UNITED ARTISTS THEATRE CIRCUIT INC /MD/ - 10-K Annual Report

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

UNITED ARTISTS THEATRE CIRCUIT, INC.
(Exact name of registrant as Specified in its Charter)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

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 the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No ý

The registrant is a wholly owned subsidiary of Regal Entertainment Group. As of June 26, 2003, there were no shares of voting or non-voting common equity held by non-affiliates of the registrant.

The number of shares outstanding of $1.00 par value common stock at March 31, 2004 was 100 shares.

The information in this Form 10-K contains certain forward-looking statements, including statements related to trends in the Company's business. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed in "Business" as well as those discussed elsewhere in this Form 10-K.

United Artists Theatre Company (the "Parent" or "United Artists"), a Delaware corporation organized in February 2002, is the parent company of United Artists Theatre Circuit, Inc. ("we," "us," "our," the "Company" or "UATC") and United Artists Realty Company ("UAR"), which is the parent company of United Artists Properties I Corp. ("Prop I") and United Artists Properties II Corp. ("Prop II"). UATC leases certain theatres from both UAR and one of UAR's wholly owned subsidiaries, Prop I. The terms UATC and the Company shall be deemed to include the respective subsidiaries of such entity when used in discussions included herein regarding the current operations or assets of such entity.

United Artists became a wholly owned subsidiary of Regal Entertainment Holdings, Inc. ("REH") through a series of transactions in April and August 2002. REH is a wholly owned subsidiary of Regal Entertainment Group ("REG" or "Regal") who acquired Regal Cinemas Corporation ("Regal Cinemas"), United Artists, Edwards Theatres, Inc. ("Edwards") and Regal CineMedia Corporation ("Regal CineMedia") through a series of transactions on April 12, 2002. For a detailed discussion of the transactions resulting in Regal's acquisition of its subsidiaries, see Note 4 to the financial statements included in Part II, Item 8, of this Form 10-K. UATC, United Artists and certain of its subsidiaries emerged from bankruptcy reorganization under Chapter 11 of Title 11 of the United States Code on March 2, 2001. For a detailed discussion of these bankruptcy proceedings, see Note 2 to such financial statements.

As described in Note 1 to the consolidated financial statements, on March 28, 2003, as part of an acquisition by REG of Hoyts Cinemas Corporation ("Hoyts"), two theatre locations and 20 screens were contributed to UATC and recorded as a capital contribution totaling approximately $12.4 million.

On June 6, 2003, UATC completed the sale of certain leased theatres consisting of 46 theatres and 438 screens in 11 states and certain other assets under construction to United Artists Theatre Group, LLC ("UATG"), a wholly owned subsidiary of REH. For a detailed discussion of the transactions resulting from the sale to UATG, see Note 1 to the consolidated financial statements.

The Company manages its business under one reportable segment—theatre exhibition operations.

Our Internet address is www.uatc.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports, are available free of charge on our Internet website under the heading "Investor Relations" as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

seven states (California, New York, Pennsylvania, Louisiana, Texas, Mississippi and North Carolina) accounted for approximately 67.5% and 63.0% of UATC's total theatres and screens, respectively, as of January 1, 2004 and 51.6% of UATC's theatrical revenue for the fiscal year ended January 1, 2004. The Company seeks to locate each theatre where it will be the sole or leading exhibitor within a particular geographic film-licensing zone. Management believes that as of January 1, 2004, approximately 74.2% of the Company's screens were located in film licensing zones in which the Company was the sole exhibitor.

The Company has historically upgraded its theatre circuit by opening new theatres, adding new screens to existing theatres, and strategically closing and disposing of under-performing theatres. This strategy has served to establish and enhance the Company's presence in its geographic markets. Approximately 52.3% of the Company's screens are in theatres with 10 or more screens. As of January 1, 2004, UATC operates 23 theatres (264 screens) which offer stadium seating, representing 28.2% of UATC's screens. Virtually all of the theatres UATC has built or renovated 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. 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 patrons and significant operating efficiencies and improved economics for UATC.

In connection with Regal's acquisition of its subsidiaries, as more fully described in Note 4 to the financial statements included in Part II, Item 8, of this Form 10-K, a management agreement was executed between Regal Cinemas Inc. and UATC under which Regal Cinemas Inc. manages the theatre operations of UATC and its subsidiaries.

The domestic motion picture exhibition industry has historically maintained steady growth in revenues and attendance. Since 1965, total box office revenues have grown at a compound annual growth rate of approximately 6% and annual attendance grew to approximately 1.6 billion attendees in 2003. The industry has been relatively unaffected by downturns in the economic cycle, with total box office revenues and attendance growing in three of the last five recessions. For example, 2003 was a steady year for the film exhibition industry in which total box office revenues of $9.5 billion approximated that of a record 2002, while attendance declined by approximately 4.0% to 1.6 billion attendees.

