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                               GC COMPANIES, INC.
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                               1999 Annual Report








                           [GC COMPANIES, INC. LOGO]



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                               GC COMPANIES, INC.
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manages a pool of the Company's capital that is utilized to make investments in
a variety of industries and operates General Cinema's domestic and international
motion picture exhibition circuits presently consisting of 1,041 screens at 134
locations in the United States as well as 194 screens at 19 locations in South
America and Mexico.





<PAGE>   3



                               DEAR SHAREHOLDERS:
--------------------------------------------------------------------------------



The transition of your Company that began in fiscal 1998 continued throughout
fiscal 1999. We have continued to build value through our investment portfolio
and our international theatre joint venture, and we have made significant
progress in the ongoing restructuring of our domestic theatre business. The
performance of our investment portfolio has been impressive and three of our
five private investments were taken public by the end of December, 1999,
producing substantial unrealized gains in our portfolio. The international
theatre operations continued to expand and show great promise with new theatres
opening in Argentina, Brazil and Chile. Our domestic theatre circuit, however,
still faces significant challenges. The continuing impact of competition from
new theatre construction by other exhibitors in the United States has resulted
in below-expected levels of business at both our new and older units, which has
resulted in disappointing domestic operating results.

             Investment Portfolio: Building Value for GC Companies

Our corporate strategy of diverting excess corporate capital out of the domestic
theatre business into a portfolio of investment opportunities has generated
considerable returns for the Company. The performance of our investment group
has greatly contributed to the financial strength of our Company. The Company's
original cash position of $64.0 million, invested gradually over the past six
years, has grown to a portfolio that is today valued at $210.0 million, (with
private investments valued at cost) plus $9.0 million of net cash realized from
the divestiture of investments.

         Among the investment group's highlights for fiscal 1999 was the initial
public offering ("IPO") of PrimaCom, a German cable television systems operator,
which was listed on the German Neuer Markt. We have now sold this entire
investment - a portion in the fourth quarter and the balance subsequent to the
end of the year. The total value realized was $41.2 million, with an original
cost of $13.3 million and a 27% time-weighted return on our investment.

         In December, 1999, after the close of the Company's fiscal year, our
two Internet-related investments also completed IPO's. These were El Sitio, an
Internet provider of global and country-specific content targeting Spanish and
Portuguese speaking people in Latin America that is now traded on NASDAQ under
the symbol "LCTO," and MotherNature.com, a leading Web-based retailer of
vitamins, supplements and minerals that is now traded on NASDAQ under the symbol
"MTHR".

         In addition to El Sitio, MotherNature.com and PrimaCom, the Company's
investment portfolio at October 31, 1999 included publicly-held investments in
Global TeleSystems Group, Inc., an international (primarily European)
telecommunications company that is publicly traded on the NYSE under the symbol
"GTS"; and the remaining small portion of our investment in GrandVision, an
optical and photo retailer that is publicly traded on the French Exchange under
the symbol "GPS". Privately-held investments include Fuelman, a leading provider
of vehicle fleet management information services and American Capital Access, a
financial guaranty insurance company. The aggregate carrying value of the
investment portfolio at fiscal year-end 1999 was $157.6 million. The current
portfolio is valued at $210.0 million with an original cost of $102.0 million.

         After our fiscal year-end, the Company made two new investments, a
$10.4 million investment in VeloCom, Inc., a facilities-based provider of voice,
data and Internet communications services in Latin America, and an $8.0 million
investment in Vanguard Modular Building Systems, LLC, a leading regional
provider of commercial modular complexes, for rental mostly to the school
market.

         We are pleased by the performance of our investment group and the value
it is building for your Company.

     International Theatres: Capitalizing on the South American Opportunity

GC Companies' international theatre circuit is an important component of our
strategy to both improve profitability and build value. Our international
strategy is to establish a leading presence in under-served markets such as
Argentina, where there is a proven demand for a high-quality movie-going
experience. The high level of patronage experienced in our existing South
American locations, the density of the population in the major cities, such as
Buenos Aires, and the scarcity of quality megaplexes all contribute to our
expectations of significant profit contributions from new theatres in these
markets. In fiscal 1999, we made significant progress in both Argentina and
Chile in expanding our presence with the completion of four new theatres with a
total of 46 screens and opened our first theatre in Brazil in a suburb of Sao
Paulo. After our fiscal year-end, we executed a letter of intent to sell our
five-theatre investment in Mexico to a local competitor, thereby allowing us to
focus our capital and efforts on growth in South America, where our competitive
position is much stronger. Excluding the Mexican investment, we have a total of
13 locations and 124 screens in South America as of October 31, 1999.



                               GC COMPANIES, INC.
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<PAGE>   4


                    Domestic Theatres: A Year of Transition

In fiscal 2000, GC Companies' domestic theatre operations remain our challenge
for improvement in profitability and return on capital. The domestic theatre
business is under immense pressure due to the unprecedented build-up of megaplex
theatres throughout the country over the past three years that has resulted in a
dramatic increase in the number of screens. This has negatively impacted our
patronage and our profitability. We believe that the pace of new building has
finally slowed and that this will allow the market to begin to absorb these new
theatres without additional material declines in patronage for existing
theatres. However, this will take some time as the building commitments made by
the industry are completed in calendar 2000 and 2001.

         General Cinema Theatres has been conservative in its domestic building
program in the last few years and is committed to only four new theatres in
fiscal 2000 and none beyond that. Commitment of further new capital to the
domestic theatre business will require a return to profitability in our existing
theatre operations. We believe we are making important strides in this direction
by reducing central overhead and taking price increases where appropriate.

         In fiscal 1998, we made the strategic decision to concentrate the
Company's resources on its core geographic areas of the Northeast and Midwest.
In these areas, we have built solid profitable market positions and can more
effectively compete. In fiscal 1999, we closed or sold 21 sites and 111 screens.
In line with this geographically focused strategy, we took action in the fourth
quarter of fiscal 1999 to more effectively manage General Cinemas Theatres'
circuit. By centralizing the Company's existing regional offices into our
headquarters in Chestnut Hill, Massachusetts, we expect to save approximately
$10.0 million per year in general and administrative expenses by fiscal 2001.

         During the past few years, GC Companies' overall theatre business has
not been without challenges. We have been in the middle of a domestic "work-out"
while building our international presence. We believe we are taking the
appropriate actions to position our exhibition assets for profitable growth for
the long-term - focusing on extremely select domestic theatre markets and
international opportunities, and redirecting and consolidating resources where
necessary. Our screen count for fiscal year-end 1999 reflects these strategic
efforts. As of October 31, 1999, the Company operated 1,052 screens at 138
locations in 23 states as well as 186 screens at 18 locations in Mexico and
South America. This compares with 1,045 screens at 150 locations in 24 states as
well as 120 screens at 13 locations in Mexico and South America at the end of
fiscal 1998.

                 Financial Review: Building a Balanced Company

For fiscal year 1999, GC Companies reported a net loss of $2.3 million, or $0.30
per share, which includes charges of approximately $6.7 million relating to the
restructuring of the domestic theatre business. In addition, favorable
settlements with landlords and changes in the estimated cost of theatre closures
resulted in a $9.3 million favorable impact to operating results. This compares
with a net loss in fiscal 1998 of $41.6 million, or $5.39 per share, which
included a charge for specific theatre asset impairments and certain lease exit
cost estimates of approximately $68.2 million (approximately $40.9 million after
taxes). Revenues for fiscal 1999 were $386.2 million compared with $407.4
million last year. GC Companies had an operating loss of $13.7 million for
fiscal 1999 compared with an operating loss of $66.9 million in fiscal 1998.

         Although we have not been satisfied with our performance during the
past few years, we are keenly aware of the market challenges affecting our
financial results, and we are confident in our strategy to address these issues.
To accomplish this, we are building on the success of GC Companies' investment
business and international theatre business and focusing our energies on the
continued restructuring of the domestic theatre operations.

         We are keenly aware of our need to enhance shareholder value and
believe that our current strategies are the best way to accomplish this. In
closing, we would like to thank all of our employees for their dedication to GC
Companies, our customers for their loyal patronage, and of course, our
shareholders for their continued support.

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 18, 2000




                               GC COMPANIES, INC.
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<PAGE>   5



                            SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------




<TABLE>
<CAPTION>
(Unaudited)                                                                              Fiscal Years(1)
------------------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands except for per share amounts)       1999           1998           1997           1996           1995

<S>                                                            <C>            <C>            <C>            <C>            <C>
Revenues                                                       $386,150       $407,386       $445,133       $443,984       $450,306
Operating earnings (loss)                                       (13,658)       (66,898)        11,822         20,373         18,001
Equity losses in theatre affiliates                              (7,468)          (539)            --             --             --
Investment income (loss), net                                    20,116         (1,378)        13,880         10,107         (2,316)
Interest expense                                                 (2,430)        (1,048)          (586)          (639)          (631)
Gain (loss) on disposition
    of non-operating assets                                        (382)           593           (100)          (617)          (300)
                                                               --------       --------       --------       --------       --------
Earnings (loss) before income taxes                              (3,822)       (69,270)        25,016         29,224         14,754
Income tax benefit (provision)                                    1,529         27,708        (10,257)       (11,982)        (6,049)
                                                               --------       --------       --------       --------       --------
Net earnings (loss)                                            $ (2,293)      $(41,562)      $ 14,759       $ 17,242       $  8,705
                                                               --------       --------       --------       --------       --------
Weighted average common shares outstanding:
      Basic                                                       7,715          7,710          7,728          7,816          7,811
                                                               --------       --------       --------       --------       --------
      Diluted                                                     7,715          7,710          7,768          7,858          7,865
                                                               --------       --------       --------       --------       --------
Net earnings (loss) per common share:
      Basic                                                    $  (0.30)      $  (5.39)      $   1.91       $   2.21       $   1.11
                                                               --------       --------       --------       --------       --------
      Diluted                                                  $  (0.30)      $  (5.39)      $   1.90       $   2.19       $   1.11

Depreciation and amortization                                  $ 16,256       $ 19,180       $ 19,229       $ 19,369       $ 19,367
Marketable equity securities and
    portfolio investment assets                                $157,613       $139,931       $ 87,078       $ 50,187       $ 44,977
Total assets                                                   $375,607       $389,961       $339,600       $314,303       $300,067
Long-term capital lease obligations                            $    990       $  1,722       $  2,254       $  3,059       $  3,623
Revolving credit facility                                      $ 13,000       $ 16,775       $     --       $     --       $     --
Other long-term liabilities                                    $ 36,297       $ 33,523       $ 31,912       $ 29,029       $ 28,156
Number of movie screens
      Domestic                                                    1,052          1,045          1,113          1,159          1,180
      International(2)                                              186            120             53             --             --
Number of locations
      Domestic                                                      138            150            175            189            196
      International(2)                                               18             13              5             --             --
</TABLE>

(1)      The selected financial data are derived from the consolidated 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.




                               GC COMPANIES, INC.
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                      MANAGEMENT'S DISCUSSION AND ANALYSIS
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     YEAR ENDED OCTOBER 31, 1999 COMPARED WITH YEAR ENDED OCTOBER 31, 1998
     ---------------------------------------------------------------------

Net losses decreased $39.3 million to a loss of $2.3 million in 1999 from a loss
of $41.6 million in 1998. The loss in 1999 included $19.9 million of pre-tax
gains associated with the Company's marketable securities and investment
portfolio, a pre-tax gain of $2.1 million related to a sale of a theatre in New
York, a charge of $6.7 million relating to restructuring of the domestic theatre
business, a charge of $3.5 million to write-off the net book values of impaired
theatre assets, a charge of $3.6 million to accrue for lease termination costs,
a gain of $8.5 million related to lease settlements less than the amount
previously accrued and a gain of $7.9 million related to change in estimates of
lease termination costs. Net losses 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.
Theatre operations showed a loss of $6.2 million in 1999 compared to a loss of
$58.6 million in 1998. Operating losses after corporate expenses for 1999 were
$13.7 million, an improvement of $53.2 million from a loss of $66.9 million in
1998.

                                Theatre Revenues

Total revenues decreased 5.2% to $386.2 million for the year ended October 31,
1999 from $407.4 million for the same period in 1998 primarily attributable to a
10.5% decrease in patronage partially offset by a 3.4% increase in concession
sales per patron, a 5.0% increase in the average ticket price and a $4.2 million
increase in other revenue. The decrease in patronage was primarily attributable
to competitor impacts in certain markets and a reduction in average theatre
screens operated by the Company in 1999 compared to 1998. The opening of
megaplexes by the Company's competitors has drawn audiences away from certain of
the Company's theatre locations. During 1999, the Company operated an average of
1,063 screens at 142 locations compared to an average of 1,121 screens at 167
locations in 1998. The decrease in the average screens and units is primarily
due to the closing of 19 theatres with 96 screens during the fourth quarter of
1998. In 1999, the Company opened nine new theatres with 118 screens, which was
offset by the closing of 21 theatres with 111 screens. The Company operated
domestically 1,052 screens at 138 locations at October 31, 1999 compared to
1,045 screens at 150 locations at October 31, 1998. The growth in concession
sales per person was principally due to the continued rollout of new products,
increased consumption and certain price increases. The increase in average
ticket price was due to price increases in certain markets. The increase in
other revenues is primarily due to income generated from the management of
theatres owned by independent third parties and increased in-theatre advertising
revenues.

