
Company's plans was estimated on the date of the grant using the Black-Scholes
option-pricing model. The following weighted average assumptions were used to
value grants issued under the plans in 1998, 1997 and 1996: 

<TABLE>
<CAPTION>

                                                     1998           1997           1996
------------------------------------------------------------------------------------------
<S>                                               <C>            <C>            <C>    
Expected volatility                                 18.00%         18.20%         19.10% 
Risk-free interest rates                             5.88%          5.75%          5.75% 
Expected life                                      7 years        7 years        7 years    
Dividend payments                                     None           None           None 
</TABLE>

The weighted average fair values per share of stock options granted during
1998, 1997 and 1996 were $15.03, $12.98 and $12.84, respectively.

13. RETIREMENT PLANS

GCC has a non-contributory defined benefit pension plan covering substantially
all full-time employees. GCC also sponsors an unfunded supplemental executive
retirement plan, which provides certain employees additional pension benefits.
Benefits under the plans are based on years of service and compensation prior to
retirement. When funding is required for the defined benefit plans, the policy
is to contribute amounts that are deductible for federal income tax purposes.
Pension plan assets consist primarily of equity and fixed income securities. 

Net pension income included the following components:
 
<TABLE>
<CAPTION>
                                                           Years Ended October 31,
                                                    --------------------------------------
(In thousands)                                       1998           1997           1996
------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>            <C>    
Service cost                                        $   431        $   451        $   426
Interest cost on projected benefit obligation         1,278          1,191          1,104
Actual return on plan assets                         (1,268)        (5,179)        (3,952)
Net amortization and deferral                        (1,508)         2,524          1,423
                                                    --------------------------------------
Net pension income                                  $(1,067)       $(1,013)       $  (999)
                                                    --------------------------------------
</TABLE>

The significant actuarial assumptions as of the year-end measurement dates
were as follows:
 
<TABLE>
<CAPTION>
                                             Years Ended October 31,
                                        --------------------------------
                                        1998          1997          1996
------------------------------------------------------------------------
<S>                                     <C>           <C>           <C> 
Discount rate                           7.0%          7.5%          7.5%
Rate of compensation increases          5.0%          5.0%          5.0%
Rate of return on plan assets           9.0%          9.0%          9.0%
</TABLE>

The plans' funded status and amounts recognized in the consolidated balance
sheets at October 31, were as follows:
<TABLE>
<CAPTION>
                                                            1998                           1997
                                                  -------------------------       ------------------------
                                                   Funded          Unfunded         Funded        Unfunded
(In thousands)                                       Plan            Plan            Plan             Plan
----------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>             <C>     
Vested benefit obligation                         $ 13,746        $  1,550        $ 10,614        $  1,268
                                                  --------        --------        --------        --------
Accumulated benefit obligation                      14,629           1,635          11,393           1,492
                                                  --------        --------        --------        --------
Projected benefit obligation                        17,912           2,047          14,472           1,825
Pension plan assets at fair value                   28,234              --          27,639              --
                                                  --------        --------        --------        --------
Overfunded (unfunded) projected obligations         10,322          (2,047)         13,167          (1,825)
Unrecognized net asset at transition                  (568)             --            (861)             --
Unrecognized net (gain) loss                        (4,053)            378          (8,010)            305
                                                  --------        --------        --------        --------
Pension asset (liability) recognized in
    the consolidated balance sheets               $  5,701        $ (1,669)       $  4,296        $ (1,520)
                                                  --------        --------        --------        --------
</TABLE>


<PAGE>   25
                                       25

                                                              GC COMPANIES, INC.



In addition to the defined benefit plans, GCC has two defined contribution plans
for certain employees. The GCC Savings Plan permits employee contributions and
provides for certain matching contributions by the Company. The Company's
contributions in fiscal years 1998, 1997 and 1996 were $337,525, $431,218 and
$492,621, respectively. The GCC Employee Stock Ownership Plan (ESOP) is
non-contributory.

