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(Mark One)

UNITED ARTISTS THEATRE CIRCUIT, INC.
(exact name of registrant as specified in charter)
Maryland		13-1424080
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
9110 E. Nichols Avenue, Suite 200
Englewood, CO		80112
(Address of principal executive offices)		(Zip Code)

Registrants telephone number, including area code (303) 792-3600

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

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

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

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(c) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Yes      X      No         

The number of shares outstanding of $1.00 par value common stock at March 26, 2002 was 100 shares.

United Artists Theatre Circuit, Inc.

Annual Report on Form 10-K

January 3, 2002

PART I

(a)     General Development of Business

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

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

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

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

In 1989 UACI changed its name to United Artists Entertainment Company ("UAE") in conjunction with the acquisition of United Cable Television Corporation.  In December 1991, TCI's affiliate acquired the remaining outstanding shares of UAE and pursued divestiture of UATC and UAR, which was completed in May 1992.  Subsequent to the Acquisition by ML Fund II, UATC increased its investments in new domestic theatres, increased its investments in international theatres and invested in certain businesses that it believed were synergistic with its theatre operations.  These new businesses included virtual reality entertainment centers and The Satellite Theatre NetworkÔ , a network of theatres that can be used for business meetings during non-peak theatrical business hours.

In December of 1996, UATC initiated a more focused operating and capital investment strategy.  This strategy was designed to improve the efficiency and quality of its core operating theatre business and increase its market share within its key domestic markets.  As part of this strategy, substantially all of its international operations were sold, its entertainment center business was discontinued and certain domestic markets and theatres that were under-performing or non-strategic were sold or earmarked for sale.  The proceeds from the sale of the international and non-strategic domestic assets were used to repay debt and reinvested into new theatres and the expansion or renovation of existing successful theatres in key domestic markets.  Throughout 1997, 1998 and 1999, UATC accelerated its divestiture of under-performing theatres and unprofitable leases in response to the significant increase in investment by competitors in new stadium seating megaplex theatres. 

Despite UATC's efforts to reduce and focus its capital spending and close or dispose of unprofitable operations, the level of capital spending by competition continued to have a negative effect on UATC's operating cash flow and liquidity.  On September 5, 2000 (the "Petition Date"), UATC and certain of its subsidiaries, as well as United Artists and certain of the Parents subsidiaries (collectively, the "Debtors"), filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"), in the United States Bankruptcy Court for the District of Delaware, with all such cases being jointly administered for procedural purposes under Case No. 00-00-3514 (SRL) (the "Chapter 11 Cases") as well as a joint plan of reorganization.  On January 22, 2001 the joint plan of reorganization, as amended, (the "Plan"), was approved by the Court, and the Debtors declared the Plan to be effective on March 2, 2001.

Upon the Parent's exit from bankruptcy, The Anschutz Corporation ("TAC"), affiliates of which were pre-petition senior lenders, owned approximately 54% of its equity on a fully diluted basis.  The remainder was owned by other pre-petition senior lenders, the Parent's prepetition subordinated lenders, and management.  On March 8, 2002, TAC entered into an agreement to exchange its equity in the Parent for shares of common stock of Regal Entertainment Group ("REG"). REG is an entity formed and controlled by TAC.  Also on March 8, 2002, REG agreed to exchange its stock for stock in two other theatre companies also controlled by TAC.  As part of the formation of REG, a separate subsidiary of REG ("Regal CineMedia Corporation, or "RCM") was formed to focus on growth of the ancillary revenue opportunities within the commonly controlled theatre circuits, thereby allowing theatre management to focus on enhancing theatre operations.  As part of the combination within REG of UATC and i t's Parent, it is expected management of the movie exhibition aspects of UATC's theatre operations will be consolidated with the theatre management of the other theatre circuits controlled by TAC.  Management agreements will be established between UATC and Regal Cinemas, Inc. which will run the consolidated theatre operations.  Also, agreements will exist between UATC and RCM under which RCM will manage the ancillary revenue aspects of UATC's theatre operations and of the other theatre circuits controlled by TAC.  

The current corporate structure of the Parent and UATC is as follows:  The Parent has two wholly owned subsidiaries, UATC and UAR.  UATC leases certain theatres from both UAR and one of UAR's wholly owned subsidiaries, Prop. I.

(b)     Narrative Description of Business

UATC is a leading motion picture exhibitor in North America.  At January 3, 2002, exclusive of managed theatres, UATC operated 1,554 screens at 201 theatres located in 22 states.  UATC licenses films from all major and independent film studios and derives revenues primarily from theatre admissions and concession sales.  UATC operates screens in eight of the ten largest demographic market areas ("DMAs") in the United States and approximately 60.2% of its screens are located in the top 20 DMAs.  UATC believes that it is one of the largest single exhibitors, based on number of screens, in many of its core areas of operation and that this market position provides several operating benefits.  Theatre operations in six states (California, New York, Pennsylvania, Florida, Texas and Colorado) accounted for approximately 59.5% and 60.2% of UATC's total theatres and screens, respectively, at January 3, 2002 and 68.0% of UATC's theatrical revenue for the fiscal year ended January 3, 2002.

UATC has invested more than $523.6 million since January 1, 1992 toward improving the quality of its asset base by, among other things, renovating existing theatres and constructing new state-of-the-art theatres.  Approximately 56.4% of UATC's screens (876 screens) have been constructed since January 1, 1992.  Virtually all of the theatres UATC has built since 1997 have been state-of-the-art, 9 to 16 screen multiplex theatres with stadium seating, high-backed rocking seats, digital sound, expanded concession areas and other state-of-the-art design features and amenities.  In addition, since 1997 six theatres (64 screens) have been rebuilt or renovated to accommodate stadium seating.  These state-of-the-art amenities will be included in UATC's renovations to existing theatres as well as construction of any newly built theatres.  As compared to the prior generation of non-stadium theatres, UATC believes that these theatres provide a higher quality entertainment experience for patron s and significant operating efficiencies and improved economics for UATC.

At January 3, 2002, UATC operated 33 theatres (401 screens) which offered stadium seating, representing 26% of UATC's screens.  Approximately $43.5 million or 53.5% of UATC's operating income (loss) from continuing operations before depreciation and amortization expense, (loss) gain on disposal of operating assets, loss on impairment of assets, theatre closing costs, lease exit and restructure costs, legal and professional fees related to restructuring and merger and recapitalization expenses ("EBITDA") in 2001 was generated in these stadium seating theatres.  Same theatre EBITDA in UATC's stadium theatres grew 37.1% in 2001 while same theatre EBITDA in non-stadium seating theatres grew 12.1%.  At December 2001, approximately 90.8% of UATC's screens were located in theatres with five or more screens.  UATC's average number of screens per theatre has increased 60.4% from 4.8 at January 1, 1992 to 7.7 at January 3, 2002.

During late 1997 several of UATC's competitors initiated expansion programs to aggressively build new stadium seating megaplexes (14 or more screens) in an effort to gain market share.  As a result of this unprecedented increase in capital spending by other operators, many of UATC's older, smaller, non-stadium seating theatres were adversely impacted.  In response to this market condition, UATC sought to defend its key market positions by renovating well located theatres in those markets with stadium seating and to dispose of those theatres that were unprofitable and could not compete effectively against new stadium seating theatres.  Unfortunately, due to its high level of debt resulting from its 1992 leveraged buyout and subsequent investments, UATC could not effectively defend all of its markets from the significant capital investments made by its competitors.

As the level of the capital spending of its competitors peaked during 1999, UATC accelerated its plan to divest under-performing and non-strategic theatres and terminate unprofitable leases.  In addition to the effort of UATC's personnel, an outside consultant was engaged to facilitate negotiations with landlords.  As part of the disposition plan UATC recorded estimated lease termination costs of $22.5 million during 1999. 