                          Costs of Theatre Operations

Cost of theatre operations (film rentals, concessions, theatre operating and
administrative expenses as well as depreciation and amortization) decreased in
absolute value by $13.0 million to $398.3 million for the year ended October 31,
1999 from $411.3 million in the same 1998 period. However, as a percentage of
total revenues, the cost of theatre operations was 103.1% for the year ended
October 31, 1999 compared to 101.0% for the same period in 1998. This increased
percentage of the cost of theatre operations to total revenues for the current
year compared to the same period in 1998 was primarily due to certain fixed
operating costs, pre-opening expenses incurred in the opening of nine new
theatres during the year compared to five new locations in 1998, and lower film
and concession margins partially offset by a reduction in depreciation expense
due to the impairment charge recorded in the fourth quarter of 1998. In
addition, in the third quarter of fiscal 1998, the Company settled certain
litigation, which had previously been accrued for, thereby lowering the cost of
theatre operations by $1.6 million during 1998. Fixed expenses such as occupancy
costs and administrative expenses are compared to a lower revenue amount
generated in the current year than the previous year. Occupancy costs have
increased as a percentage of total revenues in 1999 compared to the same period
in 1998 primarily as a result of the Company's operating lease arrangement
associated with new theatres. The average pre-opening costs associated with a
new multiplex theatre range from $0.2 million to $0.5 million but may vary
depending on several factors including, among other things, number of screens,
location of the theatre and additional amenities which may be offered in the
theatre such as premium auditoriums and cafes. Lower film margins were due to
higher rental charges on certain film product primarily during the summer
season. Overall concession profitability increased due to a change in product
mix that resulted in a higher concession spending per patron and improved
concession margin dollars.


                               GC COMPANIES, INC.
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<PAGE>   7



                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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                     Gain on Disposition of Theatre Assets

During the year ended October 31, 1999, the Company sold three theatres in
Michigan, two theatres in Texas, a theatre in New York, a theatre in Florida and
other miscellaneous assets generating net proceeds of $6.6 million and a pre-tax
gain of $2.1 million. In 1998, the Company sold a theatre in Texas resulting in
a pre-tax gain of $12.8 million. The theatre asset sales and resulting gains
recognized by the Company in 1999 and 1998 are not indicative of possible
results from future sales.

                          Impairment and Restructuring

In 1999, the Company recorded a net gain of $2.6 million related to the
impairment of theatre assets and the restructuring of the domestic theatre
business. A charge of $68.2 million was recorded in 1998 related to the
impairment of theater assets and to establish a reserve for early lease
terminations. The components of these charges are discussed below.

         During the ordinary course of business, management has and will make
determinations that impact the recoverability of theatre assets. Such decisions
have impacted operations in 1999, 1998 and 1997. As part of the Company's annual
budgeting process, management has and will review the long-lived assets used in
the theatre business for impairment. This analysis has and will take place at
the individual theatre level, which management believes is the lowest level for
which there are identifiable cash flows. In addition, management has and 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 has and 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.

         Significant industry building of new megaplexes has caused the Company
to re-assess the value and utility of certain theatre locations through its
internal evaluation process described above. There continues to be 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 draw audiences away from
certain theatre locations that the Company operates.

         The evaluation described above resulted in an impairment charge of $3.5
million in 1999 and $28.6 million in 1998. The significant decrease in the
amount of impairment charges in 1999 was due to the bulk of decisions regarding
individual theatre assets being made in 1998.

         As described above, the Company has and will identify the impaired
theatres management has committed to closing in the next 12 months and record a
liability for the estimated costs of exiting certain leases. The Company's
termination reserves established for its leases on properties it has committed
to close reflect management's best estimate of the potential costs associated
with exiting these leases. Estimates are based on analysis of the facilities,
correspondence with the landlords, exploratory discussions with sublessees and
market conditions. While in most instances, the Company has accurately predicted
its costs to terminate leases, there have been circumstances where there was a
material difference; therefore, the amounts the Company will eventually be
obligated for could differ materially from the amounts included in the original
reserve.

         In 1999, the Company accrued additional reserves of $3.6 million for
theatres that management has committed to exiting within the next 12 months in
accordance with the evaluation process described above. In 1998, the Company
recorded a $39.6 million reserve to cover such lease abandonments.

         During the year, the Company executed the termination of 12 leases
resulting in payments of approximately $12.2 million and made additional
payments of $2.7 million for other related closing costs. Of the lease
terminations executed by the Company in 1999, and previously accrued for in
1998, the payment was less than the amount previously accrued by $5.8 million,
partially offset by amounts accrued for lease terminations executed in 1999 and
not accrued in 1998 of $1.5 million. In addition, the Company either reduced or
reversed the amount reserved on certain theatre locations by $7.9 million due to
a number of factors, including revisions made in the estimates to terminate the
leases because negotiations with landlords indicate that the buyout will not be
as high as originally anticipated, because anticipated competitor



                               GC COMPANIES, INC.
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<PAGE>   8


                      MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

construction did not occur in the market or management has determined that the
location will not be closed in the foreseeable future.

         In the fourth quarter of 1999, the Company's Board of Directors
approved a restructuring plan of its domestic theatre operations to centralize
its existing regional offices into the Company's home office located in
Massachusetts. Accrued restructuring charges of $6.7 million include the cost of
involuntary employee termination benefits for 45 employees of approximately $1.5
million, the cost of a voluntary special retirement program of $4.3 million for
30 employees, which will be funded by the Company's pension asset, and a charge
of $0.9 million for subleasing certain regional office space. Employee
termination benefits include severance, medical and other benefits and
outplacement services. No cash payments have been made in 1999 related to this
restructuring charge. Cash payments are anticipated to be made over the next 18
months.

                               Corporate Expenses

Corporate expenses in 1999 of $6.2 million were comparable to 1998.

                       Equity Loss in Theatre Affiliates

The Company recorded net equity losses in theatre affiliates of $7.5 million for
1999 compared to $0.5 million in 1998. The equity losses primarily resulted from
the Company's international theatre joint ventures and were primarily due to a
charge of $3.5 million related to a permanent loss in value of the Company's
Mexican investment and administrative and start-up costs incurred in South
America in opening new theatres in Argentina, Brazil and Chile. In addition,
operating results in the international joint ventures were negatively impacted
by a soft economic environment in Chile and Argentina.

                         Investment Income (Loss), Net

The Company recorded investment income of $20.1 million for the year ended
October 31, 1999 compared to an investment loss of $1.4 million for the same
period in 1998. The Company's investment income for the year ended October 31,
1999 included the unrealized pre-tax gain on the PrimaCom trading securities of
approximately $14.7 million, the realized pre-tax gain on the GTS trading and
available-for-sale securities sold during fiscal 1999 of approximately $10.3
million, the realized pre-tax gain recognized on the shares of PrimaCom trading
securities of $5.2 million, the realized gain of $2.1 million on the lifting of
restrictions on GrandVision escrow shares held by the Company, partially offset
by the realized pre-tax loss of $2.9 million on the GrandVision
available-for-sale securities sold during the fourth quarter, performance-based
compensation of $0.9 million and miscellaneous investment losses of $0.1
million. This income was partially offset by the impairment charge on the
Teletrac investment of $8.3 million.

         The Company's investment loss of $1.4 million 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 GTS during
the year, equity losses of $0.6 million for those investments accounted for
under the equity method and included as part of portfolio investments, partially
offset by the unrealized pre-tax gain of $6.8 million on the GTS securities
designated as trading and $1.3 million of dividend and interest income.

                                Interest Expense

The Company's interest expense increased $1.4 million to $2.4 million for the
year ended October 31, 1999 from $1.0 million for the same period in 1998 due to
increased borrowings outstanding during the year under the Company's revolving
credit facility. During the same period in 1998, the Company had outstanding
borrowings under its revolving credit facility only during the fourth quarter.

                               Income Tax Expense

The Company's effective tax rate was 40.0% in 1999, unchanged from 1998.



                               GC COMPANIES, INC.
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<PAGE>   9


                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 when
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 on Disposition of Theatre Assets


The Company recorded a gain on the disposition of theatre assets of $11.3
million compared to a gain of $11.0 million in 1997. In October 1998, the
Company disposed of a theatre in Texas, resulting in a gain of $12.8 million and
disposed of miscellaneous theatre assets throughout the year recognizing a loss
of approximately $1.5 million. In 1997, the Company sold several theatres it
operated in Oklahoma for $15.8 million realizing a gain of $10.3 million and
sold miscellaneous assets during the year, realizing a gain of approximately
$0.7 million.



                               GC COMPANIES, INC.
                          ----------------------------
                                       7


<PAGE>   10



                      MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

                  Gain (Loss) on Impairment and Restructuring

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 $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 these 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.

                               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.

                      Equity Losses in Theatre Affiliates

The Company recorded equity losses in theatre affiliates of $0.5 million in
1998. The losses related primarily to the Company's South American operations
and result from the administrative and start-up costs associated with the Hoyts
General Cinema South American joint venture established as of July 1, 1998.

                         Investment Income (Loss), Net

The Company recorded an investment loss of $1.4 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. 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



                               GC COMPANIES, INC.
                          ----------------------------
                                       8


<PAGE>   11


                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------




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.

                                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.

                        LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------

Virtually all of GCC's revenues are collected in cash, principally through
theatre admissions and concession sales. The Company has an operating "float,"
which partially finances its operations and allows the Company to operate on a
negative working capital basis. This "float" exists because admissions and
concessions revenues are typically received in cash, while film rentals and
concessions costs are ordinarily paid to suppliers generally 15 to 45 days after
the receipt of box office admissions and concessions revenues. Occasionally, the
Company is required to make film advances to distributors. Significant changes
to components of the Company's working capital will be discussed in the
appropriate sections below.

                               Domestic Theatres

For the year ended October 31, 1999, General Cinema Theatres, Inc. ("GCT")
opened nine new theatres: a 15-screen theatre in Atlanta, Georgia, a 14-screen
theatre in Irving, Texas, a 16-screen theatre in Baltimore, Maryland, a
12-screen theatre in Plymouth Meeting, Pennsylvania, an 11-screen theatre in
Seattle, Washington, a 16-screen theatre in Clifton, New Jersey, an 18-screen
theatre in Wauwatosa, Wisconsin, a 14-screen theatre in Austin, Texas and a
managed unit with a single screen. Aggregate costs, including construction and
pre-opening costs paid by the Company in opening these theatres amounted to
approximately $11.2 million. The aggregate construction costs paid by the
Company for a theatre vary depending on the lease negotiated with the landlord,
the number of auditoriums, additional amenities which may be offered at the
theatre and the portion of the costs provided by the Company's agreement with a
major financial institution to provide operating leases on leasehold
improvements and equipment. Capital outflows have been minimized on these
projects as a result of this operating lease agreement. The overall operating
lease program was designed to provide up to $250.0 million of funding over five
years for the Company's theatre expansion program. Since the inception of this
leasing arrangement in 1996, the Company has entered into $118.8 million of
operating leases with the financial institution as of October 31, 1999.
Availability of this lease arrangement is, in part, dependent upon the ability
of the financial institution to syndicate leases to third-party financial
institutions. The receivable due from a financial institution results from the
Company initially advancing monies for leased assets related to new theatres as
the financial institution' s agent in accordance with its leasing arrangement.
On a periodic basis, these advances are reimbursed by the financial institution.
At October 31, 1999, the Company had an outstanding receivable of $15.5 million,
a decrease of $6.2 million from the outstanding receivable of $21.7 million at
October 31, 1998. This decrease is primarily due to a reduction in the number of
theatre openings in the first quarter of the next fiscal year; in the first
quarter of fiscal 2000, the Company will open two new theatres with 21 screens
compared to the five new theatres with 69 screens that opened in the first
quarter of fiscal 1999. The Company plans to open four new theatres with 48
screens and add two screens to an existing theatre in the next fiscal year. The
Company currently has no commitments to open new theatres beyond 2000.


                               GC COMPANIES, INC.
                          ----------------------------
                                       9


<PAGE>   12


                      MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

         The Company has significant lease commitments. Lease payments totaled
$76.5 million in 1999 and minimum lease payments are anticipated to approximate
$79.5 million in 2000. Substantially all domestic leases of the Company are
noncancelable. During 1999, the Company sold seven theatres; three theatres in
Michigan, two in Texas, a theatre in New York, a theatre in Florida and other
miscellaneous assets realizing net proceeds of $6.6 million. During this period,
the Company closed an additional 14 theatres with 70 screens. Eleven of these
theatres had previously been identified as impaired, and seven of these theatres
were locations management had committed to closing and the closing costs were
provided for in 1998. At October 31, 1999, the Company had an outstanding
liability for early lease terminations and severance of $15.5 million. The
Company's reserve established for leases on properties it is committed to close
reflects management's best estimate of the potential cost 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 at arriving at
the reserve. This process will continue, and the Company from time to time, may
be required to make additional substantial one-time cash payments in connection
with the closing of theatres in the future. The Company made cash payments of
approximately $14.9 million for the cost of exiting certain leases and other
related costs during the year ended October 31, 1999.