14. COMMITMENTS AND CONTINGENCIES

LEASES

GCC conducts a significant part of its operations in leased premises under
noncancelable leases, the majority with terms of 20 years. These leases
generally provide for the payment of fixed monthly rentals, contingent rentals
based on a percentage of revenue over a specified amount and the payment of
property taxes, common area maintenance, insurance and repairs. At its option,
GCC can renew a substantial portion of such leases for various periods up to an
additional 20 years. Certain of GCC's leases require periodic increased rentals.
The rental costs on these leases have been recognized on a straight-line basis
and are included in deferred lease obligations. On theatre locations assigned to
third parties, GCC is secondarily liable for certain lease commitments that
extend through 2017 and totaled approximately $89.9 million at October 31, 1998.

Assuming renewal options are not exercised, the future minimum payments under
noncancelable operating leases as of October 31, 1998 were as follows:

<TABLE>
<CAPTION>
(In thousands)                               Operating Leases
-------------------------------------------------------------
<S>                                                 <C>    
1999                                                  $64,411
2000                                                   65,418
2001                                                   65,016
2002                                                   63,745
2003                                                   62,889
Thereafter                                            478,149
                                                     --------
                                                     $799,628
                                                     --------
</TABLE>

Rent expense under noncancelable leases was as follows:
 
<TABLE>
<CAPTION>
                                                 Years Ended October 31,
                                           -----------------------------------
(In thousands)                               1998          1997          1996
------------------------------------------------------------------------------
<S>                                        <C>           <C>           <C>    
Minimum rentals                            $68,198       $62,710       $57,683
Percentage rentals based on revenues         3,049         3,750         3,913
                                           -----------------------------------
                                           $71,247       $66,460       $61,596
                                           -----------------------------------
</TABLE>

The Company has an agreement with a major financial institution to provide
operating leases for up to $250 million of assets for its theatre circuit
expansion program. This agreement expires in November 2001. The Company
currently has entered into $57.0 million of operating leases with this
financial institution. Availability of this lease arrangement is in part
dependent upon the ability of the financial institution to syndicate leases
to third party financial institutions. At October 31, 1998 and 1997, current
assets included a receivable due from this institution related to advances
provided by the Company as the lessor's agent on certain projects of $21.7
million and $3.8 million, respectively.

The Company is required to maintain certain financial covenants under its
lease agreement. As a result of the charge discussed in Note 3 and recorded
in the fourth quarter of 1998, waivers of these covenants were obtained and
new covenants were established by the financial institution resulting in an
amendment to the lease agreement dated October 31, 1998.

LITIGATION

GCC is involved in various suits and claims in the ordinary course of
business. Management does not believe that the disposition of such suits and
claims will have a material adverse effect upon the consolidated financial
position or continuing operations of the Company.

<PAGE>   26
                                       26
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



15. POST-RETIREMENT HEALTH CARE BENEFITS

The Company provides health care benefits for retired employees that are
funded as claims are incurred. Retirees and active employees hired prior to
March 1, 1989 are eligible for these benefits if they meet certain service
and minimum age requirements. The Company paid $271,000, $208,000 and
$233,000 during fiscal 1998, 1997 and 1996, respectively, for post-retirement
health care benefit claims.

The actuarial present value of accumulated post-retirement benefit
obligations and the amounts recognized in GCC's consolidated balance sheets
as of October 31 were as follows:
<TABLE>
<CAPTION>

(In thousands)                                    1998         1997
--------------------------------------------------------------------
<S>                                              <C>          <C>   
Retirees                                         $3,558       $3,063
Fully eligible active plan participants             164          468
Other active plan participants                      653          638
Unrecognized net gain                             1,931        2,053
                                                 -------------------
Accrued post-retirement benefit obligation       $6,306       $6,222
                                                 -------------------
</TABLE>


The post-retirement benefit cost relating to GCC's employees was as follows:
 
<TABLE>
<CAPTION>
                                                        Years Ended October 31,
                                                   -------------------------------
(In thousands)                                      1998         1997         1996
----------------------------------------------------------------------------------
<S>                                                <C>          <C>          <C>  
Service cost                                       $  25        $  30        $  34
Interest cost on accumulated post-retirement
    benefit obligation                               300          298          299
Net amortization                                    (168)        (168)        (171)
                                                   -------------------------------
Net post-retirement benefit cost                   $ 157        $ 160        $ 162
                                                   -------------------------------
</TABLE>

The assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 13.0% in fiscal 1997 and 12.0% in fiscal
1998, gradually declining to 5.0% in fiscal 2005. Measurement of the accumulated
post-retirement benefit obligation was based on an assumed 7.0% discount rate
for 1998 and 7.5% for 1997 and 1996.