Due to a decline in EBITDA and lack of operating liquidity, in late February 2000, the Parent initiated discussions with the senior secured lenders under its Bank Credit Facility (the "Pre-Petition Credit Facility"), and with the studios and certain other creditors regarding a recapitalization plan.  Once a recapitalization plan had been approved by it's senior secured lenders, the Parent initiated discussions with the holders of its Senior Subordinated Notes (the "Notes") with respect to that recapitalization plan, and on September 4, 2000 completed an agreement with such holders.  On September 5, 2000, as previously discussed, the Chapter 11 Cases and the Plan were filed with the United States Bankruptcy Court.

In conjunction with the reorganization, the Pre-Petition Credit Facility was restructured into a Restructured Term Credit Facility (the "Term Facility") of approximately $252.2 million, and an additional $35.0 million Revolving Credit Facility was obtained.

A settlement agreement was reached with the committee representing the unsecured creditors in the Chapter 11 Cases.  As a result of this agreement, a pool of $5.0 million in cash and $1.1 million in payment-in-kind notes was established for distribution on a pro rata basis to the unsecured creditors. 

As part of UATC's reorganization, the Company successfully renegotiated the leases for 32 theatres.  This included reductions in occupancy costs (rent, common area maintenance and taxes) for theatres that had positive cash flow, but had low operating margins, or had negative prospects for the future.  As a result of these negotiations, UATC was able to (i) reduce fixed occupancy cost to levels where the theatres are profitable, (ii) convert the rents to percentage rent only structures and/or, (iii) break-up the remaining lease term into shorter option periods so that should the theatres future revenue decline to an unprofitable level, the lease can either be terminated at a low cost or not be renewed at the end of an option period.

On March 2, 2001, UATC adopted fresh-start reporting in accordance with AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7").  Under fresh-start reporting, the reorganization value of UATC, which represents the fair value of all of UATC's assets (net of liabilities), was determined through negotiations between the Company' management and its pre-petition creditors and such reorganization value is allocated to the Company' assets based on their relative fair values.  Liabilities, other than deferred income taxes, are also stated at their fair values.  Deferred taxes are determined in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 109.  Application of SOP 90-7 creates a new reporting entity having no retained earnings or accumulated deficit.  The estimated reorganization value of United Artists as of March 2, 2001 was approximately $360 million, of whi ch approximately $300 million was attributable to UATC. 

UATC's post-reorganization balance sheet, statement of operations and statements of cash flow which reflect the application of fresh-start reporting, have not been prepared on a consistent basis with the pre-reorganization financial statements and are not comparable in all respects to the financial statements prior to the reorganization. Accordingly, for periods prior to March 2, 2001, the assets and liabilities of UATC and the related consolidated financial statements are referred to herein as "Predecessor Company", and for periods subsequent to March 1, 2001, the assets and liabilities of UATC and the related consolidated financial statements are referred to herein as "Reorganized Company".  The "Company" and "UATC" refer to both Reorganized Company and Predecessor Company.

As a consequence of the Plan, on March 2, 2001, the Parent's capital structure consisted of approximately $252.2 million of debt under the Term Facility, convertible preferred stock with a par value of $0.1 million and a liquidation value of $57 million, 10 million shares of common stock with a par value of $0.01 per share and 5.6 million warrants with a fair value of $0.28 per warrant.  TAC, affiliates of which were pre-petition senior lenders, converted 100% of its senior debt into a combination of convertible preferred stock, common stock and 3.8 million warrants ($10.00 exercise price) to purchase common stock of the Parent which, in aggregate, represented at that time approximately 54% of the fully diluted common equity of the Parent.  Other senior lenders under the Pre-Petition Credit Facility received common stock in the Parent representing approximately 29% of the fully diluted common stock and subordinated lenders of the Parent received 1.8 million common stock warrants w ith an exercise price of $10.00 per share representing approximately 7% of the fully diluted common stock, with the remaining fully diluted common stock (approximately 10%) reserved for management stock options.

According to the National Association of Theatre Owners, more than 480 participants in the domestic motion picture theatre exhibition business operate approximately 35,459 screens in North America at the end of 2001.  At June 2001, the top ten companies operated approximately 51.2% of the total screens as compared to 31.0% in 1986.  The remainder of the domestic motion picture theatre exhibition industry is highly fragmented, with the remaining 48.8% of the screens being operated by approximately 477 exhibitors.  UATC has the sixth largest share of total screens with approximately 4.4% of all screens in North America at the end of 2001.

The majority of the theatres operated in North America are multi-screen theatres with four to 12 screens and sloped floors ("multiplex").  During 1996 a new theatre design known as the megaplex, which generally has between 14 and 30 screens in a single theatre, became the industry standard in most major markets.  As UATC adopted the industry standards of stadium seating and other improved amenities in its renovation efforts, UATC focused its efforts on theatres with 12-16 screens and 50,000 to 60,000 square feet as it considered this design to be of optimal size and provide the best investment risk/return characteristics.  The multiplex and megaplex formats provide numerous benefits for theatre operators, including allowing facilities (such as concession stands and restrooms) and operating costs (such as lease rentals, utilities and personnel) to be allocated over a larger base of screens and patrons.  Multiplexes and megaplexes have varying auditorium seating capacities (typically fro m 100 to 500 seats) which allow for multiple showtimes of the same film and a variety of films with differing audience appeal to be shown.  They also provide the flexibility to shift films to larger or smaller auditoriums depending on their popularity.  To limit crowd congestion and maximize the efficiency of floor and concession staff, the starting times of films can be staggered.  The number of screens nationally increased 8.0% in 1998 and 8.8% in 1999, and then decreased 2.2% in 2000 and 1.6% in 2001, while the construction cost per screen of a stadium seating megaplex has increased to $1.0 million or more.  In contrast, the annual average rate of increase in the number of screens from 1965 to 1995 was only approximately 3.5% and the construction cost per screen during this time period was less than half of the current cost.

The growth of the number and quality of screens, strong domestic consumer demand, growing foreign theatrical construction and ancillary revenue opportunities have led to an increase in the volume of major film releases.  The greater number of screens has allowed films to be produced for and marketed to specific audience segments (such as horror films for teenagers) without using capacity required for mainstream product.  The greater number of screens has also prompted studios to increase promotion of new films.  Not only are there more films in the market at any given time, but the multiplex and megaplex format allows for a much larger simultaneous national theatrical release.  In prior years a studio might have released 1,000 prints of a major film, initially releasing the film only in major metropolitan areas, then gradually releasing it in smaller cities and towns nationwide.  Today, studios often release over 2,500 prints of a major film and open it nationally in one weekend.& nbsp; These broader national openings have made up-front promotion of films critical to attract audiences and stimulate word of mouth advertising.  In many cases it has also shortened the length of run and increased the film cost percentage paid by exhibitors.

Motion pictures are generally made available through various distribution methods at various dates after the theatrical release date.  The release dates of motion pictures in these other "distribution windows" begin four to six months after the theatrical release date with video cassette rentals, followed generally by off-air or cable television programming, including pay-per-view, pay television, other basic cable and broadcast network syndicated programming.  These new distribution windows have given content owners the ability to generate a greater portion of a films revenues through channels other than theatrical release.  This increased revenue potential after a films initial domestic release has enabled major studios and certain independent producers to increase film production and theatrical advertising.  According to the National Association of Theatre Owners, the additional non-theatrical revenue has also allowed for higher individual film production and marketing costs.  The average cost to advertise and promote a motion picture was approximately $24.5 million, $27.3 million and $31.0 million in 1999, 2000 and 2001, respectively, as compared with $6.7 million in 1986.

