CARMIKE CINEMAS, INC.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2005


o		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 000-14993

CARMIKE CINEMAS, INC.

(Exact Name of Registrant as Specified in Its Charter)


DELAWARE		58-1469127
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1301 First Avenue, Columbus, Georgia		31901-2109
(Address of Principal Executive Offices)		(Zip Code)

(706) 576-3400
(Registrant’s Telephone Number, Including Area Code)

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 þ No o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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

Indicate the number of shares outstanding of the issuer’s common stock, as of the latest practicable date.

Common Stock, par value $0.03 per share —12,309,002 shares outstanding as of October 30, 2005.

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

CARMIKE CINEMAS, INC. and SUBSIDIARIES

(in thousands, except for share data)


	September 30,			December 31,
	2005			2004 (restated)

Assets
Current assets:
Cash and cash equivalents		—		$	56,944
Restricted cash		1,000			—
Accounts and notes receivable		1,364			1,464
Inventories		1,953			1,459
Prepaid expenses		6,636			6,252

Total current assets		10,953			66,119
Other assets:
Restricted cash		2,200			—
Investment in and advances to partnerships		3,371			2,718
Deferred income tax asset		42,956			50,601
Assets held for sale		5,092			6,534
Other		25,976			21,027

Total other assets		79,595			80,880
Property and equipment, net of accumulated depreciation		558,535			469,502
Goodwill and other intangibles , net of accumulated amortization		41,699			23,354

Total assets	$	690,782		$	639,855


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	15,245		$	22,710
Accrued expenses		34,692			35,582
Dividends payable		2,154			2,128
Current maturities of long-term debt, capital lease obligations and long-term financing obligations		3,321			2,872

Total current liabilities		55,412			63,292
Long-term liabilities:
Long-term debt, less current maturities		317,875			248,000
Capital lease obligations and long-term financing obligations, less current maturities		71,317			72,530

		389,192			320,530
Other		2,200			—
Liabilities subject to compromise		—			1,348
Stockholders’ Equity
Preferred Stock, $1.00 par value, authorized 1,000,000 shares, none outstanding as of September 30, 2005 and December 31, 2004, respectively		—			—
Common Stock, $0.03 par value, authorized 20,000,000 shares, 12,455,622 shares issued and 12,309,002 shares outstanding as of September 30, 2005 and 12,162,622 shares issued and outstanding as of December 31, 2004		374			365
Paid-in capital		310,689			308,990
Treasury stock, 146,620 shares at cost		(5,210	)		—
Retained deficit		(61,875	)		(54,670	)

		243,978			254,685

Total liabilities and stockholders’ equity	$	690,782		$	639,855

See accompanying notes

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

CARMIKE CINEMAS, INC. and SUBSIDIARIES

(in thousands, except per share data)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
				(restated)						(restated)

Revenues
Admissions	$	77,247		$	77,750		$	223,596		$	245,652
Concessions and other		39,610			39,178			114,713			121,300

		116,857			116,928			338,309			366,952

Costs and Expenses
Film exhibition costs		41,038			41,857			123,340			127,282
Concession costs		3,734			4,043			11,777			13,113
Other theatre operating costs		47,195			45,746			139,441			136,301
General and administrative expenses		3,726			4,588			14,333			13,468
Depreciation expenses		9,822			9,363			27,819			26,609
(Gain) loss on sales of property and equipment		(72	)		7			(498	)		(570	)

		105,443			105,604			316,212			316,203

Operating income		11,414			11,324			22,097			50,749
Other expenses
Interest expense		7,739			4,240			21,097			18,266
Loss on extinguishment of debt		—			—			5,795			9,579

Income (loss ) before reorganization costs and income taxes		3,675			7,084			(4,795	)		22,904
Reorganization expense (benefit)		—			(5,116	)		(2,388	)		(8,997	)

Income (loss) before income taxes		3,675			12,200			(2,407	)		31,901
Income tax expense (benefit)		2,354			4,933			(1,664	)		12,900

Net income (loss) available for common stockholders	$	1,321		$	7,267		$	(743	)	$	19,001


Weighted average shares outstanding:
Basic		12,212			11,991			12,175			11,608
Diluted		12,690			12,715			12,698			12,343
Net income (loss) per common share:
Basic	$	0.11		$	0.61		$	(0.06	)	$	1.64
Diluted	$	0.10		$	0.57		$	(0.06	)	$	1.54
Dividend declared per common share	$	0.175		$	0.175		$	0.525		$	0.350

See accompanying notes

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

CARMIKE CINEMAS, INC. and SUBSIDIARIES

(in thousands)


	Nine Months Ended
	September 30
	2005			2004 (restated)

Operating Activities
Net income (loss)	$	(743	)	$	19,001
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		27,871			26,609
Deferred income taxes		137			12,262
Non-cash compensation		2,169			4,038
Reorganization items		(2,391	)		(9,219	)
Non-cash Loss on extinguishment of debt		3,820			9,579
Gain on real estate sales		(498	)		(570	)
Changes in operating assets and liabilities:
Accounts and notes receivable and inventories		649			(2,380	)
Prepaid expenses		120			(10,044	)
Accounts payable		(6,491	)		(16,550	)
Accrued expenses and other liabilities		(22,768	)		(15,750	)