During the late 1990's, however, the domestic motion picture exhibition industry underwent a period of extraordinary new theatre construction and the upgrade of older theatres. From 1996 to 1999, the number of screens increased at a compound annual growth rate of approximately 8%, which was more than double the industry's screen growth rate of approximately 3.5% from 1965 to 1995. The aggressive building strategies undertaken by exhibitors resulted in intensified competition in once stable markets and rendered many older theatres obsolete more rapidly than anticipated. This effect, together with the fact that many older theatres were under long-term, non-cancelable leases, created an oversupply of screens, which caused both attendance per screen and revenue per screen to decline. Most major exhibitors used extensive debt financing to fund their expansion efforts and experienced significant financial challenges in 1999 and 2000.

In 2000 and 2001, substantially all of the major exhibitors of motion pictures reduced their expansion plans and implemented screen rationalization plans to close under-performing theatres. During this period, the number of screens declined by approximately 1,800, the first screen decline since 1963. This screen count rationalization has benefited exhibitors as many patrons of closed theatres

have migrated to remaining theatres, thereby increasing industry-wide attendance per screen and operating efficiencies.

The recent industry expansion was primarily driven by major exhibitors upgrading their asset bases to an attractive megaplex format that typically included 10 or more screens per theatre and adding enhanced features such as stadium seating, improved projection quality and superior sound systems. From 1996 to 1999, the five largest motion picture exhibitors spent over $4.1 billion on capital expenditures to expand and upgrade their theatre circuits. As a result of the extensive capital investment over the last several years, we believe future capital expenditures needed to maintain these modern theatres will be modest.

We believe that another evolution of theatre formats beyond the current megaplex is unlikely to occur in the foreseeable future. We believe theatres larger than the current 10 to 18 screen megaplex are not able to generate attractive returns in most locations because of the substantial market suitability requirements to generate a level of profitability similar to the current megaplex format. In addition, for the foreseeable future we do not believe that additional major amenities will be required to meaningfully enhance the moviegoing experience. Consequently, we believe major exhibitors have reduced capital spending and the rate of new screen growth substantially.

We believe 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 12% from 2000 to 2003. 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. We believe that movie studios have placed an increased emphasis on theatrical success because these secondary distribution channels represent important and growing sources of additional revenues.

Affordable and Attractive Form of Entertainment. We believe that patrons are attending movies more frequently because movie-going is convenient, affordable and attractively priced relative to other forms of out-of-home entertainment. The average price per patron continues to compare favorably to other out-of-home entertainment alternatives such as concerts and sporting events. Since 1993, average movie ticket prices 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. Over the same time period, per capita movie attendance has grown from 4.8 to 5.4 times per year.

Modern Facilities Lower Future Capital Requirements. We believe 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, we believe that major exhibitors have reduced their capital spending for new theatre construction or further upgrades.

Increasing Appeal of a Diversity of Films. Box office revenues are increasingly diversified among a number of strong movies rather than concentrated on a few major "hits." This increased appeal in the breadth of films benefits exhibitors by expanding the demographic base of moviegoers and generating greater attendance at a wider variety of movies as opposed to attracting patrons to only a few major releases.

Extension of Movie Release Calendar Reduces Seasonality. Distributors have increasingly staggered new releases over more weekends as opposed to opening multiple movies on the same weekend or saving major releases for only a few holiday weekends. This trend has reduced the seasonality of box office revenues by spreading attendance over an extended period of time, which we believe benefits exhibitors by increasing admissions and concessions revenues.

We primarily operate multi-screen theatres. Our multi-screen theatre complexes typically feature auditoriums ranging from 100 to 500 seats each. As a result, our theatres appeal to a diverse group of patrons because we offer a wide selection of films and convenient show times. In addition, many of our theatres feature modern amenities such as wall-to-wall screens, digital stereo surround-sound, multi-station concessions stands, computerized ticketing systems, plush stadium seating with cup holders and retractable armrests, neon-enhanced interiors and exteriors and video game areas adjacent to the theatre lobby.