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

UATC believes that the U.S. motion picture exhibition industry will benefit from the following trends:

• Increased Marketing of New Releases by Studios.  Movie studios have increased marketing expenditures per new film at a compound annual growth rate of approximately 10% since 1995.  Because domestic movie theatres are the primary distribution channel for domestic film releases, the theatrical success of a film is often the most important factor in establishing its value in other film distribution channels, including home video, cable television, broadcast television and international releases.
• Affordable and Increasingly Attractive Form of Entertainment.  UATC believes that patrons are attending movies more frequently because moviegoing is convenient, affordable and attractively priced relative to other forms of out-of-home entertainment.  Since 1991, per capita movie attendance has grown from 4.5 to 5.3 times per year.  Over this period, average ticket prices for movies have increased at a compound annual growth rate of only 3%, while ticket prices for professional sporting events and concerts have increased at approximately three times that rate.
• Ongoing Screen Rationalization.  In 2000 and 2001, substantially all of the major exhibitors reduced their expansion plans and implemented screen rationalization programs to close under-performing theatres.  This screen count rationalization benefits exhibitors as patrons of closed theatres migrate to remaining theatres, thereby increasing industry-wide attendance per screen and operating efficiencies.
• Model Facilities Lower Future Capital Requirements.  UATC believes that the modern, 10 to 18 screen megaplex is the appropriate facility for most markets.  Over the last several years, major exhibitors spent substantial capital upgrading their asset bases, including the development of the megaplex format and introducing enhanced amenities such as stadium seating and digital sound.  Given the substantial capital spent on theatre circuit expansion and facilities upgrades, UATC believes that major exhibitors have reduced their capital spending for new theatre construction or further upgrades.

The Company plans to increase its operating margins and profitability through the following:

Improve Theatre Operating Margins and Cash Flow.  During the years 1998 through mid-2000, as the aggregate industry screen count rose from 34,186 to 37,396, aggregate industry revenue grew at a much slower rate.  Industry revenue, therefore decreased on a per screen basis.  Since it is generally difficult to terminate theatre leases prior to their lease expiration date, older theatres which were rendered economically obsolete by the newer stadium seating could often not be closed in order to eliminate their costs of operation.  Additionally, because stadium seating theatres are significantly more expensive to build than were the previous sloped floor style of theatre, fixed occupancy costs on the stadium seating theatres are a larger percentage of the theatres total operating expense.  The combination of these two factors led to significant declines in theatre operating margins for the industry as a whole, including UATC.

As part of the Chapter 11 Cases, the leases underlying theatres with negative EBITDA were either rejected as allowed under the Plan and the Bankruptcy Code, or renegotiated so that the theatre now has positive EBITDA.  The positive impact of this can be seen in UATC's EBITDA margins, which increased from 10.9% in fiscal 2000 to 13.5% for the post bankruptcy 2001 period.  However, the increase in EBITDA margins during 2001 is not entirely attributable to the elimination of theatres with negative EBITDA.  Other operational improvements, on which continued emphasis will be placed into the future, also contributed to the increased EBITDA margins, as discussed below.

Management intends to continue to foster its studio relationships in order to obtain the optimal number of marketable motion pictures.  Recognizing that UATC and the studios rely very heavily on each others success, UATC will also be placing increased emphasis in the following film-related areas which should benefit both UATC and the studios:

• Increasing the efficiency of co-op newspaper advertising;
• Developing lower cost advertising arrangements, allowing for reduced reliance on newspapers while leveraging the Internet; and
• Working to reduce the cost of shipping prints.

During 2001, concession revenue per patron increased 1.3% as compared to 2000.  Continued emphasis will be placed on increasing concession per capita through continuing to improve the training of theatre managers and staff, and introducing new concession products which promote incremental sales rather than cannibalizing higher margin sales of popcorn and soda.  Additionally, automated vending areas will be created to mitigate the effects of rising payroll costs, and high attendance concession stands will be renovated with a new, more efficient design.  At the same time, concession costs (which decreased as a percentage of concession revenue from 11.7% in 2000 to 11.4% in 2001), will be contained through continual review and renegotiation of related contracts, as well as through usage controls already in place at theatres.

Operating costs, including personnel, were by necessity controlled while UATC worked through its reorganization.  During the reorganization, certain supply and service contracts were renegotiated.

Invest Prudently to Improve Key Theatres and Rebuild and Expand Key Market Positions.  UATC plans to continue increasing its number of screens per location and operating margins by focusing its capital investment activities on the renovation or expansion of existing theatres in its core areas of operation.  All future theatre renovations and expansions will include, among other things, the addition of stadium seating.  The theatres selected for renovation and expansion will be those that have favorable historical operating results and for which a renovation or expansion will solidify or improve market position and improve operating performance.

UATC constructs its new theatres or renovates existing theatres with stadium seating, digital sound, comfortable high back rocker seats and other popular design features and amenities.  UATC believes that this theatre design will provide an optimal relationship between the number of screens (10 to 18) and the size of the auditoriums (125 to 400 seats), maximize the revenue per square foot or seat generated by the facility and reduce the cost per square foot or seat of construction and operation.  This strategy, in combination with an emphasis on concession sales, is designed to improve revenue and profitability by enhancing attendance and concession sales, theatre utilization and operating efficiencies and provide more efficient clustering around regional and district management centers.  UATC believes that theatres which are larger than 18 screens tend to have a higher level of return risk because they require both a larger capital investment and a larger drawing area (exposed to more pote ntial competition) to be successful.  This strategy generally results in a diminishing return on capital investment for the incremental screens.

While UATC plans to develop new state-of-the-art theatres on a very selective basis, its main focus will be to improve the risk return relationship of investments made.  This can be accomplished by reducing individual theatre financial leverage and capital requirements by focusing on expanding, renovating and rebuilding many of its key locations.  In many cases, these existing key locations can be transformed into state-of-the-art multiplex stadium seating theatres without competing against other operators for the location and incurring higher rent and excessive preconstruction costs.  Furthermore, existing structures can be utilized while being refurbished to help reduce overall construction costs.  UATC's renovation of theatres in successful locations eliminates much of the geographic risk related to a project's success as it is already known that patrons prefer the location.

In order to reduce the overall investment in new theatres, UATC generally enters into "build to suit" and other landlord leasing arrangements or sale and leaseback transactions.  UATC also intends to continue to sell non-strategic and under-performing assets and expects to redeploy those proceeds to its core markets and repay debt.  This strategy is intended to provide increased liquidity from the disposal of non-cash flow producing investments and theatres with limited growth potential.

In fiscal year 2001, UATC assumed the leases of four locations previously operated by another theatre operator in the New York City market and completed the stadium seating retrofit of two theatres totaling 19 screens, one of which is also being expanded by five screens.  During 2002, UATC plans to complete stadium renovations to twelve locations, which will result in 14 new stadium auditoriums and the conversion of 106 current screens to stadium seating.

Dispose of Under-Utilized Real Estate and Under-Performing Theatres.  UATC continues to pursue a strategy of divesting under-performing or non-strategic assets by:

• terminating or renegotiating leases for under-performing theatres; and
• selling real estate underlying non-strategic or under-performing theatres.