Net cash provided by operating activities		1,875			16,976
Investing Activities
Purchases of property and equipment		(58,864	)		(23,641	)
Acquisition of GKC Theatres’ stock		(58,882	)		—
Funding of GKC acquisition escrow account		(3,200	)		—
Proceeds from sales of property and equipment		1,937			1,289

Net cash used in investing activities		(119,009	)		(22,352	)
Financing Activities
Additional borrowings		170,000			250,263
Repayments of long-term debt		(97,749	)		(332,334	)
Repayments of liabilities subject to compromise		(958	)		(1,785	)
Repayments of capital leases and long-term financing obligations		(1,165	)		(774	)
Issuance of common stock, net		1,708			89,346
Purchase of treasury stock		(5,210	)		—
Dividends paid		(6,436	)		(2,127	)

Net cash provided by financing activities		60,190			2,589

Increase (decrease) in cash and cash equivalents		(56,944	)		(2,787	)
Cash and cash equivalents at beginning of period		56,944			41,236

Cash and cash equivalents at end of period	$	—		$	38,449

See accompanying notes

Significant Non-Cash Transactions:

In connection with the acquisition of GKC Theatres (as defined in Note 4), the Company assumed liabilities of $4.2 million, a deferred tax liability of $7.5 million and established a restricted cash escrow account of $3.2 million for certain deferred payments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CARMIKE CINEMAS, INC. and SUBSIDIARIES

For the Three and Nine months Ended September 30, 2005 and 2004

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

On August 8, 2000, Carmike Cinemas, Inc. (“Carmike”) and its subsidiaries, Eastwynn Theatres, Inc., Wooden Nickel Pub, Inc. and Military Services, Inc. (collectively “the Company”) filed voluntary petitions for relief under Chapter 11 (the “Chapter 11 Cases”) of the United States Bankruptcy Code. In connection with the Chapter 11 Cases, the Company was required to report in accordance with Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code, (“SOP 90-7”). SOP 90-7 requires, among other things, (1) pre-petition liabilities that are subject to compromise be segregated in the Company’s consolidated balance sheet as liabilities subject to compromise and (2) the identification of all transactions and events that are directly associated with the reorganization of the Company in the Consolidated Statements of Operations. The Company emerged from the Chapter 11 Cases pursuant to its plan of reorganization effective on January 31, 2002. On February 11, 2005, the Company filed a motion seeking an order entering a final decree closing the bankruptcy cases. On March 15, 2005, the United States Bankruptcy Court of the District of Delaware entered a final decree closing the bankruptcy cases.

Further, the Company’s accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and bankruptcy related items) considered necessary for a fair statement have been included. Operating results for the three month period ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the consolidated financial statements and footnotes included in Carmike’s Annual Report on Form 10-K/A, Amendment No. 2 for the year ended December 31, 2004, as amended.

The Company has identified several significant accounting policies which can be reviewed in detail in Note 1 of the Company’s Annual Report on Form 10-K/A, Amendment No. 2 for the year ended December 31, 2004, as amended.

The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”). Reflected in the Consolidated Statements of Operations for the three months ended September 30, 2005 and 2004 is $.3 million and $1.0 million, respectively, of stock-based employee compensation cost related to stock grants ($0.8 million from fixed accounting for the three months ended September 30, 2005 and 2004 and ($.5) million and $.2 million, respectively, from variable accounting for the three months ended September 30, 2005 and 2004.) Additionally, reflected in the Consolidated Statements of Operations for the nine months ended September 30, 2005 and 2004 is $2.2 million and $4.0 million, respectively, of stock-based employee compensation costs related to stock grants ($2.4 million from fixed accounting for the nine months ended September 30, 2005 and 2004 and ($.2) million and $1.6 million, respectively, from variable accounting for the nine months ended September 30, 2005 and 2004). See Note 13 to “Notes To Consolidated Financial Statements” for a discussion of Statement of Financial Accounting Standards No. 123(R), Share Based Payment (“SFAS 123(R)”).

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that 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. The Company has adopted SFAS No. 148, Accounting for Stock Based Compensation-Transition and Disclosure (“SFAS No. 148”). For SFAS No. 148 purposes, the fair value of each option grant and stock based award has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:


	2005			2004
Expected life (years)		9.0			9.0
Risk-free interest rate		4.40	%		4.40	%
Dividend yield		1.90	%		1.90	%
Expected volatility		0.40			0.40

Had compensation cost been determined consistent with SFAS No. 123 Accounting for Stock Based Compensation (“SFAS No. 123”), utilizing the assumptions detailed above, the Company’s pro forma net income (loss) and pro forma basic and diluted earnings (loss) per share would have decreased to the following amounts (in thousands, except share data):


	Three Months Ended						Nine Months Ended
	September 30						September 30
	2005			2004			2005			2004
				(restated)						(restated)

Net income (loss) available for common stock:
As reported	$	1,321		$	7,267		$	(743	)	$	19,001
Plus: expense recorded on deferred stock compensation, net of related tax effects		106			604			666			2,391
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(422	)		(874	)		(1,267	)		(2,676	)

Pro forma – for SFAS No. 123	$	1,005		$	6,997		$	(1,344	)	$	18,716

Basic net earnings per common share:
As reported	$	0.11		$	0.61		$	(0.06	)	$	1.64
Pro forma – for SFAS No. 123	$	0.08		$	0.58		$	(0.11	)	$	1.61
Diluted net earnings per common share:
As reported	$	0.10		$	0.57		$	(0.06	)	$	1.54
Pro forma – for SFAS No. 123	$	0.08		$	0.55		$	(0.11	)	$	1.52

The Company’s Board of Directors declared a quarterly dividend of $0.175 per share on August 24, 2005. The dividend was paid on November 2, 2005 to stockholders of record as of October 4, 2005. The aggregate amount of this dividend is approximately $2.2 million.