         For the year ended October 31, 1999, GCT made expenditures of $18.1
million for leasehold improvements, furniture and equipment purchases as well as
information services related projects. Domestic capital expenditures are
expected to approximate $12.0 million in 2000. In addition, the Company made
expenditures of $2.9 million associated with its Sundance Cinema joint venture.
GCC anticipates contributing a total of approximately $6.0 million of cash to
this venture in 2000. The first Sundance theatre is anticipated to open in
calendar year 2000.

                             International Theatres

The Company advanced $5.0 million towards its international theatre operations
in 1999. During the year ended October 31, 1999, the Company opened, through its
South American joint venture, three theatres with 26 screens in Argentina, a
theatre in Chile with 16 screens, a theatre in Brazil with 15 screens and added
two screens to its theatre in Uruguay. In addition, the Company added seven
screens to existing theatres in Mexico.

         The Company's South American joint venture, Hoyts General Cinema South
America ("HGCSA") plans on opening six new theatres with 58 screens by the end
of calendar 2000. This theatre expansion program will be financed through debt
facilities that HGCSA negotiated in Chile and Argentina as well as capital
contributed by its partners. Future advances are required of the partners under
the South American joint venture agreement only if sufficient bank financing is
not available. Debt financing has been obtained by HGCSA through its local
subsidiaries for its theater expansion program in Chile and Argentina.

         HGCSA has entered into a $75.0 million debt financing arrangement with
major financial institutions to fund its operations in Argentina, which is
secured by the several guaranty of the joint venture's partners. Availability of
this financing beyond $50.0 million is subject to syndication to third-party
financial institutions. Under the several guaranty of the Argentina debt
facility, the Company is liable for 50% of the outstanding borrowings. At
October 31, 1999, the Company's portion of the outstanding borrowings under this
facility that it guarantees was approximately $7.5 million.

         HGCSA has entered into a $22.0 million debt financing arrangement with
major financial institutions to fund its operations in Chile, which is secured
by the several guaranty of the partners. $3.0 million of this debt financing was
arranged after October 31, 1999. The Company is liable for 50% of the
outstanding borrowings. At October 31, 1999, the Company's portion of the
outstanding borrowings under this facility that it guarantees or indemnifies was
approximately $9.0 million, which was comprised of $6.6 million of outstanding
borrowings and $2.4 million of outstanding guarantees.

                              Investment Portfolio

At October 31, 1999, marketable equity securities were $103.0 million, an
increase of $24.8 million from the balance at October 31, 1998 of $78.2 million.
The increase in marketable equity securities during 1999 was primarily due to an
increase in value of the Company's investment in GTS of $3.7 million, a decrease
in value


                               GC COMPANIES, INC.
                          ----------------------------
                                       10


<PAGE>   13


                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------




of the Company's investment in GrandVision of $4.0 million due to the
sale during the year of a portion of the shares held and an increase of $25.1
million in the Company's investment in PrimaCom, which, as a result of its
initial public offering during 1999, was reclassified from portfolio investments
to marketable equity securities and recorded at its fair value on October 31,
1999.

         During the year, the Company sold 310,000 of its GTS shares, generating
net proceeds of $21.5 million, 250,000 of its GrandVision shares, generating net
proceeds of $6.4 million, and 150,000 of its PrimaCom shares, generating net
proceeds of $8.1 million.

         On May 12, 1999, the Company invested $10.0 million in
MotherNature.com, a leading Web-based retailer of vitamins, supplements and
minerals. On July 6, 1999, the Company invested $5.1 million in El Sitio, a
leading Internet network providing global and country-specific content targeted
to Spanish and Portuguese speakers in Latin America. These two investments will
be accounted for under the cost method. In addition, on May 21, 1999, the
Company exercised 26,000 shares of GTS stock options at a cost of $17.45 per
share for a total cost of $0.5 million.

                                     Other

The Company received proceeds of $13.0 million from the liquidation of certain
short-term investments during the year ended October 31, 1999.

         The Company made net payments of $3.8 million on its outstanding
revolving credit facility and paid interest of $1.8 million during 1999. The
average interest rate for 1999 was 6.9%.

         In December 1999, the Company's Board of Directors authorized the
repurchase of up to one million shares of the Company's common stock over the
next 12 months.

         The Company believes that cash generated from operations, asset sales
under agreement, cash and cash equivalents of $11.1 million, marketable equity
securities, amounts available under the Company's revolving credit facility, the
operating lease arrangement and the South American joint venture debt agreements
will be sufficient to fund operating requirements and capital expenditures for
the foreseeable future.

                        Recent Accounting Pronouncements

The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments in
Hedging Activity." The Company is not required to implement this standard until
fiscal 2001. 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 Emerging Issues Task Force ("EITF") released issue No.
97-10, "The Effect of Lessee Involvement in Asset Construction." Issue No. 97-10
is applicable to entities involved on behalf of an owner-lessor with the
construction of an asset that will be leased to the lessee when construction of
the asset is completed. The consensus reached in Issue No. 97-10 applies to
construction projects committed to after May 21, 1998 and also to those projects
that were committed to on May 21, 1998 if construction does not commence by
December 31, 1999. Currently, the Company finances a majority of its theatre
construction through a leasing arrangement with a financial institution. The
Company anticipates that changes will be made to certain elements of its current
leasing arrangement to conform with the requirements of an operating lease under
Issue No. 97-10. If the Company is unsuccessful in this endeavor, future
operating leases under the current leasing arrangement will be recorded on its
consolidated balance sheet as lease financing arrangements.

         The American Institute of Certified Public Accountants ("AICPA")
recently issued Statement of Position ("SOP") 98-5, "Reporting the Costs of
Start-Up Activity," which must be adopted by the Company in fiscal 2000. The
Company anticipates that it will incur a cumulative pre-tax effect charge of
approximately $5.0 million relative to specific lease costs incurred prior to
openings of theatres which were previously allowed to be capitalized and
amortized by generally accepted accounting principles.

                                   Year 2000

The Year 2000 issue was primarily the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. As a result,
such computer systems would be unable to interpret dates beyond the year 1999,
which could have caused 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



                               GC COMPANIES, INC.
                          ----------------------------
                                       11


<PAGE>   14


                      MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------




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.

         The Company's plan devoted 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. In 1999, the Company executed its
Year 2000 plan as systems potentially impacted by Year 2000 were identified and,
if necessary, were modified. In addition, the Company developed contingency
plans for key operational areas that could have been impacted by the Year 2000
problem.

         The Company did not incur any significant Year 2000 issues during, or
after, the move into the new calendar year. The total cost of executing the
Company's Year 2000 plan in 1999 was approximately $2.0 million.

                           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." The Company believes that its
forward-looking statements are within the meaning of the safe harbor provisions
of the federal securities laws.

         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,
risks associated with international operations, construction risks and delays
associated with Sundance Cinemas, market and other risks associated with the
Company's investment activities and other factors described herein.

                               Subsequent Events

On November 29, 1999, the Company invested an additional $5.0 million in Fuelman
bringing its total interest to 46.7% on a fully diluted basis. On December 17,
1999, the Company invested $8.0 million in Vanguard Modular Building Systems, a
leading regional provider of relocatable classrooms and other commercial modular
space solutions. On January 7, 2000, the Company invested $10.4 million in
VeloCom, Inc., a facilities-based voice, data and Internet provider in Brazil
and Argentina.

         On December 9, 1999, El Sitio, Inc. completed an initial public
offering and is currently traded on the NASDAQ under the symbol "LCTO." The
Company currently owns 1,456,756 shares of El Sitio. In addition, on December 9,
1999, MotherNature.com completed an initial public offering and is currently
traded on the NASDAQ under the symbol "MTHR." The Company currently owns 678,589
shares of MotherNature.com. As a result of the public offerings of both El Sitio
and MotherNature.com, the Company will reclassify these investments from
portfolio investments to marketable equity securities in the first quarter of
fiscal 2000 in accordance with SFAS No. 115.

         On December 22, 1999, the Company sold its remaining holdings in
PrimaCom generating net proceeds of $30.4 million.

           QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
--------------------------------------------------------------------------------

GC Companies operates in six major reported segments. The first four operate the
domestic motion picture exhibition market. The fifth operates through equity
method investees in the Mexican and South American motion picture exhibition
markets. The sixth segment operates as a venture capital arm making investments
in a variety of companies in several industries. Disclosures under this heading
address risks arising from changes in interest rates, foreign currency exchange
rates, commodity prices, equity prices and other market changes that affect
market risk-sensitive instruments.



                               GC COMPANIES, INC.
                          ----------------------------
                                       12


<PAGE>   15


                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------




         The domestic motion picture segment is subject primarily to interest
rate risks. It bears this risk in two specific ways. First, the Company borrows
money under its revolving credit facility to fund its operating needs. At
October 31, 1999, the Company had outstanding borrowings of $13.0 million,
carrying a variable interest rate, which was 6.7% on that date. The Company's
exposure related to variable interest resides in the earnings and cash flow
implications caused by changes in interest rates. However, a 100 basis point
change in the variable rate of interest paid by the Company on its outstanding
borrowings under its revolving credit facility would not have a significant
impact on either the earnings or cash flows of the Company. The second component
of interest rate risk relates to amounts earned on the Company's short-term
investments of excess cash. Such risk affects fair values, earnings and cash
flows.

         Operations in Mexico and South America are undertaken through equity
method investees. Fluctuations in the market value of the underlying equity are
not reported for financial purposes nor can a sensitivity analysis be performed
relative to the market risk of the underlying equity. Because these investments
are in Mexico and South America and because the operations of each of these
entities are conducted utilizing local currencies, the Company's earnings are
exposed to foreign currency exchange rate changes. Mexico's economy was removed
from the hyper-inflationary category, and, as a result, gains or losses
attributable to movements of net monetary assets or liabilities in the Mexican
operations no longer directly impact equity earnings in Mexico. Market risk
relative to exchange fluctuations does not exist in the Company's Mexican and
South American locations since these currently operate in non hyper-inflationary
environments.

         The Company does not consider its cash flows to be currently exposed to
exchange rate risk because it has no current intention of repatriating earnings
from these Mexican and South American locations. If the Company should effect
the sale of its Mexican investment, such transaction would occur in US dollars.

         The Company's investment portfolio is primarily exposed to risks
arising from changes in equity prices. Such portfolio has been segmented into
three categories. The first category includes those securities that have been
classified as trading. A portion of the Company's holding in Global TeleSystems
Group, Inc. ("GTS") was included therein until the third quarter of 1999, when
the Company disposed of its remaining investment in the GTS securities
designated as trading. In addition, the Company's investment in PrimaCom
completed an initial public offering during the second quarter of 1999. These
securities have been designated as trading securities by the Company. PrimaCom's
shares, since its initial public offering through October 31, 1999, have traded
as high as 56.00 euros and as low as 29.05 euros. At October 31, 1999, the
PrimaCom shares closed at 47.00 euros. Equity market fluctuations, without
taking into account the impact of fluctuations in the euro vis-a-vis the US
dollar, can impact fair values and earnings. A 20% fluctuation in the aggregate
value of PrimaCom trading securities from the October 31, 1999 price would
impact pre-tax earnings and total assets by $5.3 million.

         The second category of investments held in the portfolio relate to
those marketable equity securities classified as available-for-sale. Two
holdings are classified herein: the Company's remaining investment in GTS and
its investment in an optical and photo service provider, GrandVision. The GTS
shares are subject to considerable market risk due to its volatility, and during
1999, have traded as high as $45.75 and as low as $19.38. At October 31, 1999,
the GTS shares closed at $23.94. GrandVision shares, during 1999, have traded as
high as 29.40 euros and as low as 15.11 euros. As of October 31, 1999, the
GrandVision shares closed at 29.40 euros. Equity market fluctuations, without
taking into account the impact of fluctuations in the euro vis-a-vis the US
dollar, can impact fair values (although not earnings, unless such equity
positions are actually liquidated). A 20% fluctuation in the aggregate value of
the GrandVision and GTS available-for-sale securities would either reduce or
increase total assets by $19.6 million.

         In addition, the PrimaCom and GrandVision securities are traded in
euros. A 10% fluctuation in the value of the euro versus the US dollar (holding
the value of the underlying equity securities constant) could impact pre-tax
earnings and total assets by $3.1 million.

         The final category of securities in the Company's investment portfolio
includes a number of holdings in non-publicly traded companies. The Company
values these at either cost less impairment (if any) or under the equity method
of accounting. Equity method investees are specifically excluded from the scope
of this disclosure. Non-public investees where the Company owns less than a 20%
stake are also subject to fluctuations in value, but their current illiquidity
reduces their exposure to pure market risk.