During fiscal year 2001, UATC closed or sold 16 under-performing or non-strategic theatres (94 screens) for which net cash proceeds of $6.7 million were received.  Many of the theatres closed were not profitable or were located in areas that are not part of UATC's long-term strategic plans.  The divestiture plan is designed to increase EBITDA and EBITDA margins by discontinuing operations at under-performing and non-strategic locations.  The 16 closed or sold locations included four theatres that were leased from UAR and seven locations leased under various sale and leaseback transactions.  The remaining five locations are made up of one theatre lease that was rejected in early 2001 and four third-party leases that UATC did not renew.  UATC intends to sell the under-utilized real estate and use the proceeds to repay debt and fund its reinvestment activities.  Also, in February 2001, UATC finalized an amendment to its December 1995 sale and leaseback transaction to allow for t he sale of economically obsolete theatre properties included in that transaction, which, if the planned sales are consummated, will reduce future occupancy costs.  The lease renegotiations related to 32 theatres completed during the Company's Chapter 11 reorganization contributed to an 8.5% decrease in total occupancy costs from 2000, along with shorter lease terms at some locations, which are expected to allow for more profitable operations at these theatres for the foreseeable future.  During 2002, continued emphasis will be placed on the sale of owned theatres and theatres within sale and leaseback transactions which are either under-performing or could be more profitably used for a non-theatrical purpose.

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

UATC also manages four other theatres (20 screens) in the United States in which it owns a 50% or less interest.

As set forth in the following table, although UATC operates some smaller theatres (in terms of number of screens), approximately 90.8% of UATC's screens as of January 3, 2002 were in theatres containing five or more screens:

UATC's principal sources of revenue from its theatres are derived from theatrical admissions and concession sales. For the fiscal year ended January 3, 2002, theatrical admissions and concession sales comprised approximately 68.6% and 27.5% of UATC's revenue, respectively.  The remaining 3.9% of revenue for this period was derived primarily from In-Theatre Advertising, The Satellite Theatre Networkä , electronic video games located in theatre lobbies and other miscellaneous sources.

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

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

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

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

UATC licenses the majority of its first run films from studios owned by the major and independent film production companies.  Each film studio establishes geographic areas known as "film zones," and typically allocates each of its films to only one theatre within each film zone.  In most cases where there is more than one exhibitor in a film zone, this allocation process is based on long-standing relationships between the studio and exhibitor with respect to that theatre or is done on an alternating basis.  In certain very limited cases where several exhibitors operate in a single film zone, films are allocated based on an exhibitor bidding process.  The size of a film zone is based primarily upon population density.  UATC operates 128 theatres in non-competitive film zones and, therefore, does not currently compete with other exhibitors for licensing specific film product in those film zones.

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

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

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

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

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

UATC has historically financed, and to the extent there is additional new construction of theatres, plans to continue to finance, a significant portion of the cost of construction, by entering into long-term leases or sale and leaseback transactions.  UATC's long-term leases typically have initial terms of 15 to 25 years with renewal options and require the landlord to provide a significant portion of the up-front construction costs.  As a result, capital expenditures are often only required for equipment and certain tenant finishes, thereby reducing the required net capital expenditures.  A summary of UATC's theatre leases, excluding leases with affiliates, as of January 3, 2002 is as follows (base rent in millions):

Construction. UATC intends to add additional screens to existing key theatres and refurbish or rebuild existing key theatres to strengthen and expand its position in existing key markets in accordance with its capital investment plan. UATC believes that renovating, expanding or completely rebuilding certain of its existing theatre locations provides it with a significant competitive advantage.  In many of the large metropolitan areas the availability of suitable theatre sites is limited. The capital costs associated with renovating or expanding an existing theatre are usually significantly less than for constructing a new theatre. Additionally, the timing of these capital expenditures is flexible and, thus, can be matched to cash flow, asset sales and other sources of capital.

UATC expects to construct new theatres on a very selective basis.  Theatres will be constructed in its existing core areas of operation only where the area is considered under-screened. Each new location is selected after considering UATC's relative strength in the particular area, the number of existing competitive screens, growth potential of the area and the minimum threshold population within a certain radius of the theatre. As part of its construction strategy, UATC intends to construct stadium seating theatres that have a favorable balance between the number of screens (10 to 18) and the size of the auditoriums (125 to 400 seats). UATC believes that this balance will allow UATC to provide an adequate number of screens for film studios and increased entertainment value to patrons afforded by larger auditoriums.  The construction of new theatres which are not simply replacing existing theatres is not a significant part of UATC's capital spending plan, as UATC's management beli eves that most markets are already over-screened.

As a result of new construction and the closure of older, smaller theatres, approximately 56.4% of UATC's screens have been constructed since January 1, 1992 and approximately 76.8% of theatres operated on January 1, 1992 have been sold or closed. As a result of this new construction and the sale or closure of older, smaller theatres, UATC's average number of screens per theatre has increased 60.4% from 4.8 screens at January 1, 1992 to 7.7 screens at January 3, 2002.

Geographic Positioning. Geographic positioning and operating efficiencies are key elements of UATC's operating strategy. Geographic clustering at both the regional and local levels is important in providing UATC with increased operating efficiencies. UATC achieves operating efficiencies by concentrating regional corporate operations around fewer strategic markets and reducing its number of less profitable, non-strategic theatres.

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

While UATC's theatres are located in 22 states, the majority of UATC's screens are located in large and medium sized metropolitan areas in California, southern New York (primarily New York City and Long Island), Florida, Texas, eastern Pennsylvania (including Philadelphia), and Colorado.  UATC believes that it has a good balance and strong position in many of these major metropolitan areas and in several rural or smaller metropolitan areas where there is reduced competition. The six states that represent the largest geographic concentration of theatres and screens operated accounted for approximately 59.5% and 60.2% of UATC's total theatres and screens, respectively, at January 3, 2002 and generated approximately 68.0% of UATC's admissions and concessions revenue for the fiscal year ended January 3, 2002, and were as follows:

UATC competes for the public's leisure time and disposable income with all forms of out-of-home entertainment including sporting events, concerts, live theatre and restaurants. UATC is also subject to varying degrees of competition from other theatre circuits and independent theatres. The motion picture exhibition industry is highly competitive, particularly with respect to film licensing, attracting patrons and acquiring or leasing new theatre sites. Some of UATC's competitors may be better established in certain areas where UATC's theatres are located or have better quality theatres than UATC. Competition for patrons occurs locally and depends upon factors such as:

• which films a particular theatre is exhibiting;
• location of theatres;
• comfort and quality of theatres, including stadium seating; and
• ticket prices.

Film patrons are not "brand" conscious and generally choose a theatre because of film selection, showtimes, location and quality of the theatre.

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

Where real estate is readily available there are few barriers preventing competitors from opening theatres near one of UATC's theatres, which may have a materially adverse effect on UATC's theatre operations.  In addition, megaplexes have been built or are planned to be built by competitors in certain general market areas in which UATC operates.  This new megaplex construction may result in excess capacity and adversely affect attendance and pricing at existing theatres in these market areas.  UATC is addressing the situation by rebuilding, renovating or expanding its locations, and through its divestiture plan.  UATC plans to further address this situation through continued capital expenditures. In accordance with its capital investment plan, UATC intends to rebuild, renovate and/or expand existing key locations.

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

The installation of new digital projectors into theatres has begun on a very limited basis.  While the roll-out of digital projectors throughout the industry is expected to be slow, it may have an affect on the distribution of motion pictures in theatres and the cost of theatre construction in the future.

As a means of producing ancillary revenue, UATC sells various types of advertising within its theatres and on its web page, including rolling stock commercials, intermission slides, intermission music, lobby monitor advertising and entertainment, coupon distribution and customer sampling.  Revenues are primarily contingent upon the location of the theatre and attendance at the theatres.  UATC utilizes corporate and regional staff to sell and coordinate the advertising, and local theatre personnel implement the advertising programs.  Existing assets at the theatres are utilized so that only a small capital investment is necessary for slide projectors.  Strong business relationships exist between UATC and some of its national advertisers, such as Coca-Cola Company, MovieFone and AOL Time Warner.  UATC recorded revenues of $9.9 million, $10.0 million and $8.4 million for 2001, 2000 and 1999, respectively, from In-Theatre Advertising.  As part of the combination of UATC withi n the REG group of companies, management and enhancement of this ancillary business will be the responsibility of RCM.  