Our multi-screen theatres are designed to increase profitability by optimizing revenues per square foot and reducing the cost per square foot of operation. We vary auditorium seating capacities within the same theatre, allowing us to exhibit films on a more cost effective basis for a longer period of time by shifting films to smaller auditoriums to meet changing attendance levels. In addition, we realize significant operating efficiencies of having common box office, concessions, projection, lobby and restroom facilities, which enables us to spread some of our costs, such as payroll, advertising and rent, over a higher revenue base. We stagger movie show times to reduce staffing requirements and lobby congestion and to provide more desirable parking and traffic flow patterns. In addition, we believe that operating a theatre circuit consisting primarily of multi-screen theatres enhances our ability to attract patrons.

The following table details the number of locations and theatre screens in our theatre circuit ranked by the number of screen in each state as of January 1, 2004:

State	Locations	Number of Screens
New York	18	139
California	17	102
Texas	10	99
Mississippi	11	83
Louisiana	9	63
Florida	7	61
Maryland	5	55
Pennsylvania	8	53
North Carolina	8	50
New Jersey	4	42
Colorado	6	36
Nevada	3	26
Michigan	2	24
Arizona	2	21
Arkansas	2	20
Indiana	2	19
Virginia	2	19
Minnesota	1	7
New Mexico	1	6
Massachusetts	1	6
Georgia	1	4

In connection with the combination of the three theatre circuits, management has implemented best management practices across all of our theatres, including daily, weekly and monthly management reports generated for each individual theatre, as well as maintaining active communication between the theatres, divisional management and corporate management. We use these management reports and communications to closely monitor admissions and concessions revenues as well as accounting, payroll and workforce information necessary to manage our theatre operations effectively and efficiently.

We seek experienced theatre managers and require new theatre managers to complete a comprehensive training program within the theatres and at the "Regal University", which is held at Regal Cinemas's corporate headquarters. The program is designed to encompass all phases of theatre operations, including our operating philosophy, policies, procedures and standards. In addition, we have an incentive compensation program for theatre-level management that rewards theatre managers for controlling operating expenses while complying with our operating standards.

In addition, we have implemented quality assurance programs in all of our theatres to maintain clean, comfortable and modern facilities. To maintain quality and consistency within our theatre circuit, district and regional managers regularly inspect each theatre. We also operate a "mystery shopper" program, which involves unannounced visits by unidentified customers who report on the quality of service, film presentation and cleanliness at individual theatres.

Domestic movie theatres are the primary initial 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. Motion pictures are generally made available through several alternative distribution methods after the theatrical release date, including home video, cable television, broadcast television, international distribution and satellite and pay-per-view services. A strong opening run at the

theatre can establish a film's success and substantiate the film's revenue potential for both domestic and international distribution channels. For example, the value of home video and pay cable distribution agreements frequently depends on the success of a film's theatrical release. Furthermore, studios' revenue-sharing percentage and ability to control the choice of distribution channels generally declines as a film moves further from its theatrical release. As the primary distribution window for the public's evaluation of films, domestic theatrical distribution remains the cornerstone of a film's overall financial success.

The development of additional distribution channels has given motion picture producers the ability to generate a greater portion of a film's revenues through channels other than theatrical release. This increased revenue potential after a film's initial theatrical release has enabled major studios and some independent producers to increase the budgets for film production and advertising. The total cost of producing a film averaged approximately $63.8 million in 2003 compared with approximately $29.9 million in 1993, while the average cost to advertise and promote a film averaged approximately $39.0 million in 2003 compared with approximately $14.1 million in 1993.

Evaluation of Film. We license films on a film-by-film and theatre-by-theatre basis by negotiating directly with film distributors. Prior to negotiating for a film license, we evaluate the prospects for upcoming films. Criteria we consider for each film include cast, director, plot, performance of similar films, estimated film rental costs and expected rating from the Motion Picture Association of America. Successful licensing depends greatly upon the exhibitor's knowledge of trends and historical film preferences of the residents in markets served by each theatre, as well as on the availability of commercially successful motion pictures.

Access to Film Product. Films are licensed from film distributors owned by major film production companies and from independent film distributors that generally distribute films for smaller production companies. Film distributors typically establish geographic film licensing zones and allocate each available film to one theatre within that zone. Film licensing zones generally encompass a radius of three to five miles in metropolitan and suburban markets, depending primarily upon population density.

In film licensing zones where we are the sole exhibitor, we obtain film licenses by selecting a film from among those films being offered and negotiating directly with the distributor. In zones where there is competition, a distributor will either allocate films among the exhibitors in the zone, or, rarely, may require the exhibitors in the zone to bid for a film. When films are licensed under the allocation process, a distributor will select an exhibitor who then negotiates film rental terms directly with the distributor. We currently do not bid for films in any of our markets.