                               GC COMPANIES, INC.
                          ----------------------------
                                       13


<PAGE>   16



                          CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------




                                                                October 31,
--------------------------------------------------------------------------------
(In thousands except par value)                             1999           1998

ASSETS
  Current assets
    Cash and cash equivalents                           $ 11,106       $  2,479
    Short-term investments                                    --         12,989
    Marketable equity securities                         102,956         78,162
    Receivable due from financing institution             15,522         21,735
    Other current assets                                   5,123          7,565
    Income tax receivable                                  8,666         12,618
                                                        --------       --------
         Total current assets                            143,373        135,548

    Property and equipment, net                          109,353        112,599

    Portfolio investments                                 54,657         61,769
    Investment in international theatre affiliates        58,815         59,495
    Other assets                                           4,641          6,590
    Deferred income taxes                                  4,768         13,960
                                                        --------       --------
                                                        $375,607       $389,961
                                                        ========       ========
LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities
      Current maturities of long-term obligations       $    587       $    639
      Trade payables                                      34,325         32,907
      Liability for early lease terminations              15,477         36,579
      Other current liabilities                           81,740         89,680
      Deferred income taxes                               16,732         11,793
                                                        --------       --------
          Total current liabilities                      148,861        171,598

    Long-term liabilities
      Capital lease obligations                              990          1,722
      Other long-term liabilities                         36,297         33,523
      Revolving credit facility                           13,000         16,775
                                                        --------       --------
          Total long-term liabilities                     50,287         52,020

    Commitments and contingencies

    Shareholders' equity
      Common stock - $.01 par value
          Authorized - 25,000 shares
          Issued and outstanding - 7,796 and 7,710
            shares                                            78             77
      Additional paid-in capital                         140,166        137,049
      Accumulated other comprehensive income              32,353         20,782
      Unearned compensation                               (2,280)            --
      Retained earnings                                    6,142          8,435
                                                        --------       --------
          Total shareholders' equity                     176,459        166,343
                                                        --------       --------
                                                        $375,607       $389,961
                                                        ========       ========


See Notes to Consolidated Financial Statements



                               GC COMPANIES, INC.
                          ----------------------------
                                       14


<PAGE>   17


                     CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------




<TABLE>
<CAPTION>
                                                                  Years Ended October 31,
----------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>            <C>
(In thousands except for per share amounts)                 1999           1998           1997
REVENUES
    Admissions                                          $255,752       $271,999       $301,349
    Concessions                                          115,093        124,317        132,633
    Other                                                 15,305         11,070         11,151
                                                        --------       --------       --------
                                                         386,150        407,386        445,133
COSTS AND EXPENSES
    Film rentals                                         135,062        138,565        155,316
    Concessions                                           21,639         21,975         23,865
    Theatre operations and administrative expenses       225,313        231,556        231,634
    Depreciation and amortization                         16,256         19,180         19,229
    Gain on disposition of theatre assets                 (2,117)       (11,342)       (11,017)
    Impairment and restructuring                          (2,601)        68,186          7,451
    Corporate expenses                                     6,256          6,164          6,833
                                                        --------       --------       --------
Operating earnings (loss)                                (13,658)       (66,898)        11,822
Equity losses in theatre affiliates                       (7,468)          (539)            --
Investment income (loss), net                             20,116         (1,378)        13,880
Interest expense                                          (2,430)        (1,048)          (586)
Gain (loss) on disposition of non-operating assets          (382)           593           (100)
                                                        --------       --------       --------
Earnings (loss) before income taxes                       (3,822)       (69,270)        25,016
Income tax benefit (provision)                             1,529         27,708        (10,257)
                                                        --------       --------       --------
Net earnings (loss)                                     $ (2,293)      $(41,562)      $ 14,759
                                                        ========       ========       ========
NET EARNINGS (LOSS) PER SHARE
    Basic                                               $  (0.30)      $  (5.39)      $   1.91
                                                        ========       ========       ========
    Diluted                                             $  (0.30)      $  (5.39)      $   1.90
                                                        ========       ========       ========
WEIGHTED AVERAGE SHARES OUTSTANDING
    Basic                                                  7,715          7,710          7,728
                                                        ========       ========       ========
    Diluted                                                7,715          7,710          7,768
                                                        ========       ========       ========
</TABLE>

See Notes to Consolidated Financial Statements.


                               GC COMPANIES, INC.
                          ----------------------------
                                       15


<PAGE>   18


Consolidated Statements of Cash Flows



<TABLE>
<CAPTION>
                                                                                                 Year Ended October 31,
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                <C>                <C>
(In thousands)                                                                           1999               1998               1997
CASH FLOWS FROM OPERATING ACTIVITIES
    Net earnings (loss)                                                              $ (2,293)          $(41,562)          $ 14,759
    Adjustments to reconcile net earnings (loss) to net
      cash provided (used) by operating activities
          Depreciation and amortization                                                16,256             19,180             19,229
          Deferred income taxes                                                         7,137            (19,224)            (6,817)
          Equity losses in theatre affiliates                                           7,468                539               --
          Realized gains on marketable equity
            securities and portfolio investments                                      (14,047)              --               (9,585)
          Unrealized gains on marketable
            equity securities                                                         (14,690)            (6,815)              --
          Loss on impairment of portfolio investments                                   8,273               --                 --
          Equity losses in portfolio investments                                          589                571               --
          (Gain) loss on impairment or disposition
            of theatre assets and restructuring                                        (4,336)            19,672             (3,466)
          Other non-cash activities                                                     6,059              2,228             (1,170)
          Changes in assets and liabilities
                Liabilities for early lease terminations                              (15,228)            36,579               --
                Income tax receivable                                                   3,952            (12,618)              --
                Trade payables                                                          1,413             (3,434)             2,157
                Other current assets and liabilities                                      787             (9,564)            28,563
                                                                                     --------           --------           --------
    Net cash provided (used) by operating activities                                    1,340            (14,448)            43,670
                                                                                     --------           --------           --------

CASH FLOWS FROM INVESTING ACTIVITIES
    Capital expenditures                                                              (20,967)           (19,788)           (18,742)
    Proceeds from the disposition of theatre assets                                     6,578             19,805             18,824
    Proceeds from the liquidation of or (purchase of)
      short-term investments                                                           12,989              7,025            (18,448)
    Proceeds from the sale of portfolio investments and
      marketable equity securities                                                     35,904               --               15,825
    Purchase of portfolio investments                                                 (15,554)           (12,315)           (42,073)
    Incremental investments in international theatre affiliates                        (5,029)           (24,325)           (36,598)
    Other investing activities                                                         (2,949)               131                815
                                                                                     --------           --------           --------
    Net cash provided (used) by investing activities                                   10,972            (29,467)           (80,397)
                                                                                     --------           --------           --------

CASH FLOWS FROM FINANCING ACTIVITIES
    Increase (decrease) in revolving credit facility                                   (3,775)            16,775               --
    Repurchase of common stock                                                           --                 --               (4,307)
    Other financing activities                                                             90               (419)              (673)
                                                                                     --------           --------           --------
    Net cash (used) provided by financing activities                                   (3,685)            16,356             (4,980)
                                                                                     --------           --------           --------
Net change in cash and cash equivalents                                                 8,627            (27,559)           (41,707)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                          2,479             30,038             71,745
                                                                                     --------           --------           --------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                             $ 11,106           $  2,479           $ 30,038
                                                                                     ========           ========           ========
</TABLE>


See Notes to Consolidated Financial Statements.


                               GC COMPANIES, INC.
                          ----------------------------
                                       16


<PAGE>   19


                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------



<TABLE>
<CAPTION>
                                                                Accumulated
                                   Common Stock                        Other                              Comprehensive
                                 ----------------    Paid-in   Comprehensive   Retained        Unearned        Earnings
                                 Shares    Amount    Capital        Earnings   Earnings    Compensation           (Loss)    Total
                                 ------    ------    -------   -------------   --------    ------------   -------------    --------
<S>                               <C>       <C>      <C>             <C>       <C>              <C>            <C>         <C>
(In thousands)
BALANCE AT NOVEMBER 1, 1996       7,816     $78      $136,359        $    --   $ 39,544         $    --                    $175,981
Comprehensive earnings
  Net earnings                                                                   14,759                        $ 14,759      14,759
                                                                                                               --------
Comprehensive earnings                                                                                           14,759
                                                                                                               ========
Repurchase of common stock         (119)     (1)                                 (4,306)                                     (4,307)
Exercise of stock options             8                   287                                                                   287
                                  ---------------------------------------------------------------------
BALANCE AT OCTOBER 31, 1997       7,705      77       136,646             --     49,997              --                     186,720
Comprehensive earnings (loss)
  Net loss                                                                      (41,562)                        (41,562)    (41,562)
  Other comprehensive earnings
    Unrealized gains
     on securities, net of tax                                        20,782                                     20,782      20,782
                                                                                                               --------
Comprehensive earnings (loss)                                                                                   (20,780)
                                                                                                               ========
Exercise of stock options             5                   403                                                                   403
                                  ---------------------------------------------------------------------
BALANCE AT OCTOBER 31, 1998       7,710      77       137,049         20,782      8,435              --                     166,343
Comprehensive earnings
  Net loss                                                                       (2,293)                         (2,293)     (2,293)
  Other comprehensive earnings
    Unrealized gains
     on securities, net of tax                                        10,485                                     10,485      10,485
    Foreign currency
     translation adjustments                                           1,086                                      1,086       1,086
                                                                                                               --------
  Other comprehensive earnings                                                                                   11,571
                                                                                                               --------
Comprehensive earnings                                                                                         $  9,278
                                                                                                               ========
Exercise of stock options            10                   263                                                                   263
Grant of restricted stock
  for future services                76       1         2,854                                    (2,855)                         --
Amortization of
  restricted stock awards                                                                           575                         575
                                  ---------------------------------------------------------------------
AT OCTOBER 31, 1999               7,796     $78      $140,166        $32,353   $  6,142         $(2,280)                   $176,459
                                  =====================================================================
</TABLE>



See Notes to Consolidated Financial Statements.






                               GC COMPANIES, INC.
                          ----------------------------
                                       17


<PAGE>   20


                   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 theatres in the United States, South America and Mexico. Its investment
portfolio includes United States, European and Latin American 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 is included under
either the caption "Equity losses in theatre affiliates" (for those investees
engaged in theatre operations) or "Investment income (loss), net" (for those
investees engaged in non-theatre related operations) in the consolidated
statements of operations. These investments are included under either the
caption "Portfolio investments" or "Investments in international theatre
affiliates" in the consolidated balance sheets. Investments in international
theatre affiliates and other investments accounted for under the equity method
are reported on a one-month lag.

         Other investments where the Company has less than a 20% interest in an
investee and 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 also included under the caption "Portfolio
investments" in the consolidated balance sheets. Investments with
readily-determinable fair values are accounted for in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." These investments are included under
the caption "Marketable equity securities" in the consolidated balance sheets.

        All significant intercompany accounts and transactions have been
eliminated in consolidation.

                          Foreign Currency Translation

The Company's South American joint venture, which is recorded using the equity
method of accounting, uses the local currency as the functional currency and, as
such, translation adjustments are not included as part of the equity earnings or
losses recorded in the consolidated statements of operations; rather, they are
included as a component of "Accumulated other comprehensive income" in the
consolidated balance sheets. The Company's Mexican venture also currently uses
the local currency as the functional currency. Prior to the second quarter of
1999, however, Mexico's economy was considered hyper-inflationary and, as a
result, gains and losses attributable to non-monetary assets and liabilities in
the Mexican operations directly impacted equity earnings in Mexico. In 1999,
prior to the removal of the hyper-inflationary category, translation gains
included in equity earnings were $0.1 million. The translation gain totaled $0.8
million in 1998.

         Transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred.

         The Company's investments in PrimaCom AG ("PrimaCom") and GrandVision
SA ("GrandVision") are traded on public exchanges in euros. Accordingly, the
Company has recorded both realized and unrealized foreign currency transaction
gains relative to these securities.

                                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.



                               GC COMPANIES, INC.
                          ----------------------------
                                       18


<PAGE>   21


                             Short-term Investments

Short-term investments typically 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
or losses 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 "Accumulated other comprehensive income."

                             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 amounts totalled approximately $2.0
million in 1999. 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, in Note 11, the
required pro-forma effect on net earnings (loss) and diluted earnings (loss) per
share had the Company employed this statement.

                               Long-lived Assets

On an ongoing basis, the Company evaluates the carrying value of its long-lived
assets, including goodwill included in its investments accounted for under the
equity method. It relies on a number of factors, including operating results,
future anticipated cash flows, business plans and certain economic projections.
In addition, the Company considers non-financial data such as changes in the
operating environment, competitive information, market trends and business
relationships. As discussed in Notes 4 and 6, impairment charges have been
recorded in the consolidated financial statements.

                                  Income Taxes

Income taxes are accounted for using the asset and liability method under which
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The effect on deferred taxes for a
change in tax rates is recognized in income in the period that includes the
enactment date. No provision is made for U.S. income taxes on the undistributed
earnings of its foreign joint ventures as it is the Company's intention to
utilize those earnings in the foreign operations for an indefinite period of
time.