NOTE 2 — ASSETS HELD FOR SALE

The Company has $5.1 million in surplus long-term real estate assets held for sale as of September 30, 2005. The carrying values of these assets are reviewed periodically as to relative market conditions and are adjusted in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. No impairment was deemed necessary on the assets in the third quarter of 2005. Disposition of these assets is contingent on current market conditions and we cannot be assured that they will be sold at a value equal to or greater than the current carrying value.

NOTE 3 — OTHER ASSETS

Other assets are as follows (in thousands):


	September 30,		December 31,
	2005		2004
Loan/lease origination fees	$	20,754	$	17,298
Deposits and binders		5,183		3,689
Notes receivable less short-term maturity and other assets		39		40

	$	25,976	$	21,027

NOTE 4 — ACQUISITION OF GKC THEATRES

On May 19, 2005, the Company acquired 100% of the stock of George G. Kerasotes Corporation (“GKC Theatres”) for a net purchase price of $62.1 million, adjusted for working capital of $3.9 million. The GKC Theatres acquisition upholds our traditional focus by taking advantage of opportunistic small market acquisitions. The purchase price was negotiated using the historical average cash flows for the previous five year period ending December 31, 2004 and adjusted for other assets acquired and liabilities assumed. The consolidated financial statements for and as of the nine month period ended September 30, 2005 include the assets and liabilities and the operating results for the period from acquisition date through September 30, 2005. Pursuant to SFAS 141, Business Combinations (“SFAS 141”), the Company applied purchase accounting to the transaction, resulting in recognition of additional property and equipment of $53.8 million. A draft valuation of certain tangible and intangible assets acquired was issued by KPMG, LLP in July 2005. A final valuation report is expected to be received during the fourth quarter of 2005. The Company recognized additional goodwill and other intangibles of approximately $18.0 million from the transaction. None of the goodwill recognized is deductible for tax purposes. GKC Theatres operated 30 theatres with 263 screens in Illinois, Indiana, Michigan and Wisconsin.

Actual cash paid at closing was $58.9 million of the net purchase price of $62.1 million. As stipulated, in the purchase agreement, the remainder of the purchase price, $3.2 million, was set aside in an escrow account. The $3.2 million has been classified as restricted cash in the Company’s consolidated balance sheet. The Company has recorded a liability of $1.0 million in current accrued expenses and $2.2 million in other liabilities in the Company’s consolidated balance sheet, representing deferred payments. The current escrow amount of $1.0 million was to be settled within 120 days of the date of acquisition but has been extended an additional 60 days while the long-term escrow amount of $2.2 million is to be settled within 18 months of the date of acquisition.

The following is a summary of the preliminary allocations of the aggregate cash purchase price to the estimated fair values of the assets acquired and liabilities assumed at the respective date of acquisition (in thousands):


Current assets	$	1,547
Land		14,809
Buildings, leasehold improvements and equipment, net		38,899
Goodwill		16,145
Other intangible assets		2,362
Other non-current assets		519
Current liabilities		(4,223	)
Other non-current liabilities		(7,975	)


Total purchase price	$	62,083

Pro Forma Results of Operations

The following pro forma results of operations for the three and nine months ended September 30, 2005 and the three and nine months ended September 30, 2004 assumes the GKC Theatres acquisition occurred at the beginning of the fiscal year January 1, 2004 and reflects the full results of operations for the three month and nine month periods presented. The pro forma results have been prepared for comparative purposes only and do not purport to indicate the results of operations which would actually have occurred had the combinations been in effect on the dates indicated, or which may occur in the future.

(in thousands except per share amounts):


	Three Months Ended				Nine Months Ended
	September 30,				September 30
	2005		2004 (restated)		2005			2004 (restated)

Revenues	$	116,857	$	129,785	$	355,385		$	407,552
Income from operations		11,414		12,720		20,854			55,513
Net Income (loss)	$	1,321	$	8,179		($1,718	)	$	21,614
Earnings per share
Basic:	$	0.11	$	0.68		($0.14	)	$	1.86
Diluted:	$	0.10	$	0.64		($0.14	)	$	1.75

NOTE 5 – DEBT

Debt consisted of the following (in thousands):


	September 30,			December 31,
	2005			2004
Former revolving credit facility	$	—		$	—
New revolving credit facility		—			—
Former term loan		—			99,000
New term loan		169,575			—
New delayed draw term loan		—			—
7.500% senior subordinated notes		150,000			150,000
Industrial revenue bonds; payable in equal installments through May 2006, with interest rates ranging from 5.75% to 7%		10			315

		319,585			249,315
Current maturities		(1,710	)		(1,315	)

	$	317,875		$	248,000

Recent Financing Transactions

On May 19, 2005, the Company entered into a new credit agreement with Bear, Stearns & Co. Inc., as sole lead arranger and sole book runner, Wells Fargo Foothill, Inc., as documentation agent, and Bear Stearns Corporate Lending Inc., as administrative agent. The new credit agreement provides for new senior secured credit facilities in the aggregate principal amount of $405.0 million.

