-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B+/6h8ZvouFNOPs6O7uE/EuQNxEaE0j+RTg2QdN9SfY0laM3LKmm/h7bmge7GdEK u6S3wDGr8ymUy5VQY+VZ9w== 0000950144-00-004965.txt : 20000414 0000950144-00-004965.hdr.sgml : 20000414 ACCESSION NUMBER: 0000950144-00-004965 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000413 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARMIKE CINEMAS INC CENTRAL INDEX KEY: 0000799088 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 581469127 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11604 FILM NUMBER: 600117 BUSINESS ADDRESS: STREET 1: 1301 FIRST AVE CITY: COLUMBUS STATE: GA ZIP: 31901 BUSINESS PHONE: 7065763400 MAIL ADDRESS: STREET 1: P O BOX 391 CITY: COLUMBUS STATE: GA ZIP: 31994 10-K 1 CARMIKE CINEMAS, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 1999 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______ Commission File Number 1-11604 CARMIKE CINEMAS, INC. (Exact Name Of Registrant As Specified in Its Charter) DELAWARE 58-1469127 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1301 FIRST AVENUE, COLUMBUS, GEORGIA 31901 (Address of Principal Executive Offices) (Zip Code) (706) 576-3400 (Registrant's Telephone Number, including Area Code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- --------------------- CLASS A COMMON STOCK, PAR VALUE $.03 PER SHARE NEW YORK STOCK EXCHANGE 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 [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] As of March 3, 2000, 9,968,287 shares of Class A Common Stock, par value $.03 per share, were outstanding and the aggregate market value of the shares of the Class A Common Stock held by non-affiliates of the registrant was approximately $65,417,634.50. As of March 3, 2000, 1,420,700 shares of Class B Common Stock, par value $.03 per share, were outstanding, all of which shares are held by affiliates of the registrant. DOCUMENTS INCORPORATED BY REFERENCE Specified portions of Carmike Cinemas, Inc.'s Proxy Statement relating to the 2000 Annual Meeting of Stockholders are incorporated by reference into Part III. 2 TABLE OF CONTENTS
PAGE NUMBER ------ Part I Item 1. Business..................................................................................3 Item 2. Properties...............................................................................16 Item 3. Legal Proceedings........................................................................17 Item 4. Submission of Matters to a Vote of Security Holders......................................17 Executive Officers of the Registrant................................................................17 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................19 Item 6. Selected Financial and Operating Data....................................................21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk...............................32 Item 8. Financial Statements and Supplementary Data..............................................32 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.....33 *Part III Item 10. Directors and Executive Officers of the Registrant.......................................33 Item 11. Executive Compensation...................................................................33 Item 12 Security Ownership of Certain Beneficial Owners and Management...........................33 Item 13 Certain Relationships and Related Transactions...........................................33 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..........................34
*Incorporated by reference from 2000 Proxy Statement. 2 3 CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This Report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, in particular, forward-looking statements under the headings "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." The words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," "slate" and similar expressions are intended to identify such forward-looking statements; however, this Report also contains other forward-looking statements in addition to historical information. Carmike cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are the factors set forth below in "Item 1. Business -- Factors That May Affect Future Performance." By making these forward-looking statements, Carmike does not undertake to update them in any manner except as may be required by its disclosure obligations in filings it makes with the Securities and Exchange Commission (the "Commission") under the Federal securities laws. In this Report, the words "Company," "Carmike," "we," "our," "ours," and "us" refer to Carmike Cinemas, Inc. and its subsidiaries. PART I ITEM 1. BUSINESS. OVERVIEW Carmike is the largest motion picture exhibitor in the United States in terms of number of theatres operated and is the third largest in terms of the number of screens operated. As of December 31, 1999, Carmike operated 458 theatres with an aggregate of 2,848 screens located in 36 states. Carmike's theatres are located in small to mid-sized communities ranging in population size from approximately 7,700 to 500,000. As of December 31, 1999, management believes that Carmike was the sole exhibitor in approximately 65% of its free film licensing zones. Carmike was organized as a Delaware corporation in April 1982 in connection with the leveraged buy-out of its predecessor, the Martin Theatres circuit, by present management of Carmike. The principal executive offices of Carmike are located at 1301 First Avenue, Columbus, Georgia 31901, and the telephone number is (706) 576-3400. 3 4 RECENT DEVELOPMENTS Amendment of Credit and Lease Facilities Carmike and its lenders recently negotiated amendments to Carmike's revolving credit facility, term loan and master lease facility. Pursuant to these amendments, certain financial covenants were modified, additional limitations were placed on capital expenditures, and certain costs related to the facilities were increased. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information regarding these amendments. Sale/Leaseback Transactions During the first quarter of 2000, Carmike entered into a sale and leaseback transaction for three theatres with a net book value of approximately $22.4 million and a sale price of $23.7 million. Carmike also has a commitment to sell and leaseback another three theatres with a net book value of $19.6 million and a sale price of $22.6 million, which it expects to consummate during the second quarter of 2000. Gains resulting from the sales will be recognized ratably over the leaseback period, which in both cases involves an initial lease term of 20 years with four 5-year renewal options. These lease transactions will be triple net leases that require the tenant to be responsible for all operating costs. THEATRE OPERATIONS Carmike's revenues are generated primarily from admissions and concessions sales. Additional revenues, which are not material, are generated from video game arcade areas, family entertainment centers and on-screen advertising. The following table sets forth, as of December 31, 1999, certain information regarding the 458 theatres and 2,848 screens operated by Carmike:
STATE THEATRES SCREENS STATE THEATRES SCREENS - ----- -------- ------- ----- -------- ------- Alabama................25 203 Nebraska................9 32 Arkansas...............12 99 New Mexico..............1 2 Colorado...............11 64 New York................1 8 Delaware................2 20 North Carolina.........62 380 Florida................18 109 North Dakota............9 45 Georgia................39 275 Ohio....................8 43 Idaho...................7 22 Oklahoma...............12 61 Illinois................3 13 Pennsylvania...........37 232 Indiana.................2 13 South Carolina.........21 124 Iowa...................21 142 South Dakota............7 48 Kansas..................2 18 Tennessee..............40 262 Kentucky...............11 53 Texas..................18 112 Louisiana...............3 22 Utah...................12 72 Maryland................2 12 Virginia...............14 85 Michigan................2 10 Washington..............2 13 Minnesota..............13 75 West Virginia...........5 30 Missouri................1 8 Wisconsin...............7 46 Montana................15 80 Wyoming.................4 15
4 5 From time to time, Carmike converts marginally profitable theatres to "Discount Theatres" for the exhibition of films that have previously been shown on a first-run basis. Carmike also operates certain theatres for the exhibition of first-run films at a reduced admission price. These theatres are typically in a smaller market where Carmike is the only exhibitor in the market. At December 31, 1999, Carmike operated 74 theatres with 314 screens as Discount Theatres. As of December 31, 1999, Carmike owned 88 of its theatres, had 316 ground and improvement leases and 47 ground leases. An additional seven theatres were operated by Carmike under shared ownership. Carmike's theatre operations are under the supervision of its Senior Vice President -- Operations and four division managers. The division managers are responsible for implementing Company operating policies and supervising Carmike's eighteen operating districts. Each operating district has a district manager who is responsible for overseeing the day-to-day operations of Carmike's theatres. Corporate policy development, strategic planning, site selection and lease negotiation, theatre design and construction, concession purchasing, film licensing, advertising, and financial and accounting activities are centralized at Carmike's corporate headquarters. Carmike has implemented an incentive bonus program for theatre level management which provides for bonuses based on incremental improvements in theatre profitability, including concession sales. As part of this program, Carmike evaluates "mystery shopper" reports on the quality of service, cleanliness and film presentation at individual theatres. Carmike relies upon advertisements and movie schedules published in newspapers and on its web site, carmike.com, to inform customers of film selections and show times. Newspaper advertisements are typically displayed in a single group for all of Carmike's theatres located in the newspaper's circulation area. In addition, Carmike utilizes radio spots and promotions to further market its films. Major distributors frequently share the cost of newspaper and radio advertising. Carmike also exhibits previews of coming attractions and films presently playing on Carmike's other screens in the same market area. In addition, Carmike sells gift certificates and offers a discount ticket plan to attract groups of patrons to its theatres. THEATRE DEVELOPMENT Carmike's growth strategy primarily involves the development of new theatres and the addition of screens and other improvements to existing theatres, as well as selective acquisitions of theatres as available. During 1999, Carmike opened 24 theatres with 313 screens, added 39 auditoriums to its existing theatres and retrofit 59 auditoriums at certain of its theatres. At December 31, 1999, Carmike had 88 screens under construction that will be completed in 2000. Carmike's capital expenditures during 1999 aggregated approximately $170 million, net of lease financings, and Carmike estimates that net capital expenditures in connection with its development plans will aggregate approximately $22 million, net of lease financings, during 2000. 5 6 Carmike has designed a prototype multiplex theatre which can be adapted and sized to a particular location, which management believes results in construction and operating cost savings. Carmike's typical new multiplex is designed for a market with a population of between 50,000 to 250,000, has 9 to 20 screens (with 14 screens being typical), and features digital stereo surround sound, oversized screens, plush seating with cup holders and a spacious lobby. Stadium seating will be included in or added to certain theatres located in Carmike's larger markets, where appropriate. Carmike currently has 702 screens with stadium seating and plans to provide stadium seating in another 98 auditoriums during 2000. Carmike estimates that the average cost of a new 16-screen multiplex will be approximately $9 million ($4 million if the land and improvements are leased rather than owned). FILM LICENSING Carmike obtains licenses to exhibit films by directly negotiating with or, in rare circumstances, submitting bids to film distributors. Carmike licenses films through its booking office located in Columbus, Georgia. Carmike's Senior Vice President -- Film, in consultation with Carmike's President, directs Carmike's motion picture bookings. Prior to negotiating or bidding for a film license, Carmike's Senior Vice President -- Film and film booking personnel evaluate the prospects for upcoming films. The criteria considered for each film include cast, director, plot, performance of similar films, estimated film rental costs and expected MPAA rating. Successful licensing depends greatly upon the availability of commercially popular motion pictures, knowledge of the tastes of residents in markets served by each theatre and insight into the trends in those tastes. Carmike maintains a database that includes revenue information on films previously exhibited in its markets. This historical information is then utilized by Carmike to match new films with particular markets so as to maximize revenues. The major film distributors generally release during the summer and holiday seasons, primarily Thanksgiving and Christmas, those films which they anticipate to be the most successful. Consequently, Carmike has historically generated higher revenues during such periods. Film Rental Fees Film licenses typically specify rental fees based on the higher of a gross box office receipts formula or an adjusted gross box office receipts formula. Under a gross box office receipts formula, the distributor receives a specified percentage of box office receipts, with the percentage declining over the term of the run. Carmike's film rental fees typically begin at 60% of admission revenues and gradually decline to as low as 30% over a period of four to eight weeks. Under an adjusted gross box office receipts formula (commonly known as a "90/10" clause), the distributor receives a specified percentage (i.e., 90%) of the excess of box office receipts over a negotiated amount for house expenses. In addition, Carmike is occasionally required to pay non-refundable guarantees of film rentals, to make advance payments of film rentals, or both, in order to obtain a license for a film. Although not specifically contemplated by the provisions of film licenses, the terms of film licenses generally (with the exception of 6 7 Universal, Fox, Sony and DreamWorks) are adjusted or re-negotiated subsequent to exhibition of the film in relation to its success. Film Licensing Zones Film licensing zones are geographic areas (generally encompassing a radius of three to five miles) established by film distributors where any given film is allocated to only one theatre within that area. In film licensing zones where Carmike has little or no competition, Carmike obtains film licenses by selecting a film from among those offered and negotiating directly with the distributor. In competitive film licensing zones, a distributor will either require the exhibitors in the zone to bid for a film or will allocate its films among the exhibitors in the zone. When films are licensed under the allocation process, a distributor will choose which exhibitor is offered a movie and then that exhibitor will negotiate film rental terms directly with the distributor for the film. Over the past several years, distributors have generally used the allocation rather than the bidding process to license their films. When films are licensed through a bidding process, exhibitors compete for licenses based upon economic terms. Carmike currently does not bid for films in any of its film licensing zones. First-Run Films Carmike predominantly licenses "first-run" films. If a film has substantial remaining potential following its first-run, Carmike may license it for a subsequent run (a "sub-run"). Although average daily sub-run attendance is often less than average daily first-run attendance, sub-run film cost is generally less than first-run film cost. Additionally, sub-runs enable Carmike to exhibit a variety of films during periods in which there are few new releases. Relationship with Distributors Carmike depends on, among other things, the quality, quantity, availability and acceptance by movie going customers of the motion pictures produced by the motion picture production companies and licensed for exhibition to the motion picture exhibitors by distribution companies. Disruption in the production of motion pictures by the major studios and/or independent producers or poor performance of motion pictures could have an adverse effect on the business of Carmike. The motion picture production and distribution industry in the United States is led by a few major movie studios and their distribution operations, but no single distributor dominates the market. See "-- Regulatory Environment." Accordingly, Carmike's business is dependent upon the availability of marketable pictures and its relationships with distributors. While there are numerous distributors which provide quality first-run movies to the motion picture exhibition industry, the following nine major distributors accounted for approximately 94% of Carmike's admission revenues during the year ended December 31, 1999: Buena Vista, Warner Brothers, Fox, Paramount, Universal, DreamWorks, MGM/UA, Sony and New Line Cinema. Carmike licenses films from a number of distributors and believes that its relationships with distributors generally are satisfactory. 7 8 CONCESSIONS Concessions sales are Carmike's second largest revenue source after box office admissions, constituting approximately 28% of total revenues for 1999. Carmike's strategy emphasizes quick and efficient service built around a limited menu primarily focused on higher margin items such as popcorn, candy and soft drinks. In addition, Carmike has introduced a limited number of new products, such as bottled water, frozen drinks, coffee, ice cream, pizza, and hot dogs, at certain theatre locations. Carmike actively seeks to promote concessions sales through the design and appearance of its concession stands, the introduction of special promotions from time to time, and the training of its employees to cross sell products. In addition, Carmike's management incentive bonus program includes concession results as a component of determining the bonus awards. Carmike negotiates prices for its concessions supplies directly with concessions vendors on a national or regional basis to obtain high volume discounts or bulk rates. MANAGEMENT INFORMATION SYSTEMS Carmike has a significant commitment to its major operating systems, some of which have been developed internally. Carmike's proprietary computer system, IQ-Zero, which is installed in all of its theatres, allows Carmike to centralize most theatre-level administrative functions at its corporate headquarters, creating significant operating leverage. IQ-Zero allows corporate management to monitor ticket and concessions sales and box office and concession staffing on a daily basis. Carmike's integrated management information system, centered around IQ-Zero, also coordinates payroll, tracks theatre invoices and generates operating reports analyzing film performance and theatre profitability. Accordingly, there is active communication between the theatres and corporate headquarters, which allows senior management to react to vital profit and staffing information on a daily basis and perform the majority of the theatre-level administrative functions, thereby enabling the theatre manager to focus on the day-to-day operations of the theatre. ADDITIONAL REVENUE STREAMS Carmike actively engages in efforts to develop revenue streams in addition to admissions and concessions revenues. Certain Carmike theatres include electronic video games located in or adjacent to the lobby, and on-screen advertising is provided on a number of Carmike's screens, each of which provides additional revenues to Carmike. Since 1997, Carmike has opened five family entertainment centers under the name Hollywood Connection(R), including three which were developed pursuant to a joint venture with Wal-Mart, and which feature multiplex theatres and other forms of entertainment. Carmike is currently evaluating this concept and is also exploring alternate revenue sources such as advertising and marketing programs on beverage and popcorn containers. COMPETITION The motion picture exhibition industry is fragmented and highly competitive. In markets where it is not the sole exhibitor, Carmike competes against regional and independent operators as well as the larger theatre circuit operators. 8 9 Carmike's operations are subject to varying degrees of competition with respect to film licensing, attracting customers, obtaining new theatre sites or acquiring theatre circuits. Carmike believes that the principal competitive factors with respect to film licensing include licensing terms, seating capacity, location and prestige of an exhibitor's theatres, quality of projection and sound at the theatres and the exhibitor's ability and willingness to promote the films. Competition for customers is dependent upon factors such as the availability of popular films, location of the theatres, stadium seating, customer comfort, quality of projection and sound and ticket prices. Carmike believes that its admission prices are competitive with admission prices of competing theatres. In those areas where real estate is readily available, there are few barriers preventing competing companies from opening theatres near one of Carmike's existing theatres, which may have a material adverse effect on our theatres. In addition, competitors have built or are planning to build theatres in certain areas in which Carmike operates, which may result in excess capacity in such areas and may adversely affect attendance and pricing at Carmike's theatres in such areas. The opening of large multiplexes and theatres with stadium seating by Carmike and certain of its competitors has tended to, and is expected to continue to, draw audiences away from certain older theatres, including theatres operated by us. In addition, demographic changes and competitive pressures can lead to a theatre location becoming impaired. In addition to competition with other motion picture exhibitors, Carmike's theatres face competition from a number of alternative motion picture exhibition delivery systems, such as cable television, satellite and pay-per-view services and home video systems. The expansion of such delivery systems (such as video on demand) could have a material adverse effect upon Carmike's business and results of operations. Carmike also competes for the public's leisure time and disposable income with all forms of entertainment, including sporting events, concerts, live theatre and restaurants. REGULATORY ENVIRONMENT 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. Certain consent decrees resulting from such cases bind certain major motion picture distributors and require the motion pictures of such distributors to be offered and licensed to exhibitors, including Carmike, on a theatre-by-theatre basis. Consequently, exhibitors such as Carmike cannot assure themselves of a supply of motion pictures by entering into long-term arrangements with major distributors but must compete for licenses on a film-by-film and theatre-by-theatre basis. The Americans with Disabilities Act (the "ADA"), which became effective in 1992, and certain state statutes and local ordinances, among other things, require that places of public accommodation, including theatres (both existing and newly constructed), be accessible to patrons with disabilities. The ADA requires that theatres be constructed to permit persons with disabilities full use of a theatre and its facilities. Also, the ADA may require certain modifications be made to existing theatres in order to make them accessible to patrons and employees who are disabled. For example, Carmike is aware of several lawsuits that have been filed against other exhibitors by disabled moviegoers alleging that certain stadium seating designs violate the ADA. Carmike is also a defendant in a proceeding that was recently filed 9 10 against four motion picture exhibitors by certain deaf individuals asserting claims under the ADA and a state disability statute and seeking to require the installation of closed captioning equipment in defendants' theatres. On June 30, 1998, Carmike executed a Settlement Agreement with the U.S. Department of Justice under Title III of the ADA. Under the Settlement Agreement, Carmike agreed to complete the readily achievable removal of barriers to accessibility, or alternatives to barrier removal, at two theatres in Des Moines, Iowa and to distribute to all of its theatres a questionnaire designed to assist its management in the identification of existing and potential barriers and a threshold determination of what steps might be available for removal of such existing and potential barriers. Carmike is continuing to assess the impact of such questionnaires on its theatres. Carmike constructs new theatres to be accessible to the disabled and believes it is otherwise in substantial compliance with applicable regulations relating to accommodating the needs of the disabled. Carmike has a Director of ADA Compliance to monitor its ADA requirements. Carmike's theatre operations are also subject to federal, state and local laws governing such matters as construction, renovation and operation of its theatres, as well as wages, working conditions, citizenship, and health and sanitation requirements and licensing. Carmike believes that its theatres are in material compliance with such requirements. At December 31, 1999, approximately 63% of Carmike's employees were paid at the federal minimum wage and, accordingly, the minimum wage largely determines our labor costs for those employees. Carmike owns, manages and/or operates theatres and other properties which may be subject to certain U.S. federal, state and local laws and regulations relating to environmental protection, including those governing past or present releases of hazardous substances. Certain of these laws and regulations may impose joint and several liability on certain statutory classes of persons for the costs of investigation or remediation of such contamination, regardless of fault or the legality of original disposal. These persons include the present or former owner or operator of a contaminated property, and companies that generated, disposed of or arranged for the disposal of hazardous substances found at the property. Additionally, in the course of maintaining and renovating its theatres and other properties, Carmike periodically encounters asbestos containing materials ("ACMs") that must be handled and disposed of in accordance with federal, state and local laws, regulations and ordinances. Such laws may impose liability for release of ACMs and may entitle third parties to seek recovery from owners or operators of real properties for personal injury associated with ACMs. TRADEMARKS AND TRADENAMES Carmike owns or has rights to trademarks or trade names that it uses in conjunction with the operation of its theatres. Carmike owns the Carmike Cinemas(R) and Hollywood Connection(R) trademarks. 