                               GC COMPANIES, INC.
                          ----------------------------
                                       19


<PAGE>   22

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------




                                    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 provided.

                               Film Rental Costs

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

                         Net Earnings (Loss) Per Share

Basic earnings per share is computed by dividing income available to common
shareholders (the numerator) by the weighted average number of common shares
outstanding ("the denominator") for the period. Such outstanding shares are
adjusted for those shares that are contingently returnable. The computation of
diluted earnings per share is similar to basic earnings per share, except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential dilutive common shares had
been issued and restrictions on contingently returnable shares had been lifted.

<TABLE>
<CAPTION>
                                                                       Reference                         October 31,
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>           <C>               <C>                <C>
(In thousands except per share data)                                                      1999              1998              1997
Net earnings (loss)                                                        A            $(2,293)          $(41,562)          $14,759
Determination of shares:
    Weighted average number of
      common shares outstanding                                            B              7,715              7,710             7,728
    Dilutive effect of contingently returnable shares
      and shares issuable on exercise of stock options                                       --                 --                40
Weighted average common shares
    outstanding for diluted computation                                    C              7,715              7,710             7,768
Net earnings (loss) per share ("EPS"):
    Basic                                                                 A/B           $ (0.30)          $  (5.39)          $  1.91
    Diluted                                                               A/C           $ (0.30)          $  (5.39)          $  1.90
</TABLE>

As a result of the losses incurred by the Company in 1999 and 1998, options to
purchase 44,084 shares of common stock in 1999 and 46,153 shares of common stock
in 1998 as well as 76,131 shares of contingently returnable shares in 1999 were
not included in the computation of diluted EPS in 1999 and 1998.

                             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. Material changes in estimates are
summarized in Note 4 "Impairment of Theatre Assets, Early Lease Terminations and
Restructure." Management bases its estimates on historical experience and on
various assumptions that are believed to be reasonable under the circumstances
at the time such estimates are made.

                        Recent Accounting Pronouncements

The Financial Accounting Standards Board recently issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended, is not required to be adopted by the Company until 2001. Its
requirements are complex and its scope far-reaching. The Company has not
completed its evaluation of the impact of this standard on the consolidated
financial statements.



                               GC COMPANIES, INC.
                          ----------------------------
                                       20


<PAGE>   23


         In addition, the Emerging Issues Task Force ("EITF") released Issue No.
97-10, "The Effect of Lessee Involvement in Asset Construction." Issue No. 97-10
is applicable to entities involved on behalf of an owner-lessor with the
construction of an asset that will be leased to the lessee when the construction
of the asset is completed. The consensus reached in Issue No. 97-10 applies to
construction projects committed to after May 21, 1998 and also to those projects
that were committed to on May 21, 1998 if construction does not commence by
December 31, 1999. Currently, the Company leases a majority of its new theatres
through a leasing arrangement with a financial institution. The Company
anticipates that changes will be made to certain elements of its current leasing
arrangement to conform to the requirements of an operating lease under Issue No.
97-10. If the Company is unsuccessful in this endeavor, future operating leases
under the current leasing arrangement will be recorded on its consolidated
balance sheet as lease financing arrangements.

         The American Institute of Certified Public Accountants ("AICPA")
recently issued Statement of Position ("SOP") 98-5, "Reporting the Costs of
Start-Up Activity", which must be adopted by the Company in fiscal 2000. The
Company is currently evaluating this standard and anticipates that it will incur
a cumulative pre-tax effect charge of approximately $5.0 million in the first
quarter of fiscal 2000 relative to lease costs incurred prior to openings of
theatres which were previously allowed to be capitalized and amortized under
generally accepted accounting principles.

                            Changes in Presentation

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

           3. MARKETABLE EQUITY SECURITIES AND PORTFOLIO INVESTMENTS
--------------------------------------------------------------------------------




<TABLE>
<CAPTION>
                                                                                                                              Change
                                                                                                        Cumulative        in Pre-tax
                                                                                                     Gross Pre-tax        Unrealized
                                                                                      Aggregate         Unrealized           Holding
                                                          Accounting    Percent of     Carrying            Holding    Gains (Losses)
Investment as of October 31, 1999                        Designation     Ownership     Value(a)   Gains (Losses)(g)  for the Year(g)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                           <C>     <C>                 <C>               <C>
(In thousands except percentages)
Marketable Equity Securities
    Global TeleSystems Group, Inc.              Available-for-sale(b)          1.9    $ 73,495            $52,140           $14,394
    PrimaCom AG
      (formerly named Kabelmedia)                          Trading(c)(f)       3.3      25,092                 --                --
    GrandVision SA                              Available-for-sale(b)          1.6       4,369                (28)            3,081
                                                                                      --------            -------           -------
            Total marketable
                equity securities                                                      102,956             52,112            17,475
                                                                                      ========            =======           =======
Portfolio Investments
    American Capital Access                          Equity Method(d)         23.8      28,757                 --                --
    Fuelman                                          Equity Method(d)         45.2      10,800                 --                --
    MotherNature.com                                   Cost Method(e)          5.5      10,000                 --                --
    El Sitio Inc.                                      Cost Method(e)          7.6       5,100                 --                --
                                                                                      --------            -------           -------
          Total portfolio investments                                                   54,657                 --                --
                                                                                      --------            -------           -------
            Total marketable equity securities
                and portfolio investments                                             $157,613            $52,112           $17,475
                                                                                      ========            =======           =======
</TABLE>



                               GC COMPANIES, INC.
                          ----------------------------
                                       21


<PAGE>   24


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



<TABLE>
<CAPTION>
                                                                                                                             Change
                                                                                                       Cumulative        in Pre-tax
                                                                                                    Gross Pre-tax        Unrealized
                                                                                     Aggregate         Unrealized           Holding
                                                         Accounting    Percent of     Carrying            Holding    Gains (Losses)
Investment as of October 31, 1998                       Designation     Ownership     Value(a)   Gains (Losses)(g)  for the Year(g)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                          <C>      <C>                 <C>               <C>
(In thousands except percentages)
Marketable Equity Securities
    Global TeleSystems Group, Inc.             Available-for-sale(b)                 $ 59,340            $37,746           $37,746
    Global TeleSystems Group, Inc.                        Trading(c)                   10,416                 --                --
                                                                                     --------            -------           -------
       Total Global TeleSystems Group, Inc.                                  2.3       69,756             37,746            37,746
    GrandVision SA                             Available-for-sale(b)         1.6        8,406             (3,109)            (3,109)
                                                                                     --------            -------           -------
            Total marketable
                equity securities                                                      78,162             34,637            34,637
                                                                                     ========            =======           =======
Portfolio Investments
    American Capital Access                         Equity Method(d)        23.8       29,031                 --                --
    Fuelman                                         Equity Method(d)        45.2       11,135                 --                --
    PrimaCom AG
      (formerly named Kabelmedia)                     Cost Method(e)(f)      9.6       13,330                 --                --
    Teletrac                                          Cost Method(e)         7.4        8,273                 --                --
                                                                                     --------            -------           -------
          Total portfolio investments                                                  61,769                 --                --
                                                                                     --------            -------           -------
            Total marketable equity securities
                and portfolio investments                                            $139,931            $34,637           $34,637
                                                                                     ========            =======           =======
</TABLE>



(a)  Carrying values for public portfolio investments were determined based on
     the share price of the securities traded on public markets as of the last
     business day of the period. The carrying values of the non-public portfolio
     investments were determined under either the equity or cost method of
     accounting.
(b)  Unrealized gains or losses on securities classified as available-for-sale
     securities are recorded in the consolidated balance sheets net of tax
     within the caption "Accumulated other comprehensive income."
(c)  Unrealized gains or losses on securities classified as trading securities
     are recorded in the consolidated statements of operations within the
     caption "Investment income (loss), net."
(d)  These investments are in non-public companies and are accounted for on the
     equity method because the Company has a greater than 20% equity interest in
     each.
(e)  These investments are in non-public companies and are accounted for on the
     cost method.
(f)  PrimaCom AG (formerly Kabelmedia) became public in February, 1999, and this
     resulted in its transfer from Portfolio Investments to Marketable Equity
     Securities.
(g)  Pre-tax unrealized holding gains and losses apply only to marketable equity
     securities.

               Investment Activity - Marketable Equity Securities

Global TeleSystems Group, Inc.

Global TeleSystems Group, Inc. ("GTS") is an operator of long distance and
access telecommunications networks and a provider of voice and data
telecommunications services to business customers and other telecommunications
service providers in Europe, the Commonwealth of Independent States and Asia.

         In February 1998, GTS completed an initial public offering of its
common stock, which is traded on the New York Stock Exchange under the symbol
"GTS." Under SFAS No. 115, the GTS shares were split into two separate
classifications within marketable equity securities - available-for-sale
securities and trading securities. Unrealized holding gains on these securities
in 1999 and 1998 are shown in the table above and have been recorded either in
"Investment income (loss), net" for the securities designated as trading or in
"Accumulated other comprehensive income" for the securities designated as
available-for-sale. None of the GTS holdings were sold in 1998. During 1999,
however, all the GTS securities designated as "trading" and a portion of the GTS
securities designated as "available-for-sale" were sold. Realized gains on the
sale of GTS securities were determined on a specific identification basis and
totaled $17.2 million, of which $6.9 million had been previously recognized in
the consolidated statements of operations as an unrealized holding gain in 1998.



                               GC COMPANIES, INC.
                          ----------------------------
                                       22


<PAGE>   25


         On May 21, 1999, the Company exercised stock options to purchase 26,000
shares of GTS at a cost of $17.45 per share. These options were part of the
Company's original investment in GTS. These shares have been designated as
available-for-sale securities.

PrimaCom AG (formerly Kabelmedia)

On December 30, 1998, Kabelmedia, the German cable television systems operator,
merged with another company and was renamed PrimaCom AG ("PrimaCom"). At the
time of the merger, Kabelmedia shareholders owned 47% of the new company and
GCC's ownership in the merged company was 4.3%. In February 1999, PrimaCom
successfully completed an initial public offering and is currently traded on the
German Neuer Markt under the symbol "PRC." As a result of this public offering,
and in accordance with SFAS No. 115, the Company reclassified this investment
from portfolio investments to marketable equity securities and designated the
shares as trading securities. Unrealized gains in 1999 of $14.7 million have
been recorded in the consolidated statements of operations within the caption
"Investment income (loss), net."

         In the fourth quarter of 1999, the Company sold a portion of its
PrimaCom holdings, generating net proceeds of $8.1 million, and a gross realized
gain of $5.2 million.

GrandVision (SA)

All shares of GrandVision SA ("GrandVision"), an optical and photo retailer,
have been classified as "available-for-sale." Unrealized holding gains and
losses on these securities in 1999 and 1998 are shown in the table above and
have been recorded in the consolidated balance sheets under the caption
"Accumulated other comprehensive income."

        In the fourth quarter of 1999, the Company sold a portion of its
GrandVision holdings, generating net proceeds of $6.4 million and a realized
loss of $2.9 million.

         The shares of GrandVision had been received in connection with the
Company's sale of a portfolio investment in 1997. The agreement required that
shares of GrandVision be held back pending the resolution of certain purchase
contingencies. In the fourth quarter of 1999, pursuant to the agreement, certain
shares held in escrow were released to the Company. The value as of the date of
the release was recorded by the Company as a transaction-related gain of $2.1
million in "Investment income (loss), net." These shares have subsequently been
designated as available-for-sale securities.

             Investment Activity - Portfolio Investments Accounted
                           for Under the Cost Method

On May 12, 1999, the Company invested $10.0 million in MotherNature.com, a
leading Web-based retailer of vitamins, supplements and minerals. On July 6,
1999, the Company invested $5.1 million in El Sitio, a leading Internet provider
of global and country-specific content targeted to Spanish and Portuguese
speaking customers in Latin America. Because of the illiquidity of these
investments and the Company's less than 20% ownership, such investments are
carried at cost.

Teletrac

During the second quarter of 1999, Teletrac, a wireless location and two-way
messaging company, announced that it had retained the services of an investment
banking firm in its efforts to raise additional capital and to assist in
discussions with the holders of Teletrac's senior debt concerning a possible
restructuring of that debt. In addition, Teletrac disclosed that if it failed to
secure additional capital or alternative sources of liquidity, its ability to
continue current operations would be in jeopardy. Because Teletrac's
fund-raising efforts were not expected to yield sufficient new capital at an
acceptable valuation, GCC believed its investment had become impaired. As a
result, during the second quarter of 1999, the Company recorded a charge of $8.3
million to the consolidated statements of operations under the caption
"Investment income, net" to write-off its entire interest in Teletrac. On June
9, 1999, Teletrac filed a petition for protection under Chapter 11 of the U.S.
Bankruptcy Code. This investment was subsequently sold for a nominal amount.