Film Rental Fees. Film licenses typically specify rental fees based on the higher of a gross receipts formula or a theatre admissions revenues formula. Under a gross receipts formula, the distributor receives a specified percentage of box office receipts, with the percentage declining over the term of the film's run. Under a theatre admissions revenues formula, the distributor receives a specified percentage of the excess of admissions revenues over a negotiated allowance for theatre expenses. Although not specifically contemplated by the provisions of film licenses, rental fees actually paid by us are in some circumstances adjusted subsequent to exhibition in relation to the commercial success of a film in a process known as "settlement."

Duration of Film Licenses. The duration of our film licenses are negotiated with our distributors on a case-by-case basis. The terms of our license agreements depend on performance of each film. Marketable movies that are expected to have high box office admission revenues will generally have longer license terms than movies with more uncertain performance and popularity.

Relationship with Distributors. Many distributors provide quality first-run movies to the motion picture exhibition industry. No single distributor dominates the market. We license films from each of the major distributors and believe that our relationships with these distributors are good. From year to year, the revenues attributable to individual distributors will vary widely depending upon the number and popularity of films that each one distributes.

In addition to box office admissions revenues, we generated approximately 26.8% of our total revenues from concessions sales during 2003. We emphasize prominent and appealing concession stations designed for rapid and efficient service. We continually seek to increase concessions sales by optimizing product mix, introducing special promotions from time to time and training employees to up-sell and cross-sell products. We have favorable concession supply contracts and have developed an efficient concession purchasing and distribution supply chain. Our management negotiates directly with manufacturers for many of our concession items to obtain competitive prices and to ensure adequate supplies.

The motion picture industry is highly competitive. Motion picture exhibitors generally compete on the basis of the following competitive factors:

Our competitors vary substantially in size, from small independent exhibitors to large national chains. As a result, our theatres are subject to varying degrees of competition in the regions in which they operate. Our competitors, including newly established motion picture exhibitors, may build new theatres or screens in areas in which we operate, which may result in increased competition and excess capacity in those areas. If this occurs, it may have an adverse effect on our business and results of operations.

We also compete with other motion picture distribution channels, including home video, cable television, broadcast television and satellite and pay-per-view services. Other new technologies (such as video on demand) could also have an adverse effect on our business and results of operations. In addition, we compete for the public's leisure time and disposable income with other forms of entertainment, including sporting events, concerts, live theatre and restaurants.

Currently, film distributors organize and finance multimedia advertising campaigns for major film releases. To market our theatres, we utilize advertisements, including radio advertising, movie schedules published in newspapers and over the Internet informing our patrons of film selections and show times. Newspaper advertisements are typically displayed in a single grouping for all of our theatres located in a newspaper's circulation area. In some of our markets we employ special marketing programs for specific films and concessions items.

In addition, we seek to develop patron loyalty through a number of marketing programs such as free summer children's film series and cross-promotional ticket redemptions and promotions within local communities. We currently offer these programs only in selected markets. We plan to use these programs in markets where we believe patron loyalty can be further enhanced, and we will continue to

evaluate our markets on a case-by-case basis to determine the suitability of these programs in individual regions. In addition, Regal has a frequent moviegoer loyalty program, named the Regal Crown Club, in all the markets in which we participate.

We make extensive use of information technology in all areas of our business. We provide many ways for our customers to purchase tickets, ranging from the point of sale terminals in each theatre box office, to the self-service kiosks to Internet-based ticketing. We use our information technology systems to manage all aspects of our business. Our point of sale systems enable us to monitor cash transactions and detect fraud and concessions inventory shrinkage, while capturing information about sales and attendance needed for film booking and settlement. Our scheduling systems support the coordination needed to properly allocate our auditoriums between film showings and Regal CineMeetings events while also ensuring that each movie audience views the intended set of advertisements and newspaper advertisements provide the correct show starting times. Our continuing investment in information technology has enabled our management team to operate our theatres efficiently.

Our 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.

As of March 9, 2004, we employed approximately 4,095 persons. Film projectionists at certain of the Company's theatres in the New York market are covered by two collective bargaining agreements. The Company considers its employee relations to be good.

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 effectively require major film distributors to offer and license films to exhibitors, including us, on a film-by-film and theatre-by-theatre basis. Consequently, exhibitors cannot assure themselves of a supply of films by entering into long-term arrangements with major distributors, but must negotiate for licenses on a film-by-film and theatre-by-theatre basis.

Our 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. United Artists and several of its subsidiaries are subject to a consent decree arising from a lawsuit captioned Connie Arnold et. al. v. United Artists Theatre Circuit, Inc. et. al. The plaintiffs alleged nationwide violations with the ADA for failure to remove

barriers to access at existing theatres in a timely manner. In 1996, the parties involved in the case entered into a settlement agreement in which United Artists agreed to remove 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.