10 11 EMPLOYEES As of December 31, 1999, Carmike had approximately 11,068 employees, of which 51 are covered by collective bargaining agreements. Carmike considers its relations with its employees to be good. FACTORS THAT MAY AFFECT FUTURE PERFORMANCE In addition to other factors and matters discussed elsewhere herein, factors that, in the view of Carmike, could cause actual results to differ materially from those discussed in forward-looking statements are set forth below. All forward-looking statements attributable to Carmike or persons acting on our behalf are expressly qualified in their entirety by the following cautionary statements. Seasonality Our revenues are dependent upon the timing of motion picture releases by distributors. Our business is generally seasonal, with higher revenues generated during the summer and holiday seasons. While motion picture distributors have begun to release major motion pictures evenly throughout the year, the most marketable motion pictures are usually released during the summer and the year-end holiday periods. Additionally, the unexpected emergence of a hit film may occur in these or other periods. As a result, the timing of motion picture releases affects our results of operations, which may vary significantly from quarter to quarter. Moreover, to the extent that certain "event" films are distributed more widely than in the past, our margins may be hurt as a result of the higher film licensing fees payable during the early period of a film's run. For the year ended December 31, 1999, the percentages of our admissions revenue by quarter were as follows: first quarter 20%; second quarter 26%; third quarter 30%; and fourth quarter 24%. Dependence upon Motion Picture Production and Performance Our business will be adversely affected if there is a decline in the quality and number of motion pictures available for screening. Our business depends on the availability of suitable motion pictures for screening in our theatres and the appeal of such motion pictures in our theatre markets. We mainly license first-run motion pictures. Our results of operations will vary from period to period based upon the quantity and quality of the motion pictures we show in our theatres. For example, in the second quarter of 1999, we benefited from the success of "Star Wars: Episode 1," while in the fourth quarter of 1999 our results were adversely impacted by the disappointing performance of the holiday season releases. A disruption in the production of motion pictures, lack of motion pictures or poor performance of motion pictures in theatres could adversely affect our business and results of operations. Dependence on Relationships with Motion Picture Distributors Our business depends to a significant degree on maintaining good relations with the major film distributors that license films to our theatres. While there are numerous motion picture distributors that provide quality first-run movies to the motion picture exhibition industry, the following nine distributors accounted for approximately 94% of our admission revenues for 11 12 the fiscal year ended December 31, 1999: Buena Vista, Warner Brothers, Fox, Paramount, Universal, DreamWorks, MGM/UA, Sony and New Line Cinema. No single distributor dominates the market. A deterioration in our relationships with any of the major film distributors could adversely affect our access to commercially successful films and could adversely affect our business and results of operations. Government Regulation Like others in our industry, we are subject to certain federal, state and local laws and regulations which limit the manner in which we may conduct our business. 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. As a result of these laws and cases, we cannot ensure a supply of motion pictures by entering into long term arrangements with major distributors. Instead, we must compete for film licenses on a film by film and theatre by theatre basis. Our theatre operations are also subject to federal, state and local laws governing matters such as construction, renovation and operation of our theatres, as well as wages, working conditions, citizenship, and health and sanitation requirements and licensing. We believe that our theatres are in material compliance with these requirements. At December 31, 1999, approximately 63% of our employees were paid at the federal minimum wage and, accordingly, the minimum wage largely determines our labor costs for those employees. The ADA and certain state statutes and local ordinances, among other things, require that places of public accommodation, including both existing and newly constructed theatres, be accessible to customers with disabilities. The ADA may require that certain modifications be made to existing theatres in order to make them accessible to patrons and employees who are disabled. The ADA requires that theatres be constructed to permit persons with disabilities full use of a theatre and its facilities. We are aware of several lawsuits that have been filed against other exhibitors by disabled moviegoers alleging that certain stadium seating designs violated the ADA. We are also a defendant, together with certain other motion picture exhibitors, in a recent proceeding filed by certain deaf individuals asserting, among other things, claims under the ADA and seeking to require the defendants to install closed captioning equipment in theatres. We have established a program to review and evaluate our theatres and to make changes that may be required by law. Although we believe that the cost of complying with the ADA will not adversely affect our business and results of operations, we cannot predict the extent to which the ADA or any future laws or regulations regarding the needs of the disabled will impact our operations. Competition Our business is subject to significant competitive pressures. The opening of large multiplexes and theatres with stadium seating by us and certain of our competitors has tended to, and is expected to continue to, draw audiences away from certain older theatres, including theatres operated by us. In addition, demographic changes and competitive pressures can lead to the impairment of a theatre. In addition to competition from other motion picture exhibitors, we face competition from other forms of entertainment. We face varying degrees of competition with respect to licensing films, attracting customers, obtaining new theatre sites and acquiring 12 13 theatre circuits. There have been a number of consolidations in the movie theatre industry, and the impact of these consolidations could have an adverse effect on our business. Even where we are the only exhibitor in a film licensing zone, we may still experience competition for moviegoers from theatres in a neighboring zone. In addition, our theatres compete with a number of other types of motion picture delivery systems, such as pay television, pay-per-view, satellite and home video systems. While the impact of these delivery systems on the motion picture industry is difficult to determine precisely, there is a risk that they could adversely affect attendance at motion pictures shown in theatres. Movie theatres also face competition from a variety of other forms of entertainment competing for the public's leisure time and disposable income, including sporting events, concerts, live theatre and restaurants. Expansion Plans We have continued to expand our operations through the development of new theatres, the expansion of existing theatres and the selective acquisition of existing theatres. Developing new theatres poses a number of risks. Construction of new theatres may result in cost overruns, delays or unanticipated expenses related to zoning or tax law considerations. Desirable sites for new theatres may be unavailable or expensive, and the market locations for new theatres may deteriorate over time. Additionally, the market potential of new theatre sites cannot be precisely determined, and our theatres may face competition in new markets from unexpected sources. Newly constructed theatres may not perform up to management's expectations. Additionally, there is a risk that we may not be able to manage growth as effectively as we have in the past if we expand our existing operations. We face significant competition for potential theatre locations and for opportunities to acquire existing theatres and theatre circuits. Because of this competition, Carmike may be unable to make acquisitions on terms we consider acceptable. Future Capital Requirements Carmike may not have, or be able to obtain, the significant amounts of capital we need to expand our business. Our industry is undergoing a transition as newer theatres with stadium seating are attracting moviegoers away from older theatres. As of December 31, 1999, we had 88 screens under construction that will be completed in 2000. All of the theatres scheduled to be added in 2000 will provide stadium seating. We also anticipate that our construction, expansion and renovation program will require capital expenditures of approximately $22 million, net of lease financings and landlord reimbursements, in 2000. Like others in our industry, we have been required to recognize charges associated with the write-down and closing of underperforming theatres primarily as a result of the emergence of new competition in the marketplace. The opening of large multiplexes by our competitors and the opening of newer theatres with stadium seating in certain of our markets have led us to reassess a number of our theatre locations to determine whether to renovate or to dispose of underperforming locations. The opening of new multiplexes by our competitors will likely continue to draw audiences away from our older theatres unless we continue to make significant capital expenditures. In the year 2000 we anticipate retrofitting approximately 10 screens to strengthen our position in certain markets. We will lose revenue from those theatres while they 13 14 are being renovated. As of December 31, 1999, after giving effect to our construction, expansion and renovation program, approximately 30% of our auditoriums are in theatres featuring stadium seating. Further advances in theatre design may also require us to make substantial capital expenditures in the future, or to close older theatres that cannot be economically renovated, to compete with new developments in theatre design. We believe that we will be able to satisfy our currently anticipated capital needs for theatre construction, expansion and renovation and possible acquisitions for at least the next year by cash flow from operations and available cash, together with borrowings under our revolving credit facility, additional sales of debt or equity securities, and additional bank financings and other forms of long-term debt. As a result of recent amendments to our revolving credit facility, our net capital expenditures have been limited to $25 million in 2000 and $35 million in 2001 and 2002. We may also enter into sales and leasebacks of theatre properties to supplement our current sources of capital. However, we cannot assure you that our business will generate sufficient cash flow from operations, that we will satisfy the requirements for borrowing under the revolving credit facility, that currently anticipated revenue growth and operating improvements will be realized or that future capital will be available to us to enable us to fund our capital expenditure needs. Accounting for Impairment of Assets The opening of large multiplexes and theatres with stadium seating by us and certain of our competitors has tended to, and is expected to continue to, draw audiences away from certain older theatres, including theatres operated by us. In addition, demographic changes and competitive pressures can lead to the impairment of a theatre. We review for impairment of long-lived assets and goodwill related to those assets to be held and used in the business whenever events or changes in circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable. We also periodically review and monitor our internal management reports and the competition in our markets for indicators of impairment of individual theatres. If we determine that assets are impaired, we will be required to recognize a charge to earnings. In the fourth quarter of 1999, we identified impairments of asset values for certain theatres and a joint venture investment in three movie theatre-entertainment complexes. As a result, we recognized a non-cash impairment charge of approximately $33 million in the fourth quarter of 1999 to reduce the carrying value of approximately 82 theatres with approximately 432 screens and to reduce our investment in the joint venture movie theatre-entertainment complexes. We have previously recognized impairment charges in 1996 and 1998. There can be no assurance that we will not take additional charges in the future related to the impairment of assets. Substantial Leverage We have now and will continue to have a significant amount of indebtedness. Our substantial indebtedness could have important consequences. For example, it could: - make it more difficult for us to satisfy our obligations with respect to our indebtedness; 14 15 - increase our vulnerability to general adverse economic and industry conditions; - limit our ability to fund future working capital, capital expenditures for theatre construction, expansion, renovation or acquisition, and other general corporate requirements; - require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which would reduce the availability of our cash flow to fund working capital, capital expenditures, and other general corporate purposes; - limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; - place us at a competitive disadvantage compared to our competitors that have less debt; and - limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds. Compliance with Financial Covenants Carmike's revolving credit facility, as well as its term loan and a master lease, requires the maintenance of certain financial ratios and imposes certain operating and financial restrictions on Carmike, including restrictions on its ability to declare dividends, incur additional indebtedness and make capital expenditures. These instruments were amended recently to, among other things, adjust certain financial ratios relative to past and future operating performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information regarding these amendments. Management believes that Carmike will be in compliance with the amended covenants during 2000, but there can be no assurance that Carmike will achieve such compliance. Carmike's failure to comply with these financial covenants could result in an event of default which, if not cured or waived, would have a material adverse effect on us. Additional Borrowings Available Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks described above. The terms of the agreements governing our indebtedness do not fully prohibit us or our subsidiaries from incurring additional debt. As of March 31, 2000, our revolving credit facility would permit additional borrowings of up to approximately $29 million. If new debt is added to our and our subsidiaries' current debt levels, the related risks that we and they now face could intensify. Ability to Service Debt To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. Our ability to make scheduled payments of principal, to pay the interest on, to refinance our indebtedness, or to fund planned capital expenditures for theatre construction, expansion and renovation or theatre acquisition will depend on our future performance. Our future performance is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond 15 16 our control. Based upon our current level of operations and anticipated increases in revenues and cash flow as a result of our theatre construction, expansion and renovation program, and the scheduled closing of certain underperforming theatres, we believe that cash flow from operations and available cash, together with available borrowings under our revolving credit facility and cash that could be generated from lease financing arrangements, sales of additional debt or equity securities and sales of surplus assets will be adequate to meet our future liquidity needs for at least the next year. We cannot assure you, however, that our business will generate sufficient cash flow from operations, that currently anticipated revenue growth and operating improvements will be realized or that future capital will be available to us from the sale of debt or equity securities, additional bank financings, other long-term debt or lease financings in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, or raise additional capital through other means, on commercially reasonable terms or at all. Dependence Upon Senior Management We believe that our success is due to our experienced management team. We depend in large part on the continued contribution of our senior management, including Michael W. Patrick, Carmike's President. Losing the services of one or more members of our senior management could adversely affect our business and results of operations. We have an employment agreement with Michael W. Patrick which is automatically renewed each year and we maintain key man life insurance covering him. Our success partially depends on our ability to attract and retain key personnel. ITEM 2. PROPERTIES. As of December 31, 1999, Carmike owned 88 of its theatres, had 316 ground and improvement leases and 47 ground leases. An additional seven theatres were operated by Carmike under shared ownership. Carmike's leases are generally entered into on a long-term basis. The theatre leases generally provide for the payment of fixed monthly rentals, contingent rentals based on a percentage of revenue over a specified amount, and the payment of property taxes, common area maintenance, insurance and repairs. Carmike, at its option, can renew a substantial portion of its theatre leases, at the then fair rental rate for various periods with the maximum renewal period totaling 10 years. Carmike owns its headquarters building, which has approximately 48,500 square feet, in Columbus, Georgia. Pursuant to the terms of industrial revenue bonds which were issued in connection with the construction of the corporate office, Carmike's interest in the building is encumbered by a Deed to Secure Debt and Security Agreement in favor of the Downtown Development Authority of Columbus, Georgia. 16 17 ITEM 3. LEGAL PROCEEDINGS. From time to time, Carmike is involved in routine litigation and legal proceedings in the ordinary course of its business, such as personal injury claims, employment matters, contractual disputes and claims alleging ADA violations. Currently, Carmike does not have pending any litigation or proceedings that management believes will have a material adverse effect, either individually or in the aggregate, upon Carmike. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders during the last quarter of the year ended December 31, 1999. EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth certain information as of March 15, 2000 regarding the executive officers of Carmike. For purposes of this section, references to Carmike include Carmike's predecessor, Martin Theatres, Inc.
NAME AGE TITLE - ---- --- ----- C.L. Patrick...................81 Chairman of the Board of Directors Michael W. Patrick.............49 President, Chief Executive Officer and Director Martin A. Durant...............51 Senior Vice President - Finance, Treasurer and Chief Financial Officer Fred W. Van Noy................43 Senior Vice President -- Operations F. Lee Champion, III...........49 Senior Vice President, General Counsel, Secretary and Director Anthony J. Rhead...............58 Senior Vice President -- Film P. Lamar Fields................45 Senior Vice President -- Real Estate H. Madison Shirley.............48 Senior Vice President-- Concessions and Assistant Secretary Marilyn B. Grant...............52 Vice President -- Advertising Philip A. Smitley..............41 Assistant Vice President and Controller
17 18 C.L. PATRICK has served as Chairman of the Board of Directors of Carmike since April 1982. He joined Carmike in 1945, became its General Manager in 1948 and served as President of Carmike from 1969 to 1970. In January 2000, Mr. Patrick retired from active participation in the day-to-day management and affairs of Carmike. He served as President of Fuqua Industries, Inc. from 1970 to 1978 and as Vice Chairman of the Board of Directors of Fuqua Industries, Inc. from 1978 to 1982. Mr. Patrick is a director emeritus of Columbus Bank & Trust Company. Messrs. Michael W. Patrick and Carl L. Patrick, Jr., directors of Carmike, are the sons of Mr. Patrick. MICHAEL W. PATRICK has served as President of Carmike since October 1981, as a director of Carmike since April 1982 and as Chief Executive Officer since March 1989. He joined Carmike in 1970 and served in a number of operational and film booking and buying capacities prior to becoming President. Mr. Patrick serves as a director of Columbus Bank & Trust Company and the Will Rogers Institute, and he is a member of the Board of Trustees of Columbus State University Foundation, Inc. MARTIN A. DURANT joined Carmike in July 1999 as Senior Vice President - Finance, Treasurer and Chief Financial Officer. Prior to joining Carmike, Mr. Durant was Senior Vice President - Corporate Services for AFLAC Incorporated, a Columbus, Georgia based international holding company, for a period of ten years. Prior to his position with AFLAC he was President of a venture capital firm located in Florida. Mr. Durant began his career with KPMG Peat Marwick and is a licensed Certified Public Accountant. FRED W. VAN NOY joined Carmike in 1975. He served as a District Manager from 1984 to 1985 and as Western Division Manager from 1985 to 1988, when he became Vice President -- General Manager. In December 1997, he was elected to his present position as Senior Vice President -- Operations. F. LEE CHAMPION, III joined Carmike in January 1998 as Senior Vice President, General Counsel and Secretary. In December 1998, he was elected a director of Carmike. Prior to joining Carmike, Mr. Champion practiced law with the firm of Champion and Champion. ANTHONY J. RHEAD joined Carmike in June 1981 as manager of the booking office in Charlotte, North Carolina. In July 1983, Mr. Rhead became Vice President -- Film of Carmike and in December 1997 was elected Senior Vice President -- Film. Prior to joining Carmike, he worked as a film booker for Plitt Theatres, Inc. from 1973 to 1981. P. LAMAR FIELDS joined Carmike in January 1983 as Director of Real Estate. He served in this position until 1985 when he became Vice President -- Development. In December 1997 he was elected to his present position of Senior Vice President -- Real Estate. H. MADISON SHIRLEY joined Carmike in 1976 as a theatre manager. He served as a District Manager from 1983 to 1987 and as Director of Concessions from 1987 until 1990. He became Vice President -- Concessions in 1990 and Senior Vice President -- Concessions and Assistant Secretary in December 1997. 18 19 MARILYN B. GRANT joined Carmike in 1975 as a bookkeeper. She served as Advertising Coordinator from 1984 to 1985 and became the Director of Advertising in 1985. In August 1990, she was elected to her present position as Vice President -- Advertising. PHILIP A. SMITLEY joined Carmike in April 1997 as Controller. In January 1998, he was elected to his present position of Assistant Vice President and Controller. In March 1999, he assumed the duties of interim Chief Financial Officer pending the appointment of Martin A. Durant in July 1999. Prior to joining Carmike, Mr. Smitley was Divisional Controller -- Transportation of Burnham Service Corporation, a trucking company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Carmike's Class A Common Stock, par value $.03 per share (the "Class A Common Stock"), is traded on the New York Stock Exchange under the symbol "CKE." The following table sets forth the high and low sales prices of the Class A Common Stock as reported by the New York Stock Exchange for the periods indicated.
HIGH LOW ------------ ----------- 1998 First Quarter............... $ 32 1/2 $ 27 1/8 Second Quarter.............. 33 1/16 25 11/16 Third Quarter............... 27 11/16 17 5/8 Fourth Quarter.............. 21 11/16 15 1/16 1999 First Quarter............... $ 20 1/8 $ 15 1/2 Second Quarter.............. 21 9/16 15 5/8 Third Quarter............... 15 7/8 12 13/16 Fourth Quarter.............. 13 3/16 6 23/32
On March 3, 2000, the last reported sale price of the Class A Common Stock on the New York Stock Exchange was $7.25 per share. As of March 3, 2000, there were approximately 718 holders of record of Carmike's Class A Common Stock and three holders of record of Carmike's Class B Common Stock, par value $.03 per share (the "Class B Common Stock"). Carmike also has 550,000 shares of a series of cumulative, convertible preferred stock outstanding (the "5.5% Series A Preferred Stock"), all of which are held by certain affiliates of Goldman, Sachs & Co. Each share of the Series A Preferred Stock is convertible into four shares of the Class A Common Stock. 19 20 Carmike has never declared or paid any cash dividends on its Class A Common Stock or Class B Common Stock. Carmike currently intends to retain future earnings for use in the expansion and operation of its business and, therefore, does not anticipate paying dividends in the foreseeable future. The payment of dividends, if any, in the future is within the discretion of Carmike's board of directors and will depend on Carmike's earnings, capital requirements, financial condition and other relevant factors. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and Note 5 of Notes to Consolidated Financial Statements regarding restrictions in Carmike's debt instruments on Carmike's ability to pay dividends. 20 21 ITEM 6. SELECTED FINANCIAL AND OPERATING DATA. The selected consolidated Statement of Income and Balance Sheet data set forth below were derived from the consolidated financial statements of Carmike. This information should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Carmike's Consolidated Financial Statements and related Notes thereto.