                               GC COMPANIES, INC.
                          ----------------------------
                                       23


<PAGE>   26



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------




             Investment Activity - Portfolio Investments Accounted
                          for Under the Equity Method

On February 9, 1998, the Company completed an $11.0 million investment in
Fuelman, a leading provider of fleet management services. Through its
proprietary systems and network, Fuelman currently provides services to
commercial vehicle operators throughout the United States. Fuelman's results of
operations for the 12 months ended September 30, 1999 and the eight months ended
September 30, 1998 are shown below.

         On September 24, 1997, the Company invested $30.0 million in a
newly-formed financial guaranty insurance company, American Capital Access
("ACA"). ACA's results of operations for 1999 and 1998 are shown below.

         Unaudited summarized financial information of the Company's investees
accounted for under the equity method for the periods ended September 30, 1999
and 1998 are as follows:

Unaudited                          American Capital Access         Fuelman
--------------------------------------------------------------------------------
(In thousands)                      12 Months  12 Months     12 Months  8 Months
                                         1999       1998          1999      1998

Current assets                       $153,356   $133,234      $ 32,370   $21,978
Non-current assets                     26,498     16,841        24,216    18,271
Current liabilities                     7,734      5,650        15,276    11,884
Non-current liabilities                57,657     23,367        26,326    13,054
Redeemable preferred stock                 --         --        18,448    16,049
Total revenues or premiums written     54,551     23,445       157,428    77,484
Earnings (loss) before taxes           (1,155)    (1,261)         (163)    1,319
Net earnings (loss)                    (1,155)    (1,261)         (549)      776


             Investment Activity - Summary of Results Shown in the
                     Consolidated Statements of Operations

In summary, investment income (loss) consisted of the following:



<TABLE>
<CAPTION>
                                                                              Years Ended October 31,
------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                 <C>                 <C>
(In thousands)                                                       1999                1998                1997
Interest and dividend income                                       $   241             $ 1,300             $ 4,295
Unrealized gain (loss) on marketable equity securities              14,690              (2,107)                 --
Realized gain on marketable equity securities
    and portfolio investments                                       14,047                  --               9,585
Equity-losses in portfolio investments                                (589)               (571)                 --
Loss on impairment of portfolio investments                         (8,273)                 --                  --
                                                                   -------             -------             -------
Net investment income (loss)                                       $20,116             $(1,378)            $13,880
                                                                   =======             =======             =======
</TABLE>


         Also included in investment income (loss) are charges of $0.9 million,
$8.8 million and $1.6 million in 1999, 1998 and 1997, respectively, relating to
performance-based compensation 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 cash and/or restricted shares of GCC. The restricted
shares vest over a period of time. Compensation related to the GCC restricted
shares is recognized pro-ratably over the vesting period. This Incentive Pool
Plan remains in place for investments in GTS, GrandVision and PrimaCom for both
current and certain former employees.

         In August, 1999, the Company established a new 99% owned subsidiary,
GCC Investments, LLC ("LLC"). A portion of the investment portfolio -
specifically the investments in El Sitio, MotherNature.com, ACA and Fuelman, was
transferred into this entity at its fair value which approximated its current
carrying amount. The remaining 1% interest was purchased at fair value by
Chestnut Hill Capital Partners, LLC ("CHCP"), which is owned by the Company's
Chief Investment Officer and investment professionals formerly employed by the
Company's investment subsidiary.

         The LLC agreement specifies that profit sharing in the LLC will be
between GCC and CHCP in accordance with certain contractual calculations. There
has been no activity relative to the minority interest



                               GC COMPANIES, INC.
                          ----------------------------
                                       24


<PAGE>   27


other than the initial investment in the LLC by CHCP of approximately $0.6
million, an amount which is currently included in other long-term liabilities.

         CHCP also has a management agreement with GCC Investments, LLC which
specifies that CHCP is to be reimbursed for certain expenses according to a
specific formula. This agreement was in place for only two months in 1999;
amounts payable or paid totaled $0.7 million during the year.

   4. IMPAIRMENT OF THEATRE ASSETS, EARLY LEASE TERMINATIONS AND RESTRUCTURE

The components of impairment and restructuring charges in the consolidated
statements of operations were as follows:


                                                       Years Ended October 31,
--------------------------------------------------------------------------------
(In thousands)                                       1999        1998       1997

Impairment of fixed assets                        $ 3,501     $28,614     $7,451
Accrual of lease termination costs                  3,588      39,572         --
Lease settlements less than amounts accrued        (8,491)         --         --
Changes in estimates of lease termination costs    (7,861)         --         --
Restructuring                                       6,662          --         --
                                                  -------     -------     ------
                                                  $(2,601)    $68,186     $7,451
                                                  =======     =======     ======

                           Impairment of Fixed Assets

During the ordinary course of business, management has and will make
determinations that impact the recoverability of theatre assets. Such decisions
have impacted operations in 1999, 1998 and 1997. As part of the Company's annual
budgeting process, management has and will review the long-lived assets used in
the theatre business for impairment. This analysis has and will take place at
the individual theatre level, which management believes is the lowest level for
which there are identifiable cash flows. In addition, management has and 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 has and 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.

         Significant industry building of new megaplexes has caused the Company
to re-assess the value and utility of certain theatre locations through its
internal evaluation process described above. There continues to be 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, draw audiences away
from certain theatre locations that the Company operates.

         The evaluation described above resulted in the impairment charges shown
above under the caption "Impairment of fixed assets."

                       Accrual of Lease Termination Costs

As described above, the Company has and will identify the impaired theatres
management has committed to closing in the next 12 months and record a liability
for the estimated costs of exiting certain leases. The Company's termination
reserves established for leases on properties that management has committed to
close reflect management's best estimate of the potential costs associated with
exiting these leases. Estimates are based on analysis of the facilities,
correspondence with the landlords, exploratory discussions with sublessees and
market conditions. While in most instances, the Company has accurately predicted
its costs to terminate leases, there have been circumstances where there was a
material difference; therefore, the amounts the Company will eventually be
obligated for could differ materially from the amounts included in the original
reserve.



                               GC COMPANIES, INC.
                          ----------------------------
                                       25


<PAGE>   28


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------




         In 1999, the Company accrued additional reserves of $3.6 million for
theatres that management has committed to exiting within the next 12 months in
accordance with the evaluation process described above.

         During the year, the Company executed the termination of 12 leases
resulting in payments of approximately $12.2 million and made additional
payments of $2.7 million for other related closing costs. Of the lease
terminations executed by the Company in 1999 and previously accrued for in 1998,
the payment was less than the amount previously accrued by $5.8 million, which
was partially offset by amounts accrued for lease terminations executed in 1999
and not accrued in 1998 of $1.5 million. In addition, the Company either reduced
or reversed the amount reserved on certain theatre locations by $7.9 million due
to a number of factors, including revisions made in the estimates to terminate
the leases because negotiations with landlords indicate that the buyout will not
be as high as originally anticipated, because anticipated competitor
construction did not occur in the market or management has determined that the
location will not be closed in the foreseeable future.

                                  Restructure

In the fourth quarter of 1999, the Company's Board of Directors approved a
restructuring plan of its domestic theatre operations to centralize its existing
regional offices into the Company's home office located in Massachusetts.
Accrued restructuring charges of $6.7 million include the cost of involuntary
employee termination benefits for 45 employees of approximately $1.5 million,
the cost of a voluntary special retirement program of $4.3 million for 30
employees, which will be funded by the Company's pension asset and a charge of
$0.9 million for subleasing certain regional office space. Employee termination
benefits include severance, medical and other benefits and outplacement
services. No cash payments have been made in 1999 related to this restructuring
charge. The Company anticipates that cash payments will be made over the next 18
months.

         The following is a tabular presentation of the reserves described
above:



<TABLE>
<CAPTION>
                                                                                  Reserve for
                                                           Reserve for Lease        Personnel
                                                           Termination Costs    Related Costs         Total Reserve
                                                           -----------------    -------------         -------------
<S>                                                                 <C>                  <C>               <C>
(In thousands)
Balance at October 31, 1998                                         $ 36,579             $   --            $ 36,579
    Cash payments in 1999:
      Lease buyouts                                                  (12,249)                --             (12,249)
      Rent and other payments                                         (2,674)                --              (2,674)
    Changes in 1998 reserve estimates:
      Lease buyouts less than the original lease
          termination reserve amount                                  (4,250)                --              (4,250)
      Changes in estimate of lease termination reserves
          for units not resolved                                      (7,861)                --              (7,861)
    Additional 1999 reserves:
      Restructure                                                        859              1,485               2,344
      Theatres identified as impaired                                  3,526                 62               3,588
                                                                    --------             ------            --------
Balance at October 31, 1999                                         $ 13,930             $1,547            $ 15,477
                                                                    ========             ======            ========
</TABLE>



                               GC COMPANIES, INC.
                          ----------------------------
                                       26


<PAGE>   29


                         5. PROPERTY AND EQUIPMENT, NET
--------------------------------------------------------------------------------
Property and equipment consisted of the following at October 31
--------------------------------------- ----------------------------------------
(In thousands)                                               1999           1998
Cost:
    Land                                                 $  1,234       $  1,417
    Building and improvements                              26,970         19,244
    Leasehold improvements                                104,837        116,484
    Furniture and fixtures                                111,646        119,557
                                                         --------       --------
                                                          244,687        256,702
Less accumulated depreciation and amortization            135,334        144,103
                                                         --------       --------
Net property and equipment                               $109,353       $112,599
                                                         ========       ========


               6. INVESTMENT IN INTERNATIONAL THEATRE AFFILIATES
--------------------------------------------------------------------------------

The Company has equity-based investments in theatre operations in South America
and Mexico which are joint ventures with unrelated third parties. These two
joint ventures are accounted for by the Company under the equity method. The net
assets of these joint ventures appear in the balance sheet under the caption
"Investments in international theatre affiliates." The results of operations for
the years ended October 31, 1999 and 1998 appear under the caption "Equity
losses in theatre affiliates."

         The Company purchased its interest in these joint ventures in
September, 1997 for a cash purchase price of $36.3 million. 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.

         In October, 1999, the Company determined that there was a loss in value
of its Mexican investment that was other than temporary. Accordingly, it
recorded in "Equity losses in theatre affiliates" a charge of approximately $3.5
million relating to this loss in value of the Mexican joint venture.

         The Company's South American joint venture, Hoyts General Cinema South
America ("HGCSA"), has entered into a $75.0 million debt financing arrangement
with major financial institutions to fund its operations in Argentina, which is
secured by a several guaranty of the joint venture's partners. Availability of
this financing beyond $50.0 million is subject to potential syndication to
third-party financial institutions. Under the several guaranty of the Argentina
debt facility, the Company is liable for 50% of the outstanding borrowings. At
October 31, 1999, the Company's portion of the outstanding borrowings under this
facility that it guarantees was approximately $7.5 million.

         HGCSA has also structured $22.0 million in debt financings to fund its
operations in Chile, which is secured by the several guaranty of the partners.
$3.0 million of this debt financing was arranged after October 31, 1999. The
Company is liable for 50% of the outstanding exposure. At October 31, 1999, the
Company's portion of the outstanding exposure under these facilities was
approximately $9.0 million, which was comprised of $6.6 million of outstanding
borrowings and $2.4 million of outstanding guarantees.



                               GC COMPANIES, INC.
                          ----------------------------
                                       27


<PAGE>   30


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------




                          7. OTHER CURRENT LIABILITIES
--------------------------------------------------------------------------------

Other current liabilities consisted of the following at October 31

--------------------------------------------------------------------------------
(In thousands)                                               1999           1998

Rent and related charges                                  $16,352        $14,928
Payroll and related benefits                                4,204          5,792
Deal-related performance-based compensation                 9,568         11,212
Self insurance                                             12,207         14,451
Deferred income                                            18,364         20,210
Other                                                      21,045         23,087
                                                          -------        -------
                                                          $81,740        $89,680
                                                          =======        =======

                            8. LONG-TERM LIABILITIES
--------------------------------------------------------------------------------

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


-------------------------------------------------------- -----------------------
(In thousands)                                                 1999         1998
Deferred lease obligations                                  $23,664      $22,898
Post-retirement health care benefits (see Note 14)            6,556        6,306
Other                                                         6,077        4,319
                                                            -------      -------
                                                            $36,297      $33,523
                                                            =======      =======

         The present value of the future minimum lease payments due under
capital lease obligations over the remaining term of the leases totals $1.1
million. The net book value of property under capital leases was $0.6 million
at October 31, 1999 and $0.9 million at October 31, 1998.

                         9. 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 an Amended and Restated
Reimbursement and Security Agreement ("Reimbursement and Security Agreement")
dated January 26, 1999, 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 $695,000, $230,000 and $250,000 in
1999, 1998 and 1997, respectively. In addition, GCC is required to maintain
certain financial covenants under its Reimbursement and Security Agreement
including, among others, a minimum net worth and fixed charge coverage ratio, a
maximum amount of total debt to cash flow and restrictions on the issuance of
additional debt. In addition, the amended Reimbursement and Security Agreement
contains limitations on the payment of dividends and other distributions.

         Harcourt General provides certain management services to GCC. The fees
for these services, which totaled $0.5 million in each of 1999, 1998 and 1997,
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.