We believe that we are in substantial compliance with all current applicable regulations relating to accommodations for the disabled. We intend to comply with future regulations in this regard, and except as set forth above, we do not currently anticipate that compliance will require us to expend substantial funds. Our theatre operations are also subject to federal, state and local laws governing such matters as wages, working conditions, citizenship and health and sanitation requirements. We believe that we are in substantial compliance with all of such laws.

As of January 1, 2004, we operated 116 of our theatres pursuant to lease agreements and owned the land and buildings for 4 theatres. For a January 1, 2004 list of the states in which we operated theatres and the number of theatres and screens operated in each such state, see the chart under "Business—Theatre Operations" above, which is incorporated herein by reference. The majority of our leased theatres are subject to lease agreements with original terms of 20 years or more and, in most cases, renewal options for up to an additional 10 years. These leases provide for minimum annual rentals and the renewal options generally provide for rent increases. Some leases require, under specified conditions, further rental payments based on a percentage of revenues above specified amounts. A majority of the leases are net leases, which require us to pay the cost of insurance, taxes and a portion of the lessor's operating costs.

Of the 120 owned and leased theatres, 5 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 16 operating 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.

UATC also manages two theatres (13 screens) located in the United States and receives a monthly management fee based on a percentage of total revenues.

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 expired in 2003 and UATC exercised its option to extend the leases for an additional ten years.

The information required to be furnished by us under this Part I, Item 3 (Legal Proceedings) is incorporated by reference to the information contained under the captions "Bankruptcy Claims" and "Other" in Note 11 (Commitments and Contingencies) of our notes to consolidated financial statements included in Part II, Item 8 (Financial Statements and Supplementary Data) of this report on Form 10-K.

No matters were submitted to a vote of UATC's sole shareholder, the Parent, during the fourth quarter ended January 1, 2004.

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

As of March 31, 2004, UATC's common stock is held entirely by the Parent. There is no established public trading market for the Company's common stock. During 2003, UATC effected two cash dividends totaling approximately $109.2 million to Parent. UATC's ability to pay dividends is restricted by the terms of the Participation Agreement entered into in connection with the 1995 sale and leaseback transaction described in Note 9 to the accompanying consolidated financial statements included in Part II, Item 8 of this Form 10-K.

The following table presents selected historical financial data of UATC for the past five fiscal years. Effective March 2, 2001 UATC emerged from protection under Chapter 11 of the U.S. Bankruptcy Code pursuant to a reorganization plan that provided for the discharge of significant financial obligations. In accordance with AICPA Statement of Position 90-7, UATC adopted fresh start reporting whereby UATC's assets, liabilities and new capital structure were adjusted to reflect estimated fair values as of March 1, 2001. For the periods prior to March 2, 2001, the assets and liabilities of UATC and the related consolidated results of operations are referred to below as "Predecessor Company", and for periods subsequent to March 1, 2001, the assets and liabilities of UATC and the related consolidated results of operations are referred to as the "Reorganized Company." As a result of the above, the financial data of the Predecessor Company is not comparable to the financial data of the Reorganized Company. The following selected historical consolidated financial data set forth below should be read in conjunction with, and are qualified in their entirety by, "Management's Discussion

and Analysis of Financial Condition and Results of Operations" and UATC's consolidated financial statements and notes thereto included elsewhere in this document (in millions, except operating data).

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

As of January 1, 2004, UATC operates 935 screens in 120 theatres in 21 states with over 46 million annual attendees. The UATC operated theatres are managed by Regal Cinemas Inc., a wholly owned subsidiary of Regal, pursuant to a management arrangement described below. The Company primarily operates multi-screen theatres and has an average of 7.8 screens per location. Theatre operations in seven states (California, New York, Pennsylvania, Louisiana, Texas, Mississippi and North Carolina) accounted for approximately 67.5% and 63.0% of UATC's total theatres and screens, respectively, as of January 1, 2004 and 51.6% of UATC's theatrical revenue for the fiscal year ended January 1, 2004. The Company seeks to locate each theatre where it will be the sole or leading exhibitor within a particular geographic film-licensing zone. Management believes that as of January 1, 2004, approximately 74.2% of the Company's screens were located in film licensing zones in which the Company was the sole exhibitor.