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1995 1996 1997 1998 1999 (1) (2) (3) (4) (4)(5) --------- ---------- --------- ---------- ---------- (IN MILLIONS EXCEPT PERCENTAGES, RATIOS AND OPERATING DATA) STATEMENT OF INCOME DATA: Revenues: Admissions .............................................. $ 253.7 $ 296.6 $ 319.2 $ 330.5 $ 336.0 Concessions and other ................................... 111.0 130.1 139.4 151.1 150.9 --------- ---------- --------- ---------- ---------- Total revenues ..................................... 364.7 426.7 458.6 481.6 486.9 Costs and expenses: Film exhibition costs ................................... 135.6 157.0 169.7 177.8 181.5 Concession costs ........................................ 15.0 17.3 18.3 19.9 19.0 Other theatre operating costs ........................... 143.7 164.1 175.1 187.9 191.1 General and administrative .............................. 5.5 6.0 6.4 7.1 7.3 Depreciation and amortization ........................... 27.2 28.4 33.4 37.5 41.2 Impairment of long-lived assets (6) .................... -- 45.4 -- 38.3 33.0 Restructuring charge (6) ................................ -- -- -- 34.7 (2.7) --------- ---------- --------- ---------- ---------- 327.0 418.2 402.9 503.2 470.4 --------- ---------- --------- ---------- ---------- Operating income (loss) ............................ 37.7 8.5 55.7 (21.6) 16.5 Interest expense ............................................ 16.0 20.3 23.1 27.2 36.8 --------- ---------- --------- ---------- ---------- Income (loss) before income taxes ........................... 21.7 (11.8) 32.6 (48.8) (20.3) Income tax expense (benefit) ................................ 8.7 (4.5) 12.4 (18.2) (7.7) --------- ---------- --------- ---------- ---------- Net income (loss) before extraordinary item ................. $ 13.0 $ (7.3) $ 20.2 $ (30.6) $ (12.6) --------- ---------- --------- ---------- ---------- Weighted average common Shares outstanding: Basic ....................................................... 11,161 11,174 11,277 11,356 11,375 --------- ---------- --------- ---------- ---------- Diluted ..................................................... 11,260 11,174 11,366 11,356 11,375 --------- ---------- --------- ---------- ---------- Earnings (loss) per common share before extraordinary item: Basic ....................................................... $ 1.17 $ (0.65) $ 1.79 $ (2.73) $ (1.37) --------- ---------- --------- ---------- ---------- Diluted ..................................................... $ 1.16 $ (0.65) $ 1.78 $ (2.73) $ (1.37) --------- ---------- --------- ---------- ----------
21 22
AS OF DECEMBER 31, ----------------------------------------------- 1995 1996 1997 1998 1999 ------- ------- ------- ------- ------- (in millions, except operating data) BALANCE SHEET DATA: Cash and cash equivalents..................... $ 11.3 $ 5.6 $ 16.5 $ 17.8 $ 6.5 Property and equipment, net................... 371.9 388.0 497.1 573.6 681.5 Total assets.................................. 478.0 489.4 620.0 697.5 807.5 Total long-term obligations, including current maturities (7).................... 230.5 268.3 360.7 351.8 470.3 Total shareholders' equity.................... 185.1 178.0 202.9 226.3 204.2 OPERATING DATA: Theatre locations (8)......................... 519 519 520 468 458 Screens (8)................................... 2,383 2,518 2,720 2,658 2,848 Average screens per location.................. 4.6 4.9 5.2 5.7 6.2 Total attendance (in thousands)............... 64,496 74,213 75,336 77,763 74,518 Total average screens in operation............ 2,151 2,476 2,644 2,733 2,800 Average ticket price.......................... $ 3.93 $ 4.00 $ 4.24 $ 4.25 $ 4.51 Average concession per patron................. $ 1.59 $ 1.62 $ 1.68 $ 1.79 $ 1.84
- ----------------- (1) During the year ended December 31, 1995, Carmike acquired, in various acquisitions, 83 theatres with 377 screens. (2) During the year ended December 31, 1996, Carmike acquired, in various acquisitions, 14 theatres with 79 screens. (3) See Note 4 of Notes to Consolidated Financial Statements with respect to acquisitions during the year ended December 31, 1997. (4) Preferred stock dividends on the Series A Preferred Stock totaled $332,000 and $3,025,000 for the years ended December 31, 1998 and 1999, respectively. See Note 8 of Notes to Consolidated Financial Statements. (5) Excludes an extraordinary charge of $6,291,000 (net of income taxes) or $0.56 per diluted share. (6) See Notes 2 and 3 of Notes to Consolidated Financial Statements with respect to impairments of long-lived assets and restructuring charges. (7) Excludes long-term restructuring reserves and deferred income tax liabilities; includes current maturities of long-term indebtedness and capital lease obligations. (8) Excludes 28 theatres with 116 screens at December 31, 1998, which were closed by Carmike during 1999 in accordance with its restructuring plan. 22 23 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion of Carmike's financial condition and operating results should be read in conjunction with "Item 6. Selected Financial and Operating Data" and Carmike's Consolidated Financial Statements and Notes thereto. Except for the historical information contained herein, the following discussion contains forward-looking statements that involve a number of risks and uncertainties. Factors which could cause Carmike's actual results in future periods to differ materially include, but are not limited to, the availability of suitable motion pictures for exhibition in Carmike's markets, the availability of opportunities for expansion, the effect of consolidations in the movie exhibition industry, competition with other forms of entertainment and the other factors set forth in "Item 1. Business -- Factors That May Affect Future Performance," as well as other factors discussed or identified from time to time in Carmike's filings with the Commission. ASSET IMPAIRMENTS AND RESTRUCTURING CHARGE Asset Impairments The opening of large multiplexes and theatres with stadium seating by Carmike and certain of its competitors has tended to, and is expected to continue to, draw audiences away from certain older theatres, including theatres operated by Carmike. In addition, demographic changes and competitive pressures can lead to the impairment of a theatre. Carmike accounts for its long-lived assets in accordance with the Financial Accounting Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("Statement No. 121"). Carmike reviews for impairment of long-lived assets and goodwill related to those assets to be held and used in the business whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Carmike also periodically reviews and monitors its internal management reports and the competition in its markets for indicators of impairment of individual theatres. In the fourth quarter of 1999, Carmike identified impairments of asset values for 82 theatres with 432 screens (the "1999 Impairment Charge"). The 82 theatres included a further impairment of 29 theatres that were included in previous impairment charges. There can be no assurance that Carmike will not take additional charges in the future related to the impairment of assets. The 1999 Impairment Charge totaled approximately $28 million (approximately $17 million after income taxes or $1.50 per share). This charge reduced the carrying value of property and equipment by approximately $22 million (costs of approximately $35 million less accumulated depreciation and amortization of approximately $13 million) and the excess of purchase price over net assets of business acquired by approximately $6 million. During the fourth quarter of 1999, Carmike also identified an investment in a joint venture as permanently impaired based on the joint venture's estimate of future cash flows. The 50% owned joint venture is managed by Carmike under a management agreement and we prepare the joint venture's cash flow estimates. The joint venture operates three movie theatre/entertainment complexes. The impairment charge of approximately $5 million 23 24 (approximately $3 million after income taxes or $.30 per share) (together with the 1999 Impairment Charge, collectively, the "1999 Impairment Charges") represents our pro-rata portion of the impairment. In the fourth quarter of 1998, Carmike identified impairments of asset values for 145 theatres with 610 screens (including further impairments for 46 theatres that were part of a 1996 impairment charge) (the "1998 Impairment Charge"). The 1998 Impairment Charge of approximately $38 million (approximately $24 million after income taxes or $2.12 per share) reduced the carrying value of property and equipment by approximately $29 million (costs of approximately $49 million less accumulated depreciation and amortization of approximately $20 million) and the excess of purchase price over net assets of businesses acquired by approximately $9 million. The 1999 Impairment Charges and the 1998 Impairment Charge were primarily caused by reductions in estimated theatre cash flows due to (i) the impact of new or increased competition on certain of our older, auditorium-style theatres, (ii) negative evaluation of the operating results produced from theatres previously converted to Discount Theatres or (iii) inability to improve a marginal theatre/entertainment center's operating results to a level that would support the carrying value of the long-lived assets. As a result of the reduced carrying amount of the impaired assets due to the 1996 and 1998 impairment charges, depreciation and amortization expense for 1999, 1998 and 1997 was reduced by approximately $7 million, $4 million and $4 million, respectively (1999 -- approximately $4 million after income taxes or $.37 per share; 1998 -- approximately $2 million after income taxes or $.19 per share; 1997 -- approximately $2 million after income taxes or $.21 per share). Depreciation and amortization for 2000 will be reduced by approximately $9 million as a result of the 1999, 1998 and 1996 impairment charges. After recognition of the 1999 Impairment Charges, Carmike has approximately $50 million of excess of purchase price over net asset of businesses acquired ("goodwill") recorded at December 31, 1999. The goodwill values arose from acquisitions made by Carmike during the period from 1982 through 1997 and are amortized on a straight-line basis over a forty year life. Generally, Carmike has not exited any markets which were acquired through its acquisitions even if individual theatres might be closed within that market. Carmike evaluates goodwill for impairment in accordance with the requirements of FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The unimpaired goodwill at December 31, 1999 was evaluated by Carmike based on estimated theatre and market level cash flows (also see Note 2 of Notes to Consolidated Financial Statements) and Carmike believes that the assigned life of goodwill is appropriate. The 1999 Impairment Charges and the 1998 Impairment Charge are reflected as operating expenses in Carmike's Consolidated Financial Statements. 24 25 Restructuring Charge In December 1998, Carmike's Board of Directors approved a restructuring plan involving the closure or disposition of 28 theatres (116 screens) in certain markets that did not fit Carmike's operating and growth strategies (the "Restructuring Plan"). In accordance with the Restructuring Plan, the theatres were closed during 1999. Carmike has recognized a charge of approximately $35 million (approximately $21 million after income taxes or $1.89 per share) to establish reserves for future cash expenditures related to these theatres. The established reserves are primarily for future lease payments payable in accordance with the terms of the lease agreements and for certain lease related costs. There are no material employee termination costs as a result of the closure of these theatres. During June 1999, Carmike revised its estimates of the total costs to be incurred for its Restructuring Plan. The $3 million decrease in estimated costs (approximately $2 million after income taxes or $.15 per share) was the result of a lessor initiated early buyout of a lease included in the Restructuring Plan. The early lease termination provides savings for the lease payments, utilities and other associated lease costs which were expected to be incurred over the remaining lease period at December 31, 1998. Disbursements of the restructuring reserves for 2000 are estimated to total approximately $4 million. Revenues during the years ended December 31, 1998 and 1997 for the theatres closed under the Restructuring Plan were approximately $8.7 million and $14.6 million, respectively. Operating losses during the years ended December 31, 1998 and 1997 for the theatres included in the Restructuring Plan were approximately $3.6 million and $.5 million, respectively. 25 26 RESULTS OF OPERATIONS The following table sets forth for the years indicated the percentage of total revenues represented by certain items reflected in Carmike's Consolidated Statements of Operations:
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1995 1996 1997 1998 1999(1) ------ ------ ------ ------ ------- Revenues: Admissions...................................... 69.6% 69.5% 69.6% 68.6% 69.0% ----- ----- ----- ----- ----- Concessions and other........................... 30.4 30.5 30.4 31.4 31.0 ----- ----- ----- ----- ----- Total revenues................................ 100.0 100.0 100.0 100.0 100.0 ----- ----- ----- ----- ----- Costs and expenses: Film exhibition costs (2)....................... 37.2 36.8 37.0 36.9 37.3 Concession costs................................ 4.1 4.0 4.0 4.1 3.9 Other theatre operating costs................... 39.4 38.4 38.2 39.0 39.2 General and administrative...................... 1.5 1.4 1.4 1.5 1.5 Depreciation and amortization................... 7.5 6.7 7.3 7.8 8.4 Impairment of long-lived assets................. -- 10.7 -- 8.0 6.8 Restructuring charge............................ -- -- -- 7.2 (.5) ----- ----- ----- ----- ----- 89.7 98.0 87.9 104.5 96.6 ----- ----- ----- ----- ----- Operating income (loss)....................... 10.3 2.0 12.1 (4.5) 3.4 Interest expense................................... 4.4 4.7 5.0 5.6 7.6 ----- ----- ----- ----- ----- Income (loss) before income taxes.................. 5.9 (2.7) 7.1 (10.1) (4.2) Income tax expense (benefit)....................... 2.4 (1.0) 2.7 (3.8) (1.6) ----- ----- ----- ----- ----- Net income (loss) before extraordinary item........ 3.5% (1.7)% 4.4% (6.3)% (2.6)% ===== ===== ===== ===== ===== Other Information: Film exhibition costs as % of admissions revenue (2)................................... 53.5% 52.9% 53.1% 53.8% 54.0% Concession costs as a % of concessions.......... 14.4% 14.2% 14.4% 14.3% 14.0%
- ------------ (1) Excludes extraordinary items for loss on debt refinancing. (2) Film exhibition costs include advertising expenses net of co-op reimbursements. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Total revenues for the year ended December 31, 1999 increased 1.0% to $487 million from $482 million. This increase is due primarily to the additional revenues generated by the increase in the average admission sale per patron, somewhat offset by a decrease in total attendance including the loss in revenues at theatres closed during the period for renovation. Attendance per average screen was 26,614 for 1999 compared to 28,453 for 1998. Revenue per average screen was $173,902 for 1999 compared to $176,205 for 1998. Average admission prices increased 6.1% to $4.51 for 1999 compared to $4.25 the previous year with the average concessions sale per patron increasing 2.9% to $1.84 for 1999 from $1.79 for 1998. 26 27 Cost of theatre operations (film exhibition costs, concession costs and other theatre operating costs) increased 1.6% to $392 million from $386 million due to films that did not play for an extended period of time, which provides greater percentage payments to the distributors, more screens in operation, and increased startup costs for new theatres. As a percentage of revenue, cost of theatre operations increased from 80.1% of total revenues in 1998 to 80.4% of total revenues in 1999. General and administrative costs were $7 million for 1999 and 1998. As a percentage of total revenues, general and administrative costs increased to 1.50% from 1.48% in 1998. Depreciation and amortization increased 9.7% to $41 million from $38 million as a result of the increased screens in operation from our expansions in 1998 and 1999. The 1996 and 1998 impairment charges reduced the values of property and equipment and goodwill. These adjustments to cost reduced the amount of depreciation and amortization recognized during 1999 by approximately $7 million. Interest expense increased to $37 million from $27 million due to the increase in the average amount of outstanding debt and our effective borrowing rates. An income tax benefit of $7.7 million was recognized based on the Company's ability to offset operating losses against prior year's taxable income and the Company's forecast of taxable income for 2000 and future periods. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Total revenues for the year ended December 31, 1998 increased 5.0% to $482 million from $459 million, due primarily to an increase of approximately $11 million in admissions and approximately $12 million in concessions and other. Additional revenues were generated by the increase in the average number of screens in operation and an increase in the average concessions sales per patron, partially offset by the loss in revenues at theatres closed during the period for renovation. Attendance per average screen was 28,453 for 1998 compared to 28,493 for 1997. Revenue per average screen was $176,205 for 1998 compared to $173,449 for 1997. Average admission prices were relatively unchanged at $4.25 for 1998 compared to $4.24 the previous year with the average concessions sales per patron increasing 6.5% to $1.79 for 1998 from $1.68 for 1997. Cost of theatre operations (film exhibition costs, concession costs and other theatre operating costs) increased 6.2% to $386 million from $363 million due to films that did not play for an extended period of time, which provides greater percentage payments to the distributors, more screens in operation and higher attendance numbers. As a percentage of revenues, cost of theatre operations increased from 79.2% of total revenues in 1997 to 80.1% of total revenues in 1998. 27 28 General and administrative costs increased 10.9% to $7 million from $6 million, reflecting additional general and administrative costs incurred in connection with the additional screens added in 1997 and 1998. As a percentage of total revenues, general and administrative costs increased slightly to 1.48% in 1998 from 1.40% in 1997. Depreciation and amortization increased 12.3% to $38 million from $33 million as a result of the increased screens in operation from the Company's acquisitions and expansions in 1997 and 1998. These amounts have also been reduced by approximately $4 million due to our 1996 impairment charge. Interest expense increased to $27 million from $23 million due to the increase in the average amount of outstanding debt. LIQUIDITY AND CAPITAL RESOURCES Carmike's revenues are collected in cash and credit cards, principally through admissions and theatre concessions. Because its revenues are received in cash and cash equivalents prior to the payment of related expenses, Carmike has an operating "float" which partially finances its operations. Carmike has a $200 million revolving credit facility (the "Revolving Credit Facility"), which matures November 10, 2002 and, as amended effective March 31, 2000, bears interest at LIBOR plus 3.25%. Carmike is obligated to pay a commitment fee of .5% on the unused portion of the facility. At March 31, 2000, Carmike had approximately $29 million available for borrowings under the Revolving Credit Facility. Carmike is a party to a $75 million term loan ("Term Loan B"), which matures on March 30, 2005 and, as amended effective March 31, 2000, bears interest at LIBOR plus 3.5%. Carmike's other indebtedness includes $200 million of 9 3/8% Senior Subordinated Notes (the "Subordinated Notes"), which are subordinate to existing indebtedness and are unconditionally guaranteed by certain of Carmike's subsidiaries. The Subordinated Notes mature February 1, 2009 and bear interest at the rate of 9 3/8%, payable semiannually in arrears. Carmike also obtains liquidity through its theatre leasing arrangements. The cost of constructing a new theatre is reduced substantially if Carmike leases the real estate and improvements rather than purchasing them. As of December 31, 1999, Carmike had 47 ground leases and 316 ground and improvement leases. Minimum annual rent payments on these theatres totaled $55 million in 1999 and are expected to increase in 2000. Carmike is a party to a master lease facility (the "Master Lease") with Movieplex Realty Leasing, L.L.C., which provides up to $75 million for financing the development of multiplex theatres. Theatres leased pursuant to the Master Lease have lease terms of 16 years. As of December 31, 1999, no additional amounts were available for expenditures under the Master Lease. The Revolving Credit Facility, the Term Loan B and the Master Lease are secured by substantially all of the personal property of Carmike and a pledge of the stock of its subsidiaries. These facilities contain certain restrictive provisions which, among other things, limit additional indebtedness of Carmike, limit the payment of dividends and other defined restricted payments, require that certain debt to capitalization ratios be maintained and require minimum levels of 28 29 cash flows. Effective March 31, 2000, Carmike amended each of the Revolving Credit Facility, the Term Loan B Agreement and the Master Lease to, among other things, adjust certain financial ratios relative to past and future operating performance and to add a new covenant as to the ratio of Carmike's funded debt plus rental expense to Carmike's cash flow plus rental expense. In connection with these amendments, the interest rates under the Revolving Credit Facility and Term Loan B were increased, the base rent payable under the Master Lease was increased and Carmike is required to permanently prepay the loans under the Revolving Credit Facility and the Term Loan B in an amount equal to 75% of annual excess cash flow. In addition, the amendments reduced the amount of investments Carmike can make to $10 million in the aggregate and limited Carmike's net capital expenditures to $25 million in 2000 and $35 million in 2001 and 2002. In order to obtain these amendments, Carmike agreed to secure the Revolving Credit Facility, Term Loan B and the Master Lease with mortgages on its owned theatres and leasehold mortgages on certain of its leased theatres, to the extent it can obtain the landlord's consent to such a leasehold mortgage. If, prior to November 1, 2000, Carmike is unable to provide the lenders with mortgages from theatres representing at least $60 million of Carmike's 1999 theatre-level cash flow ("1999 Theatre Level Cash Flow"), the interest rate payable on the Revolving Credit Facility and Term Loan B will increase and the base rent under the Master Lease will increase, by an amount ranging from 25 basis points to 100 basis points, depending upon the amount of 1999 Theatre Level Cash Flow from the theatres on which mortgages have been granted. Such increase in interest rate and in the base rent under the Master Lease would be retroactive to March 31, 2000. Carmike's capital expenditures arise principally in connection with the development of new theatres, renovation and expansion of existing theatres and theatre acquisitions. During 1999, such capital expenditures totaled approximately $170 million, net of lease financings. Carmike estimates that capital expenditures for 2000 will be approximately $22 million, net of any lease financings. Carmike expects to build five new theatres having an aggregate of 82 screens, add six stadium seating auditoriums to existing theatres, and retrofit approximately 10 existing auditoriums in 2000. Carmike estimates that the average cost of a new 16-screen multiplex will be approximately $9 million ($4 million if the land and improvements are leased rather than owned). Carmike intends to enter into leasing arrangements whenever possible in order to minimize capital requirements. Carmike believes that its currently anticipated capital needs for theatre construction, expansion and renovation and possible acquisitions for at least the next year will be satisfied by the cash and cash equivalents and short-term investments on hand, borrowings under the Revolving Credit Facility, additional sale of debt and/or equity securities, additional bank financings and other forms of long-term debt and internally generated cash flow. Additionally, Carmike plans to supplement its current sources of capital through sales and leasebacks of theatre properties where market conditions for such transactions are favorable including one recently consummated transaction and another transaction expected to close during the second quarter of 2000 for an aggregate of six theatres with net proceeds of approximately $46 million. The proceeds will be used to reduce amounts outstanding under the Revolving Credit Facility and Term Loan B and for operations. 29 30 Cash from operating activities was approximately $58 million for the year ended December 31, 1999, compared to approximately $92 million for the year ended December 31, 1998. Net cash used in investing activities was approximately $165 million for the year ended December 31, 1999 as compared to approximately $138 million for the year ended December 31, 1998. This increase in cash used in investing activities was primarily due to increased capital expenditures for Carmike's new theatres. For the years ended December 31, 1999 and 1998, cash provided by financing activities was approximately $96 million and approximately $48 million, respectively. This increase in cash provided by financing activities was due primarily to net borrowings of approximately $101 million in 1999, as compared to net repayments of approximately $9 million in 1998, net of proceeds totaling $54 million from the 1998 issuance of preferred stock. Our ability to make scheduled payments of principal, to pay the interest on, or to refinance our indebtedness, or to fund planned capital expenditures for theatre construction, expansion, renovation or acquisition will depend on our future performance. Our future performance is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based upon our current level of operations and anticipated increases in revenues and cash flow as a result of our theatre construction, expansion and renovation program, and the scheduled closing of certain underperforming theatres, we believe that cash flow from operations and available cash, together with available borrowings under the Revolving Credit Facility, lease financing arrangements and/or sales of additional debt or equity securities, will be adequate to meet our future liquidity needs for at least the next year. We cannot assure you, however, that our business will generate sufficient cash flow from operations, that currently anticipated revenue growth and operating improvements will be realized or that future capital will be available to us from the sale of debt or equity securities, additional bank financings, other long-term debt or lease financings in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness or raise additional capital through other means, on commercially reasonable terms or at all. See "Item 1. Business -- Factors That May Affect Future Performance - -- Future Capital Requirements," "-- Substantial Leverage", "-- Compliance with Financial Covenants" and "-- Ability to Service Debt." SEASONALITY AND INFLATION The major film distributors generally release those films which they anticipate to be the most successful during the summer and holiday seasons. Consequently, Carmike has historically generated higher revenues during such periods. Carmike adjusts its prices periodically and will continue to do so as competitive conditions permit. In general, management believes that inflation has not had a significant impact on the operations of Carmike in any of the periods discussed above. 30 31 IMPACT OF YEAR 2000 In prior years, we discussed the nature and progress of our plans to become Year 2000 compliant. In late 1999, Carmike completed its remediation and testing of systems. As a result of those planning and implementation efforts, we have experienced no significant disruptions in mission critical information technology and non-information technology systems and we believe those systems successfully responded to the Year 2000 date change. Expenses incurred to remediate our systems were not material. Carmike is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. Carmike will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure matters that may arise are addressed promptly. RISK MANAGEMENT AND MARKET SENSITIVE INSTRUMENTS Carmike is exposed to various market risks. These exposures primarily relate to changes in interest rates. FLOATING INTEREST RATE RISK: Based on Carmike's floating rate debt outstanding at December 31, 1999, a 100 basis point increase in market rates would increase interest expense and decrease income before income taxes by approximately $2 million. The amount was determined by calculating the effect of the hypothetical interest rate on Carmike's floating rate debt outstanding at December 31, 1999. FIXED INTEREST RATE RISK: The fair market value of long-term fixed interest rate debt is also subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The estimated fair value of Carmike's total long-term fixed rate debt at December 31, 1999 was approximately $173 million. A hypothetical 100 basis point decrease in the prevailing interest rates at December 31, 1999 would result in an increase in fair value of total long-term debt by approximately $10 million. Fair market values are based on estimates made by investment bankers. INTEREST RATE SWAPS: Carmike enters into interest rate swap agreements to manage its exposure to interest rate changes. The swaps involve the exchange of fixed and variable interest rate payments without exchanging the notional principal amount. Payments or receipts on the agreements are recorded as adjustments to interest expense. At December 31, 1999, Carmike had outstanding interest rate swap agreements, maturing at various dates through 2003, with an aggregate notional principal amount of $70 million. Under these agreements, Carmike pays a fixed rate based on LIBOR and receives a floating interest rate. These swaps effectively change Carmike's payment of interest on $70 million of variable rate debt to fixed rate debt. The fair values of these interest rate swap agreements represent the estimated receipts or payments that would be made to terminate the agreements. At December 31, 1999, Carmike would have received approximately $1.4 million to terminate the agreements. A 1.0% decrease in LIBOR would decrease the amount received by approximately $.7 million. The fair value is based on counterparty quotes, considering current interest rates. 31 32 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Carmike expects to adopt Statement No. 133 effective January 1, 2001. The Statement will require Carmike to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Carmike does not anticipate that the adoption of Statement No. 133 will have a significant effect on its results of operations or financial position. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Management and Market Sensitive Instruments." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Consolidated Financial Statements for the years ended December 31, 1999, 1998 and 1997 Report of Ernst & Young LLP, Independent Auditors.....................F-1 Consolidated Balance Sheets...........................................F-2 Consolidated Statements of Operations.................................F-4 Consolidated Statements of Cash Flows.................................F-5 Consolidated Statements of Shareholders' Equity.......................F-6 Notes to Consolidated Financial Statements............................F-8