                               GC COMPANIES, INC.
                          ----------------------------
                                       28


<PAGE>   31


         In addition, the Company subleases office space and a theatre location
from Harcourt General. The rent and rent-related expense associated with these
subleases totaled $1.2 million in 1999, 1998 and 1997.

              10. REVOLVING CREDIT AGREEMENT AND LETTERS OF CREDIT
--------------------------------------------------------------------------------

At October 31, 1999 and 1998, the Company had outstanding borrowings under its
revolving credit agreement of $13.0 million and $16.8 million, respectively. The
revolving credit agreement was amended on January 26, 1999 to extend the term of
the agreement through January 26, 2002 at which date the commitment terminates
and any outstanding borrowings are due. 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 for up to six
months. The fixed rate 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. As of October 31, 1999 and 1998, the
variable interest rate on the outstanding borrowings of the revolving credit
agreement was 6.7% and 8.0%, respectively. The Company paid interest of $1.8
million in 1999. The revolving credit agreement contains restrictive financial
covenants including, among others, the maintenance of minimum net worth, a
minimum fixed charge coverage ratio, maximum amount of debt to cash flow and a
restriction on the issuance of additional debt. In addition, the revolving
credit agreement contains limitations on the payment of dividends and other
distributions.

         At October 31, 1999 and 1998, the Company had outstanding standby
letters of credit totaling $7.6 million and $9.6 million, respectively. The
letters of credit expire at varying times over the next year.

                            11. 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, 1999 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 10 years. Options for
86,131 shares, 66,143 shares and 69,183 shares were exercisable under all option
arrangements at October 31, 1999, 1998 and 1997, respectively. Under the
existing stock incentive plan, there were 465,214 and 556,263 shares available
for future grants at October 31, 1999 and 1998, respectively. Exercises in years
ended October 31, 1997 and 1998 took the form of both stock option exercises and
stock appreciation awards; the latter being permitted at the sole discretion of
the Company. All 1999 exercises were in the form of stock option exercise.



                               GC COMPANIES, INC.
                          ----------------------------
                                       29


<PAGE>   32


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------




     The following summarizes transactions under all stock option arrangements
for the years ended October 31, 1999, 1998 and 1997:



<TABLE>
<CAPTION>
                                                                                      Weighted
                                          Number                                       Average
                                        of Shares      Per Share Option Price   Exercise Price
-------------------------------------   ---------      ----------------------   --------------

<S>                                      <C>           <C>       <C>   <C>              <C>
Outstanding as of November 1, 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
                                         -----------------------------------------------------
Outstanding as of 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
                                         -----------------------------------------------------
Outstanding as of October 31, 1998       156,104        15.81    --     52.42            34.45
    Granted                               24,555                        40.00            40.00
    Exercised                             (9,801)       15.81    --     35.00            23.64
    Canceled                              (7,967)       25.50    --     52.42            37.15
                                         -----------------------------------------------------
Outstanding as of October 31, 1999       162,891       $15.81    --    $52.42           $35.81
                                         =====================================================
</TABLE>

     The following summarizes information about all stock options outstanding at
October 31, 1999:

<TABLE>
<CAPTION>
                                             Options Outstanding                                 Options Exercisable
                               --------------------------------------------------       ----------------------------------
                                                         Weighted-Average
                                                 --------------------------------
                                    Number         Remaining                                 Number               Weighted
                               Outstanding       Contractual                            Exercisable                Average
 Range of Exercise Prices      at 10/31/99       Life (years)      Exercise Price       at 10/31/99         Exercise Price
 -------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                   <C>               <C>               <C>                    <C>
     $15.01 - $20.00                 2,294               2.1               $15.81             2,294                 $15.81
      20.01 -  30.00                30,069               2.9                25.67            27,699                  25.68
      30.01 -  40.00                90,363               6.9                35.98            41,274                  34.55
      40.01 -  50.00                32,806               7.5                42.25            10,385                  42.91
      50.01 -  52.42                 7,359               7.0                52.10             4,479                  51.90
                                   -------                                                   ------
     Total                         162,891                                                   86,131
                                   -------                                                   ------
</TABLE>

     Had compensation cost for stock option grants issued during 1999, 1998 and
1997 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,
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                 <C>                   <C>
(In thousands except for per share amounts)                                  1999                1998                 1997
Net earnings (loss)                                                       $ (2,518)           $(41,820)             $14,571
Basic earnings (loss) per share                                           $  (0.33)           $  (5.42)             $  1.89
Diluted earnings (loss) per share                                         $  (0.33)           $  (5.42)             $  1.88
</TABLE>

     The pro-forma effect on net earnings (loss) as well as basic and diluted
earnings (loss) per share for 1999, 1998 and 1997 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.


                               GC COMPANIES, INC.
                          ----------------------------
                                       30
<PAGE>   33


     The fair value of each stock option granted in 1999, 1998 and 1997 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 1999, 1998 and 1997:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>              <C>
                                                                                     1999             1998             1997

Expected volatility                                                                 24.62%           18.00%           18.20%
Risk-free interest rates                                                             4.54%            5.88%            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
1999, 1998 and 1997 were $15.25, $15.03 and $12.98, respectively.

                             Unearned Compensation

The Company's GCC Investments, Inc. Incentive Pool Plan provides for
performance-based compensation for certain employees based on certain investment
events. A portion of the performance-based compensation may be paid in
restricted shares, which vest over a period of time subsequent to the investment
event. The balance in unearned compensation represents the unvested portion of
the restricted stock award. Compensation expense related to the restricted
shares is charged to the consolidated statement of operations pro-ratably over
the vesting period. Such expense totaled approximately $575,000 for 1999.

                              12. 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.
     The components of the net periodic pension costs are as follows:


<TABLE>
<CAPTION>
                                                            Years Ended October 31,
----------------------------------------------------------------------------------------------
<S>                                               <C>               <C>               <C>
(In thousands)                                      1999              1998              1997

Service cost                                      $   433           $   431           $   451
Interest cost                                       1,332             1,278             1,191
Expected return on plan assets                     (2,483)           (2,364)           (2,062)
Amortization of prior service                          76                76                76
Recognized actuarial gains                           (161)             (190)             (316)
Amortization of transition asset                     (298)             (298)             (353)
                                                  -------------------------------------------
    Total                                          (1,101)           (1,067)           (1,013)
Special termination benefit                         4,284                --                --
                                                  -------------------------------------------
Net pension charge (credit)                       $ 3,183           $(1,067)          $(1,013)
                                                  ===========================================
</TABLE>


                               GC COMPANIES, INC.
                          ----------------------------
                                       31
<PAGE>   34


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          -------------------------------------------------------------


     The following table sets forth the change in the defined benefit plans'
funded status for the years ended October 31, 1999 and 1998:


<TABLE>
<CAPTION>
                                                                      1999                                   1998
                                                            -------------------------             --------------------------
                                                            Funded           Unfunded             Funded            Unfunded
                                                             Plan              Plan                Plan               Plan
------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>                <C>                <C>
(In thousands)
CHANGE IN BENEFIT OBLIGATION
    Benefit obligation, beginning of year                 $ 17,912           $  2,047           $ 14,472           $  1,825
    Service cost                                               380                 53                386                 45
    Interest cost                                            1,229                103              1,135                143
    Special termination benefit                              4,284                 --                 --                 --
    Actuarial loss (gain)                                   (3,666)              (850)             2,592                111
    Benefits paid                                             (871)               (69)              (673)               (77)
                                                          -----------------------------------------------------------------
    Benefit obligation, end of year                         19,268              1,284             17,912              2,047
                                                          =================================================================
CHANGE IN PLAN ASSETS
    Fair value of plan assets, beginning of year            28,234                 --             27,639                 --
    Actual return on plan assets                             2,096                 --              1,268                 --
    Company contributions                                       --                 69                 --                 77
    Benefits paid                                             (871)               (69)              (673)               (77)
                                                          -----------------------------------------------------------------
    Fair value of plan assets, end of year                  29,459                 --             28,234                 --
                                                          =================================================================

Over (under) funded status                                  10,191             (1,284)            10,322             (2,047)
Unrecognized net transition asset                             (298)                --               (568)                --
Unrecognized net actuarial gain                             (7,207)              (287)            (4,089)               (70)
Unrecognized prior service cost                                 21                377                 36                448
                                                          -----------------------------------------------------------------
Net asset (liability) recognized
    in the consolidated balance sheets                    $  2,707           $ (1,194)          $  5,701           $ (1,669)
                                                          =================================================================
</TABLE>

     The significant actuarial assumptions as of the year-end measurement dates
were as follows:


<TABLE>
<CAPTION>
                                                                                                   Years Ended October 31,
-------------------------------------------------------------------------------------------------------------------------------
                                                                                             1999          1998            1997
<S>                                                                                          <C>           <C>             <C>
Discount rate                                                                                8.0%          7.0%            7.5%
Rate of compensation increases                                                               4.5%          5.0%            5.0%
Rate of return on plan assets                                                                9.0%          9.0%            9.0%
</TABLE>

     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 1999, 1998 and 1997 were $508,432, $337,525, and
$431,218, respectively. The GCC Employee Stock Ownership Plan ("ESOP") is
non-contributory.


                               GC COMPANIES, INC.
                          ----------------------------
                                       32
<PAGE>   35


                        13. COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------

                                     Leases

GCC conducts the majority of its operations in leased premises under
noncancelable leases which typically have initial lease 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, following the
initial lease term, 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 $81.0 million at October 31, 1999.
     Assuming renewal options are not exercised, the future minimum payments
under noncancelable operating leases as of October 31, 1999 were as follows:


<TABLE>
<CAPTION>
                                                                                                           Operating Leases
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                                <C>
(In thousands)
2000                                                                                                               $ 79,476
2001                                                                                                                 79,787
2002                                                                                                                 78,796
2003                                                                                                                 78,061
2004                                                                                                                 78,698
Thereafter                                                                                                          561,760
                                                                                                                   --------
                                                                                                                   $956,578
                                                                                                                   --------
</TABLE>

     Rent expense under noncancelable leases was as follows:



<TABLE>
<CAPTION>
                                                       Years Ended October 31,
----------------------------------------------------------------------------------------
                                                1999             1998             1997
<S>                                           <C>              <C>              <C>
(In thousands)

Minimum rentals                               $73,401          $68,198          $62,710
Percentage rentals based on revenues            3,096            3,049            3,750
                                              -------          -------          -------
                                              $76,497          $71,247          $66,460
                                              -------          -------          -------
</TABLE>

     The Company has an agreement with a major financial institution to provide
operating leases for up to $250.0 million of assets for its theatre circuit
expansion program. This agreement expires in November, 2001. The Company
currently has entered into $118.8 million of operating leases. 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, 1999 and 1998, 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 $15.5 million and $21.7 million, respectively.

                                   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.

                    14. 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 $358,000, $271,000 and $208,000 during fiscal
1999, 1998 and 1997, respectively, for post-retirement health care benefit
claims.


                               GC COMPANIES, INC.
                          ----------------------------
                                       33
<PAGE>   36
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           ---------------------------------------------------------

        Net post-retirement benefit costs are as follows:


<TABLE>
<CAPTION>
                                                     Years Ended October 31,
-------------------------------------------------------------------------------------
<S>                                           <C>             <C>             <C>
(In thousands)                                 1999            1998            1997
Service cost                                  $  18           $  25           $  30
Interest cost                                   311             300             298
Net amortization and deferral                  (101)           (168)           (168)
                                              -------------------------------------
    Net post-retirement benefit cost          $ 228           $ 157           $ 160
                                              =====================================
</TABLE>

     The following table sets forth the funded status of the Company's
post-retirement benefit obligations and the amounts recognized in GCC's
consolidated balance sheets:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
<S>                                                     <C>               <C>
(In thousands)
                                                          1999              1998
Change in benefit obligation:
Benefit obligation, beginning of year                   $ 4,375           $ 4,169
    Service cost                                             18                25
    Interest cost                                           311               300
    Actuarial loss (gain)                                  (176)              205
    Benefits paid                                          (358)             (324)
                                                        -------------------------
Benefit obligation, end of year                           4,170             4,375
                                                        -------------------------
Fair value of plan assets                                    --                --
                                                        -------------------------

Under funded status                                      (4,170)           (4,375)
Unrecognized net actuarial gain                          (2,386)           (1,931)
                                                        -------------------------
Net liability recognized in the balance sheets          $(6,556)          $(6,306)
                                                        =========================
</TABLE>

     The assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 12.0% in fiscal 1998 and 1999, gradually
declining to 5.0% in fiscal 2005. Measurement of the accumulated post-retirement
benefit obligation was based on an assumed 8.0% discount rate for 1999, 7.0% for
1998 and 7.5% for 1997.
     If the health care cost trend rate assumptions were increased by 1.0%, the
accumulated post-retirement obligation as of October 31, 1999 would be increased
by $484,000. The effect of this change on the service cost and interest cost
would be an aggregate increase of $38,000.