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

As of January 3, 2002, STN had 22 theatres permanently equipped with electronic video capability and an additional 115 theatres that were being rented for individual non-networked uses.  All of UATC's theatres can be "networked" through the use of temporary equipment.  Because STN utilizes existing theatre facilities and existing personnel manage its operations within the theatre, very little incremental capital or personnel expenditures are required.  Marketing and sales of the STN services is performed by corporate and regional staff.  UATC recorded $3.8 million, $4.4 million, and $6.2 million of revenue from STN for the years ended December 2001, 2000, and 1999, respectively.

During 1998, UATC was issued a United States Patent (No. 5,801,754) with respect to the interactive theatre network system.

UATC currently operates its theatres from its Englewood, Colorado corporate headquarters, two regional operating offices, 9 district operating offices and two film booking offices.  All of UATC's district and regional operating offices are located within theatres.

There is active communication between the theatres and divisional and corporate management, which allows management to react on a daily basis to revenue and staffing information.  Division management provides guidance in scheduling, staffing, screen allocation and other day-to-day operating decisions.  Management personnel with UATC's marketing and concessions operations are also continually involved with theatre management to promote strong performance in those areas.  This structure allows the theatre manager to focus solely on the daily operations of the theatre.  A primary responsibility of the theatre manager is improving efficiency and managing costs at the local theatre level.

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

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

As of January 3, 2002, UATC employed approximately 7,300 employees, of whom approximately 862 were full-time.  Approximately 21% of UATC's employees (substantially all of whom are part-time employees who work in the theatres) are paid based on the applicable state and Federal minimum wage regulations.  Approximately 81 employees (primarily consisting of film projectionists, many of whom are part-time) are covered by two collective bargaining agreements.  

As part of the combination within REG of the movie exhibition aspects of UATC and its Parent, it is expected that management of UATC's theatre operations will be consolidated with the theatre management of the other theatre circuits controlled by TAC.

UATC's revenues are usually seasonal, coinciding with the timing of releases of motion pictures by the major distributors. Generally, studios release the most marketable motion pictures during the summer and the holiday season.  The unexpected emergence of a hit film during other periods can alter the traditional trend.  The timing of movie releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter or any other quarter.  The seasonality of motion picture exhibition, however, has become less pronounced in recent years as studios have begun to release major motion pictures somewhat more evenly throughout the year.

The distribution of motion pictures is in large part regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases.  Consent decrees resulting from those cases have an impact on the theatrical exhibition business.  Those consent decrees bind certain major film distributors and require the films of such distributors to be offered and licensed to exhibitors, including us, on a theatre-by-theatre basis.  Consequently, exhibitors cannot assure themselves of a supply of films by entering into long-term agreements with major distributors, but must negotiate for licenses on a film-by-film and theatre-by-theatre basis.

UATC's theatres must comply with Title III of the Americans With Disabilities Act of 1990 (the "ADA") to the extent that such properties are "public accommodations" and/or "commercial facilities" as defined by the ADA.  Compliance with the ADA requires that public accommodations "reasonably accommodate" individuals with disabilities and that new construction or alterations made to "commercial facilities" conform to accessibility guidelines unless "structurally impracticable" for new construction or technically infeasible for alterations.  Non-compliance with the ADA could result in the imposition of injunctive relief, fines, an award of damages to private litigants and additional capital expenditures to remedy such non-compliance.  UATC and several of its subsidiaries are subject to a consent decree arising from a lawsuit captioned Connie Arnold et. al. v. United Artists Theatres Circuit, Inc. et. al.  Plaintiffs alleged nationwide violations with the A DA for failure to remove barriers to access theatres in a timely manner.  In 1996, the parties involved in the case entered into a settlement agreement in which UATC agreed to remove certain physical barriers to access at its theatres prior to July 2001.  In January, 2001, the settlement agreement was amended to, among other things, extend the completion date for barrier removal to July 2006 and require minimum expenditures of $250,000 a year for barrier removal.

UATC believes that it is in substantial compliance with all current applicable regulations relating to accommodations for the disabled.  UATC intends to comply with future regulations in this regard, and except as set forth above, UATC does not currently anticipate that compliance will require it to expend substantial funds.  UATC's theatre operations are also subject to federal, state and local laws governing such matters as wages, working conditions, citizenship and health and sanitation requirements.

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

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

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

UATC leases its executive office located in Englewood, Colorado and its two film booking offices.  The following table summarizes the theatres operated by UATC at January 3, 2002:

Of the 201 owned and leased theatres, five theatres (11 screens) are held through a corporation that is owned 80% by UATC, and four theatres (44 screens) are held by two partnerships and one corporation, each owned 51% by UATC.  The remaining owned and leased theatres are held directly by UATC or its wholly owned subsidiaries.  The master leases for theatres associated with the 1995 Sale and Leaseback transaction involving 22 properties allows for the exchange and sale of obsolete theatres that are not part of the long-term business plan.  Substitutions may be made under certain conditions, during certain time periods in the future.  The managed theatres include four theatres (20 screens) located in the United States.

As of January 3, 2002, UATC also had 10% interests in two Asian theatre exhibition companies, one of which operates two theatres (14 screens) in Thailand.

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

UATC owns directly or through its subsidiaries substantially all of the theatre equipment used in its theatres.

On September 5, 2000, UATC and certain of its subsidiaries, as well as its Parent and certain of the Parents subsidiaries filed voluntary petitions for relief under the Bankruptcy Code, in the United States Bankruptcy Court for the District of Delaware, with all such cases being jointly administered for procedural purposes under Case No. 00-00-3514 (SRL) as well as a joint plan of reorganization.  On January 22, 2001, the Plan was approved by the Court, and the Debtors declared the Plan to be effective on March 2, 2001.

Upon the filing of the petitions, the Bankruptcy Code imposed a stay applicable to all entities of, among other things, the commencement or continuation of judicial, administrative, or other actions or proceedings against UATC that were or could have been commenced before the bankruptcy petition.

UATC believes that no legal proceedings in which it is involved will have a material adverse effect on its financial position, liquidity, or results of operations.

No matters were submitted to a vote of UATC's sole shareholder, the Parent, during 2001.

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

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

Item 6.     Selected Financial Data (continued)

4. EBITDA represents operating income (loss) from continuing operations before depreciation and amortization expense, loss (gain) on disposal of operating assets, loss on asset impairments, theatre closing costs, lease exit and restructure costs, legal and professional fees related to restructuring, merger and recapitalization expenses.  EBITDAR represents EBITDA before rent expense.  We have included EBITDA and EBITDAR in these data because we believe them to be measures commonly used by investors to analyze and compare companies in our industry.  EBITDA and EBITDAR are not measurements of financial performance under generally accepted accounting principles and should not be considered in isolation or construed as substitutes for net income or other operations data or cash flow data prepared in accordance with generally accepted accounting principles, for purposes of analyzing our profitability or liquidity.  EBITDA and EBITDAR, as calculated in the table below, may not be comparable to similarly titled measures reported by other companies. 