UATC, United Artists and certain of its subsidiaries emerged from bankruptcy reorganization under Chapter 11 of Title 11 of the United States Code on March 2, 2001. For a detailed discussion of these bankruptcy proceedings, see Note 2 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K. United Artists became a wholly owned subsidiary of REH through a series of transactions in April and August 2002. REH is a wholly owned subsidiary of Regal who acquired Regal Cinemas, United Artists, Edwards and Regal CineMedia through a series of transactions on April 12, 2002. For a detailed discussion of the transactions resulting in Regal's acquisition of its subsidiaries, see Note 4 to the consolidated financial statements included in Part II, Item 8, of this Form 10-K.

The Company generates revenues primarily from admissions and concession sales. Additional revenues are generated by on-screen advertisements, rental of theatres for business meetings and other events by Regal CineMedia, an affiliate of UATC, electronic video games located adjacent to the lobbies of certain of the Company's theatres and vendor marketing programs. Film rental costs depend on the popularity of a film and the length of time since the film's release and generally decline as a percentage of admission revenues the longer a film is in exhibition. Because the Company purchases certain concession items, such as fountain drinks and popcorn, in bulk and not pre-packaged for individual servings, the Company is able to improve its margins by negotiating volume discounts. Other operating expenses consist primarily of theatre labor and occupancy costs.

In order to provide a meaningful basis of comparing the years ended January 1, 2004, December 26, 2002 and January 3, 2002, 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") ("Fiscal 2001 Period") and are compared to the fifty-three weeks ended January 1, 2004 ("Fiscal 2003 Period") and the fifty-one weeks ended December 26, 2002 ("Fiscal 2002 Period"). Depreciation, amortization, and certain other line items included in the operating results of the Combined Company are not comparable between periods as the nine weeks ended March 1, 2001 of the 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 of America.

For a summary of industry trends relevant to the Company, see "Business-Industry Trends" above and "Results of Operations" below.

The theatre exhibition industry fared better than expected against record 2002 box office results. Based on our results and our review of selected industry sources, we believe national box office revenues in calendar year 2003 approximated that of calendar year 2002. Management believes that 2003 box office results benefited from increased average ticket prices per patron, offset by a decline in national attendance. The increase in average ticket price per patron resulted from increases in ticket prices coupled with a favorable film product mix, which resulted in sales of a greater proportion of full-price tickets. Although the film mix favorably impacted average ticket prices per patron, it had a negative impact on concession revenue per patron. The fiscal 2003 film mix consisted of a higher proportion of R-rated and PG-13 rated films.

The sale of 46 theatres and 438 screens to UATG, partially offset by better than expected box office performance (consistent with industry trends), the contribution of two Hoyts theaters, the impact of two additional weeks of operating results during the Fiscal 2003 Period as compared to the Fiscal 2002 Period and other factors described below, led to the overall decrease in the Company's total revenues and income from operations. The two additional weeks in fiscal 2003 are significant in that they both were the week between Christmas and New Years Day, which is a traditionally high attendance week for the Company and the industry and accounted for approximately 7.6% of the Fiscal 2003 Period total attendance. Total revenues for the Fiscal 2003 Period were $430.6 million, a 25.1% decrease compared to total revenues of $574.8 million for the Fiscal 2002 Period. Income from operations for the Fiscal 2003 Period was $39.4 million, a 17.4% decrease compared to income from operations of $47.7 million for the Fiscal 2002 Period.

During the Fiscal 2003 Period, the Company made significant progress with its strategic initiatives:

We remain optimistic regarding the 2004 film slate and share the view of a number of film studio executives who believe the industry is poised to benefit from another year of solid box office performance. Evidenced by the film studios' continued efforts to promote and market upcoming film releases, 2004 appears to be another year of an extended film release calendar consisting of high-profile releases such as The Passion of the Christ as well as a few key sequels, such as Harry Potter and the Prisoner of Azkaban, Shrek 2 and Spiderman 2. As a result of the breadth of the anticipated 2004 film product, the Company anticipates a slight increase in industry attendance for the 2004 calendar year as compared to the 2003 calendar year coupled with modest increases in ticket prices and concession revenues per patron.

With respect to capital expenditures, due in part to the timing of certain construction projects, we expect theatre capital expenditures to be approximately $10.0 million for fiscal 2004, consisting of new theatre development, expansion of existing theatre facilities, upgrades and maintenance.

We will continue to focus on a simple business strategy including enhancement of attractive business opportunities through Regal Cinemedia, an affiliate of the Company, and continued pursuit of a growth strategy that will provide incremental returns on our assets. For an understanding of the

significant factors that influenced our performance during the past three fiscal years, the preceding and following discussion should be read in conjunction with the consolidated financial statements and the notes thereto presented in this Form 10-K.