The new senior secured credit facilities consist of:

• a $170.0 million seven year term loan facility used to finance the transactions described below;

• a $185.0 million seven year delayed-draw term loan facility, with a twenty-four month commitment available to finance permitted acquisitions and related fees and expenses; and

• a $50.0 million five year revolving credit facility available for general corporate purposes.

In addition, the new credit agreement provides for future increases (subject to certain conditions and requirements) to the revolving credit and term loan facilities in an aggregate principal amount of up to $125.0 million.

The Company used the $170.0 million new term loan, in addition to approximately $1.5 million of available cash, to (1) fund the $62.1 million net purchase price, (2) repay borrowings of approximately $101.2 million (including principal, interest and fees) under the Company’s former term loan facility, (3) repay approximately $5.1 million of outstanding borrowings (including accrued interest and fees) under the Company’s former revolving credit facility, and (4) pay related fees and expenses. The Company did not draw upon the new revolving credit facility in connection with these transactions.

The interest rate for borrowings under the new term loan is set from time to time at the Company’s option (subject to certain conditions set forth in the new credit agreement) at either: (1) a specified/libor base rate plus 1.50% or (2) the Eurodollar Base Rate (as defined in the new credit agreement) divided by the difference between one and the Eurocurrency Reserve Requirements (as defined in the new credit agreement) plus 2.50%. The final maturity date of the new term loan is May 19, 2012.

The interest rate for borrowings under the new revolving credit facility for the initial six-month period is set from time to time at the Company’s option (subject to certain conditions set forth in the new credit agreement) at either: (1) a specified/libor base rate plus 1.25% or (2) the Eurodollar Base Rate divided by the difference between one and the Eurocurrency Reserve Requirements plus 2.25%. Thereafter, the applicable rates of interest under the new revolving credit facility are based on the Company’s consolidated leverage ratio, with the margins applicable to base rate loans ranging from 0.50% to 1.25%, and the margins applicable to Eurodollar Loans (as defined in the new credit agreement) ranging from 1.50% to 2.25%. The final maturity date of the new revolving credit facility is May 19, 2010.

The new credit agreement requires that mandatory prepayments be made with respect to the new senior secured credit facilities from (1) 100% of the net cash proceeds from certain asset sales and dispositions and issuances of certain debt, (2) various percentages (ranging from 75% to 0% depending on the Company’s consolidated leverage ratio) of excess cash flow as defined in the new credit agreement, and (3) 50% of the net cash proceeds from the issuance of certain equity and capital contributions.

The new senior secured credit facilities contain covenants which, among other things, restrict the Company’s ability, and that of its restricted subsidiaries, to:

	•		pay dividends or make any other restricted payments;

	•		incur additional indebtedness;

	•		create liens on its assets;

	•		make certain investments;

	•		sell or otherwise dispose of assets;

	•		consolidate, merge or otherwise transfer all or any substantial part of its assets;

	•		enter into transactions with its affiliates; and

	•		engage in any sale-leaseback, synthetic lease or similar transaction involving any of its assets.

The new senior secured credit facilities also contain financial covenants that require the Company to maintain specified ratios of funded debt to adjusted EBITDA and adjusted EBITDA to interest expense. The terms governing each of these ratios are defined in the new credit agreement.

Generally, the new senior secured credit facilities do not place restrictions on the Company’s ability to make capital expenditures. However, the Company may not make any capital expenditure if any default or event of default under the new credit agreement has occurred and is continuing or would result, or if such default or event of default would occur as a result of a breach of certain financial covenants contained in the new credit agreement on a pro forma basis after giving effect to the capital expenditure.

The Company’s failure to comply with any of these covenants, including compliance with the financial ratios, is an event of default under the new senior secured credit facilities, in which case, the administrative agent may, and if requested by the lenders holding a certain minimum percentage of the commitments shall, terminate the revolving credit facility and the delayed draw term loan commitments with respect to additional advances and may declare all or any portion of the obligations under the new revolving credit facility and the new term loan facilities due and payable. As of September 30, 2005, the Company was in compliance with all of the financial covenants. Other events of default under the new senior secured credit facilities include:

• the Company’s failure to pay principal on the loans when due and payable, or its failure to pay interest on the loans or to pay certain fees and expenses (subject to applicable grace periods);

• the occurrence of a change of control (as defined in the new credit agreement); or

• a breach or default by the Company or its subsidiaries on the payment of principal of any Indebtedness (as defined in the new credit agreement) in an aggregate amount greater than $5.0 million.