32 33 Report Of Independent Auditors Board of Directors and Shareholders Carmike Cinemas, Inc. We have audited the accompanying consolidated balance sheets of Carmike Cinemas, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits 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 audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Carmike Cinemas, Inc. and subsidiaries at December 31, 1999 and 1998 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Columbus, Georgia February 17, 2000, except for Note 5, as to which the date is April 10, 2000. F-1 34 CONSOLIDATED BALANCE SHEETS CARMIKE CINEMAS, INC. AND SUBSIDIARIES (IN THOUSANDS, EXCEPT FOR SHARE DATA)
DECEMBER 31 1999 1998 --------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,509 $ 17,771 Short-term investments 1,175 801 Accounts and notes receivable 2,638 522 Inventories 4,240 3,851 Recoverable income taxes 5,775 -0- Prepaid expenses 10,257 5,886 --------- --------- TOTAL CURRENT ASSETS 30,594 28,831 OTHER ASSETS Investments in and advances to partnerships 14,270 20,334 Deferred income taxes -- Note 9 21,038 14,059 Other 10,542 3,753 --------- --------- 45,850 38,146 PROPERTY AND EQUIPMENT -- Notes 2, 4, 5, 6 and 10 Land 71,239 60,846 Buildings and improvements 262,542 261,887 Leasehold improvements 262,310 176,004 Leasehold interests 18,185 22,221 Equipment 250,323 212,976 --------- --------- 864,599 733,934 Accumulated depreciation and amortization (183,100) (160,322) --------- --------- 681,499 573,612 EXCESS OF PURCHASE PRICE OVER NET ASSETS OF BUSINESSES ACQUIRED -- Notes 2 and 4 49,551 56,954 --------- --------- $ 807,494 $ 697,543 ========= =========
F-2 35
DECEMBER 31 1999 1998 --------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 55,967 $ 45,533 Accrued expenses -- Notes 1 and 3 45,971 37,842 Current maturities of long-term indebtedness and capital lease obligations 4,008 1,290 --------- -------- TOTAL CURRENT LIABILITIES 105,946 84,665 LONG-TERM LIABILITIES Long-term debt, less current maturities -- Note 5 213,688 232,013 Senior Subordinated Notes - Note 5 200,000 -0- Senior Notes -- Note 5 -0- 79,870 Capital lease obligations, less current maturities -- Note 6 52,639 38,587 Restructuring reserve, less current portion -- Note 3 24,615 30,099 Other 6,409 6,000 --------- -------- 497,351 386,569 --------- -------- Commitments and contingencies -- Notes 3, 5, 6 and 10 SHAREHOLDERS' EQUITY -- Notes 4, 5, 7, and 8 5.5% Series A Senior Cumulative Convertible Exchangeable Preferred Stock, $1.00 par value, authorized 1,000,000 shares, issued and outstanding 550,000 shares; involuntary liquidation value of $ 55,000,000 550 550 Class A Common Stock, $.03 par value, one vote per share, authorized 22,500,000 shares, issued and outstanding 9,968,287 and 9,942,487 shares, respectively 299 298 Class B Common Stock, $.03 par value, ten votes per share, authorized 5,000,000 shares, issued and outstanding 1,420,700 shares 43 43 Treasury Stock, at cost, 44,800 and -0- shares, respectively (441) -0- Paid-in capital 158,772 158,543 Retained earnings 44,974 66,875 --------- -------- 204,197 226,309 --------- -------- $ 807,494 $697,543 ========= ========
See accompanying notes F-3 36 CONSOLIDATED STATEMENTS OF OPERATIONS CARMIKE CINEMAS, INC. AND SUBSIDIARIES (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ---------------------------------------- 1999 1998 1997 --------- --------- -------- Revenues: Admissions $ 335,980 $ 330,534 $319,235 Concessions and other 150,945 151,034 139,363 --------- --------- -------- 486,925 481,568 458,598 Costs and expenses: Film exhibition costs 181,504 177,754 169,672 Concession costs 19,046 19,911 18,334 Other theatre operating costs 191,063 187,870 175,103 General and administrative expenses 7,316 7,115 6,352 Depreciation and amortization expenses 41,146 37,502 33,443 Impairments of long-lived assets -- Note 2 32,993 38,300 -0- Restructuring charge -- Note 3 (2,671) 34,699 -0- --------- --------- -------- 470,397 503,151 402,904 --------- --------- -------- OPERATING INCOME (LOSS) 16,528 (21,583) 55,694 Interest expense 36,853 27,230 23,142 --------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (20,325) (48,813) 32,552 Income tax expense (benefit) -- Note 9 (7,740) (18,166) 12,366 --------- --------- -------- NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (12,585) (30,647) 20,186 Extraordinary item (net of income taxes) -- Note 5 (6,291) -0- -0- --------- --------- -------- NET INCOME (LOSS) (18,876) (30,647) 20,186 Preferred stock dividends (3,025) (332) -0- --------- --------- -------- NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK $ (21,901) $ (30,979) $ 20,186 ========= ========= ======== Weighted average shares outstanding: Basic 11,375 11,356 11,277 Effect of dilutive securities - employee stock options -0- -0- 89 --------- --------- -------- Diluted 11,375 11,356 11,366 ========= ========= ======== Earnings (loss) per common share before extraordinary item: Basic $ (1.37) $ (2.73) $ 1.79 ========= ========= ======== Diluted $ (1.37) $ (2.73) $ 1.78 ========= ========= ======== Earnings (loss) per common share: Basic $ (1.93) $ (2.73) $ 1.79 ========= ========= ======== Diluted $ (1.93) $ (2.73) $ 1.78 ========= ========= ========
See accompanying notes. F-4 37 CONSOLIDATED STATEMENTS OF CASH FLOWS CARMIKE CINEMAS, INC. AND SUBSIDIARIES (IN THOUSANDS)
YEARS ENDED DECEMBER 31 1999 1998 1997 ----------- ----------- ----------- OPERATING ACTIVITIES Net income (loss) $ (18,876) $ (30,647) $ 20,186 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 41,146 37,502 33,443 Impairment charges 32,993 38,300 -0- Restructuring charge (2,671) 34,699 -0- Deferred income taxes (6,979) (26,490) 7,011 Recoverable income taxes (5,775) -0- -0- Gain on sales of property and equipment (2,765) (282) (2,202) Other gains -0- (898) -0- Extraordinary charge 10,146 -0- -0- Changes in operating assets and liabilities: Accounts and notes receivable and inventories (1,455) (533) (565) Prepaid expenses (4,371) (438) (85) Accounts payable 10,434 19,411 4,690 Accrued expenses and other liabilities 5,725 21,409 593 ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 57,552 92,033 63,071 INVESTING ACTIVITIES Purchases of property and equipment (154,689) (146,713) (126,144) Purchases of assets from other theatre operators -0- -0- (11,647) Proceeds from sales of property and equipment 5,069 6,007 8,729 Decrease (increase) in: Short-term investments (374) 2,241 4,684 Other 372 121 (11,216) ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (149,622) (138,344) (135,594) FINANCING ACTIVITIES Debt: Additional borrowings, net of debt issuance costs 2,422,818 3,215,000 2,354,594 Repayments (including prepayment penalties) (2,337,724) (3,223,979) (2,273,674) Issuance of Preferred Stock, net -0- 54,000 -0- Preferred Stock dividends (3,025) -0- -0- Issuance of Class A Common Stock 230 416 501 Repurchase of Class A Common Stock (441) -0- -0- Recoverable construction allowances under capital leases (1,050) 2,100 2,078 ----------- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 80,808 47,537 83,499 ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,262) 1,226 10,976 Cash and cash equivalents at beginning of year 17,771 16,545 5,569 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,509 $ 17,771 $ 16,545 =========== =========== ===========
See accompanying notes. F-5 38 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY CARMIKE CINEMAS, INC. AND SUBSIDIARIES (IN THOUSANDS)
SERIES A SENIOR CUMULATIVE CONVERTIBLE EXCHANGEABLE CLASS A PREFERRED STOCK COMMON STOCK ----------------- ----------------- SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ BALANCES AT DECEMBER 31, 1996 -0- $ -0- 9,759 $292 Issuance of Class A Common Stock on exercise of stock options -- -- 31 1 Purchase of business -- Note 4 -- -- 129 5 Net loss -- -- -- -- ---- ------ ------ ---- BALANCES AT DECEMBER 31, 1997 -0- -0- 9,919 298 Issuance of Class A Common Stock on exercise of stock options -- -- 23 -- Issuance of Preferred Stock 550 550 -- -- Dividends on Preferred Stock -- -- -- -- Net income -- -- -- -- ---- ------ ------ ---- BALANCES AT DECEMBER 31, 1998 550 550 9,942 298 ISSUANCE OF CLASS A COMMON STOCK ON EXERCISE OF STOCK OPTIONS -- -- 26 1 PURCHASE OF TREASURY STOCK -- -- -- -- DIVIDENDS ON PREFERRED STOCK -- -- -- -- NET LOSS -- -- -- -- ---- ------ ------ ---- BALANCES AT DECEMBER 31, 1999 550 $ 550 9,968 $299 ==== ====== ====== ====
See accompanying notes. F-6 39
CLASS B COMMON STOCK TREASURY STOCK PAID-IN RETAINED SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL - --------- --------- -------- ---------- ------------- ----------- ------------ 1,421 $ 43 -- $ -0- $ 99,927 $ 77,668 $ 177,930 -- -- -- -- 500 -- 501 -- -- -- -- 4,250 -- 4,255 -- -- -- -- -- 20,187 20,187 ----- -------- ----- ---------- ------------- ----------- ------------ 1,421 43 -0- -0- 104,677 97,854 202,872 -- -- -- -- 416 -- 416 -- -- -- -- 53,450 -- 54,000 -- -- -- -- -- (332) (332) -- -- -- -- -- (30,647) (30,647) ----- -------- ----- ---------- ------------- ----------- ------------ 1,421 43 -0- -0- 158,543 66,875 226,309 -- -- -- -- 229 -- 230 -- -- (45) (441) -- -- (441) -- -- -- -- -- (3,025) (3,025) -- -- -- -- -- (18,876) (18,876) ----- -------- ----- ---------- ------------- ----------- ------------ 1,421 $ 43 (45) $ (441) $ 158,772 $ 44,974 $ 204,197 ===== ======== ===== ========== ============= =========== ============
F-7 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CARMIKE CINEMAS, INC. AND SUBSIDIARIES DECEMBER 31, 1999 NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES The primary business of the Company is the operation of motion picture theatres which generate revenues principally through admissions and concessions sales. Substantially all revenues are received in cash and generally recognized as income at the point of sale. Nine major distributors in the motion picture industry produced films which accounted for approximately 94%, 92% and 94% of the Company's admission revenues in 1999, 1998 and 1997, respectively. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. CASH EQUIVALENTS: Cash equivalents are highly liquid investments consisting primarily of money market accounts and investment grade, short-term debt instruments and have maturities at the date of purchase of less than three months. The Company limits the amount of its credit exposure to any one commercial issue of debt instruments. Cash equivalents are stated at cost, which represents the deposit amount plus interest credited to the account. Deposits with banks are federally insured in limited amounts. SHORT-TERM INVESTMENTS: Short-term investments consist principally of U.S. Government securities with maturity dates of less than one year from the date of purchase and are stated at cost, which approximates market. INVENTORIES: Inventories, principally concessions and theatre supplies, are stated at the lower of cost (first-in, first-out method) or market. INVESTMENT IN PARTNERSHIPS: The Company is a partner in various partnerships (two in 1999; three in both 1998 and 1997) which operate motion picture theatres. The investments in these partnerships are accounted for by the equity method, whereby the cost of the investment is adjusted to reflect the Company's equity in the earnings or losses of the partnership less withdrawals made by the Company. The Company's equity in the earnings (losses) of these partnerships, prior to impairment charges, was approximately $(891,000), $(616,000) and $243,000 in 1999, 1998 and 1997, respectively. These amounts are included as "Concessions and other" in the accompanying Consolidated Statements of Operations. Also see Note 2 "Impairments of Long-Lived Assets". PROPERTY AND EQUIPMENT: Property and equipment are carried at cost or cost adjusted for recognized impairments. Depreciation is computed by the straight-line method for financial reporting purposes as follows: Building and improvements 20-30 years Leasehold improvements 15-30 years Leasehold interests 15-30 years Equipment 5-15 years
F-8 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company uses accelerated methods of depreciation for income tax purposes. Amortization of assets recorded under capital leases is included with depreciation expense in the accompanying Consolidated Statements of Operations. ACCRUED EXPENSES: Accrued expenses include the following (in thousands):
DECEMBER 31 1999 1998 ---------- ---------- Deferred revenues $ 13,413 $ 10,609 Deferred and other accrued rents 11,527 8,428 Restructuring reserves 3,728 4,600 Property taxes 4,982 4,303 Accrued interest 8,465 1,240 Other accruals 3,856 8,662 ---------- ---------- $ 45,971 $ 37,842 ========== ==========
ADVERTISING: The Company expenses advertising costs when incurred. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. EXCESS OF PURCHASE PRICE OVER NET ASSETS OF BUSINESSES ACQUIRED: The excess of the purchase price over the net assets of businesses acquired is amortized on a straight-line basis over a 40 year period. Accumulated amortization was approximately $6 million and $5 million at December 31, 1999 and 1998, respectively, and amortization expense was approximately $2 million for each of 1999, 1998 and 1997. In the event that facts and circumstances indicate that the excess of the purchase price over the net assets of businesses acquired may be impaired, an evaluation of continuing value would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with this asset would be compared to its carrying amount to determine if a write down to market value or discounted cash flow value is required (See Note 2 -- Impairments of Long-Lived Assets). INTEREST RATE SWAPS: The Company has entered into interest rate swap agreements to modify the interest characteristics of a portion of its outstanding debt. The agreements involve the exchange of amounts based on a variable interest rate for amounts based on a fixed interest rate over the life of the agreements without an exchange of the notional amounts upon which the payments are based. The Company specifically designates interest rate swaps as hedges of debt instruments and recognizes interest differentials as adjustments to interest expense in the period they occur. F-9 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTEREST RATE SWAPS (CONTINUED): The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt (the accrual accounting method). The related amount payable to, or receivable from, counter-parties is included in other liabilities or assets. The fair value of the swap agreements is not recognized in the financial statements. If, in the future, an interest rate swap agreement were terminated, any resulting gain or loss would be deferred and amortized to interest expense over the remaining life of the hedged debt instrument. In the event of early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income coincident with the extinguishment. BENEFIT PLANS: The Company has a non-qualified deferred compensation plan for certain of its executive officers. Under this plan, the Company contributes ten percent of the employee's taxable compensation to a secular trust designated for the employee. The Company also has a discretionary benefit plan for certain non-executive employees. Contributions to the plans are at the discretion of the Company's executive management. Expenses related to these plans are not material to the Company's operations. STOCK BASED COMPENSATION: The Company has granted stock options to certain employees for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for its stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations because the Company believes the alternative fair value accounting provided for under FASB Statement No. 123, Accounting for Stock Based Compensation, requires the use of valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized for the stock option grants. ACCOUNTING POLICIES NOT YET ADOPTED: In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The Company expects to adopt the new Statement effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. RECLASSIFICATIONS: Certain 1998 amounts in the accompanying consolidated financial statements have been restated to conform to the current year's presentation. F-10 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 2 -- IMPAIRMENTS OF LONG-LIVED ASSETS The Company accounts for its long-lived assets in accordance with FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("Statement 121"). The Company reviews for impairment of long-lived assets, and goodwill related to those assets, to be held and used in the business whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company periodically reviews and monitors its internal management reports and the competition in its markets for indicators of impairment of individual theatres. The Company considers a trend of operating results that are not in line with management's expectations to be its primary indicator of potential impairment. An additional impairment indicator used by management is the existence of competition in a market, either from third parties or from the Company's own expansion, where the Company currently operates theatres. For purposes of Statement 121, property and equipment are evaluated for impairment at the theatre level, which management believes is the lowest level for which there are identifiable cash flows. Goodwill is evaluated at a theatre and market level. The Company deems a theatre to be impaired if a forecast of undiscounted future operating cash flows directly related to the theatre, including estimated disposal value if any, is less than its carrying amount. If a theatre is determined to be impaired, the loss is measured as the amount by which the carrying amount of the theatre exceeds its fair value. Fair value is based on management's estimates which are based on using the best information available, including prices for similar theatres or the results of valuation techniques such as discounting estimated future cash flows as if the decision to continue to use the impaired theatres was a new investment decision. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. Statement 121 also requires, among other provisions, that long-lived assets held for disposal and certain identified intangibles be reported at the lower of the asset's carrying amount or its fair value less costs to sell. Recoverability of other long-lived assets, primarily investments in unconsolidated affiliates and goodwill not identified with impaired theatres covered by the above paragraph, will continue to be evaluated on a recurring basis. The primary indicator of recoverability is the current or forecasted profitability over the estimated remaining life of these assets. If recoverability is unlikely based on the evaluation, the carrying amount is written down to the fair value. In the future, additional adjustments could be required. In the fourth quarter of 1999, the Company identified impairments of asset values for certain of its theatres (the "1999 Impairment Charge"). The 1999 Impairment Charge totaled approximately $28 million (approximately $17 million after income taxes or $1.50 per share). This charge reduced the carrying value of property and equipment by approximately $22 million (costs of approximately $35 million less accumulated depreciation and amortization of approximately $13 million) and the excess of purchase price over net assets of business acquired by approximately $6 million. F-11 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 2 -- IMPAIRMENTS OF LONG-LIVED ASSETS (CONTINUED) During the fourth quarter of 1999, the Company also identified an investment in a joint venture as permanently impaired based on the joint venture's estimate of future cash flows. The 50% owned joint venture is managed by the Company under a management agreement and the Company prepares the joint venture's cash flow estimates. The joint venture operates three movie theatre/entertainment complexes. The approximate $5 million impairment charge (together with the 1999 Impairment Charge, collectively, the "1999 Impairment Charges") represents the Company's pro-rata portion of the joint venture's impairment. In the fourth quarter of 1998, the Company identified impairments of asset values for certain of its theatres (the "1998 Impairment Charge"). The 1998 Impairment Charge totaled approximately $38 million (approximately $24 million after income taxes or $2.12 per share). This charge reduced the carrying value of property and equipment by approximately $29 million (costs of approximately $49 million less accumulated depreciation and amortization of approximately $20 million) and the excess of purchase price over net assets of businesses acquired by approximately $9 million. The 1999 Impairment Charges and the 1998 Impairment Charge were primarily caused by reductions in estimated theatre cash flows due to (i) the impact of new or increased competition on certain of our older, auditorium-style theatres, (ii) negative evaluation of the operating results produced from theatres previously converted to Discount Theatres or (iii) inability to improve a marginal theatre/entertainment center's operating results to a level that would support the carrying value of the long-lived assets. As a result of the reduced carrying amount of the impaired assets due to a 1996 impairment charge and the 1998 Impairment Charge, depreciation and amortization expense was reduced as follows (in millions except per share amounts):
DEPRECIATION AND NET OF PER AMORTIZATION INCOME DILUTED EXPENSE TAXES SHARE ------------ -------- ------- 1999 $ 6.7 $ 4.2 $ .37 1998 3.5 2.2 .19 1997 3.8 2.4 .21
F-12 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 3 -- RESTRUCTURING CHARGES In December 1998, the Company's Board of Directors approved a restructuring plan involving the closure or disposition of a group of theatres in certain markets that did not fit our operating and growth strategies (the "Restructuring Plan"). In accordance with the Restructuring Plan, such theatres were closed during 1999. The Company recognized a 1998 charge of approximately $34.7 million (approximately $21.5 million after income taxes or $1.89 per share) to establish reserves for the future cash expenditures related to these theatres. The established reserves are primarily for future lease payments payable in accordance with the terms of the lease agreements and for certain lease related costs. During June 1999, the Company revised its estimates of the total costs to be incurred for its Restructuring Plan. The $2.7 million decrease in estimated costs (approximately $1.7 million after income taxes or $.15 per share) was the result of a lessor initiated early buyout of a lease included in the Restructuring Plan. The early lease termination provides savings for the lease payments, utilities and other associated lease costs which were expected to be incurred over the remaining lease period at December 31, 1999. Disbursements charged against the reserve were approximately $3.7 million during 1999. Future disbursements of restructuring reserves are estimated as follows (in thousands): 2000 $ 3,728 2001 3,386 2002 2,940 2003 2,936 2004 and thereafter 15,353 ---------- $ 28,343 ==========
Revenues during the years ended December 31, 1998 and 1997 for the theatres included in the Restructuring Plan were approximately $8.7 million and $14.6 million, respectively. Operating losses during the years ended December 31, 1998 and 1997 for the theatres included in the Restructuring Plan were approximately $3.6 million and $.5 million, respectively. NOTE 4 -- ACQUISITIONS The Company's acquisitions are accounted for under the purchase method of accounting. Under the purchase method of accounting, the results of operations of the acquired businesses are included in the accompanying consolidated financial statements as of their respective acquisition dates. The assets and liabilities of acquired businesses are included based on an allocation of the purchase prices. F-13 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 4 -- ACQUISITIONS (CONTINUED) On May 23, 1997, the Company acquired certain theatres (19 theatres, 104 screens) from First International Theatres for approximately $17 million. The First International Theatres acquisition purchase price included 128,986 shares of the Company's Class A Common Stock with a fair market value of approximately $4.25 million at the date of acquisition. The $6.1 million excess of purchase price over net assets of businesses acquired has been recorded as an intangible asset. Pro-forma results have not been presented as they are not significantly different than reported amounts. NOTE 5 -- INDEBTEDNESS Indebtedness consists of the following (in thousands):