	Reorganized Company		Predecessor Company For the Fiscal Years Ended
	Forty-four
	weeks ended	Nine weeks ended
	January 3, 2002	March 1, 2001	2000	1999	1998	1997
Operating income (loss)	$28.5	$14.9	$(24.0)	$(48.2)	$(4.2)	$20.4
Depreciation and amortization	33.8	6.4	42.4	50.8	51.1	56.3
Gain on disposal of operating assets	(1.3)	(4.6)	(13.2)	(4.2)	(0.2)	(21.9)
Asset impairments, lease exit and     restructure costs	2.8	1.1	54.6	56.3	32.9	31.2
EBITDA	63.8	17.8	59.8	54.7	79.6	86.0
Rent expense	66.0	12.8	83.0	94.8	86.7	83.0
EBITDAR	$129.8	$ 30.6	$142.8	$149.5	$166.3	$169.0

5. Defined as EBITDA and EBITDAR as a percentage of total revenue.

On September 5, 2000 (the "Petition Date") UATC (as it existed before March 2, 2001, the "Predecessor Company") and certain of its subsidiaries, as well as the Parent Company, United Artists Theatre Company and certain of the Parents subsidiaries (collectively, the "Debtors") filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Chapter 11 Cases"), as well as a joint plan of reorganization.  On January 22, 2001 the joint plan of reorganization, as amended (the "Plan"), was approved by the Court, and the Debtors declared the Plan to be effective on March 2, 2001 (the "Effective Date).  In conjunction with the reorganization, the Predecessor Company's bank credit facility as it existed before the Petition Date (the "Pre-Petition Credit Facility") was restructured into a Restructured Term Credit Facility of approximately $252.2 million, and an ad ditional $35.0 million Revolving Credit Facility was secured.

On March 2, 2001, the Reorganized Company adopted fresh-start reporting in accordance with AICPA Statement of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). UATC's post-reorganization balance sheet and the statement of operations, which reflect the application of fresh-start reporting, have not been prepared on a consistent basis with the pre-reorganization financial statements and are not comparable in all respects to the financial statements prior to the reorganization.  For accounting purposes, the inception date of the Reorganized Company was deemed to be March 2, 2001.

Due to the occurrence of the Effective Date on March 2, 2001 and the application of fresh-start reporting, UATC's 2001 statements of operations include information reflecting the forty-four weeks ended January 3, 2002, the nine weeks ended March 1, 2001, and the fifty-two weeks ended December 28, 2000 and December 30, 1999. 

Item 7.     Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)

In order to provide a meaningful basis of comparing the fifty-three and fifty-two weeks ended January 3, 2002 and December 28, 2000 for purposes of the following tables and discussion, the operating results of the Reorganized Company for the forty-four weeks ended January 3, 2002 have been combined with the operating results of Predecessor Company for the nine weeks ended March 1, 2001 (collectively referred to as "Combined Company") and are compared to the fifty-two weeks ended December 28, 2000 and December 30, 1999.  Depreciation, amortization, and certain other line items included in the operating results of Combined Company are not comparable between periods as the nine weeks ended March 1, 2001 and the fifty-two weeks ended December 28, 2000 and December 30, 1999 of Predecessor Company do not include the effect of fresh-start reporting adjustments.  The combining of reorganized and predecessor periods is not acceptable under accounting principles generally accepted in the United States.

The following discussion and analysis of UATC's financial condition and results of operations should be read in conjunction with UATC's Condensed Consolidated Financial Statements and related notes thereto.

The following table sets forth for the Combined and Predecessor Company's fiscal periods indicated the percentage of total revenues represented by certain items reflected in UATC's statements of operations:

The following table summarizes revenues and revenue-related data for the fiscal years ended 2001, 2000 and 1999 (in millions, except averages):

Admissions. Total admissions revenues increased $18.9 million, or 5.1%, to $391.3 million, for the fiscal year 2001 from $372.4 million for the fiscal year 2000, which decreased $60.7 million, or 14.0% from $433.1 million for the fiscal year 1999.  The increase in admissions revenues in 2001 compared to 2000 was primarily attributable to a 5.0% increase in average ticket prices. The decrease in admissions revenues in 2000 compared to 1999 was primarily attributable to a 17.6% decrease in attendance, partially offset by a 4.5% increase in average ticket price.

Concessions. Total concessions revenues increased $2.4 million, or 1.6%, to $157.0 million for the fiscal year 2001, from $154.6 million for the fiscal year 2000, which decreased $19.8 million, or 11.4%, from $174.4 million for the fiscal year 1999.  The increase in concessions revenues in 2001 compared to 2000 was primarily due to an increase in the average concession sale per patron.  The decrease in concessions revenues in 2000 compared to 1999 was primarily due to lower attendance, partially offset by increased average concession sales per patron  

Other Operating Revenues. Total other operating revenues decreased $0.7 million, or 3.1%, to $22.1 million for the fiscal year 2001, from $22.8 million for the fiscal year 2000, which decreased $0.5 million, or 2.1%, from the fiscal year 1999.  The decreases in other operating revenues in 2001 and 2000 were primarily due to the closure of under-performing theatres, the general downturn in the advertising market during 2001, and customers reluctance to book Satellite Theatre Network® events during UATC's bankruptcy proceedings.  

The following table summarizes direct theatre costs for fiscal years 2001, 2000 and 1999 (dollars in millions):

Film Rental and Advertising Costs. Film rental and advertising costs increased $10.6 million, or 5.2%, to $215.5 million for the fiscal year ended 2001, from $204.9 million for the fiscal year 2000, which decreased $39.1 million, or 16.0%, from $244.0 million for the fiscal year 1999.  During 2001, a slight increase from 2000 in film rental costs as a percentage of admissions revenue was nearly offset by a decrease in advertising costs as a percentage of admissions revenue, thus resulting in film rental and advertising costs as a percentage of admissions revenue increasing by 0.1%.  The decrease in film rental and advertising costs as a percentage of admissions revenue during 2000 from 56.3% during 1999 was primarily attributable to the higher than average film terms associated with certain films released in 1999, as well as a decrease in advertising costs as a percentage of admissions revenue during 2000 as compared to 1999.

Cost of Concessions. Cost of concessions decreased $0.1 million, or 0.6%, to $17.9 million in 2001, from $18.0 million for 2000, which decreased $4.7 million, or 20.7%, from $22.7 million for 1999.  Cost of concessions as a percentage of concessions revenues decreased to 11.4% in 2001 as compared to 11.7% in 2000, which decreased from 13.0% in 1999.  The decreases in concession costs as a percentage of concessions revenue are primarily due to purchasing cost reductions, reduced concessions promotional costs and increased rebates from certain concession vendors.  

Other Theatre Operating Expenses. Other theatre operating expenses decreased $10.3 million, or 4.2%, to $235.5 million for the fiscal year 2001 from $245.8 million for the fiscal year 2000, which decreased $41.2 million, or 14.4%, from $287.0 million for the fiscal year 1999.  Other theatre operating expenses as a percentage of total revenues decreased to 41.2% in 2001 from 44.7% during 2000, which decreased from 45.5% during 1999.  The decreases in other theatre operating expenses during 2001 and 2000 were primarily due to the sale, closure, or rejection of under-performing theatres and a reduction in other controllable costs.

General and administrative expenses decreased $1.4 million, or 6.6%, to $19.9 million for the fiscal year 2001, from $21.3 million for the fiscal year 2000, which decreased $1.1 million, or 4.9%, from $22.4 million for the fiscal year 1999.  As a percentage of total revenues, general and administrative expenses decreased to 3.5% in 2001 from 3.9% in 2000 and 3.6% in 1999.  The decreases in general and administrative costs during 2001 was primarily due to the elimination of four district offices during late 2000, a reduction in the number of corporate personnel, and other expense efficiency measures.  The increase in 2000 was primarily due to employee retention payments incurred during 2000.