The new senior secured credit facilities are guaranteed by each of the Company’s subsidiaries and secured by a perfected first priority security interest in substantially all of the Company’s present and future assets.

The Company may voluntarily pre-pay the term loans, in whole or in part, without premium or penalty.

NOTE 6 — PROCEEDINGS UNDER CHAPTER 11

On January 31, 2002, the Company emerged from bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. On February 11, 2005; the Company filed a motion seeking an order entering a final decree closing the bankruptcy cases. On March 15, 2005, the United States Bankruptcy Court of the District of Delaware entered a final decree closing the bankruptcy cases. In conjunction with the closure of the bankruptcy cases, the Company settled the three remaining outstanding disputed landlord claims and reversed all accrued bankruptcy-related professional fees.

A description of the proceedings under the Chapter 11 Cases is contained in Note 2 to the Company’s Annual Report on Form 10-K Amendment No. 2, for the year ended December 31, 2004.

Reorganization benefits for the three and nine month periods ended September 30, 2005 and 2004 are as follows (in thousands):


	Three months ended					Nine months ended
	September 30,					September 30,
	2005		2004			2005			2004
Change in estimate for general Unsecured claims	$	—	$	(5,148	)	$	(391	)	$	(9,218	)
Professional fees and other		—		32			(1,997	)		221

	$	—	$	(5,116	)	$	(2,388	)	$	(8,997	)

NOTE 7 — LIABILITIES SUBJECT TO COMPROMISE

At December 31, 2004, the Company had approximately $1.3 million in disputed unsecured claims outstanding. During the nine months ended September 30, 2005, all of the outstanding claims were resolved resulting in a change in estimate of $0.4 million and settlements of $0.9 million.

NOTE 8 — INCOME TAXES

As described in Note 15, previously issued financial statements as of and for the year ended December 31, 2004 and the three and nine month periods ended September 30, 2004 have been restated to reflect adjustments to income tax expense (benefit) and deferred taxes.

At September 30, 2005, the Company had deferred tax assets of approximately $43.0 million remaining. The income tax expense of $2.4 million for the three months ended September 30, 2005, reflects a combined federal and state tax rate of 69.3%. The effective tax rate has increased from 40.4% for the three months ended September 30, 2004 due to the relationship of nondeductible items, principally related to executive compensation, to estimated annual pre-tax book income.

The sale of shares in the offering of August, 2004, caused the Company to undergo an “ownership change” within the meaning of section 382 (g) of the Internal Revenue Code of 1986, as amended. The ownership change will subject our net operating loss carry forwards to an annual limitation on their use, which will restrict our ability to use them to offset our taxable income in periods following the ownership change.

The Company’s federal and state net operating loss decreased from $88.6 million at June 30, 2005, to $84.3 million at September 30, 2005.

NOTE 9 — STOCK PLANS

Upon emergence from Chapter 11, the Company’s Board of Directors approved a new management incentive plan, the Carmike Cinemas, Inc. 2002 Stock Plan (the “2002 Stock Plan”). The Board of Directors approved the grant of 780,000 shares under the 2002 Stock Plan to Michael W. Patrick, the Company’s Chief Executive Officer. Pursuant to the terms of Mr. Patrick’s employment agreement dated January 31, 2002 these shares are delivered in three equal installments on January 31, 2005, 2006 and 2007 unless, prior to the delivery of any such installment, Mr. Patrick’s employment is terminated for Cause (as defined in his employment agreement) or he has violated certain covenants set forth in such employment agreement. In May 2002, the Company’s Stock Option Committee (which administered the 2002 Stock Plan prior to August 2002) approved grants of the remaining 220,000 shares to a group of seven other members of senior management. These shares were earned over a three year period, commencing with the year ended December 31, 2002, with the shares being earned as the executive achieved specific performance goals set for the executive during each of these years. In some instances the executive earned partial amounts of his or her stock grant based on graded levels of performance. Shares earned each year vest and are receivable approximately two years after the calendar year in which they were earned, provided, with certain exceptions, the executive remains an employee of the Company.

Of the 220,000 shares granted to members of senior management, 204,360 shares were earned as of September 30, 2005, subject only to vesting requirements and 15,640 shares have been forfeited. The Company has included in stockholders’ equity $8.5 million and $15.4 million at September 30, 2005 and December 31, 2004, respectively, related to the unvested shares within the 2002 Stock Plan.

On May 31, 2002, the Board of Directors adopted the Carmike Cinemas, Inc. Non-Employee Directors Long-Term Stock Incentive Plan (the “Directors Incentive Plan”), which was approved by the stockholders on August 14, 2002. There were a total of 75,000 shares reserved under the Directors Incentive Plan. The Board of Directors approved a grant of 5,000 shares each to two independent directors on August 14, 2002. Additionally, the Board of Directors approved stock option grants of 5,000 shares in September 2003 and 5,000 shares in April 2004 for new directors. The option grant price was based on the fair market value of the stock on the date of the grant.