DECEMBER 31 1999 1998 ---------- ---------- Revolving credit facility $ 140,000 $ 230,000 Term Loan B 74,625 -0- Subordinated Notes 200,000 -0- Senior Notes -0- 79,870 Industrial Revenue Bonds; payable in equal installments through May 2006, with interest rates ranging from 3.90% to 5.98% 2,034 2,285 ---------- ---------- 416,659 312,155 Less current maturities (2,971) (272) Less Subordinated Notes and Senior Notes (200,000) (79,870) ---------- ---------- $ 213,688 $ 232,013 ========== ==========
RESTRUCTURING OF INDEBTEDNESS: In February 1999, the Company completed its offering of $200 million of 9 3/8% Senior Subordinated Notes due 2009 (the "Subordinated Notes"). Additionally, the Company amended and restated its 1997 Credit Agreement (as amended the "1999 Credit Agreement"). The 1999 Credit Agreement provides for revolving credit availability of $200 million, matures November 10, 2002 and bears interest (LIBOR plus 2.75% at December 31, 1999) which adjusts based on certain defined financial ratios. At December 31, 1999, the Company had $60 million available for borrowings under this facility. The Company pays a commitment fee of 0.5% on the unused portion of the facility. On February 25, 1999, the Company entered into a $75 million term loan (the "Term Loan B"). Proceeds from the Term Loan B were used to reduce amounts outstanding under the 1999 Credit Agreement. The loan amortizes in six years through varying quarterly installments of principal (initial installments are $187,500 a quarter through December 31, 2002). The Term Loan B is guaranteed by all of the Company's wholly-owned subsidiaries. F-14 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 5 -- INDEBTEDNESS (CONTINUED) The Term Loan B will mature March 30, 2005 and bears interest (LIBOR plus 3.0% at December 31, 1999) which also adjusts based on certain defined financial ratios. The 1999 Credit Agreement and the Term Loan B both contain certain restrictive provisions which, among other things, limit additional indebtedness of the Company, limit dividend and other restricted payments, require that certain debt to capitalization ratios be maintained and require minimum levels of cash flows. Effective March 31, 2000, the Company amended its 1999 Credit Agreement, Term Loan B and a lease facility to, among other things, adjust certain financial ratios relative to past and future operating performance. The Amendment also increases the variable interest rate for the 1999 Credit Agreement and the Term Loan B by .5% (effective rate at March 31, 2000 of 9.13%, LIBOR plus 3.25% for the 1999 Credit Agreement and 9.45%, LIBOR plus 3.5% for the Term Loan B). Additionally, the Company agreed to secure these facilities with mortgages on its owned theatres and leasehold mortgages on certain of its leased theatres by November 1, 2000. If the Company cannot secure mortgages for theatres with minimum levels of theatre cash flows, as defined, interest rates will increase by an amount ranging from 25 basis points to 100 basis points. The Subordinated Notes are general unsecured obligations of the Company and are subordinate to existing indebtedness and substantially all future borrowings. Certain of the Company's subsidiaries have unconditionally guaranteed this debt. The Subordinated Notes mature on February 1, 2009 and bear interest at the rate of 9 3/8% which is payable semi-annually in arrears on February 1 and August 1 of each year. Prior to February 1, 2007, the Company may redeem certain of the outstanding notes subject to certain defined limitations and subject to prepayment penalties. The Subordinated Notes contain certain restrictive provisions which, among other things, limit dividends and other restricted payments. The Company used the net proceeds from the issuance of the Subordinated Notes, approximately $193.7 million, to redeem its then outstanding Senior Notes (see discussion below) and to reduce the amounts outstanding under its revolving credit agreement. INTEREST RATE SWAPS: The Company's interest rate swap agreements changed floating interest rate expense on amounts outstanding under the 1999 Credit Agreement. Under one interest rate swap agreement, the Company has fixed $50 million of its floating rate debt through February 7, 2003. The effective rate at December 31, 1999 was 5.2%. Under another interest rate swap agreement, the Company has fixed $20 million of its floating rate debt through February 7, 2001 at an effective fixed rate of 5.5%. SENIOR NOTES: At December 31, 1998, the Company had outstanding approximately $80 million of various unsecured notes payable to institutional investors (the "Senior Notes"). In February 1999, as discussed in Restructuring of Indebtedness above, the Company redeemed all of its then outstanding Senior Notes. The Company recognized an extraordinary charge in the first quarter of F-15 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUEd CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 5 -- INDEBTEDNESS (CONTINUED) 1999 of approximately $10 million ($6 million after income taxes) for a prepayment premium of approximately $9 million paid in connection with the redemption of the then outstanding Senior Notes and the write-off of deferred debt fees of approximately $1 million. OTHER: On December 31, 1999, the Company had approximately $534 thousand of unrestricted retained earnings available for dividends under its most restrictive debt agreement. Interest paid and interest capitalized were as follows (in thousands):
YEARS ENDED INTEREST INTEREST DECEMBER 31 PAID CAPITALIZED ----------- ---------- ----------- 1999 $ 32,759 $ 3,131 1998 26,068 4,537 1997 24,856 2,914
All amounts outstanding at December 31, 1999 under the 1999 Credit Agreement have been classified as long-term in the accompanying Consolidated Balance Sheets because the Company intends that at least that amount would remain outstanding at all times during the next twelve months. Aggregate principal payments on indebtedness as of December 31, 1999 are as follows (in thousands): 2000 $ 2,971 2001 750 2002 750 2003 15,000 2004 and thereafter 397,188 ------------ $ 416,659 ============
F-16 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 6 -- LEASES Certain of the Company's theatres and equipment are leased under non-cancelable leases expiring in various years through 2028. The theatre leases generally provide, among other things, for the payment of fixed monthly rentals, contingent rentals based on a percentage of revenue over a specified amount, and the payment of property taxes, common area maintenance, insurance and repairs. The Company, at its option, can renew a substantial portion of its theatre leases, at the then fair rental rate, for various periods with the maximum renewal period generally totaling 15 to 20 years. Property and equipment includes the following amounts related to capital lease assets (in thousands):
DECEMBER 31 1999 1998 ---------- ---------- Buildings and improvements $ 57,076 $ 43,443 Equipment 2,877 2,877 ---------- ---------- 59,953 46,320 Less accumulated amortization (13,574) (12,565) ---------- ---------- $ 46,379 $ 33,755 ========== ==========
The Company obtained property and equipment of approximately $15 million, $0 and $12 million under capital leases for 1999, 1998 and 1997, respectively. Future minimum payments, by year and in the aggregate, under capital leases and operating leases with terms over one year as of December 31, 1999 are as follows (in thousands):
OPERATING CAPITAL LEASES LEASES ---------- ---------- 2000 $ 52,830 $ 7,507 2001 50,062 7,467 2002 47,352 7,528 2003 45,370 7,454 2004 42,145 7,636 Thereafter 330,819 101,493 ---------- ---------- Total minimum lease payments $ 568,578 139,085 ========== Less amounts representing interest (85,409) ---------- Present value of future minimum lease payments 53,676 Less current maturities (1,037) ---------- $ 52,639 ==========
F-17 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 6 -- LEASES (CONTINUED) Rent expense was approximately $59.6 million, $59.3 million, and $57.6 million for 1999, 1998, and 1997, respectively. The Company is a party to a master lease facility which provided approximately $75 million for financing the development of new theatres. No amounts were available for expenditures under this facility at December 31, 1999. The facility, as amended in February 1999, has, among other things, financial and operating covenants which are substantially the same as the Company's covenants under its various bank agreements. Lease payments under this facility started in November 1999 and extend for a period of 16 years. Lease payments under the facility are also secured by a pledge of the Company's stock in its subsidiaries. NOTE 7 -- STOCK OPTION PLAN The Company has stock option plans for shares of its Class A Common Stock. Key employees were granted options at terms (purchase price, expiration date and vesting schedule) established at the date of grant by a committee of the Company's Board of Directors. Options granted through December 31, 1999 have been granted at a price which approximated fair market value on the date of the grant. During 1998, the Board of Directors and shareholders approved a new stock option plan (the "1998 Plan") covering 750,000 shares of Class A Common Stock and approved the grant of non-qualified stock options for 335,000 shares of Class A Common Stock at $27.125 per share, a price which approximated fair market value on the date of the grant. At December 31, 1999, 409,000 shares were available for grant under the 1998 Plan. The Company has also issued options under a plan (the "1986 Plan") which covered 700,000 shares of Class A Common Stock. No shares are available for grant under the 1986 Plan. During 1999, an option for 6,000 shares was granted at $14.00 per share and vested immediately. Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1999 and 1998, respectively: risk-free interest rates of 5.78% and 5.39%; dividend yields of 0%; volatility factors of the expected market price of the Company's common stock of .314 and .226; and a weighted-average expected life of the option of 5 years. F-18 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 7 -- STOCK OPTION PLAN (CONTINUED) The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options granted during 1999 and 1998, respectively, $5.24 and $8.53 per share, is amortized to expense over the options' vesting period. Pro forma stock based compensation costs resulted in a 1999 pro forma loss of $22.5 million (or pro forma net loss of $1.98 per share) and a 1998 pro forma loss of $31.5 million (or pro forma net loss of $2.78 per share). Changes in outstanding stock options were as follows (in thousands, except for exercise price per share):
EXERCISE PRICE PER SHARE ------------------------------------------------------------------------- $6.00 - 14.00 $18.00 $27.125 TOTAL -------- -------- -------- -------- Stock options outstanding at December 31, 1996 99 135 -- 234 Exercised (6) (25) -- (31) -------- -------- -------- -------- Stock options outstanding at December 31, 1997 93 110 -- 203 Issued -- -- 335 335 Exercised (1) (22) -- (23) -------- -------- -------- -------- Stock options outstanding at December 31, 1998 92 88 335 515 ISSUED 6 -- -- 6 FORFEITURES (15) -- -- (15) EXERCISED (26) -- -- (26) -------- -------- -------- -------- STOCK OPTIONS OUTSTANDING AT DECEMBER 31, 1999 57 88 335 480 ======== ======== ======== ========
At December 31, 1999, approximately 145,000 of the above options were exercisable. F-19 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 8 -- SHAREHOLDERS' EQUITY The Company's authorized capital consists of 22.5 million shares of Class A Common Stock, $.03 par value, 5 million shares of Class B Common Stock, $.03 par value, and one million shares of Preferred Stock, $1.00 par value. Each share of Class A Common Stock entitles the holder to one vote per share, whereas a share of Class B Common Stock entitles the holder to ten votes per share. Each share of Class B Common Stock is entitled to cash dividends, when declared, in an amount equal to 85% of the cash dividends payable on each share of Class A Common Stock. Additionally, Class B Common Stock is convertible at any time by the holder into an equal number of shares of Class A Common Stock. On November 22, 1998, the Company sold an aggregate of 550,000 shares of its 5.5% Series A Senior Cumulative Convertible Exchangeable Preferred Stock, par value $1.00 per share (the "Series A Preferred Stock"), for an aggregate purchase price of $55 million, approximately $54 million net of expenses. The Series A Preferred Stock pays quarterly cash dividends at an annual rate of 5.5% and is convertible at the option of the holder, into the Company's Class A Common Stock at $25.00 per share (subject to anti-dilution adjustments). The Series A Preferred Stock is not subject to mandatory redemption or sinking fund provisions. The Series A Preferred Stock is also exchangeable into subordinated debt of the Company in certain instances at the option of the Company. The Company has shares of Class A Common Stock reserved for future issuance as follows (in thousands):
DECEMBER 31 1999 1998 ---------- ---------- Stock option plan 889 930 Conversion rights of Series A Preferred Stock 2,200 2,200 Conversion rights of Class B Common Stock 1,421 1,421 ---------- ---------- 4,510 4,551 ========== ==========
F-20 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 9-- INCOME TAXES The Company accounts for income taxes in accordance with FASB Statement No. 109, Accounting for Income Taxes. Under Statement No. 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rate and laws that will be in effect when the differences are expected to reverse. The provision for income tax expense (benefit), before the $3.9 million benefit for the extraordinary charge recognized in 1999, is summarized as follows (in thousands):
YEARS ENDED DECEMBER 31 1999 1998 1997 ---------- ---------- ---------- Current: Federal $ (780) $ 6,926 $ 4,037 State 19 1,398 1,318 Deferred (6,979) (26,490) 7,011 ---------- ---------- ---------- $ (7,740) $ (18,166) $ 12,366 ========== ========== ==========
Significant components of the Company's deferred tax liabilities (assets) are as follows (in thousands):
DECEMBER 31 1999 1998 ---------- ---------- Alternative minimum tax credit carryforwards $ (4,700) $ -0- State income tax carryforwards (900) -0- Financial statement bases of property and equipment over (under) tax bases (5,241) (1,239) Restructuring reserve (10,078) (13,186) Deferred rent (2,312) (2,431) Other 2,193 2,797 ---------- ---------- $ (21,038) $ (14,059) ========== ==========
F-21 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 9 -- INCOME TAXES A reconciliation of income tax expense (benefit), before the extraordinary charge, at the federal income tax rate as reflected in the consolidated financial statements follows (in thousands):
YEARS ENDED DECEMBER 31 1999 1998 1997 --------- --------- --------- Income tax expense (benefit) at statutory rates $ (6,911) $ (17,084) $ 11,393 State income taxes, net of federal tax benefit/provision (805) (1,444) 1,375 Amortization of excess of purchase price over net assets of business acquired 95 430 106 Other items, net (119) (68) (508) --------- --------- --------- $ (7,740) $ (18,166) $ 12,366 ========= ========= =========
Income taxes paid in 1999, 1998 and 1997 were approximately $3.9 million, $3.7 million and $8.1 million, respectively. NOTE 10 -- COMMITMENTS AND CONTINGENCIES The Company is subject to various claims and lawsuits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of these matters will not have a material effect on the consolidated financial statements of the Company. The Company has gross commitments at December 31, 1999 totaling approximately $41.0 million to build new theatres or to expand existing theatres. The Company plans to fund the expenditures for such capital improvements through (i) draws under its revolving credit facility (see Note 5), (ii) executing operating leases or (iii) cash flows from operations. The Company has executed letters of intent to sell for approximately $46.3 million, six theatres with a book value of approximately $42.0 million at December 31, 1999. These theatres will be leased back from the purchaser under a 20 year operating lease agreement. The resulting gain will be amortized over the life of the leases. The leases contain renewal options and generally provide that the Company will pay property taxes, common area maintenance, insurance and repairs. The net proceeds from these transactions will be used to reduce outstanding bank indebtedness and for operations. F-22 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 11 -- FINANCIAL INSTRUMENTS CONCENTRATIONS OF CREDIT RISK: Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and short-term investments. The Company maintains cash and cash equivalents and short-term investments and certain other financial instruments with various financial institutions. These financial institutions are located in the southeast and Company policy is designed to limit exposure to any one institution. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Company's investment strategy. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: CASH AND CASH EQUIVALENTS: The carrying amount reported in the balance sheets for cash and cash equivalents approximates their fair value. SHORT-TERM INVESTMENTS: The Company's short-term investments consist of U.S. Treasury Notes with maturities of less than one year. The carrying value approximates market at December 31, 1999 and 1998. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE: The carrying amounts reported in the balance sheets for accounts receivable and accounts payable approximated their fair value. LONG-TERM DEBT: The carrying amount of the Term Loan B indebtedness approximates fair value because the interest rates are based on floating rates identified by reference to market rates. The fair value of the Subordinated Notes, $173 million, is based on quoted market prices. INTEREST RATE SWAP AGREEMENTS: The unrealized gain(loss) for the interest rate swap agreements was approximately $1.4 million and ($1.3 million) at December 31, 1999 and 1998, respectively, based on evaluations made by the counter-parties to the interest rate swap agreements. The Company does not anticipate realization of this gain(loss) as the Company intends to hold the interest rate swap agreements to maturity. The Company is exposed to credit losses in the event of nonperformance by counter-parties on interest rate swap agreements. The Company does not believe there is a significant risk of nonperformance by any of the counter-parties to these instruments and the Company monitors the financial stability of such parties on a periodic basis. F-23 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 12 -- CONDENSED FINANCIAL DATA The Company and its wholly-owned subsidiaries have fully, unconditionally, jointly and severally guaranteed the Company's obligations under the Subordinated Notes (see Note 5 - Indebtedness). The Company has one subsidiary and several unconsolidated affiliates which are not guarantors of the Subordinated Notes. Separate financial statements and other disclosures of each of the guarantors are not presented because management has determined that they would not be material to investors. Consolidating separate financial data for the guarantor subsidiaries is as follows:
1999 1998 1997 ---------- ---------- ---------- Year Ended December 31, Revenues $ 386,255 $ 388,005 $ 370,408 Operating income (loss)(1) 6,554 (35,328) 23,987 Net income (loss) before extraordinary item (14,905) (32,783) 12,503 At December 31, Assets Current assets $ 11,682 $ 7,800 $ 16,790 Other assets 15,305 10,697 1,288 Property and equipment 517,851 433,462 385,038 Goodwill 33,553 37,641 4,778 ---------- ---------- ---------- $ 578,391 $ 489,600 $ 407,894 ========== ========== ========== Liabilities and Equity Current liabilities $ 15,426 $ 15,763 $ 14,775 Intercompany notes and advances 302,435 213,830 112,426 Long-term liabilities 69,684 54,200 37,178 Equity 190,846 205,807 243,515 ---------- ---------- ---------- $ 578,391 $ 489,600 $ 407,894 ========== ========== ==========
(1) Net of parent company management and license fees of approximately $30.3 million, $30.3 million, and $29.3 million for the years ended December 31, 1999, 1998 and 1997, respectively. F-24 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED CARMIKE CINEMAS, INC. AND SUBSIDIARIES NOTE 13 -- QUARTERLY RESULTS (UNAUDITED) (In thousands, except for per share data)
YEAR ENDED DECEMBER 31, 1999 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTALS - ---------------------------- ----------- ----------- ----------- ----------- ------ TOTAL REVENUES $ 97,716 $ 125,273 $ 144,830 $ 119,106 $ 486,925 OPERATING INCOME (LOSS) 3,525 15,493 23,368 (25,858) 16,528 NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (2,344) 3,905 8,496 (22,642) (12,585) NET INCOME (LOSS) (8,635) 3,905 8,496 (22,642) (18,876) BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEM (.27) .28 .68 (2.06) (1.37) BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE (.83) .28 .68 (2.06) (1.93) Year Ended December 31, 1998 - ---------------------------- Total revenues $ 117,142 $ 110,698 $ 134,720 $ 119,008 $ 481,568 Operating income (loss) 12,435 7,063 20,921 (62,002) (21,583) Net income (loss) 3,794 362 8,760 (43,563) (30,647) Basic and diluted income (loss) per common share .33 .03 .77 (3.86) (2.73)
Net income (loss) per common share calculations for each of the above quarters is based on the weighted average number of shares outstanding for each period and the sum of the quarters may not necessarily equal the net income (loss) per common share amount for the year. The fourth quarters of 1999 and 1998 include charges for the impairment of long-lived assets. The fourth quarter of 1998 also includes a restructuring charge. See Note 2 "Impairment of Long-Lived Assets" and Note 3 "Restructuring Charges". The second quarter of 1999 includes a $2.7 million decrease in estimated charges to be incurred under the Restructuring Plan. See Note 3 "Restructuring Charges". F-25 58 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding the directors of Carmike is incorporated by reference from the section entitled "Election of Directors" in the Proxy Statement relating to the 2000 Annual Meeting of Stockholders of Carmike (hereinafter, the "2000 Proxy Statement"). Information regarding the executive officers of Carmike is set forth in Part I of this Report on Form 10-K pursuant to General Instruction G(3) of Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. Information regarding executive compensation is incorporated by reference from the section entitled "Executive Compensation and Other Information" contained in the 2000 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated by reference from the sections entitled "Security Ownership of Certain Beneficial Holders" and "Security Ownership of Management" contained in the 2000 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information regarding certain relationships and related transactions is incorporated by reference from the section entitled "Certain Relationships and Related Transactions" contained in the 2000 Proxy Statement. 33 59 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) and (2) Financial Statements and Financial Statement Schedules The following consolidated financial statements of Carmike Cinemas, Inc. are included in "Item 8. Financial Statements And Supplementary Data." Financial Statements: Report of Independent Auditors Consolidated balance sheets -- December 31, 1999 and 1998 Consolidated statements of operations -- Years ended December 31, 1999, 1998 and 1997 Consolidated statements of cash flows -- Years ended December 31, 1999, 1998 and 1997 Consolidated statements of shareholders' equity -- Years ended December 31, 1999, 1998 and 1997 Notes to consolidated financial statements -- December 31, 1999 This report also includes the following Financial Statement Schedule: Schedule II -- Valuation and Qualifying Accounts All other financial statement schedules are omitted because they are not applicable or not required under the related instructions, or because the required information is shown either in the consolidated financial statements or in the notes thereto. (a)(3) Listing of Exhibits Periodic reports, proxy statements and other information filed by Carmike with the Commission pursuant to the informational requirements of the Exchange Act may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the following Regional Offices of the Commission: Midwest Regional Office, Citicorp Center, Suite 1400, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661-2511; and Northeast Regional Office, Suite 1300, 13th Floor, 7 World Trade Center, New York, New York 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Commission also maintains a Web site (http://www.sec.gov) that makes available reports, proxy statements and other information regarding Carmike. Carmike's SEC file number reference is Commission File No.1-11604. 34 60
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 3.1 Amended and Restated Certificate of Incorporation of Carmike (filed as Exhibit 3.1 to Carmike's Form 10-K for the year ended December 31, 1998 (Commission File No. 1-11604) (the "1998 Form 10-K") and incorporated herein by reference). 3.2 Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of 5.5% Series A Senior Cumulative Convertible Exchangeable Preferred Stock (filed as Exhibit 3.2 to the 1998 Form 10-K and incorporated herein by reference). 3.3 By-laws of Carmike (filed as Exhibit 3(b) to Carmike's Form 10-K for the fiscal year ended December 31, 1987 (Commission File No. 1-11604), and incorporated herein by reference). 4.1 Indenture dated February 3, 1999 between Carmike and The Bank of New York (filed as Exhibit 4.1 the 1998 Form 10-K and incorporated herein by reference). 4.2 Exchange and Registration Rights Agreement dated February 3, 1999 between Carmike, Eastwynn Theatres, Inc., Wooden Nickel Pub, Inc. and the Purchasers (as defined therein) (filed as Exhibit 4.2 to the 1998 Form 10-K and incorporated herein by reference). 10.1 Stock Purchase Agreement dated November 22, 1998 between Carmike and GS Capital Partners III, L.P. and certain of its affiliates (filed as Exhibit 10.1 to the 1998 Form 10-K and incorporated herein by reference). 10.2 $275,000,000 Amended and Restated Credit Agreement dated January 29, 1999 between Carmike, the Banks (as defined therein) and Wachovia Bank, N.A (filed as Exhibit 10.2 to the 1998 Form 10-K and incorporated herein by reference). 10.3 $75,000,000 Term Loan Credit Agreement dated February 25, 1999 between Carmike, the Lenders listed therein, Wachovia Bank, N.A., Goldman Sachs Credit Partners L.P and First Union National Bank (filed as Exhibit 10.3 to the 1998 Form 10-K and incorporated herein by reference). 10.4 Stock Purchase Agreement dated as of June 27, 1997 by and between the shareholders of Morgan Creek Theatres, Inc.; shareholders of SB Holdings, Inc.; members of RDL Consulting Limited Liability Company; Morgan Creek Theatres, Inc.; SB Holdings, Inc.; RDL Consulting Limited Liability Company; First International Theatres; Carmike and Eastwynn Theatres, Inc. (filed as Exhibit 2 to Carmike's Form 10-Q for the fiscal quarter ended June 30, 1997 (Commission File No. 1-11604), and incorporated herein by reference). 10.5* Carmike 1998 Class A Stock Option Plan, together with form of Employee Nonqualified Stock Option Agreement (filed as Exhibit 10(p) to Carmike's Form 10-K for the year ended December 31, 1997 (Commission File No. 1-11604), and incorporated herein by reference).