The following table sets forth for the fiscal periods indicated the percentage of total revenues represented by certain items reflected in UATC's consolidated statements of operations for the Fiscal 2003 Period, Fiscal 2002 Period and the Fiscal 2001 Period:

The following table summarizes revenues and revenue-related data for the Fiscal 2003 Period, Fiscal 2002 Period and the Fiscal 2001 Period (in millions, except averages):

Total admission revenues decreased $95.3 million, or 24.4% to $295.5 million for the Fiscal 2003 Period, from $390.8 million for the Fiscal 2002 Period. The decrease in admissions revenues in the Fiscal 2003 Period compared to the Fiscal 2002 Period was primarily attributable to a 28.1% decrease

in attendance, which was principally due to the results of the sale of the 46 theatres to UATG on June 6, 2003 and the net closure of 147 screens during the Fiscal 2003 Period, partially offset by the impact of the two additional weeks of operating results during the Fiscal 2003 Period compared to the Fiscal 2002 Period and the inclusion of the two Hoyts theatres from March 28, 2003. These box office results were favorably impacted by a 5.3% increase in average ticket prices, which reflected actual price increases and the impact of a favorable film product mix.

Total admissions revenues decreased $0.5 million, or 0.1%, to $390.8 million, for the Fiscal 2002 Period from $391.3 million for the Fiscal 2001 Period. The decrease in admissions revenues in the Fiscal 2002 Period compared to the Fiscal 2001 Period was primarily attributable to a 3.9% decrease in attendance, partially offset by a 3.7% increase in the average ticket price. The decrease in attendance was due to the absence of two weeks of operating results during the Fiscal 2002 Period compared to the Fiscal 2001 Period along with the closure of under performing theatres during the Fiscal 2002 Period.

Total concessions revenues decreased $44.5 million or 27.9% to $115.2 million for the Fiscal 2003 Period, from $159.7 million for the Fiscal 2002 Period. The decrease in concessions revenues in the Fiscal 2003 Period compared to the Fiscal 2002 Period was due to a 28.1% decrease in attendance resulting from the sale of the 46 theatres to UATG on June 6, 2003 and the net closure of 147 screens during the Fiscal 2003 Period. Concessions revenue per patron for the Fiscal 2003 Period approximated that of the Fiscal 2002 Period which was primarily attributable to the film product mix, which was comprised of a higher proportion of R-rated and PG-13 rated films. Such films typically result in lower concession revenue per patron.

Total concessions revenues increased $2.7 million, or 1.7%, to $159.7 million for the Fiscal 2002 Period, from $157.0 million for the Fiscal 2001 Period. The increase in concessions revenues in the Fiscal 2002 Period compared to the Fiscal 2001 Period was primarily due to a 6.0% increase in the average concession sale per patron, partially offset by the absence of two weeks of operating results during the Fiscal 2002 Period compared to the Fiscal 2001 Period along with the closure of under performing theatres during the Fiscal 2002 Period.

Total other operating revenues decreased $4.4 million, or 18.1%, to $19.9 million for the Fiscal 2003 Period, from $24.3 million for the Fiscal 2002 Period. Included in other operating revenues are on-screen advertising revenues and the marketing revenues from certain of the Company's vendor marketing programs. The decrease in other operating revenues was primarily due to the lower attendance as a result of the sale of the 46 theatres to UATG on June 6, 2003, partially offset by increases in advertising revenues from vendor marketing programs and the inclusion of the two Hoyts theatres from March 28, 2003.

Total other operating revenues increased $2.2 million, or 10.0%, to $24.3 million for the Fiscal 2002 Period, from $22.1 million for the Fiscal 2001 Period. The increase in other operating revenues in the Fiscal 2002 Period compared to the Fiscal 2001 Period was primarily due to the classification of certain vendor marketing programs to other operating revenues, partially offset by the absence of two weeks of operating results during the Fiscal 2002 Period compared to the Fiscal 2001 Period.

The following table summarizes certain operating expenses for the Fiscal 2003 Period, Fiscal 2002 Period and the Fiscal 2001 Period (dollars in millions):

Maryland (State or Other Jurisdiction of Incorporation or Organization)		13-1424080 (Internal Revenue Service Employer Identification Number)
7132 Regal Lane Knoxville, TN (Address of Principal Executive Offices)		37918 (Zip Code)
Registrant's Telephone Number, Including Area Code: 865/922-1123