On July 19, 2002, the Board of Directors adopted the Carmike Cinemas, Inc. Employee and Consultant Long-Term Stock Incentive Plan (the “Employee Incentive Plan”), which was approved by the stockholders on August 14, 2002. There were a total of 500,000 shares reserved under the Employee Incentive Plan. The Company granted an aggregate of 150,000 options pursuant to this plan on March 7, 2003 to three members of senior management. The exercise price for the 150,000 stock options is $21.79 per share, and 75,000 options vest on December 31, 2005 and 75,000 options vest on December 31, 2006. On December 18, 2003, the Company granted an aggregate of 180,000 options to six members of management. The exercise price for the 180,000 options is $35.63 and they vest ratably over three years beginning December 31, 2005 through December 31, 2007.

On March 31, 2004, the Board of Directors adopted the Carmike Cinemas, Inc. 2004 Incentive Stock Plan, which was approved by the stockholders on May 21, 2004. The Compensation and Nominating Committee may grant stock options, stock grants, stock units, and stock appreciation rights under the 2004 Incentive Stock Plan to certain eligible employees and to outside directors. There are 830,000 shares of Common Stock reserved for issuance pursuant to grants made under the 2004 Incentive Stock Plan in addition to the 225,000 unissued shares that were previously authorized for issuance under the Employee Incentive Plan and the Directors Incentive Plan which may be forfeited after the effective date of the 2004 Incentive Stock Plan. No further grants may be made under the Employee Incentive Plan or Directors Incentive Plan.

On May 19, 2005, the Compensation and Nominating Committee approved a restricted stock grant, pursuant to the 2004 Incentive Stock Plan, of 250 shares for each non-employee director of the Company which is to be issued annually as a component of their non-employee director compensation. These annual grants began on May 19, 2005 with a total of 1,500 restricted shares being issued. This restricted stock grant will be made annually to each of the non-employee directors of the Company serving at the time of the Board of Directors annual meeting. All shares are forfeitable any time prior to the vesting date, which is one year from the date of grant, if such director ceases to serve as a director of the Company other than upon death or disability.

The Company delivered 367,250 shares to management on January 31, 2005 in conjunction with the 2002 Stock Plan. In order to satisfy the federal and state withholding requirements on these shares, the Company retained 146,620 of these shares in the treasury and remitted the corresponding tax withholding in cash on behalf of the stock recipients.

NOTE 10 — EARNINGS PER SHARE

Earnings per share calculations contain dilutive adjustments for shares under the various stock plans discussed in Note 9. The following table reflects the effects of those plans on the earnings per share (in thousands, except for share data).


	Three Months Ended						Nine Months Ended
	September 30,						September 30
	2005			2004 (restated)			2005			2004
										(restated)

Outstanding shares		12,309			12,152			12,272			11,769
Less restricted stock issued		(97	)		(161	)		(97	)		(161	)

Basic shares outstanding		12,212			11,991			12,175			11,608
Dilutive shares:
Restricted stock		92			120			94			122
Stock grants		364			565			389			571
Stock options		22			39			40			42

		12,690			12,715			12,698			12,343


Earnings per share:
Basic	$	0.11		$	0.61		$	(0.06	)	$	1.64
Diluted	$	0.10		$	0.57		$	(0.06	)	$	1.54

NOTE 11 — CONDENSED FINANCIAL DATA

The Company and its wholly owned subsidiaries have fully, unconditionally, and jointly and severally guaranteed the Company’s obligations under the Company’s 7.500% senior subordinated notes. The Company has several unconsolidated affiliates that are not guarantors of the 7.500% senior subordinated notes.

Condensed consolidating financial data for the guarantor subsidiaries is as follows (in thousands):

Condensed Consolidating Balance Sheets

As of September 30,
2005



	Carmike Cinemas,		Guarantor		Non-guarantor
	Inc.		Subsidiaries		Subsidiaries			Eliminations			Consolidated

Assets
Current assets:
Restricted cash	$	1,000	$	—	$	—		$	—		$	1,000
Accounts and notes receivable		1,226		140		(2	)		—			1,364
Inventories		504		1,442		7			—			1,953
Prepaid expenses		2,438		4,145		53			—			6,636

Total current assets		5,168		5,727		58			—			10,953
Other assets:
Restricted cash		2,200		—		—			—			2,200
Investment in and advances to partnerships		57		3,314		—			—			3,371
Investment in subsidiaries		184,059		—		—			(184,059	)		—
Deferred income tax asset		22,967		19,989		—			—			42,956
Assets held for sale		347		4,745		—			—			5,092
Other		20,229		5,747		—			—			25,976
Intercompany asset		240,650		2,214		2,850			(245,714	)		—

Property and equipment, net of accumulated depreciation		126,760		425,997		5,778			—			558,535
Goodwill and other intangibles, net of accumulated amortization		5,914		35,785		—			—			41,699

Total assets	$	608,351	$	503,518	$	8,686		$	(429,773	)	$	690,782


Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	13,084	$	2,184	$	(23	)	$	—		$	15,245
Accrued expenses		15,687		18,704		301			—			34,692
Dividends payable		2,154		—		—			—			2,154
Current maturities of long-term indebtedness, capital lease and long-term financing obligations		1,971		1,350		—			—			3,321

Total current liabilities		32,896		22,238		278			—			55,412
Long-term debt, less current maturities		317,875		—		—			—			317,875
Capital lease and long-term financing obligations less current maturities		11,402		59,915		—			—			71,317
Other		2,200		—		—			—			2,200
Intercompany liability		—		245,714		—			(245,714	)		—
Stockholders’ equity		243,978		175,651		8,408			(184,059	)		243,978