If the health care cost trend rate assumptions were increased by 1.0%, the
accumulated post-retirement obligation as of October 31, 1998 would be increased
by $471,000. The effect of this change on the service cost and interest cost
would be an aggregate increase of $38,000.

16. INCOME TAX BENEFIT (PROVISION)

Income tax benefit (provision) was as follows:
<TABLE>
<CAPTION>
                                 Years Ended October 31,
                       -----------------------------------------
(In thousands)           1998            1997            1996
----------------------------------------------------------------
<S>                    <C>             <C>             <C>      
Current
         Federal       $  7,442        $(14,875)       $(10,379)
         State            1,042          (2,199)         (2,795)
                       -----------------------------------------
                          8,484         (17,074)        (13,174)
Deferred
         Federal         16,754           6,933           1,017
         State            2,470            (116)            175
                       -----------------------------------------
                         19,224           6,817           1,192
                       -----------------------------------------
                       $ 27,708        $(10,257)       $(11,982)
                       -----------------------------------------
</TABLE>

GCC's effective income tax rate was 40.0% in 1998 and 41.0% in both 1997 and
1996. The differences between the statutory federal tax rate and the effective
tax rate are due primarily to state income taxes. The Company paid approximately
$8.0 million, $13.7 million and $11.3 million in income taxes during the years
ended October 31, 1998, 1997 and 1996, respectively.


<PAGE>   27
                                       27

                                                              GC COMPANIES, INC.



Significant components of the Company's net deferred income tax liability
(asset) stated on a gross basis at October 31, were as follows:

<TABLE>
<CAPTION>

(In thousands)                                                    1998            1997
----------------------------------------------------------------------------------------
<S>                                                             <C>             <C>     
Gross deferred income tax assets
         Financial accruals and reserves                        $ 18,710        $  5,770
         Post-retirement health care benefits                      2,595           2,616
         Self insurance accruals                                   1,550           1,428
                                                                ------------------------
             Total deferred tax assets                            22,855           9,814
Gross deferred income tax liabilities
         Basis difference in fixed assets                          4,107          13,016
         Unrealized gain on trading securities                     2,726              --
         Unrealized gain on available-for-sale securities         13,855              --
                                                                ------------------------
             Total deferred income tax liabilities                20,688          13,016
                                                                ------------------------
             Net deferred tax liability (asset)                 $ (2,167)       $  3,202
                                                                ------------------------
</TABLE>

17. NET INVESTMENT INCOME (LOSS)

On February 5, 1998, GTS successfully completed an initial public offering of
its common stock. A portion of the shares have been designated as trading
securities generating a recognized gain of $6.8 million in the consolidated
statements of operations. This gain was offset by performance-based compensation
of $8.8 million earned by certain employees based on certain investment events
as defined in the GCC Investments, Inc. Incentive Pool Plan. This compensation
calculation is determined according to a plan adopted in 1996. The amounts are
paid in either cash or restricted shares, which vest over a period of time.
Compensation related to the restricted shares is recognized pro-ratably over the
vesting period.

On October 16, 1997, GCC received 193,715 shares of GPS common stock in exchange
for its shares in the optical superstore retailer. As a result of the exchange,
GCC recorded a $9.0 million pre-tax gain in its fourth quarter of fiscal 1997.
During the fourth quarter of fiscal 1997, the Company also recognized a $0.6
million pre-tax gain resulting from the release of escrow related to the sale of
its radio group investment in 1996.