35 61 10.6* Carmike Class A Stock Option Plan, as amended, together with form of Stock Option Agreement (filed as Exhibit 10(a) to Carmike's Form 10-K for the year ended December 31, 1990 (Commission File No. 1-11604), and incorporated herein by reference). 10.7* Carmike Deferred Compensation Agreement and Trust Agreement dated as of January 1, 1990 (filed as Exhibit 10(u) to Carmike's Form 10-K for the year ended December 31, 1990, and incorporated herein by reference). 10.8* Employment Agreement dated December 30, 1999 between C. L. Patrick and Carmike. 10.9* Employment Agreement dated August 10, 1998 between Michael W. Patrick and Carmike (filed as Exhibit 10.9 to the 1998 Form 10-K and incorporated herein by reference). 10.10 Aircraft Lease dated July 1, 1983, as amended June 30, 1986, by and between C.L.P. Equipment and Carmike (filed as Exhibit 10(h) to Carmike's Registration Statement on Form S-1 (Registration No. 33-8007), and incorporated herein by reference). 10.11 Equipment Lease Agreement dated December 17, 1982 by and between Michael W. Patrick and Carmike (Kingsport, Tennessee) (filed as Exhibit 10(i) to Carmike's Registration Statement on Form S-1 (Registration No. 33-8007), and incorporated herein by reference). 10.12 Equipment Lease Agreement dated January 29, 1983 by and between Michael W. Patrick and Carmike (Valdosta, Georgia) (filed as Exhibit 10(j) to Carmike's Registration Statement on Form S-1 (Registration No. 33-8007), and incorporated herein by reference). 10.13 Equipment Lease Agreement dated November 23, 1983 by and between Michael W. Patrick and Carmike (Nashville (Belle Meade), Tennessee) (filed as Exhibit 10(k) to Carmike's Registration Statement on Form S-1 (Registration No. 33-8007), and incorporated herein by reference). 10.14 Equipment Lease Agreement dated December 17, 1982 by and between Michael W. Patrick and Carmike (Opelika, Alabama) (filed as Exhibit 10(l) to Carmike's Registration Statement on Form S-1 (Registration No. 33-8007), and incorporated herein by reference). 10.15 Equipment Lease Agreement dated July 1, 1986 by and between Michael W. Patrick and Carmike (Muskogee and Stillwater, Oklahoma) (filed as Exhibit 10(m) to Carmike's Registration Statement on Form S-1 (Registration No. 33-8007), and incorporated herein by reference). 10.16 Equipment Lease Agreement dated December 17, 1982 by and between C. L. Patrick and Carmike (Eastridge, Tennessee) (filed as Exhibit 10(n) to Carmike's Registration Statement on Form S-1 (Registration No. 33-8007), and incorporated herein by reference). 10.17 Summary of Extensions of Equipment Lease Agreements, which are Exhibits 10(f), 10(g), 10(h), 10(i), and 10(k) (filed as Exhibit 10(o) to Carmike's Form 10-K for the
36 62 fiscal year ended December 31, 1987 (Commission File No. 1-11604), and incorporated herein by reference). 10.18 Summary of Extensions of the Equipment Lease Agreements, which are Exhibits 10(f), 10(g), 10(h), 10(i), and 10(k) as extended as shown in Exhibit 10(m) (filed as Exhibit 10(n) to Carmike's Form 10-K for the year ended December 31, 1991 (Commission File No. 1-11604), and incorporated herein by reference). 10.19 Summary of Extensions of Aircraft Lease Agreement and Equipment Lease Agreement which are Exhibits 10(e) and 10(k) (filed as Exhibit 10(o) to Carmike's Form 10-K for the year ended December 31, 1991 (Commission File No. 1-11604), and incorporated herein by reference). 10.20 Amended and Restated Master Lease dated January 29, 1999 between Movieplex Reality Leasing, L.L.C. and Carmike. (Portions of this exhibit have been redacted and are subject to a confidential treatment request filed with the Secretary of the SEC pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. The redacted material was filed separately with the SEC)(filed as Exhibit 10 to Carmike's Form 10-Q for the quarter ended September 30, 1999 (Commission File No. 1-11604) and incorporated herein by reference). 10.21* Letter of employment dated July 6, 1999, between Carmike and Martin A. Durant. 10.22* Deferred Compensation Agreement dated as of July 16, 1999 between Carmike and Martin A. Durant. 10.23* Trust Agreement dared as of July 16, 1999, between Carmike, Michael W. Patrick, F. Lee Champion, III and Larry M. Adams. 21 List of Subsidiaries. 23 Consent of Ernst & Young LLP. 27.1 Financial Data Schedule (for Securities and Exchange Commission use only). 27.2 Restated 1998 Financial Data Schedule (for Securities and Exchange Commission use only).
- ------------ * Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. (b) Reports on Form 8-K During the fiscal quarter ended December 31, 1999, Carmike filed a Current Report on Form 8-K dated December 3, 1999 reporting information under Items 5 and 7. (c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statements Schedules See Item 14(a) (1) and (2). 37 63 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CARMIKE CINEMAS, INC. Date: April 10, 2000 By: /s/ Michael W. Patrick ------------------------------------------- Michael W. Patrick President And Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated and as of the date indicated above.
Signature Title --------- ----- /s/ C. L. Patrick Chairman of the Board - --------------------------------- C. L. Patrick /s/ Michael W. Patrick President, Chief Executive - -------------------------------- Officer and Director Michael W. Patrick /s/ Martin A. Durant Senior Vice President-Finance - -------------------------------- Treasurer and Chief Financial Officer Martin A. Durant (Principal Financial Officer) /s/ Philip A. Smitley Assistant Vice President-Controller - -------------------------------- (Principal Accounting Officer) Philip A. Smitley /s/ F. Lee Champion, III Senior Vice President-General - -------------------------------- Counsel, Secretary and Director F. Lee Champion, III /s/ Elizabeth Cogan Fascitelli Director - -------------------------------- Elizabeth Cogan Fascitelli /s/ Richard A. Friedman Director - -------------------------------- Richard A. Friedman /s/ John W. Jordan, II Director - -------------------------------- John W. Jordan, II /s/ Carl L. Patrick, Jr. Director - -------------------------------- Carl L. Patrick, Jr. /s/ Carl E. Sanders Director - -------------------------------- Carl E. Sanders /s/ David W. Zalaznick Director - -------------------------------- David W. Zalaznick
64 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS CARMIKE CINEMAS, INC. AND SUBSIDIARIES DECEMBER 31, 1999 (IN THOUSANDS OF DOLLARS)
COL. A COL. B COL. C COL. D COL. E - ------------------------------------ ------------ --------------------------------- ------------ -------------- ADDITIONS --------------------------------- BALANCE AT CHARGED TO COSTS CHARGED TO OTHER DEDUCTIONS - BALANCE AT END DESCRIPTION BEGINNING OF AND EXPENSES ACCOUNTS - DESCRIBE OF PERIOD PERIOD DESCRIBE - ------------------------------------ ------------ ---------------- ---------------- ------------ -------------- Year Ended December 31, 1998: Reserve for restructuring charge $ -0- $ 34,699 (1) $ -0- $ -0- $ 34,699 Year Ended December 31, 1999: Reserve for restructuring charge $ 34,699 $ (2,671)(2) $ -0- $ (3,685)(3) $ 28,343
(1) Charge recorded in December 1998. See Note 3 of Notes to Consolidated Financial Statements. (2) Change in estimate of liabilities to be incurred. See Note 3 of Notes to Consolidated Financial Statements. (3) Net payments made during period, including $500,000 payment for early lease termination. See Note 3 of Notes to Consolidated Financial Statements. Note: Prior to December 1998, there were no accounts meeting the requirements for disclosure on this schedule. EX-10.8 2 EMPLOYMENT AGREEMENT, C.L. PATRICK 1 EXHIBIT 10.8 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT dated this the 30th day of December, 1999, among CARMIKE CINEMAS, INC., a Delaware corporation (the "Company"), and CARL L. PATRICK, 2701 Lynda Lane, Columbus, GA 31906 ("CLP"), sometimes hereinafter referred to collectively as the "Parties." W I T N E S S E T H : WHEREAS, Carl L. Patrick will resign his position as an executive officer of the Company effective January 1, 2000; and WHEREAS, the Employment Agreement dated August 10, 1998 will terminate on January 1, 2000; and WHEREAS, CLP shall continue in has capacity as Chairman of the Board of Directors of the Company. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. EMPLOYMENT: Company agrees to employ CLP as Chairman of the Board of Directors of Company for the period commencing on the date of this Agreement and ending at the expiration of three (3) years from said date, provided, however, that on December 31 of each year hereof, the term hereof shall be extended for one (1) year providing that neither the Company nor CLP shall have given written notice to the other during the thirty (30) days prior to such anniversary date of its or his wish not to so extend this Agreement. 2. OFFICE, SECRETARY AND TRANSPORTATION: For and in consideration of the services to be performed by CLP, Company agrees that it shall furnish CLP use of the office and furnishings located on the south wing of the 5th floor of the Company's headquarters building at 1301 First Avenue, Columbus, Georgia 31901, a secretary, and a car and driver. 3. COVENANT NOT TO COMPETE; TRADE SECRETS. (a) CLP agrees that he will during the period set forth herein, and for a period of two (2) years thereafter, not accept employment with, or participate, directly or indirectly, as owner, stockholder, director, officer, manager, consultant or agent, or otherwise use his special, unique or extraordinary skills or knowledge with respect to the Company's business in or with any business, firm, corporation, partnership, association, venture or other entity or person which is engaged in the business of ownership and management of motion picture theatres, except this shall not be construed to prohibit CLP from owning an insubstantial 2 fraction of the securities of a corporation which is publicly traded on a securities exchange or over the counter. (b) Trade Secrets: CLP further agrees that he will not, at any time during the period described in (a) above, or thereafter, disclose to any party other than the Company any trade secrets or other Confidential Information, learned or obtained by him while he is a stockholder, officer or director of the Company. As used herein, the term "Confidential Information" means information disclosed to CLP or known by him as a consequence of or through his employment by the Company and not generally known in the industry to which the Company is engaged, and which in any way relates to the Company's products, processes, services, inventions (whether patentable or not), formulas, techniques or know how, including, but not limited to, information relating to research, development, manufacturing, purchasing, accounting, engineering, marketing, merchandising and selling. In the event of a breach or threatened breach by CLP of the provisions of this Section 6, the parties agree that the Company's remedies at law would be inadequate, and the Company shall be entitled to an injunction to enforce such provisions. 4. ASSIGNMENT. The rights and obligations of CLP and the Company under this Employment Agreement shall inure to the benefit of the parties, and shall be binding upon the Company and upon the successors and assigns of the Company. CLP may not assign his rights or obligations hereunder. 5. NOTICES. All notices and requests hereunder shall be in writing and shall be delivered in person, or by certified mail, return receipt requested, postage prepaid, to the Company with a copy to Michael W. Patrick, P. O. Box 391, Columbus, GA 31902-0391, and if to CLP, addressed to him at 2701 Lynda Lane, Columbus, GA 31906. Such notices and requests shall be deemed delivered on the date on which personally delivered, or if delivered by certified mail, return receipt requested, the date sent. Either party may change his or its address for receipt of notices and requests hereunder by notice duly given to the other party in accordance with the provisions of this Section. 6. GOVERNING LAW. The laws of the State of Georgia shall govern all questions relative to the interpretation and construction of this Employment Agreement, and to the performance hereof. 7. SEVERABILITY. In case any one or more of the provisions or part(s) of a provision contained in this Employment Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part(s) of a provision of this Employment Agreement, but this Employment Agreement shall be reformed and construed as if such invalid, illegal or unenforceable provision or part(s) of a provision had never been contained herein, and such provision or part(s) reformed so that it would be valid, legal and enforceable to the maximum extent permitted. -2- 3 8. WAIVER. No waiver by either party of any default hereunder, or by the other shall in any way prejudice the waiving party with respect to any subsequent default hereunder (whether or not similar) by the other party. 9. HEADINGS OF NO EFFECT. The headings and captions hereof have been inserted solely for convenience of reference, and shall in no way define, limit or describe any of the provisions of this Employment Agreement. 10. ENTIRE AGREEMENT. This instrument contains the entire Agreement of the parties, it may not be changed orally, but only by an instrument in writing, signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 11. ARBITRATION. The exclusive procedure for resolution of any dispute under this Agreement shall be by arbitration in Atlanta, GA before one arbitrator, in accordance with the rules then existing of the American Arbitration Association. The award of the arbitrator shall be final and binding upon the parties, and judgment upon the award may be entered in any court having jurisdiction thereof. The cost of arbitration, if any, shall be divided equally between the parties. Each party shall otherwise bear its or his own expense. 12. This Employment Agreement supersedes any previous employment agreement, and same are null and void, and of no legal effect whatsoever. IN WITNESS WHEREOF, the parties hereto have set their hands as of the date first above written. COMPANY: CARMIKE CINEMAS, INC. BY: ------------------------------------- Authorized Signature CLP: ------------------------------------ CARL L. PATRICK -3- EX-10.21 3 LETTER OF EMPLOYMENT, MARTIN A. DURANT 1 EXHIBIT 10.21 Carmike Cinemas July 6, 1999 MICHAEL W. PATRICK PRESIDENT PERSONAL AND CONFIDENTIAL Mr. Martin Durant 6414 Cape Cod Drive Columbus, GA 31904 Dear Martin: I am very pleased to offer you the position of Senior Vice President -- Finance and Chief Financial Officer for Carmike Cinemas, Inc. We believe you can make a major contribution to Carmike, and be a key member of our management team. This position includes responsibilities for those areas outlined in the Position Specification you have previously received from Korn/Ferry International. You will report to me, and be elected an officer of the Company. Your base salary will be $16,666.66 per month, and you will participate in the Carmike Incentive Compensation Program for Senior Vice Presidents. Upon commencing employment, you will receive a stock option grant of 6,000 shares at market price on July 15, 1999. This option shall be immediately vested. You will also be eligible for additional stock option grants as approved by the Stock Option Committee of the Board of Directors. Carmike agrees to contribute $500,000 to a deferred compensation program on your behalf. This contribution is contingent upon and will be made subsequent to Carmike receiving a payment from AFLAC of $250,000 as a partial offset to the contribution to be made by Carmike. Other benefits shall include three weeks vacation, life insurance and health benefits granted to other officers of Carmike. Carmike will also agree to reimburse you for your initiation fee to join a Country Club of your choice not to exceed $13,000. 2 Page 2 This offer is conditional upon your commencing employment at Carmike Cinemas on July 16, 1999, and upon the satisfactory completion of final references and background verifications by Korn/Ferry International. You will be permitted to consult with your present employer on a part time basis for the purpose of completing certain tasks through September 15, 1999. Please acknowledge your acceptance of the foregoing by returning the enclosed copy to my attention by July 9, 1999. We are excited about having you join us here at Carmike. Sincerely, CARMIKE CINEMAS, INC. Michael W. Patrick President ACCEPTED: - --------------------------------- Martin Durant Date: July 8, 1999 EX-10.22 4 DEFERRED COMPENSATION AGREEMENT, MARTIN A. DURANT 1 EXHIBIT 10.22 DEFERRED COMPENSATION AGREEMENT This Agreement, made and entered as of the 16th day of July, 1999, by and between CARMIKE CINEMAS, INC., a Delaware corporation with its principal office in Columbus, Georgia (the "Employer"), and MARTIN A. DURANT, a resident of Columbus, Georgia, (the "Employee"). WITNESSETH: WHEREAS, Employee is a valued executive employee of Employer; and WHEREAS, Employer wishes to aid Employee in providing for his retirement and to provide benefits upon Employee's death or disability; and WHEREAS, Employer will provide these benefits to Employee in accordance with the terms and provisions of this Deferred Compensation Agreement (the "Agreement") and a related trust to be contemporaneously established (the "Trust") the terms of which are hereinafter described; and WHEREAS, it is intended that this Agreement and related Trust shall qualify as a "top hat" plan for key employees; and WHEREAS, it is intended that payments by Employer under this Agreement to the Trust shall, for federal and state income tax purposes, be included in Employee's income and deducted by Employer in the year paid. NOW, THEREFORE, in consideration of the mutual promises and obligations contained herein, the parties hereto agree as follows: I. DEFERRED COMPENSATION. (a) Contributions. Upon the execution of this Agreement and the Trust, Employer shall pay TWO THOUSAND SIX HUNDRED AND 00/100 DOLLARS ($2,600.00) to the Trust for the use and benefit of Employee, as more specifically described in the Trust. In addition, for the calendar quarter beginning October 1, 1999, and within forty-five (45) days following the end of each succeeding calendar quarter during which Employee shall be employed by Employer for the entire calendar quarter, but subject to termination as described in paragraph (b) of this Article I or Article IV, Employer shall make payments equal to ten percent (10%) of Employee's taxable compensation for such calendar quarter (as same shall be reflected by Employer for the calendar year on Employee's Form W-2 or Form 1099), in the following manner: 1 2 (1) If Employee is eligible to make a tax deductible contribution to an Individual Retirement Account ("IRA") for a calendar year as provided for in section 408 of the Internal Revenue Code of 1986, as amended (the "Code"), Employer shall, on or before April 15 of the next calendar year, pay directly to an IRA established for the benefit of Employee an amount equal to the maximum amount deductible by Employee for federal income tax purposes as a contribution to an IRA for such calendar year; (2) Employer shall withhold an amount, as determined by Employer in its best judgment, which represents the appropriate amount of federal and state income taxes to be withheld on the amount of deferred compensation paid hereunder; and (3) The remaining amount of deferred compensation, after deducting the amounts described in (1) and (2) above, shall be paid within forty-five (45) days after the end of each calendar quarter, to the Trustee of the Trust established by Employee, the general terms of which are described in Article II. (b) Termination of Contributions. Notwithstanding that Employee may continue to be employed by Employer and any other provision of this Agreement to the contrary, payments by Employer equal to ten percent (10%) of Employee's taxable compensation, as hereinabove described in paragraph (a) of this Article I, shall cease as of the end of the calendar quarter immediately prior to the first date that benefits become distributable from the Trust. II. SUMMARY OF TRUST PROVISIONS. The Trust created by Employer shall be an irrevocable trust established by Employer solely for the benefit of Employee. All expenses of maintaining the Trust shall be borne either by the Trust or by Employer. The Trustee of the Trust shall receive from Employer the amount hereinabove provided for under Article I, and shall hold, manage, invest and administer - the funds received and the income earned thereon according to the terms and conditions contained in the Trust. With respect to the management, investment and administration of the Trust, and subject to the terms and definitions therein, the Trust shall provide the following: (a) Trust Income. All Trust income shall be accumulated and added to principal. (b) Employee Treated as Owner. Employee, as beneficiary of the Trust, shall be treated as the "owner" of the Trust as that term is used in section 671 of the Code, and the Trust shall be a "grantor trust" for Federal income tax purposes with the taxable income earned by the Trust being taxed to Employee. (c) Irrevocable Trust. The Trust shall be irrevocable and the Trust assets, whether income or principal, shall not be subject to the claims of creditors of Employer, Employee or any beneficiary of the Trust. (d) Anti-alienation. No right, benefit, or payment under the Trust shall be subject to sale, anticipation, alienation or assignment by Employee or his beneficiaries. 