Depreciation and amortization expenses decreased $2.2 million, or 5.2%, to $40.2 million for the fiscal year 2002, from $42.4 million for the fiscal year 2000, which decreased $8.4 million, or 16.5%, from $50.8 million for the fiscal year 1999.  The 2001 and 2000 decreases were primarily due to the closures of under-performing theatres and asset impairment during 2000, along with the effect of the revaluation of assets resulting from the application of fresh-start accounting during fiscal year 2001.

Provisions for impairments relate to non-cash charges for the differences between the historical book value of individual theatres (in some cases groups of theatres) and the undiscounted cash flow expected to be received from the operation or future sale of the individual theatre (or groups of theatres).  The Company recorded non-cash provisions for asset impairments of $3.9 million, $37.3 million, and $30.6 million during fiscal year 2001, 2000, and 1999 respectively.

During late 1999 and into 2000, the Company accelerated its strategy intended to identify and divest of or renegotiate the leases of under-performing and non-strategic theatres and properties.  Lease exit costs of $11.3 million and $22.5 million have been charged to operating income during fiscal year 2000 and 1999, respectively.

Costs relating to the Company's restructuring and Chapter 11 reorganization, exclusive of those amounts incurred subsequent to the petition date which are classified as reorganization items as further discussed below, were $6.0 million for fiscal 2000.  Restructuring costs of $0.3 million for termination costs related to corporate personnel were recorded during fiscal year 1999. 

EBITDA increased $21.8 million, or 36.4%, to $81.6 million for fiscal year for 2001, from $59.8 million for fiscal year 2000, which increased $5.1 million, or 9.3%, from $54.7 million for fiscal year 1999.  EBITDA as a percentage of total revenues increased in 2001 to 14.3% from 10.9% in 2000, which increased from 8.7% in 1999.  

Operating income increased by $67.4 million to $43.4 million for fiscal year 2001, from a loss of $24.0 million for fiscal year 2000.  The 2000 loss decreased $24.2 million, or 50.2%, from a loss of $48.2 million for fiscal year 1999. Operating income as a percentage of total revenues was 7.6% in 2001.  Operating loss as a percentage of total revenues was 4.4% in 2000, which decreased from 7.6% in 1999.

Interest, net decreased $19.6 million, or 44.9%, to $24.0 million for fiscal year 2001 from $43.6 million for fiscal year 2000, which increased $9.7 million, or 28.6%, from $33.9 million for fiscal year 1999.   The decrease in interest expense in 2001 compared to 2000 was primarily due to a lower average debt balance resulting from the completion of the Chapter 11 reorganization, along with lower market interest rates during 2001 as compared to 2000.  The increase in interest expense in 2000 was due to a higher average debt balance and to an increase in the interest rate on the Pre-Petition Credit Facility.  UATC capitalized $0.2 million, $0.4 million and $0.8 million of interest during fiscal year 2001, 2000 and 1999, respectively, related to various construction projects.

During fiscal year 2001 and fiscal year 2000, the Company sold properties relating to under-performing theatres and other non-theatre real estate, along with equipment from closed theatres that could not be used at other locations, and received cash proceeds of $6.7 million and $15.7 million, respectively.  The sale of assets in 2001 and 2000 resulted in $5.9 million and $13.2 million of recognized gains, respectively.  Also during 2000, the Company sold securities received when certain of its international theatrical interests were sold in 1999 for proceeds of $4.1 million, resulting in a $3.7 million gain.  During fiscal year 1999, the Company sold certain theatres for which cash proceeds of $9.8 million were received and $4.2 million of gains were recognized

Costs associated with the Company's reorganization through the Chapter 11 Cases incurred subsequent to the Petition Date and prior to the effective date are classified as reorganization items.  As part of the Company's application of fresh-start accounting, an adjustment was recorded to reorganization costs based on the adjustment of assets and liabilities to fair value.  For the nine weeks ended March 1, 2001, the positive adjustment to reorganization costs, net of professional fees and asset impairments, was $33.3 million.  The Company incurred $18.2 million in reorganization costs during fiscal 2000.  This amount consists of $4.9 million in professional fees related to the Chapter 11 Cases, a $9.1 million write off of deferred loan costs related to debt that was classified as liabilities subject to compromise and was restructured as part of the reorganization, non-cash provisions for asset impairments of $3.8 million, and other miscellaneous costs of $0.4 million.

Income taxes increased $2.9 million to a provision of $3.6 million for fiscal year 2001, from a provision of $0.7 million for fiscal year 2000, which decreased $0.2 million from a provision of $0.9 million for fiscal year 1999. The increase in income taxes in 2001 compared to 2000 was primarily due to UATC's improved operating results, as well as the non-deductible nature of certain of UATC's reorganization costs.  The decrease in provision for income taxes in 2000 compared to 1999 was primarily due to decreased earnings within UATC's partially-owned subsidiaries, certain of which aren't consolidated for tax purposes.

During fiscal year 1998, the Company established a plan to dispose of its entertainment center business operations. Operations in all of the Company's entertainment centers ceased during 1999.  At December 30, 1999 the Company established an additional reserve of $2.4 million related to estimated costs necessary to terminate three remaining leases and settle remaining litigation related to the entertainment centers.  At December 28, 2000, liabilities subject to compromise included a $2.2 million reserve for such lease termination costs.  All such liabilities have been discharged in accordance with the Plan.

As set forth in the following year-over-year comparison, exclusive of reorganization items and the extraordinary item resulting from extinguishment of debt, during fiscal year 2001, net income increased $84.2 million, to $11.7 million for the fiscal year 2001, from a net loss of $72.5 million for the fiscal year 2000, which decreased $19.8 million from a net loss of $92.3 million for the fiscal year 1999.  The increase in net income from 2000 to 2001 relates primarily to the increased operating income and reduced interest expense discussed above.  The decrease in net loss from 1999 to 2000 relates primarily to the reduced operating loss

For the fiscal year 2001, $36.5 million in cash provided from operations, $6.7 million from asset sale proceeds, and $90.5 million in debt borrowings were utilized to fund capital expenditures of $12.7 million, to reduce outstanding debt and cash overdrafts by $108.6 million, for reorganization costs of $13.4 million, and for other expenditures totaling $0.9 million.  This resulted in a $12.1 million increase of cash balances during the fiscal year 2001. 

Substantially all of UATC's admissions and concession sales revenue is collected in cash.  UATC benefits from the fact that film expenses (except for films that require advances) are usually paid 15 to 45 days after the admissions revenue is collected.  

As part of the Company's bankruptcy restructuring, debt was reduced from approximately $439.7 million under the Pre-Petition Credit Facility to approximately $252.2 million (the "Term Credit Facility").  The Term Credit Facility is subject to various covenants and limitations, including limitations on capital expenditures and on additional indebtedness, as well as various financial covenants.  Additionally, a new $35.0 million Revolving Credit Facility was secured.  This Revolving Credit Facility, which matures in August 2004, allows for issuance of letters of credit up to $10.0 million, and includes substantially the same covenants and limitations as are within the Restructured Bank Credit Facility.  As of January 3, 2002 there was no borrowings outstanding under the Revolving Credit Facility, and availability under this facility was $34.2 million. 