In October 1996, GCC realized a $9.5 million net pre-tax gain upon the
liquidation of its investment in a radio group that operated radio stations in
the San Francisco, Las Vegas and Albuquerque markets. GCC received aggregate
proceeds of $22.8 million relating to these sales transactions.

In April 1996, the Company recorded a $2.5 million pre-tax charge to write off
its remaining investment in a children's clothing retailer as a result of that
company's continued cash flow problems and operating losses. Loss from minority
investments in 1996 also included a $0.6 million pre-tax charge recorded in the
first quarter, representing the Company's share of losses incurred by its radio
group investment, when such investment was accounted for under the equity
method.

Investment income (loss) consisted of the following:
 
<TABLE>
<CAPTION>
                                                     Years Ended October 31,
                                             ---------------------------------------
(In thousands)                                 1998            1997           1996
------------------------------------------------------------------------------------
<S>                                          <C>             <C>            <C>     
Interest income                              $  1,264        $  3,418       $  2,593
Dividend income                                    36             877          1,207
Gain on sale of portfolio investments              --           9,585          9,452
Loss from portfolio investments                (2,678)             --         (3,145)
Equity in losses of theatre affiliates           (539)             --             --
                                             --------        --------       --------
Net investment income (loss)                 $ (1,917)       $ 13,880       $ 10,107
                                             --------        --------       --------
</TABLE>

<PAGE>   28
                                       28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



18. SEGMENTS OF ENTERPRISE AND RELATED INFORMATION

The Company has adopted SFAS No. 131 in 1998. Accordingly, it has segmented its
operations in a manner that reflects how its chief operating decision maker
reviews the results of the businesses that make up the consolidated entity. The
Company has identified six reportable segments--four segments within what the
Company considers its domestic theatre operation (which encompasses all theatres
in the continental United States); one segment which includes the Company's
joint ventures in South America and Mexico; and the final segment which
primarily includes all of the activity related to the investment portfolio
business and corporate administration. This identification of segments emanates
from management's recognition that (i) its investing activity in a variety of
non-theatre related activities is wholly separate from theatre operations; (ii)
its South American and Mexican operations are new theatre ventures in markets
that are completely dissimilar to the United States market; and (iii) its
domestic theatre locations are being operated in different manners given their
ultimate strategic importance to the Company. The four operating segments within
the domestic operations are core markets, other markets, impaired theatres and
other expenses. The core segment represents those markets management has defined
as its strategic area of operations and includes theatres operating in the
Northeast and Midwest. The other market segment includes those theatres outside
of the core markets that are not defined as impaired. The impaired theatre
segment includes all theatres that have been identified as impaired units in
accordance with the analysis discussed in Note 3. The other expenses segment
primarily includes the regional and home office administration.

The Company evaluates both domestic and international theatre performance and
allocates resources based on earnings before interest, taxes, depreciation and
amortization. Information concerning earnings (loss) before income taxes have
also been provided so as to aid in the reconciliation to the consolidated
totals. The international theatre segment has been reported in this footnote as
if it were a fully-consolidated subsidiary rather than under the equity method
as it has been reported in the consolidated financial statements because the
chief operating decision maker evaluates operations on this basis. The
adjustment column is utilized to return the international theatre segment to the
equity method and eliminate intercompany balances. Performance of the investment
portfolio business is evaluated using the same measures as are seen in the
consolidated financial statements.