			Page
PART I
	Item 1. Business		3
		The Company	3
		Description of Business	3
		Industry Overview	4
		Industry Trends	5
		Theatre Operations	6
		Film Distribution	7
		Film Licensing	8
		Concessions	9
		Competition	9
		Marketing and Advertising	9
		Management Information Systems	10
		Seasonality	10
		Employees	10
		Regulation	10
	Item 2. Properties		11
	Item 3. Legal Proceedings		11
	Item 4. Submission of Matters to a Vote of Security Holders		11
PART II
	Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters		12
	Item 6. Selected Financial Data		12
	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations		14
		Overview and Basis of Presentation	14
		Results of Operations	15
		Liquidity and Capital Resources	22
		Contractual Cash Obligations and Commitments	23
		Critical Accounting Estimates	25
		Quarterly Results	27
		Inflation	27
		Seasonality	27
		Recent Accounting Pronouncements	28
		Forward-looking Statements	28
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk		28
	Item 8. Financial Statements and Supplementary Data		29
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		53
	Item 9A. Controls and Procedures		53
PART III
	Item 10. Directors and Executive Officers of the Registrant		53
	Item 11. Executive Compensation		55
	Item 12. Security Ownership of Certain Beneficial Owners and Management		57
	Item 13. Certain Relationships and Related Transactions		57
	Item 14. Principal Accountants Fees and Services		58
PART IV
	Item 15. Exhibits, Financial Statements Schedules and Reports on Form 8-K		58

	Reorganized Company(2)									Predecessor Company(1)
	Fifty-three weeks ended January 1, 2004(5)			Fifty-one weeks ended December 26, 2002			Forty-four weeks ended January 3, 2002			Nine weeks ended March 1, 2001			Fifty-two weeks ended December 28, 2000			Fifty-two weeks ended December 30, 1999
Summary of operations data:
Total operating revenue	$	430.6		$	574.8		$	471.3		$	99.1		$	549.8		$	630.8
Income (loss) from operations		39.4			47.7			28.5			14.9			(24.0	)		(48.2	)
Net income (loss)		17.8			14.5			3.8			228.8			(90.7	)		(92.3	)
Balance sheet data at period end:
Cash and cash equivalents	$	21.8		$	57.0		$	23.5		$	7.0		$	11.4		$	16.0
Total assets		177.6			412.6			402.6			438.4			447.1			534.3
Total debt(3)		5.9			261.1			248.6			452.5			447.5			446.6
Stockholder's equity (deficit)		101.9			85.3			54.0			(188.5	)		(189.5	)		(95.8	)
Other financial Data
Cash flow provided by (used in) operating activities	$	46.9		$	43.3		$	38.7		$	(2.2	)	$	4.6		$	22.4
Cash flow provided by (used in) investing activities		307.2			(36.7	)		(8.8	)		3.2			(3.0	)		(43.5	)
Cash flow provided by (used in) financing activities		(389.3	)		26.9			(7.0	)		1.6			(1.0	)		29.2
Operating data(4):
Theatre locations		120			188			205			214			216			287
Screens		935			1,512			1,574			1,590			1,604			2,028
Average screens per location		7.8			8.0			7.7			7.4			7.4			7.0
Attendance (in millions)		46.1			64.1			54.7			12.0			66.7			80.9
Average ticket price	$	6.41		$	6.09		$	5.89		$	5.76		$	5.58		$	5.35
Average concessions per patron		2.50			2.49			2.38			2.24			2.32			2.15

		Reorganized Company				Combined Company
		Fiscal 2003 Period		Fiscal 2002 Period		Fiscal 2001 Period
Revenues:
Admissions		68.6	%	68.0	%	68.6	%
Concessions		26.8		27.8		27.5
Other operating revenues		4.6		4.2		3.9

	Total revenues	100.0		100.0		100.0
Operating expenses:
Film rental and advertising costs		35.9		36.5		37.8
Cost of concessions		3.9		3.9		3.1
Other operating expenses		38.8		37.9		38.1
Sale and leaseback rentals		3.9		3.2		3.2
General and administrative expenses		3.0		4.1		3.5
Depreciation and amortization		4.4		4.7		7.0
Loss (gain) on disposal and impairments of operating assets		0.2		0.7		(0.3	)
Restructure costs and amortization of deferred stock compensation		0.8		0.8		—

	Total operating expenses	90.9		91.8		92.4

Income from operations		9.1	%	8.2	%	7.6	%

		Reorganized Company				Combined Company
		Fiscal 2003 Period		Fiscal 2002 Period		Fiscal 2001 Period
Admissions		$	295.5	$	390.8	$	391.3
Concessions			115.2		159.7		157.0
Other operating revenues			19.9		24.3		22.1

	Total operating revenues	$	430.6	$	574.8	$	570.4

Attendance			46.1		64.1		66.7
Average ticket price		$	6.41	$	6.09	$	5.87
Average concessions per patron		$	2.50	$	2.49	$	2.35