A significant portion of UATC's capital expenditures over the past several years has been funded by sale and leaseback transactions.  Following is a summary of the various transactions:

During 2001, UATC completed the renovation of a 10-screen theatre with stadium seating in the Philadelphia market and other renovations to several small market theatres.  UATC also completed the construction of one theatre assumed from another theatre operator and has begun a project for the addition of five screens and renovation (with stadium seating) of the existing nine screens at a second theatre, both in New York City market. Through January 3, 2002, approximately $6.0 million had been invested in these redevelopment projects.  When completed, these projects are expected to cost approximately $11.9 million, $6.0 million of which has been made available by the landlord on one project. In addition, predevelopment work, including construction plans and governmental approvals, are being completed related to 14 theaters (120 screens) in several of UATC's key markets.  These redevelopment efforts include the replacement of existing theatres with a new theatre and the renovation with stadium seating and/or expansion of existing theatres.  UATC expects these redevelopment efforts will cost approximately $28.3 million over the next 12 to 18 months.  In addition, certain other theatres in several strategic markets are currently being reviewed for possible stadium seating renovations and/or screen additions.  Because UATC's future capital spending plans relate primarily to the renovation and/or expansion of key locations, the timing of such commitments and expenditures is flexible.  Therefore, they can be matched to net cash provided by operating activities and asset sales.  This strategy to renovate existing locations with state of the art amenities such as stadium seating is intended to allow UATC to defend and expand its current market positions by capitalizing on the value of its existing well-located theatres and thus limiting the amount of capital invested per screen.  UATC believes this strategy provides for a better investment return and more favorable risk/ret urn profile.

UATC's future operating performance and ability to service its indebtedness will be subject to the success of motion pictures which are released, future economic conditions, the sale of non-core assets and to financial, business and other factors, many of which are beyond UATC's control.

The following table summarizes UATC's contractual cash obligations due by Period as of January 3, 2002:

UATC's revenues are usually seasonal, coinciding with the timing of releases of motion pictures by the major distributors.  Generally studios release the most marketable motion pictures during the summer and the holiday season.  The unexpected emergence of a "hit" film during other periods can alter the traditional pattern.  The timing of movie releases can have a significant effect on our results of operations, and the results of one quarter are not necessarily indicative of results for the next or any other quarter.  The seasonality of motion picture exhibition, however, has become less pronounced in recent years as studios have begun to release major motion pictures somewhat more evenly throughout the year.  

UATC does not believe that inflation has had a material impact on our financial position or results of operations.

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets."  SFAS No. 141 supersedes Accounting Principles Board Opinion No. 16 (APB 16), "Business Combinations," and primarily addresses the accounting for the cost of an acquired business (i.e., the purchase price allocations), including any subsequent adjustment to its cost.  SFAS No. 142 primarily addresses the accounting for goodwill and intangible asset subsequent to their acquisition (i.e., the post-acquisition accounting) and supersedes APB 17, "Intangible Assets."  The most significant changes made by SFAS No. 141 involve the requirement to use the purchase method of accounting for all business combinations, thereby eliminating use of the pooling-of-interests method along with the establishment for new criteria for determining whether we should recognize intangible assets acquired in a business combination separately form goodwill.  SFAS No. 141 is effective for all business combinations initiated after June 30, 2001.  The adoption of SFAS No. 141 will not have a material impact on UATC's financial position or results of operation.

Under SFAS No. 142, we will no longer amortize goodwill, reorganization value in excess of amounts allocated to identifiable assets or indefinite lived intangible assets, and will test for impairment at least annually at a reporting unit level. Additionally, the amortization period of intangible assets with finite lives is no longer limited to 40 years. Other long-lived assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of," and SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Asset," issued in August 2001.  SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 for all goodwill and other intangible assets including excess reorganization value recognized in an entity's statement of financial position at that date, regardless of when those assets were initially recognized.  UATC will adopt SF AS No. 142 on January 4, 2002, being the first day of the fiscal 2002 year.  The adoption of this standard will result in UATC no longer amortizing the reorganization value in excess of identified assets and other intangible assets.  This change, if adopted, as of March 1, 2002 would have resulted in a reduction of amortization expense of $9.7 million and an increase in net income (loss) before income tax expense, discontinued operations and extraordinary items of $9.7 million for the forty-four week period ended January 3, 2002. 

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which provides clarifications of certain implementation issues with SFAS No. 121 along with additional guidance on the accounting for the impairment or disposal of long-lived assets.  SFAS No. 144 supersedes SFAS No. 121 and applies to all long-lived assets (including discontinued operations) and consequently amends APB 30, "Reporting the Effects of Disposal of a Segment of a Business."  SFAS No. 144 develops an accounting model (based on the model in SFAS No. 121) for long-lived assets that are to be disposed of by sale, as well as addresses the principal implementation issues.  SFAS No. 144 requires that entities measure long-lived assets that are to be disposed of by sale at the lower of book value or fair value less costs to sell.  That requirement eliminates APB 30s requirement that discontinued operations be measured at net realizable value or that entities include under "discontinued operations" in the financial statements amounts for operating losses that have not yet occurred.  Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) the entity can distinguish from the rest of the entity and (2) the entity will eliminate form the ongoing operations of the entity in a disposal transaction.  

SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and early application is encouraged.  The adoption of this standard is not expected to have a material impact on the financial position or the results of operation of UATC.  

UATC is subject to market risk associated with changes in interest rates on its debt obligations.  As of January 3, 2002, UATC had $245.6 million of long-term debt of which $240.6 million was floating rate debt.  The average interest rate at January 3, 2002 was 5.93%.  A change of a full point to the interest rate on our variable rate indebtedness held at January 3, 2002 would result in a change of approximately $2.4 million in the annual interest expense of UATC.

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

None.

The Board of Directors
United Artists Theatre Circuit, Inc.:

We have audited the accompanying consolidated balance sheets of United Artists Theatre Circuit, Inc. ("Reorganized Company") as of January 3, 2002 and of United Artists Theatre Circuit, Inc. ("Predecessor Company") as of December 28, 2000 and the related consolidated statements of operations, stockholder's equity (deficit) and comprehensive income, and cash flows for the forty-four weeks ended January 3, 2002 (Reorganized Period) and for the nine weeks ended March 1, 2001 and for the year ended December 28, 2000 (Predecessor Periods).  These financial statements are the responsibility of UATC's management. Our responsibility is to express an opinion on these financial statements based on our audits.  

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  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 aforementioned Reorganized Company consolidated financial statements present fairly, in all material respects, the financial position of the Reorganized Company as of January 3, 2002, and the results of their operations and their cash flows for the forty-four weeks ended January 3, 2002 in conformity with accounting principles generally accepted in the United States of America.  Further, in our opinion, the aforementioned Predecessor Company consolidated financial statements present fairly, in all material respects, the financial position of the Predecessor Company as of December 28, 2000, and the results of their operations and their cash flows for the nine-weeks ended March 1, 2001 and the year ended December 28, 2000 in conformity with the accounting principles generally accepted in the United States of America.

As described in Note 1 and 2 to the consolidated financial statements, effective March 1, 2001, UATC emerged from protection under Chapter 11 of the U.S. Bankruptcy Code pursuant to a reorganization plan, which was confirmed by the Bankruptcy Court on January 22, 2001. In accordance with AICPA Statement of Position 90-7, UATC adopted fresh start reporting whereby its assets, liabilities and new capital structure were adjusted to reflect estimated fair values as of March 1, 2001. As a result, the consolidated financial statements for the periods subsequent to March 1, 2001 reflect the Reorganized Company's new basis of accounting and are not comparable to the Predecessor Company's pre-reorganization consolidated financial statements.

Denver, Colorado

February 8, 2002

We have audited the accompanying consolidated statements of operations, stockholders equity (deficit) and comprehensive income and cash flow for the fiscal year ended December 30, 1999 of United Artists Theatre Circuit, Inc. and subsidiaries.  These consolidated financial statements are the responsibility of United Artists Theatre Circuit, Inc.'s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States.  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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flow of United Artists Theatre Circuit, Inc., for the fiscal year ended December 30, 1999, in conformity with accounting principles generally accepted in the United States.

Denver, Colorado

April 13, 2000 (except with respect to the matter discussed in Note 1,

as to which the date is March 2, 2001)