                       15. INCOME TAX BENEFIT (PROVISION)
--------------------------------------------------------------------------------

Income tax benefit (provision) was as follows:

<TABLE>
<CAPTION>
                                               Years Ended October 31,
----------------------------------------------------------------------------------
<S>                                <C>                <C>                <C>
(In thousands)                        1999               1998               1997
CURRENT
    Federal                        $  8,666           $  7,442           $(14,875)
    State                                --              1,042             (2,199)
                                   ----------------------------------------------
                                      8,666              8,484            (17,074)

DEFERRED
    Federal                          (6,245)            16,754              6,933
    State                              (892)             2,470               (116)
                                   ----------------------------------------------
                                     (7,137)            19,224              6,817
                                   ----------------------------------------------
                                   $  1,529           $ 27,708           $(10,257)
                                   ==============================================
</TABLE>


                               GC COMPANIES, INC.
                          ----------------------------
                                       34
<PAGE>   37


     GCC's effective income tax rate was 40.0% in 1999 and 1998 and 41.0% in
1997. The differences between the statutory federal tax rate and the effective
tax rate are due primarily to state income taxes. The Company paid approximately
$300,000, $8.0 million and $13.7 million in income taxes during the years ended
October 31, 1999, 1998 and 1997, respectively.
     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>
-----------------------------------------------------------------------------------------
<S>                                                           <C>               <C>
(In thousands)                                                  1999              1998
GROSS DEFERRED INCOME TAX ASSETS
    Financial accruals and reserves                           $ 20,591          $ 15,757
    Investment write downs                                       2,953             2,953
    Post-retirement health care benefits                         2,661             2,595
    State net operating loss carryforwards                       1,114                --
    Self insurance accruals                                        773             1,550
                                                              --------------------------
      Total deferred tax assets                                 28,092            22,855
GROSS DEFERRED INCOME TAX LIABILITIES
    Basis difference in fixed assets                            13,259             4,107
    Unrealized gain on trading securities                        5,948             2,726
    Unrealized gain on available-for-sale securities            20,849            13,855
                                                              --------------------------
      Total deferred income tax liabilities                     40,056            20,688
                                                              --------------------------
      Net deferred tax liability (asset)                      $ 11,964          $ (2,167)
                                                              ==========================
</TABLE>


               16. SEGMENTS OF ENTERPRISE AND RELATED INFORMATION
--------------------------------------------------------------------------------
The Company 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
encompass 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 4. 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.


                               GC COMPANIES, INC.
                          ----------------------------
                                       35
<PAGE>   38


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               ---------------------------------------------------


                                 TOTAL COMPANY

<TABLE>
<CAPTION>
                                                                      Year Ended October 31, 1999
                                      -----------------------------------------------------------------------------------------
                                       Domestic     International     Other         Segment                     Consolidated
                                       Theatres       Theatres      Operations      Totals       Adjustments       Totals
-------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>            <C>            <C>            <C>            <C>
(In thousands)
Revenues:
    Admissions                        $ 255,752      $  45,010      $      --      $ 300,762      $ (45,010)     $ 255,752
    Concessions                         115,093         14,577             --        129,670        (14,577)       115,093
    Other                                15,305          2,595             --         17,900         (2,595)        15,305
                                      ---------      ---------      ---------      ---------      ---------      ---------
Total revenues                          386,150         62,182             --        448,332        (62,182)       386,150
                                      ---------      ---------      ---------      ---------      ---------      ---------
Earnings (loss) before
    interest, taxes, depreciation
    and amortization                      5,127          6,341         (7,246)         4,222         (6,341)        (2,119)
Depreciation and amortization            16,071          6,870            185         23,126         (6,870)        16,256
Gain on impairment or
    disposition of theatre assets
    and restructuring                    (4,718)            --             --         (4,718)            --         (4,718)
Net investment income                        40            825         20,076         20,941           (825)        20,116
Earnings (loss)
    before income taxes                  (6,637)        (8,282)         9,163         (5,756)         1,934         (3,822)
Total assets                            237,740        142,982        179,637        560,359       (184,752)       375,607
Total capital expenditures               18,123         33,507          2,844         54,474        (33,507)        20,967
</TABLE>



<TABLE>
<CAPTION>
                                                                      Year Ended October 31, 1998
                                      -----------------------------------------------------------------------------------------
                                       Domestic     International     Other         Segment                     Consolidated
                                       Theatres       Theatres      Operations      Totals       Adjustments       Totals
-------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>             <C>           <C>            <C>            <C>
(In thousands)
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
Loss on impairment or
    disposition of theatre assets        56,844             --             --         56,844             --         56,844
Net investment income (loss)                 50            (10)          (956)          (916)          (462)        (1,378)
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>


                               GC COMPANIES, INC.
                          ----------------------------
                                       36
<PAGE>   39


<TABLE>
<CAPTION>
                                                                      Year Ended October 31, 1997
                                      -----------------------------------------------------------------------------------------
                                       Domestic     International     Other         Segment                     Consolidated
                                       Theatres       Theatres      Operations      Totals       Adjustments       Totals
-------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>            <C>            <C>            <C>            <C>
(In thousands)
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 on impairment or
    disposition of theatre assets        (3,566)            --             --         (3,566)            --         (3,566)
Net investment income                        --             --         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        462,588       (122,988)       339,600
Total capital expenditures               17,725             --          1,017         18,742             --         18,742
</TABLE>


                               DOMESTIC THEATRES
<TABLE>
<CAPTION>
                                                              Year Ended October 31, 1999
                                        ----------------------------------------------------------------------
                                          Core           Other         Impaired        Other         Domestic
                                         Markets        Markets        Theatres       Expenses       Theatres
--------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>            <C>             <C>           <C>
(In thousands)
Revenues:
    Admissions                          $ 146,244      $  57,400      $  52,108       $     --      $ 255,752
    Concessions                            64,294         25,599         25,200             --        115,093
    Other                                   7,025          4,522          3,758             --         15,305
                                        ---------      ---------      ---------       --------      ---------
Total revenues                            217,563         87,521         81,066             --        386,150
                                        ---------      ---------      ---------       --------      ---------
Earnings (loss) before interest,
    taxes, depreciation and
    amortization                           25,580          8,241         (6,174)       (22,520)         5,127
Depreciation and amortization               7,610          3,279            889          4,293         16,071
Gain on impairment or
    disposition of theatre assets
    and restructuring                      (2,224)        (1,162)        (1,072)          (260)        (4,718)
Net investment income                          --             --             --             40             40
Earnings (loss) before income taxes        20,186          6,033         (6,043)       (26,813)        (6,637)
Total assets                               81,548         22,484          4,524        129,184        237,740
Total capital expenditures                  7,404          6,015             18          4,686         18,123
</TABLE>


                               GC COMPANIES, INC.
                          ----------------------------
                                       37
<PAGE>   40


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               --------------------------------------------------


<TABLE>
<CAPTION>
                                                              Year Ended October 31, 1998
                                        ----------------------------------------------------------------------
                                             Core          Other        Impaired        Other         Domestic
                                            Markets       Markets       Theatres       Expenses       Theatres
--------------------------------------------------------------------------------------------------------------
<S>                                       <C>           <C>            <C>            <C>            <C>
(In thousands)
  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                          --            --             --             50             50
  Earnings (loss) before income taxes        25,138        22,335        (78,919)       (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>
                                                             Year Ended October 31, 1997
                                        ----------------------------------------------------------------------
                                          Core          Other        Impaired        Other            Domestic
                                         Markets       Markets       Theatres       Expenses          Theatres
--------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>            <C>            <C>              <C>
(In thousands)
  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 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>


                               GC COMPANIES, INC.
                          ----------------------------
                                       38
<PAGE>   41


          17. COMPARATIVE QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                               1999
                                                ----------------------------------------------------------------------
                                                  First        Second          Third        Fourth            Full
                                                 Quarter       Quarter        Quarter       Quarter           Year
----------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>            <C>           <C>            <C>
(In thousands except for per share amounts)
Revenues                                        $ 104,398     $  74,216      $ 115,082     $  92,454      $ 386,150
Gross profit                                        9,537           200         11,479         6,049         27,265
Net earnings (loss)                                 1,417        (2,921)         3,788        (4,577)        (2,293)
Net earnings (loss) per share
    Basic                                       $    0.18     $   (0.38)     $    0.49     $   (0.59)     $   (0.30)
                                                ---------     ---------      ---------     ---------      ---------
    Diluted                                     $    0.18     $   (0.38)     $    0.49     $   (0.59)     $   (0.30)
                                                ---------     ---------      ---------     ---------      ---------
</TABLE>


<TABLE>
<CAPTION>
                                                                               1998
                                                ----------------------------------------------------------------------
                                                  First        Second          Third        Fourth            Full
                                                 Quarter       Quarter        Quarter       Quarter           Year
----------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>            <C>           <C>            <C>
(In thousands except for per share amounts)
Revenues                                        $ 121,087     $  85,470      $ 114,633     $  86,196      $ 407,386
Gross profit                                       18,288         2,117         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>

                             18. SUBSEQUENT EVENTS
--------------------------------------------------------------------------------

On November 29, 1999, the Company invested an additional $5.0 million in Fuelman
bringing its total interest to 46.7% on a fully diluted basis. On December 17,
1999, the Company invested $8.0 million in Vanguard Modular Building Systems, a
leading regional provider of relocatable classrooms and other commercial modular
space solutions. On January 7, 2000, the Company invested $10.4 million in
VeloCom, Inc., a facilities-based voice, data and Internet provider in Brazil
and Argentina.
     On December 9, 1999, El Sitio, Inc. completed an initial public offering
and is currently traded on the NASDAQ under the symbol "LCTO." The Company
currently owns 1,456,756 shares of El Sitio. In addition, on December 9, 1999,
MotherNature.com completed an initial public offering and is currently traded on
the NASDAQ under the symbol "MTHR." The Company currently owns 678,589 shares of
MotherNature.com. As a result of the public offerings of both El Sitio and
MotherNature.com, the Company will reclassify these investments from portfolio
investments to marketable equity securities in the first quarter of fiscal 2000,
in accordance with SFAS No. 115.
     On December 22, 1999, the Company sold its remaining holdings in PrimaCom
generating net proceeds of $30.4 million.


                               GC COMPANIES, INC.
                          ----------------------------
                                       39
<PAGE>   42


                          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, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended October 31, 1999. 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. and
subsidiaries as of October 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1999 in conformity with generally accepted accounting principles.


/s/ Deloitte & Touche LLP

Boston, Massachusetts
December 7, 1999
(January 7, 2000 as to Note 18)


                               GC COMPANIES, INC.
                          ----------------------------
                                       40
<PAGE>   43


                             CORPORATE INFORMATION
           -----------------------------------------------------------

Directors

RICHARD A. SMITH
Chairman and Chief Executive Officer;
Chairman of Harcourt General, Inc. and the Neiman Marcus
Group, Inc.

WILLIAM L. BROWN*
Former Chairman
Bank of Boston Corporation

PETER C. READ*
Former Executive Vice President Bank of Boston Corporation

FRANCIS E. SUTHERBY*
Former Partner
Deloitte & Touche LLP

DR. LEONARD A. SCHLESINGER*
Executive Vice President
The Limited, Inc.

* Audit Committee
  Compensation Committee
  Special Review Committee



Corporate Officers

RICHARD A. SMITH
Chairman and Chief Executive Officer

ROBERT A. SMITH
President and Chief Operating Officer

JOHN G. BERYLSON
Senior Vice President and Chief Investment Officer

FRANK T. STRYJEWSKI
President
General Cinema Theatres, Inc.

G. GAIL EDWARDS
Vice President,
Chief Financial Officer
and Treasurer

PHILIP J. SZABLA
Vice President, General Counsel and Secretary

LOUIS E. CASAVANT
Vice President and Corporate Controller

KATHLEEN SCHOEFFLER
Vice President
Human Resources


Transfer Agent and Registrar
BankBoston, N.A.
c/o EquiServe
Post Office Box 8040
Boston, MA 02266-8040

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 Wednesday, March 15, 2000
at 10:00 a.m. at the Company's Framingham Cinema at 22 Flutie Pass in
Framingham, Massachusetts.

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

<TABLE>
<CAPTION>
                            1999                            1998
                -------------------------       -------------------------
Quarter            High            Low             High            Low
-------------------------------------------------------------------------
<S>             <C>             <C>             <C>             <C>
First           $   42.00       $   37.00       $   47.94       $   41.06
Second          $   37.88       $   30.00       $   53.00       $   45.75
Third           $   37.44       $   34.63       $   52.63       $   46.00
Fourth          $   36.00       $   27.44       $   49.75       $   36.00
</TABLE>

The Company had 7,796,364 shares of Common Stock outstanding and approximately
2,890 Common shareholders of record at October 31, 1999.

Requests for general information or published financial information can be made
in writing to GC Companies, Inc., 1300 Boylston Street, Chestnut Hill, MA 02467,
telephone (617) 264-8601.


<PAGE>   44




                               GC Companies, Inc.
                               27 Boylston Street
                            Chestnut Hill, MA 02467

                GC Companies and General Cinema: (617) 277-4320
                    Shareholder Information: (617) 264-8601