2 3 (e) No Continued Employment Rights. Employee shall have no right to continued employment with Employer on account of this Agreement or Employee's status as a beneficiary of the Trust. (f) Events of Distribution. Unless Employee elects in writing an earlier commencement date for the payment of benefits from the Trust at any time after Employee attains age 60, Employee, or his beneficiaries, shall have no right or claim to any benefits from the Trust until Employee attains age 70, becomes totally disabled or dies. Upon the happening of any such distribution event, Employee or Employee's beneficiary, as the case may be, shall be entitled to receive payments from the Trust, as described in paragraph (g) of this Article. (g) Payment of Benefits. Except as may be modified by the joint and survivor annuity provisions, the Trust shall provide that upon Employee's attainment of age 70, or upon his earlier death or total disability, or upon Employee's election to commence the payment of benefits after attaining age 60, payments from the Trust to Employee or his beneficiary shall be made, commencing within sixty (60) days after any such event, as follows: (1) One-half (1/2) of the benefits shall be paid in the form of a life annuity with payments guaranteed for five (5) years should Employee not live to receive the annuity payments for at least five (5) years, with any unpaid guaranteed portion being paid to Employee's designated beneficiary; and (2) The remaining one-half (1/2) of the benefits shall be paid either as an annuity or in a lump sum payment, as designated in writing by Employee. In accordance with ERISA ss.206 (a), Employee hereby elects that the payment of benefits under the Trust shall commence at such time as hereinabove provided for in this paragraph (g) and in Article V of the Trust, and not as set forth in ERISA Section 206 (a). (h) Designation of Method of Payment. Except as may be modified by the joint and survivor annuity provisions, Employee shall designate the method of payment of one-half (1/2) of the benefits from the Trust, as hereinabove described in paragraph (g)(2), by executing a "Designation of Method of Benefit Payment" form and delivering it to the Trustee. At any time prior to the commencement of the payment of benefits as provided for under paragraph (h), the "Designation of Method of Benefit Payment" form may be modified, altered, or revoked as to any benefits payable under paragraph (g) (2) of the Trust. If Employee fails to execute a "Designation of Method of Benefit Payment" form and deliver it to the Trustee, the Trustee shall pay over and distribute such one-half (1/2) portion of the Trust in one lump-sum to Employee or his beneficiary, as the case may be. The Trust shall provide that upon making any distribution to Employee, the Trustee shall withhold from such distribution the amount, if any, required to be withheld for federal, state and local taxes. 3 4 (i) Joint and Survivor Annuity Requirements. (1) Qualified Joint and Survivor Annuity. Unless an optional form of benefit is selected pursuant to a qualified election within the 90-day period ending on the annuity starting date, the benefits of Employee, if Employee is married, will be paid in the form of a qualified joint and survivor annuity, and if Employee is not married, Employee's benefits will be paid in the form of a life annuity. (2) Qualified Preretirement Survivor Annuity. If Employee dies before the annuity starting date and has not selected an optional form of benefit within the election period pursuant to a qualified election, then Employee's full benefit under the Trust shall be applied toward the purchase of an annuity for the life of the surviving spouse. The surviving spouse may elect to have such annuity distributed within a reasonable period after Employee's death. (j) Designation of Beneficiary. (1) Manner of Designation. In the event Employee dies before receipt of all of his benefits under the Trust, Employee's beneficiary shall be his spouse; provided, however, Employee may, from time to time, designate a beneficiary other than his spouse if Employee's spouse consents irrevocably, in writing, to such designation of Employee's beneficiary; acknowledges the effect of such election; and such consent and acknowledgment and the spouse's signature is witnessed by a Notary Public. Each beneficiary designation shall be on a form furnished by the Trustee and will be effective only when filed with the Trustee during Employee's lifetime. Each beneficiary designation filed by Employee with the Trustee will revoke all such designations previously filed by him and such revocation shall not require the consent of any previously designated beneficiary. Any beneficiary designation previously made by Employee shall automatically be revoked upon the marriage or remarriage of Employee. A spouse's consent shall be valid only with respect to the specified beneficiary or beneficiaries by Employee unless the spouse has consented to expressly permit designations by Employee without the spouse's further consent. The spouse's consent to any beneficiary designation made by Employee, once made, may not be revoked by the spouse. Notwithstanding the foregoing, spousal consent to Employee's beneficiary designation shall not be required if: (i) the spouse is designated as the sole primary beneficiary by Employee, or (ii) it is established to the satisfaction of the Trustee that spousal consent cannot be obtained because there is no spouse, because the spouse cannot be located or because of such other circumstances as may be prescribed in Regulations issued by the Secretary of the Treasury. Any consent by a spouse or any determination that the consent is not required above shall be effective only with respect to such spouse. (2) Failure to Designate Beneficiary. If Employee fails to designate a beneficiary, or if the designated beneficiary dies before Employee or before distribution of all of the benefits and there are no alternate designated beneficiaries, the Trustee shall distribute such benefits to the following persons in the following order of priority: (i) The spouse of Employee, if then living, and if not, 4 5 (ii) The estate of the last to die of Employee or any designated beneficiary of Employee. III. RESTRICTIONS. No right or benefit under this Agreement or the Trust shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void. No right or benefit under this Agreement or the Trust shall in any manner be subject to the debts, contracts, liabilities or torts of the person entitled to such benefits. If Employee or a beneficiary of Employee hereunder should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right to a benefit under this Agreement or the Trust then any benefits, provided for in this Agreement or the Trust, shall cease. Employer or Trustee shall, in the discretion of Employer or Trustee, as applicable, hold or apply such benefit or any part thereof on behalf of Employee or the beneficiary or beneficiaries of Employee, in such manner as Employer or Trustee may deem proper. IV. TERMINATION OF AGREEMENT. Except for the final payment by Employer for the calendar quarter immediately preceding the calendar quarter during which Employee shall terminate his employment with Employer or, if earlier, upon the first date that benefits become distributable from the Trust, Employer's obligations under this Agreement and the compensation provided for hereunder shall automatically cease upon such event. This Agreement does not create a guaranteed term of employment, and Employer may terminate Employee's employment at any time and with or without cause. V. MISCELLANEOUS. (a) The captions or headings in this Agreement are made for convenience and general reference only and shall not be construed to describe, define or limit the scope or intent of the provisions of this Agreement. (b) Any reference hereunder to the Employer shall expressly be deemed to include the Employer's successor and assigns. 5 6 IN WITNESS WHEREOF, Employer has caused this Agreement to be duly executed by and through its duly authorized corporate officers, with its corporate seal to be hereunto affixed, and Employee has hereunto set his hand and seal as of the day and year first above written. EMPLOYER: CARMIKE CINEMAS, INC. BY: ---------------------------------- Its: ------------------------------ ATTEST: ------------------------------ Its: ------------------------------ (Corporate Seal) EMPLOYEE: --------------------------------------(L.S.) MARTIN A. DURANT 6 7 DESIGNATION OF METHOD OF BENEFIT PAYMENT I, MARTIN A. DURANT, hereby elect on behalf of myself, and my beneficiary or beneficiaries, to receive one-half (1) of the benefits from that Trust Agreement entered into as of the 16th day of July, 1999, by and between Carmike Cinemas, Inc., as Grantor, and Michael Wynn Patrick, F. Lee Champion, III and Larry M. Adams, as Trustees, in the following form: (a) One (1) lump sum payment. (b) A life annuity described as follows: [Please strike one of the above two options.] Executed this ______ day of November, 1999. -------------------------- MARTIN A. DURANT 7 8 SPOUSE'S CONSENT I hereby consent to the designation made by my spouse to have all benefits under the Trust payable to ___________________________________________ ______________________________________________________________ Beneficiary(ies) as specified on my spouse's Designation form dated ____________________. The benefits have been explained to me, and I hereby acknowledge that I understand (1) that the effect of such designation is to cause my spouse's benefits to be paid to a Beneficiary other than me; (2) that such Beneficiary Designation is not valid unless I consent to it; and (3) that my consent is irrevocable unless my spouse revokes the Beneficiary Designation. --------------------- ------------------------------------ Date Spouse's Signature STATE OF GEORGIA COUNTY OF MUSCOGEE BEFORE ME, the undersigned authority, a Notary Public in and for said County and State, on this day personally appeared, ____________________________ _________________________________, known to me to be the person whose name is subscribed to the foregoing instrument, and I hereby acknowledge that said person has signed said Consent as a free and voluntary act for the uses and purposes therein set forth. GIVEN UNDER MY HAND AND SEAL this ___ day of _______________, 1999. ------------------------------------ Notary Public My Commission Expires: -------------- 8 EX-10.23 5 TRUST AGREEMENT 1 EXHIBIT 10.23 TRUST AGREEMENT THIS TRUST AGREEMENT, made and entered into as of the 16th day of July, 1999, by and between CARMIKE CINEMAS, INC., a Delaware corporation (the "Grantor) and MICHAEL WYNN PATRICK, F. LEE CHAMPION, III and LARRY M. ADAMS, residents of the State of Georgia (the "Trustees" or `Trustee"), as follows: W I T N E S S E T H: WHEREAS, Grantor wishes to aid MARTIN A. DURANT (the "Employee") in providing for his retirement and to provide benefits upon Employee's death or disability; and WHEREAS, Grantor has contemporaneously herewith executed a Deferred Compensation Agreement (the "Agreement") with Employee, whereby Grantor has agreed to pay additional compensation to Employee upon certain conditions and in certain forms, and to create this trust to facilitate the payment of a portion thereof; and WHEREAS, the Trustees have agreed to accept the responsibilities of serving as trustee of this Trust and of holding, managing, investing and distributing the property which the Trustees shall receive pursuant to the Agreement for the benefit and use of Employee, in accordance with the provisions hereinafter set forth; NOW, THEREFORE, in consideration of the premises, the parties hereby agree as follows: I. PURPOSE. The purpose of this Trust is (a) to hold assets received from Grantor in accordance with the Agreement, and (b) to invest, reinvest, disburse and distribute those assets and the earnings thereon as provided hereunder. II. TRUST PROPERTY. Grantor hereby assigns, transfers and sets over to the Trustees and their successors and assigns, and the Trustees hereby accept and agree to hold, in trust, the property described in Schedule "A" attached hereto and made a part hereof. The Trustees shall hold the trust property herein transferred, and such additional property as may be hereafter acquired by the Trustees, under the terms and provisions of this Trust for the use and benefit of Employee as is more specifically set out herein. The Trustees shall be entitled to receive the proceeds on death, maturity, or surrender of each and all life insurance policies owned by or payable to the Trust. 2 III. EMPLOYEE TREATED AS OWNER. It is intended that this Trust shall be a trust of which the Employee is treated as the "owner" for federal income tax purposes in accordance with the provisions of Sections 671 through 679 of the Internal Revenue Code of 1986, as amended (the "Code"), with the taxable income earned by this Trust being taxable to Employee. If the Trustee, in its sole discretion, deems it necessary or advisable for the Grantor or the Trustee to undertake or refrain from undertaking any actions (including, but not limited to, making or refraining from making any elections or filings) in order to ensure that the Employee is at all times treated as the owner of the Trust for federal income tax purposes, the Grantor or the Trustee will undertake or refrain from undertaking such actions. The Grantor hereby irrevocably authorizes the Trustee to be its attorney-in-fact for the purpose of performing any act which the Trustee, in its sole discretion, deems necessary or advisable in order to accomplish the purposes and the intent of this section. The Trustee shall be fully protected in acting or refraining from acting in accordance with the provisions of this section. IV. INVESTMENT OF TRUST ASSETS. Until the Trustee has distributed all of the assets of the Trust, the Trustee shall invest and reinvest the Trust assets in such securities and other property as the Trustee deems advisable, considering the probable income (including capital appreciation potential) from any such investment, and the probable safety of such investment. Within the limitations of the foregoing, The Trustee is specifically authorized to acquire, for cash or on credit, every kind of property, real, personal or mixed, and to make every kind of investment, specifically including, but not limited to, corporate and governmental obligations of every kind, preferred or common stocks (including the common stock of Grantor), securities of any regulated investment company or trust, interests in common trust funds now or hereafter established by a corporate trustee, and property in which the Trustee owns an undivided interest in any other trust capacity. The Trustee is expressly authorized and empowered to purchase life insurance on the life of Employee in its own name (and with itself as the beneficiary of the policy) as it shall determine to be necessary or advisable to advance best the purposes of the Trust and the interests of Employee. V. DISTRIBUTION OF TRUST ASSETS. A. All income from the Trust estate shall be accumulated and added to principal. The Trustee shall hold said Trust estate and accumulated income until the complete distribution of all of the assets of the Trust following the occurrence of the "Distribution Event." For purposes of this Trust, the "Distribution Event" is defined as the first date to occur of the following: (1) the date Employee attains age 70; (2) the date of Employee's death; (3) the date of Employee's termination of employment on account of total disability; or (4) a date elected by Employee in his sole discretion on or after the date Employee attains age 60. For purposes of this Trust, "total disability" is defined as the inability of Employee to adequately perform his regular duties for Employer as a result of sickness or accident. B. Upon the occurrence of the "Distribution Event," benefits shall be paid, commencing within sixty (60) days after such Event, as follows: (1) one-half (1/2) of the Trust 2 3 estate shall be paid in the form of a life annuity with payments guaranteed for five (5) years should Employee not live to receive the annuity payments for at least five (5) years, and any unpaid guaranteed portion of the annuity, being paid to Employee's designated beneficiary; and (2) the remaining one-half (1/2) of the Trust estate shall be paid either as an annuity or in a lump sum payment, as may be designated in writing by Employee by executing a "Designation of Method of Benefit Payment" form which shall be delivered to the Trustees at any time prior to the commencement of benefits from the Trust following the Distribution Event. At any time prior to the commencement of the payment of such remaining one-half (1/2) of the Trust benefits, the "Designation of Method of Benefit Payment" form may be modified, altered, or revoked. Each "Designation of Method of Benefit Payment" form filed by Employee with the Trustee shall revoke all such designations previously filed and such revocation shall not require the consent of any of Employee's designated beneficiaries. If Employee fails to execute a "Designation of Method of Benefit Payment" form and timely deliver it to the Trustee, the Trustee shall pay over and distribute such one-half (1/2) portion of the Trust in one lump-sum to Employee or his beneficiary, as the case may be. C. Upon making any distribution to Employee, the Trustee shall withhold from such distribution the amount, if any, required to be withheld for federal, state and local taxes. D. In the event Employee dies before receipt of all of his benefits under this Trust, Employee's beneficiary shall be his spouse; provided, however, Employee may, from time to time, designate a beneficiary other than his spouse if Employee's spouse consents irrevocably, in writing, to such designation of Employee's beneficiary; acknowledges the effect of such designation; and such consent and acknowledgment and the spouse's signature is witnessed by a Notary Public. Each beneficiary designation shall be on a form furnished by the Trustee and will be effective only when filed with the Trustee during Employee's lifetime. Each beneficiary designation filed by Employee with the Trustee will revoke all designations previously filed by him and such revocation shall not require the consent of any previously designated beneficiary. Any beneficiary designation previously made by Employee shall automatically be revoked upon the marriage or remarriage of Employee. A spouse's consent shall be valid only with respect to the specified beneficiary or beneficiaries by Employee unless the spouse has consented to expressly permit designations by Employee without the spouse's further consent as permitted by law. The spouse's consent to any beneficiary designation made by Employee, once made, may not be revoked by the spouse. Notwithstanding the foregoing, spousal consent to Employee's beneficiary designation shall not be required if: (i) the spouse is designated as the sole primary beneficiary, or (ii) it is established to the satisfaction of the Trustee that spousal consent cannot be obtained because there is no spouse, because the spouse cannot be located or because of such other circumstances as may be prescribed in Regulations issued by the Secretary of the Treasury. Any consent by a spouse or any determination that the consent is not required above shall be effective only with respect to such spouse. If Employee fails to designate a beneficiary, or if the designated beneficiary dies before Employee or before distribution of all of the benefits and there are no alternate designated 3 4 beneficiaries, the Trustee shall distribute such benefits to the following persons in the following order of priority: (1) The spouse of Employee, if then living, and if not, (2) The estate of the last to die of Employee or any designated beneficiary of Employee. If any beneficiary is a minor, the payment of his or her share of said benefits shall be delivered to the person having custody of such minor, as custodian of the property of such minor under the applicable Uniform Gifts to Minors Act of the state in which the minor shall reside. VI. JOINT AND SURVIVOR ANNUITY REQUIREMENTS. A. Qualified Joint and Survivor Annuity. Unless an optional form of benefit is selected by Employee pursuant to a qualified election within the 90-day period ending on the annuity starting date, the benefits of Employee under this Trust, if Employee is married, will be paid in the form of a qualified joint and survivor annuity, and if Employee is unmarried, Employee's benefits will be paid in the form of a life annuity. B. Qualified Preretirement Survivor Annuity. If Employee is married and dies before the annuity starting date and has not selected an optional form of benefit within the election period pursuant to a qualified election, then Employee's full benefit under this Trust shall be applied toward the purchase of an annuity for the life of Employee's surviving spouse. The surviving spouse may elect to have such annuity distributed within a reasonable period after Employee's death. C. Definitions. 1. Election Period: The period which begins on the first day of the calendar year in which Employee attains age 35 and ends on the date of Employee's death. If Employee separates from service prior to the first day of the calendar year in which age 35 is attained, with respect to the benefits as of the date of separation, the election period shall begin on the date of separation. Pre-age 35 waiver: If Employee has not yet attained age 35 as of the end of any current calendar year, he may make a special qualified election to waive the qualified preretirement survivor annuity for the period beginning on the date of such election and ending on the first day of the calendar year in which Employee attains age 35. Such election shall not be valid unless Employee receives a written explanation of the qualified preretirement survivor annuity in comparable manner to the explanation required under paragraph D.1. of this Article VI. Qualified preretirement survivor annuity coverage will be automatically reinstated as of the first day of the calendar year in which Employee attains age 35. Any new waiver on or after such date shall be subject to the full requirements of this Article VI. 4 5 2. Earliest Retirement Age: The earliest date on which Employee can elect to receive retirement benefits under this Trust. 3. Qualified Election: A waiver of a qualified joint and survivor annuity or a qualified preretirement survivor annuity. Any such waiver shall not be effective unless: (a) Employee's spouse consents in writing to the election; (b) the election designates a specific beneficiary, including any class of beneficiaries or any contingent beneficiaries, which may not be changed without spousal consent (or the spouse expressly permits designations by Employee without any further spousal consent); (c) the spouse's consent acknowledges the effect of the election; and (d) the spouse's consent is witnessed by a Notary Public. Additionally, Employee's waiver of the qualified joint and survivor annuity shall not be effective unless the election designates a form of benefit payment which may not be changed without spousal consent (or the spouse expressly permits designations by Employee without any further spousal consent). If it is established to the satisfaction of the Trustee that there is no spouse or that the spouse cannot be located, a waiver will be deemed a qualified election. Any consent by a spouse obtained under this provision (or establishment that the consent of a spouse may not be obtained) shall be effective only with respect to such spouse. A consent that permits designations by Employee without any requirement of further consent by such spouse must acknowledge that the spouse has the right to limit consent to a specific beneficiary, and a specific form of benefit where applicable, and that the spouse voluntarily elects to relinquish either or both of such rights. A revocation of a prior waiver may be made by Employee without the consent of his spouse at any time before the commencement of benefits. The number of revocations shall not be limited. No consent obtained under this provision shall be valid unless Employee has received notice as provided in paragraph D. of this Article. 