Total liabilities and stockholders’ equity	$	608,351	$	503,518	$	8,686		$	(429,773	)	$	690,782

Condensed Consolidating Statements of Operations
For Three Months Ended September 30, 2005


	Carmike			Guarantor			Non-guarantor
	Cinemas, Inc.			Subsidiaries			Subsidiaries		Eliminations			Consolidated

Revenues
Admissions	$	13,921		$	62,115		$	1,211	$	—		$	77,247
Concessions and other		13,331			31,662			544		(5,927	)		39,610

		27,252			93,777			1,755		(5,927	)		116,857

Costs and expenses
Film exhibition costs		7,540			32,839			659		—			41,038
Concession costs		715			2,969			50		—			3,734
Other theatre operating costs		11,732			40,839			464		(5,840	)		47,195
General and administrative expenses		2,167			1,559			87		(87	)		3,726
Depreciation expenses		2,062			7,659			101		—			9,822
(Gain) on disposal of property and equipment		(70	)		(2	)		—		—			(72	)

		24,146			85,863			1,361		(5,927	)		105,443

Operating income		3,106			7,914			394		—			11,414
Interest expense		1,000			6,739			—		—			7,739
Loss on extinguishment of debt		—			—			—		—			—


Net income before reorganization costs and income taxes		2,106			1,175			394		—			3,675
Reorganization expense		—			—			—		—			—

Net income before income taxes and equity in earnings of subsidiaries		2,106			1,175			394		—			3,675
Income tax expense (benefit)		1,349			652			353		—			2,354

		757			523			41		—			1,321
Equity in earnings of subsidiaries		564			—			—		(564	)		—

Net income (loss) available for common stockholders	$	1,321		$	523		$	41	$	(564	)	$	1,321

Condensed Consolidating Statements of Operations
For Nine Months Ended September 30, 2005


	Carmike Cinemas,			Guarantor			Non-guarantor
	Inc.			Subsidiaries			Subsidiaries		Eliminations			Consolidated
Revenues
Admissions	$	41,843		$	178,703		$	3,050	$	—		$	223,596
Concessions and other		37,303			91,187			1,380		(15,157	)		114,713

		79,146			269,890			4,430		(15,157	)		338,309

Costs and expenses
Film exhibition costs		23,023			98,620			1,697		—			123,340
Concession costs		2,185			9,470			122		—			11,777
Other theatre operating costs		32,167			120,804			1,414		(14,944	)		139,441
General and administrative expenses		12,690			1,643			213		(213	)		14,333
Depreciation expenses		6,186			21,331			302		—			27,819
(Gain) on disposal of property and equipment		(497	)		(1	)		—		—			(498	)

		75,754			251,867			3,748		(15,157	)		316,212

Operating income		3,392			18,023			682		—			22,097
Interest expense		1,162			19,935			—		—			21,097
Loss on extinguishment of debt		5,795			—			—		—			5,795

Net income (loss) before reorganization costs and income taxes		(3,565	)		(1,912	)		682		—			(4,795	)
Reorganization benefit		(2,388	)		—			—		—			(2,388	)

Net income (loss) before income taxes and equity in earnings of subsidiaries		(1,177	)		(1,912	)		682		—			(2,407	)
Income tax expense (benefit)		(1,486	)		(649	)		471		—			(1,664	)

		309			(1,263	)		211		—			(743	)
Equity in earnings of subsidiaries		(1,052	)		—			—		1,052			—

Net income (loss) available for common stockholders	$	(743	)	$	(1,263	)	$	211	$	1,052		$	(743	)

Condensed Consolidating Statements of Cash Flows
For Nine Months Ended September 30, 2005


	Carmike Cinemas,			Guarantor			Non-guarantor
	Inc.			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating activities
Net income (loss)	$	(743	)	$	(1,263	)	$	211		$	1,052		$	(743	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,186			21,383			302			—			27,871
Deferred income taxes		786			(649	)		—			—			137
Non-cash deferred compensation		2,169			—			—			—			2,169
Non-cash reorganization items		(2,391	)		—			—			—			(2,391	)
Loss on extinguishment of debt		3,820			—			—			—			3,820
Gain on sales of property and equipment		(497	)		(1	)		—			—			(498	)
Changes in operating assets and liabilities		(108,553	)		85,875			(4,760	)		(1,052	)		(28,490	)

Net cash used in operating activities		(99,223	)		105,345			(4,247	)		—			1,875
Investing activities
Purchases of property and equipment		(7,036	)		(51,193	)		(635	)		—			(58,864	)
Acquisition of GKC Theatres’ stock		—			(58,882	)		—			—			(58,882	)
Funding of GKC acquisition escrow account		(3,200	)		—			—			—			(3,200	)
Proceeds from sale of property and equipment		1,707			230			—			—			1,937