<TABLE>
<CAPTION>
TOTAL COMPANY
-----------------------------------------------------------------------------------------------------------------------
                                                               Year Ended October 31, 1998
                                        -------------------------------------------------------------------------------
                                          Domestic  International    Other     Segment                    Consolidated
(In thousands)                            Theatres     Theatres    Operations  Totals        Adjustments        Totals
-----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>         <C>            <C>         <C>           <C>              <C>      
Revenues:
         Admissions                     $ 271,999     $  24,483     $   --     $ 296,482     $ (24,483)       $ 271,999
         Concessions                      124,317         8,823         --       133,140        (8,823)         124,317
         Other                             11,070           958         --        12,028          (958)          11,070
                                         ------------------------------------------------------------------------------
Total revenues                            407,386        34,264         --       441,650       (34,264)         407,386
                                         ------------------------------------------------------------------------------
Earnings (loss) before
    interest, taxes, depreciation
    and amortization                       17,234         4,435     (8,108)       13,561        (4,435)           9,126
Depreciation and amortization              18,987         3,906        193        23,086        (3,906)          19,180
Gain (loss) on impairment
    or disposition of
    theatre assets                        (56,844)           --         --       (56,844)           --          (56,844)
Net investment income (loss)                   50           (10)      (956)         (916)       (1,001)          (1,917)
Earnings (loss)
    before income taxes                   (58,797)           24     (9,462)      (68,235)       (1,035)         (69,270)
Total assets                              269,192       103,670    157,529       530,391      (140,430)         389,961
Total capital expenditures                 17,597        28,761      2,191        48,549       (28,761)          19,788
</TABLE>


<PAGE>   29
                                       29

                                                              GC COMPANIES, INC.

<TABLE>
<CAPTION>
DOMESTIC THEATRES
---------------------------------------------------------------------------------------------------------------------
                                                               Year Ended October 31, 1998
                                        -----------------------------------------------------------------------------
                                          Core              Other        Impaired            Other         Domestic
(In thousands)                           Markets           Markets        Theatres          Expenses        Theatres
---------------------------------------------------------------------------------------------------------------------
<S>                                     <C>              <C>             <C>                <C>            <C>      
Revenues:
         Admissions                     $ 143,644        $  57,905       $  70,450          $    --        $ 271,999
         Concessions                       63,527           26,803          33,987               --          124,317
         Other                              4,584            3,471           3,015               --           11,070
                                        -----------------------------------------------------------------------------
Total revenues                            211,755           88,179         107,452               --          407,386
                                        -----------------------------------------------------------------------------
Earnings (loss) before
    interest, taxes, depreciation
    and amortization                       32,893           13,577          (5,527)         (23,709)          17,234
Depreciation and amortization               7,440            3,960           4,145            3,442           18,987
Gain (loss) on impairment or
    disposition of theatre assets            (315)          12,718         (69,247)              --          (56,844)
Net investment income (loss)                   --               --              --               50               50
Earnings (loss)
    before income taxes                    25,453            9,617         (66,516)         (27,351)         (58,797)
Total assets                               80,416           34,963           3,639          150,174          269,192
Total capital expenditures                  5,826            3,354             902            7,515           17,597
</TABLE>

<TABLE>
<CAPTION>
TOTAL COMPANY
--------------------------------------------------------------------------------------------------------------------------
                                                               Year Ended October 31, 1997
                                        ----------------------------------------------------------------------------------
                                          Domestic  International    Other        Segment                     Consolidated
(In thousands)                            Theatres     Theatres    Operations     Totals        Adjustments      Totals
--------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>           <C>            <C>            <C>           <C>            <C>      
Revenues:
         Admissions                   $ 301,080     $     269      $      --      $ 301,349     $      --      $ 301,349
         Concessions                    132,575            58             --        132,633            --        132,633
         Other                           11,151            --             --         11,151            --         11,151
                                      ----------------------------------------------------------------------------------
Total revenues                          444,806           327             --        445,133            --        445,133
                                      ----------------------------------------------------------------------------------
Earnings (loss) before interest,
    taxes, depreciation and
    amortization                         34,351           (33)        (6,833)        27,485            --         27,485
Depreciation and amortization            18,972            89            168         19,229            --         19,229
Gain (loss) on impairment or
    disposition of theatre assets         3,566            --             --          3,566            --          3,566
Net investment income (loss)                 --            --         13,880         13,880            --         13,880
Earnings (loss)
    before income taxes                  18,158          (122)         6,980         25,016            --         25,016
Total assets                            271,174        48,935        142,479        426,588      (122,988)       339,600
Total capital expenditures               17,725            --          1,017         18,742            --         18,742
</TABLE>