4. Qualified Joint and Survivor Annuity: An immediate annuity for the life of Employee with a survivor annuity for the life of the spouse which is not less than 50 percent and not more than 100 percent of the amount of the annuity which is payable during the joint lives of Employee and the spouse and which is the amount of benefit which can be purchased with the Employee's benefits. The percentage of the survivor annuity shall be 50%. 5. Spouse (Surviving Spouse): The spouse or surviving spouse of Employee, provided that a former spouse will be treated as the spouse or surviving spouse and a current spouse will not be treated as the spouse or surviving spouse to the extent provided under a qualified domestic relations order as described in Section 414(p) of the Code. 6. Annuity Starting Date: The first day of the first period for which an amount is paid as an annuity or any other form. D. Notice Requirements. 1. In the case of a qualified joint and survivor annuity, the Trustee shall no less than 30 days and no more than 90 days prior to the annuity starting date provide to Employee a written explanation of: (a) the terms and conditions of a qualified joint and survivor annuity; (b) Employee's right to make and the effect of an election to waive the qualified joint 5 6 and survivor annuity form of benefit; (c) the rights of Employee's spouse; and (d) the right to make, and the effect of, a revocation of a previous election to waive the qualified joint and survivor annuity. 2. In the case of a qualified preretirement survivor annuity, the Trustee shall provide Employee within the applicable period for such Employee a written explanation of the qualified preretirement survivor annuity in such terms and in such manner as would be comparable to the explanation provided for meeting the requirements of 1. Above, applicable to a qualified joint and survivor annuity. The "applicable period" for Employee is whichever of the following periods ends last: (a) the period beginning with the first day of the calendar year in which Employee attains age 32 and ending with the close of the calendar year preceding the calendar year in which Employee attains age 35; or (b) a reasonable period ending after this Article VI first applies to Employee. Notwithstanding the foregoing, notice must be provided within a reasonable period ending after separation from service if Employee separates from service before attaining age 35. For purposes of applying the preceding paragraph, a reasonable period ending after the enumerated event described in (b) is the end of the two-year period beginning one year prior to the date the applicable event occurs, and ending one year after that date. If Employee separates from service before the calendar year in which age 35 is attained, notice shall be provided within the two-year period beginning one year prior to separation and ending one year after separation. If Employee thereafter returns to employment with Employer, the applicable period for Employee shall be redetermined. VII. TERMINATION OF THE TRUST. The Trust shall terminate upon the payment by the Trustee of all amounts due Employee under this Trust and the receipt by the Trustee of a valid release to that effect from Employee or his beneficiaries with respect to payments made to him or them. VIII. TRUSTEE'S POWERS. In addition to the powers conferred upon the Trustee by law, or by other provisions of this Trust, the Trustee shall have the following powers, both as to principal and income: A. To retain any property at any time forming a part of the Trust estate for such length of time as the Trustee may deem advisable; and such retention shall not be restricted to property of the character authorized for trust investments by the laws of any state. B. To sell at public or private sale or to exchange, lease, pledge, or mortgage, all or any part of the Trust estate and invest and reinvest the Trust estate or the proceeds from the sale thereof in stocks (common or preferred), bonds, certificates of deposit (including those issued by the bank herein named as Trustee), common trust funds, mutual funds, annuities, or life 6 7 insurance contracts on the life of Employee or on the life of any person in whom Employee has an insurable interest, or in other property of any type, without regard to the proportion that such property may bear to the total corpus of the Trust estate, as the Trustee may deem advisable. To borrow money with or without security for any purpose and to pledge securities or other properties to secure any such loan; to execute all deeds, assignments, mortgages, leases or other instruments necessary or proper for the foregoing purposes. C. To register any property in the name of any nominee without describing the Trust estate and to retain any property in bearer form. D. To acquire, own, rent, hold, maintain and improve dwellings for the use and benefit of Employee or his beneficiaries. E. To exercise all options and privileges available under life insurance policies which at any time may form a part of the Trust, including but not limited to the right to receive dividends of distributive shares of surplus, disability benefits, surrender values, or the proceeds of matured endowments; to obtain and receive such advances or loans on account of a policy which may be available; to exercise any option or privilege granted in a policy or permitted by an insurer including, but not limited to, the right to direct that dividends be used under any of the options promised in the policy or permitted by the insurer; to sell, assign, or pledge a policy. These rights shall include the right in the Trustee to use any part or all of the proceeds of any or all of said policies on death or maturity under any or all of the settlement options; provided, however, that the Trustee shall be the designated recipient of any income or interest payment under an elected settlement, and any life income settlement elected shall be measured only by the life or lives of one or more of the beneficiaries of this Trust. F. To vote by proxy and consent to, approve, authorize, become a party to and execute any instrument in connection with any corporate act in which the Trust estate may be interested, including (without limitation) any merger, consolidation, reorganization, capital readjustment, dissolution, liquidation, lease, or sale. G. To keep uninvested such amounts of cash and deposit such monies in such bank account or accounts, including savings accounts, as the Trustee may from time to time deem advisable. The Trustee may keep on deposit with itself, in either the commercial or savings department, subject to the same rules and regulations as any other deposit, without furnishing bond or security, any cash under its care and management, whether corpus or income; awaiting investment, reinvestment or distribution; provided, however, there shall be no liability upon the part of the Trustee for the payment of interest or any other charge or claim during the time any such cash is kept on deposit with itself awaiting investment, reinvestment or distribution, except to the same extent interest shall be payable on deposits in the savings department of a Trustee as to any such cash on deposit in said savings department. H. To compromise, adjust, settle and compound, or submit to arbitration on such terms as the Trustee may deem advisable any claims in favor of or against the Trust estate, which shall include any tax payable by the Trust. 7 8 I. To sell, lease, exchange, and grant options on any property, and to do any of the same at public or private sale and upon such terms and conditions and at such time and times as the Trustee may deem advisable, and to execute and deliver any and all instruments of any type required in the premises; and no purchaser, lessee, transferee, optionee, or other party to any such transaction shall be obligated to see to the further application of any monies after the same shall have been paid to the Trustee. J. To employ legal counsel and such other agents and employees as are deemed necessary in the administration of the Trust estate and pay their reasonable compensation and expenses. To pay, compromise or contest any claim or other matter directly or indirectly affecting this Trust and to employ counsel for any of the above or other purposes, and to determine whether or not to act upon the advice of such counsel; but the Trustee shall not, except at its option, be required to enter into or defend litigation on behalf the Trust until it shall have been indemnified to its satisfaction against all expenses and liabilities to which it may, in its judgment, be subjected by any such action on its part. K. To exercise in respect of all stocks, bonds, or other investments held by the Trustee hereunder, all such rights, options, powers, and privileges as are or may be lawfully exercised by any person owning similar property in its own right. L. To exercise in respect of all real estate held by the Trust hereunder, all such rights, powers and privileges as are or may be lawfully exercised by any person owning real estate in its own right. M. To determine in the Trustee's discretion whether money or property coming into the Trust's possession shall be treated as income or principal, and charge or apportion expenses or leases either to the principal or income accounts or partly to each, in such manner as it may in its discretion deem just and proper. N. To make any required or discretionary distribution in money or in kind, or partially in money and partially in kind. Distribution in kind shall be made at the fair market value of the property distributed, as determined by the Trustee in its sole discretion, and the Trustee may cause the share to be transferred to any distributes to be composed of property like or different from that transferred to any other distributee. In making any distribution to the Employee or otherwise under the provisions of this Trust, Trustees shall be entitled to rely on information furnished by Employee. O. To execute and deliver all written instruments for the exercise of any Trustee powers. IX. RESIGNATION OR REMOVAL OF TRUSTEE. Each Trustee reserves the right to resign at any time by giving at least thirty (30) days' written notice to Grantor or such shorter notice as may be acceptable to Grantor. Grantor reserves the right to remove and replace any Trustee with a successor Trustee at any time by giving at least thirty (30) days' written notice to the Trustee or such shorter notice as may be 8 9 acceptable to the Trustee. On resignation of a Trustee, the remaining Trustee(s) shall continue to serve as Trustee hereunder. Upon the resignation or death of all of the Trustees then acting, then COLUMBUS BANK AND TRUST COMPANY, Columbus, Georgia, and its successor or successors and assigns, shall serve as successor Trustee hereunder. Upon the resignation or removal of Columbus Bank and Trust Company, Grantor shall appoint a successor Trustee who shall have the same powers and duties as those conferred upon the Trustee hereunder. Upon acceptance of such appointment by the successor Trustee, the Trustee shall assign, transfer and pay over to such successor Trustee the funds and properties then constituting the Trust estate and, in that connection, shall cause any part thereof then held in any commingled trust to be withdrawn therefrom. A successor Trustee may be any qualified person or corporation. The successor Trustee may accept and rely upon any accounting made by or on behalf of the predecessor Trustee and on any statement or representation made by such fiduciary as to the assets comprising this Trust estate or as to any other fact bearing on the prior administration of this Trust. A Trustee shall not be liable for having accepted and relied upon such accounting, statement, or representation if it is later proved to be incomplete, inaccurate, or untrue. A Trustee shall not be liable for any act or omission of any predecessor fiduciary or Co-Trustee, nor for any act or omission done in good faith. No Trustee shall be required to give any bond or other security for the faithful performance of its duties, or, if a bond is required by law, no surety shall be required thereon. X. TRUSTEE COMPENSATION. An individual Trustee hereunder shall serve without compensation for his services in the administration of this Trust; provided that the compensation of any corporate Trustee shall be in accordance with its standard schedule of fees at the time. The Trustee shall be reimbursed for the reasonable costs and expenses which it incurs in connection with its duties hereunder. Such compensation, if applicable, and all other proper costs and expenses shall be paid from the Trust estate, unless Grantor elects to pay such amounts. XI. ANNUAL ACCOUNTING. The Trustee shall keep accurate and detailed accounts of all investments, receipts and disbursements and other transactions hereunder, and, within ninety (90) days following the close of each calendar year, and within ninety (90) days after the Trustee's resignation or termination of the Trust as provided herein, the Trustee shall render a written account of its administration of the Trust to the Grantor by submitting a record of receipts, investments, disbursements, distributions, gains, losses, assets on hand at the end of the accounting period and other pertinent information, including a description of all securities and investments purchased and sold during such calendar year. Written approval of an account shall, as to all matters shown in the account, be binding upon the Grantor and shall forever release and discharge the Trustee from any liability or accountability. The Grantor will be deemed to have given its written approval if Grantor does not object in writing to the Trustee within 120 days after the date of receipt of such account from the Trustee. The Trustee shall be entitled at any time to institute an action in a court of competent jurisdiction for a judicial settlement of its account. 9 10 XII. COLLECTION OF INSURANCE PROCEEDS. In the event that the Trust property shall include policies of life insurance on the date of the insured's death, the Trustee shall, as soon as is practical after that date, furnish proof of death to the insuring companies and shall collect all monies due under all policies, or make other suitable settlement arrangements or agreements with the insuring companies, subject only to this Trust. In connection with the collection of the proceeds of any such policies, the Trustee shall have full authority to take any action it deems best, and is hereby authorized to execute all necessary receipts and releases to the insuring companies concerned. XIII. TRUST IRREVOCABLE. Grantor specifically directs that except as otherwise provided herein, the Trust herein created is irrevocable and that there are no conditions or reservations of power in Grantor to revoke, alter, or amend this Agreement, in whole or in part; provided, however, that the Trust may be amended as necessary at any time to obtain a favorable ruling from the Internal Revenue Service with respect to the tax consequences of the establishment and settlement of the Trust, and may be amended by revising or deleting part or all of such terms and provisions of Article VI as may be permitted by the law then applicable to such Article VI subject to the approval of Grantor and Employee. There are no conditions or reservations of power in Grantor to free any or all of the property constituting said Trust estate from the terms of this Trust. XIV. NOTICES. Any notice or instructions required under any of the provisions of this Trust shall be deemed effectively given only if such notice is in writing and is delivered personally or by certified or registered mail, return receipt requested and postage prepaid, addressed to the addresses as set forth below of the parties hereto. The addresses of the parties are as follows: (i) Grantor: Carmike Cinemas, Inc. 1301 First Avenue Post Office Box 391 Columbus, Georgia 31902 (ii) Trustees: Michael Wynn Patrick 1301 First Avenue Post Office Box 391 Columbus, Georgia 31902 10 11 F. Lee Champion, III 1301 First Avenue Post Office Box 391 Columbus, Georgia 31902 Larry M. Adams 1301 First Avenue Post Office Box 391 Columbus, Georgia 31902 Or If To: Columbus Bank and Trust Company Post Office Box 120 Columbus, Georgia 31902 The Grantor or Trustees may at any time change the address to which notices are sent to it by giving written notice thereof in the manner provided above. XV. MISCELLANEOUS PROVISIONS. A. All actions by the Trustees shall be made by a majority vote of the Trustees. B. Except as may be otherwise provided herein, in the distribution of the trust herein created, the Trustee, in its discretion, may pay over the assets to be distributed either in cash or in property, or partly in cash and partly in property, and at such valuations as to it may seem proper, and the determination of the Trustee of the value of any property for the purpose of distributing any asset hereunder shall be final, conclusive and binding upon all parties interested in such distribution. C. As to all or any portion of the Trust estate which may be payable to Employee or any beneficiary hereunder, he shall have no right or power, either directly or indirectly, to anticipate, discharge, mortgage, encumber, assign, pledge, hypothecate, sell or otherwise dispose of all or any part thereof, until the same shall have been actually paid to him by the Trustee. The Trustee shall continue distributing Trust property directly to or for the benefit of Employee or beneficiary as provided for herein notwithstanding any transfer, assignment or conveyance, or action by creditors. Neither the income, principal or corpus of the Trust estate, nor any part thereof, nor any interest in the same, shall be liable for or subject to any debts, claims or obligations of any kind or nature whatsoever, or to any legal process in aid thereof, contracted or incurred by or for Grantor, Employee or any beneficiary hereunder. D. No provision of this Trust Agreement shall be construed as giving Employee any right to continued employment with Grantor. 11 12 E. Employee and any of his beneficiaries hereunder shall have no right or interest in any portion of the Trust estate at any time prior to its distribution. F. This Trust shall be governed by and construed in accordance with the laws of the State of Georgia applicable to contracts made and to be performed therein and the Trustee shall not be required to account in any court other than one of the courts of such state. G. All section and paragraph headings herein have been inserted for convenience of reference only and shall in no way modify, restrict or affect the meaning or interpretation of any of the terms or provisions of this Trust. H. This Trust is intended as a complete and exclusive statement of the agreement of the parties hereto, supersedes all previous agreements or understandings among them and may not be modified or terminated orally. I. The term `Trustee" shall include any successor Trustee. J. If the Trustee hereunder is a bank or trust company, any corporation resulting from any merger, consolidation or conversion to which such bank or trust company may be a party, or any corporation otherwise succeeding generally to all or substantially all of the assets or business of such bank or trust company, shall be the successor to it as Trustee or custodian hereunder, as the case may be without the execution of any instrument or any further action on the part of any party hereto. K. If any provision of this Trust shall be invalid and unenforceable, the remaining provisions hereof shall subsist and be carried into effect. L. Any reference hereunder to Grantor shall expressly be deemed to include Grantor's successor and assigns. M. Whenever used herein, and to the extent appropriate, the masculine, feminine or neuter gender shall include the other two genders, the singular shall include the plural and the plural shall include the singular. 12 13 IN WITNESS WHEREOF, Grantor has caused this Trust to be duly executed by and through its duly authorized corporate officers, with its corporate seal to be hereunto affixed, and Trustees have hereunto set their hands and seals as of the day and year first above written. GRANTOR: CARMIKE CINEMAS, INC. BY: --------------------------------------- Its: -------------------------- ATTEST: ----------------------------------- Its: -------------------------- (Corporate Seal) TRUSTEES: ------------------------------------(L.S.) MICHAEL WYNN PATRICK ------------------------------------(L.S.) F. LEE CHAMPION, III ------------------------------------(L.S.) LARRY M. ADAMS 13 14 SCHEDULE "A" PROPERTY CASH in the amount of TWO THOUSAND SIX HUNDRED AND 00/100 DOLLARS ($2,600.00). GRANTOR: CARMIKE CINEMAS, INC. BY: --------------------------------------- Its: -------------------------- ATTEST: ----------------------------------- Its: -------------------------- (Corporate Seal) TRUSTEES: ------------------------------------(L.S.) MICHAEL WYNN PATRICK ------------------------------------(L.S.) F. LEE CHAMPION, III ------------------------------------(L.S.) LARRY M. ADAMS EX-21 6 LIST OF SUBSIDIARIES 1 EXHIBIT 21 CARMIKE CINEMAS, INC. LIST OF SUBSIDIARIES
SUBSIDIARY STATE OF INCORPORATION % OWNED ---------- ---------------------- ------- Eastwynn Theatres, Inc. Alabama 100% Wooden Nickel Pub, Inc. Delaware 100% Military Services, Inc. Delaware 80%
EX-23 7 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements Forms S-8 (No. 33-13723 and No. 33-48011) pertaining to the stock option plan of Carmike Cinemas, Inc., Form S-8 (No. 333-53329) pertaining to Carmike Cinemas, Inc.'s 1998 Class A Stock Option Plan and Form S-4 (No. 333-77333) pertaining to the registration of $200 million of its 9 3/8% Series B Senior Subordinated Notes due 2009 of our report dated February 17, 2000, except for Note 5, as to which the date is April 10, 2000, with respect to the consolidated financial statements and schedule of Carmike Cinemas, Inc. and subsidiaries included in the Annual Report (Form 10-K), for the year ended December 31, 1999. /s/ Ernst & Young LLP --------------------- Columbus, Georgia April 10, 2000 EX-27.1 8 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 6,509 1,175 2,638 0 4,240 30,594 864,599 183,100 807,494 105,946 273,688 0 550 342 203,305 807,494 150,945 486,925 19,046 421,935 41,146 0 36,853 (20,325) (7,740) (12,585) 0 (6,291) 0 (18,876) (1.93) (1.93) TOTAL COSTS INCLUDES IMPAIRMENT OF LONG LIVED ASSETS CHARGE OF $33.0 MILLION AND A RESTRUCTURING CREDIT OF $2.7 MILLION. (SEE NOTES 2 AND 3 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
EX-27.2 9 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF CARMIKE CINEMAS, INC. FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 DEC-31-1998 17,771 801 522 0 3,851 28,831 733,934 160,322 697,543 84,665 81,883 0 550 341 225,418 697,543 151,034 481,568 19,911 458,534 37,502 0 27,230 (48,813) (18,166) (30,647) 0 0 0 (30,647) (2.73) (2.73) TOTAL COSTS INCLUDES IMPAIRMENT OF LONG LIVED ASSETS CHARGE OF $38.3 MILLION AND A RESTRUCTURING CHARGE OF $34.7 MILLION.
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