<PAGE>   30
                                       30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<CAPTION>
DOMESTIC THEATRES
---------------------------------------------------------------------------------------------------------------------
                                                               Year Ended October 31, 1997
                                        -----------------------------------------------------------------------------
                                          Core              Other        Impaired            Other         Domestic
(In thousands)                           Markets           Markets        Theatres          Expenses        Theatres
---------------------------------------------------------------------------------------------------------------------
<S>                                     <C>              <C>             <C>              <C>              <C>      
Revenues:
         Admissions                      $ 137,644      $  55,997        $ 107,439        $      --         $ 301,080
         Concessions                        58,349         24,944           49,282               --           132,575
         Other                               3,913          3,346            3,892               --            11,151
                                         ----------------------------------------------------------------------------
Total revenues                             199,906         84,287          160,613               --           444,806
                                         ----------------------------------------------------------------------------
Earnings (loss) before interest,
    taxes, depreciation and
    amortization                            35,730         14,749            8,629          (24,757)           34,351
Depreciation and amortization                6,685          3,664            6,085            2,538            18,972
Gain (loss) on impairment or
    disposition of theatre assets                2              4            3,560               --             3,566
Net investment income (loss)                    --             --               --               --                --
Earnings (loss)
    before income taxes                     29,047         11,089            6,104          (28,082)           18,158
Total assets                                71,301         27,854           46,636          125,383           271,174
Total capital expenditures                   6,992          1,367            1,773            7,593            17,725
</TABLE>


19. COMPARATIVE QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                          1998
                                                       -------------------------------------------------------------------------
                                                          First        Second            Third         Fourth             Full
(In thousands except for per share amounts)              Quarter      Quarter(1)        Quarter        Quarter            Year
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>               <C>            <C>             <C>       
Revenues                                               $ 121,087     $  85,470         $ 114,633      $  86,196       $ 407,386 
Gross profit                                               2,508        17,897            18,764          1,570          40,739 
Net earnings (loss)                                        3,105        (4,045)            2,019        (42,641)        (41,562)
Net earnings (loss) per share                                                                                                   
         Basic                                         $    0.40     $   (0.52)        $    0.26      $   (5.53)      $   (5.39)
                                                       -------------------------------------------------------------------------
         Diluted                                       $    0.40     $   (0.52)        $    0.26      $   (5.53)      $   (5.39)
                                                       -------------------------------------------------------------------------
</TABLE>


(1)  REVENUES AND GROSS PROFIT RESULTS FOR SOUTH AMERICA FOR THE FIRST AND
     SECOND QUARTER HAVE BEEN RECLASSIFIED AS A RESULT OF ENTERING INTO THE
     HOYTS GENERAL CINEMA SOUTH AMERICA JOINT VENTURE.
 
<TABLE>
<CAPTION>
                                                                                          1997
                                                       -------------------------------------------------------------------------
                                                          First        Second            Third         Fourth            Full
(In thousands except for per share amounts)              Quarter       Quarter          Quarter        Quarter           Year
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>              <C>             <C>            <C>       
Revenues                                               $125,706        $108,264        $122,642        $ 88,521        $445,133   
Gross profit                                             19,997          16,262          17,678           5,226          59,163   
Net earnings                                              5,590           1,579           3,859           3,731          14,759   
Net earnings per share                                                                                                            
         Basic                                         $   0.72        $   0.21        $   0.50        $   0.48        $   1.91   
                                                       -------------------------------------------------------------------------
         Diluted                                       $   0.71        $   0.20        $   0.50        $   0.48        $   1.90   
                                                       -------------------------------------------------------------------------
</TABLE>


<PAGE>   31
                                       31



INDEPENDENT AUDITORS' REPORT


BOARD OF DIRECTORS AND SHAREHOLDERS
GC COMPANIES, INC.
CHESTNUT HILL, MASSACHUSETTS

We have audited the consolidated balance sheets of GC Companies, Inc. and
subsidiaries (the Company) as of October 31, 1998 and 1997 and the related
consolidated statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended October 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 present fairly, in all
material respects, the financial position of GC Companies, Inc. as of October
31, 1998 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended October 31, 1998 in conformity
with generally accepted accounting principles.


Deloitte & Touche LLP
BOSTON, MASSACHUSETTS
DECEMBER 9, 1998
(JANUARY 26, 1999 AS TO PORTIONS OF NOTES 10 AND 11)

<PAGE>   32
                                       32




DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
DIRECTORS                                                        CORPORATE OFFICERS
<S>                                                              <C> 
Richard A. Smith                                                 Richard A. Smith                                       
CHAIRMAN AND CHIEF EXECUTIVE OFFICER; CHAIRMAN AND               CHAIRMAN AND CHIEF EXECUTIVE OFFICER                   
CHIEF EXECUTIVE OFFICER OF HARCOURT GENERAL, INC. AND                                                                   
THE NEIMAN MARCUS GROUP, INC.                                    Robert A. Smith                                        
                                                                 PRESIDENT AND CHIEF OPERATING OFFICER                  
William L. Brown*                                                                                                       
FORMER CHAIRMAN                                                  Paul R. Del Rossi                                      
BANK OF BOSTON CORPORATION                                       CHAIRMAN                                               
                                                                 GENERAL CINEMA THEATRES, INC.                          
Peter C. Read*                                                                                                          
FORMER EXECUTIVE VICE PRESIDENT                                  William B. Doeren                                      
BANK OF BOSTON CORPORATION                                       PRESIDENT AND CHIEF EXECUTIVE OFFICER                  
                                                                 GENERAL CINEMA THEATRES, INC.                          
Francis E. Sutherby*                                                                                                    
FORMER PARTNER                                                   John G. Berylson                                       
DELOITTE & TOUCHE LLP                                            SENIOR VICE PRESIDENT AND CHIEF INVESTMENT OFFICER     

Dr. Leonard A. Schlesinger*                                                                                             
SENIOR VICE PRESIDENT, DEVELOPMENT                               G. Gail Edwards                                        
BROWN UNIVERSITY                                                 VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER  
                                                                                                                        
                                                                 Philip J. Szabla                                       
                                                                 VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY          
                                                                                                                        
                                                                 Louis E. Casavant                                      
                                                                 VICE PRESIDENT AND CORPORATE CONTROLLER                
</TABLE>

*AUDIT COMMITTEE             
 COMPENSATION COMMITTEE      
 SPECIAL REVIEW COMMITTEE
<PAGE>   33
SHAREHOLDER INFORMATION
-----------------------


Requests for general information or published financial information can be made 
in writing to GC Companies, Inc., 27 Boylston Street, Chestnut Hill, MA 02467, 
or by telephone at (617) 278-5600.


TRANSFER AGENT AND REGISTRAR
BankBoston, N.A.
c/o EquiServe
Post Office Box 8040
Boston, MA 02266-8040
(800) 736-3001


FORM 10-K
Additional copies of the company's Form 10-K as filed with the Securities and 
Exchange Commission are available upon written request to the Secretary of the 
Company.


ANNUAL MEETING
The Annual Meeting of the Stockholders will be held on Friday, March 5, 1999 at 
10:00 a.m. at the Company's corporate headquarters at 27 Boylston Street, 
Chestnut Hill, Massachusetts.


STOCK INFORMATION
The Company's Common Stock is traded on the New York Stock Exchange under the 
symbol "GCX". The following table indicates the quarterly price range of GC 
Companies' Common Stock for the past two fiscal years.


<TABLE>
<CAPTION>

                              1998                      1997
                      --------------------       ------------------
Quarter                High          Low          High        Low
-------               ------        ------       ------      ------
<S>                   <C>           <C>          <C>         <C>
First                 $47.94        $41.06       $37.13      $33.50
Second                $53.00        $45.75       $40.38      $35.50
Third                 $52.63        $46.00       $46.00      $39.88
Fourth                $49.75        $36.00       $44.00      $39.00
</TABLE>


The Company had approximately 7,710 million shares of Common Stock outstanding 
and approximately 3,077 Common shareholders of record at October 31, 1998.


<PAGE>   34







CORPORATE ADDRESS

GC Companies, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
GC Companies and General Cinema (617) 277-4320
Shareholder Information (617) 278-5600