Net cash used in investing activities		(8,529	)		(109,845	)		(635	)		—			(119,009	)
Financing activities
Additional borrowing, net of debt issuance costs		170,000			—			—			—			170,000
Repayments of long-term debt		(99,537	)		(335	)		—			—			(99,872	)
Issuance of common stock, net		1,708			—			—			—			1,708
Purchase of treasury stock		(5,210	)		—			—			—			(5,210	)
Dividends paid		(6,436	)		—			—			—			(6,436	)

Net cash provided by (used in) financing activities		60,525			(335	)		—			—			60,190

Decrease in cash and cash equivalents		(47,227	)		(4,835	)		(4,882	)		—			56,944
Cash and cash equivalents at beginning of period		47,227			4,835			4,882			—			56,944

Cash and cash equivalents at end of period	$	—		$	—		$	—		$	—		$	0

Significant Non-Cash Transactions :
In connection with the acquisition of GKC Theatres, the Company assumed liabilities of $4.2 million, a deferred tax liability of $7.5 million and established a restricted cash escrow account of $3.2 million for certain deferred payments.


	Carmike
	Cinemas, Inc.		Guarantor		Non-guarantor					Consolidated
	(Restated)		Subsidiaries		Subsidiaries		Eliminations			(Restated)
Assets
Current assets:
Cash and cash equivalents	$	47,227	$	4,835	$	4,882	$	—		$	56,944
Accounts and notes receivable		1,322		142		—		—			1,464
Inventories		385		1,062		12		—			1,459
Prepaid expenses		2,329		3,870		53		—			6,252

Total current assets		51,263		9,909		4,947		—			66,119
Other assets:
Investment in and advances to partnerships		9,331		2,718		—		(9,331	)		2,718
Investment in subsidiaries		114,031		—		—		(114,031	)		—
Deferred income tax asset		23,507		27,094		—		—			50,601
Assets held for sale		1,781		4,753		—		—			6,534
Other		15,899		5,127		1		—			21,027
Intercompany asset		221,032		2,220		—		(223,252	)		—
Property and equipment, net		113,538		351,122		4,841		1			469,502
Goodwill		5,914		17,440		—		—			23,354

Total assets	$	556,296	$	420,383	$	9,789	$	(346,613	)	$	639,855

Liabilities and stockholders’ equity
Current liabilities:
Account payable	$	17,710	$	4,920	$	80	$	—		$	22,710
Accrued expenses		19,293		15,910		379		—			35,582
Dividends payable		2,128		—		—		—			2,128
Current maturities of long-term indebtedness, capital lease and long-term financings obligations		1,532		1,340		—		—			2,872

Total current liabilities		40,663		22,170		459		—			63,292
Long-term debt less current maturities		248,000		—		—		—			248,000
Capital lease and long-term financing obligations less current maturities		11,600		60,930		—		—			72,530
Intercompany liabilities		—		222,118		1,134		(223,252	)		—
Liabilities subject to compromise		1,348		—		—		—			1,348
Stockholders’ equity		254,685		115,165		8,196		(123,361	)		254,685

Total liabilities and stockholders’ equity	$	556,296	$	420,383	$	9,789	$	(346,613	)	$	639,855

Condensed Consolidating Statements of Operations
For Three Months Ended September 30, 2004


	Carmike
	Cinemas, Inc.			Guarantor			Non-guarantor					Consolidated
	(Restated)			Subsidiaries			Subsidiaries		Eliminations			(Restated)
Revenues
Admissions	$	15,400		$	61,024		$	1,326	$	—		$	77,750
Concessions and other		12,979			30,912			555		(5,268	)		39,178

		28,379			91,936			1,881		(5,268	)		116,928

Costs and expenses
Film exhibition costs		7,954			33,182			721					41,857
Concession costs		755			3,231			57					4,043
Other theatre operating costs		10,370			40,052			592		(5,268	)		45,746
General and administrative expenses		4,586			(124	)		126					4,588
Depreciation expenses		2,665			6,578			120					9,363
(Gain)/loss on sales of property and equipment		0			7			0					7

		26,330			82,926			1,616		(5,268	)		105,604

Operating income		2,049			9,010			265		—			11,324
Interest expense		(2,048	)		6,288			0					4,240

Net income before reorganization costs and income taxes		4,097			2,722			265		—			7,084
Reorganization benefit		(5,116	)		—			—		—			(5,116	)

Income before income taxes and equity in earnings of subsidiaries		9,213			2,722			265		—			12,200
Income tax expense		3,813			1,120			0		—			4,933

		5,400			1,602			265		—			7,267
Equity in earnings of subsidiaries		1,867			—			—		(1,867	)		—

Net income for common stockholders	$	7,267		$	1,602		$	265	($	1,867	)	$	7,267

Condensed Consolidating Statements of Operations
For Nine Months Ended September 30, 2004


	Carmike
	Cinemas, Inc.			Guarantor			Non-guarantor						Consolidated
	(Restated)			Subsidiaries			Subsidiaries			Eliminations			(Restated)
Revenues
Admissions	$	48,476		$	193,293		$	3,883		$	—		$	245,652
Concessions and other		41,254			95,516			1,651			(17,121	)		121,300

		89,730			288,809			5,534			(17,121	)		366,952

Costs and expenses
Film exhibition costs		24,000			101,298			1,984						127,282
Concession costs		2,427			10,525			161						13,113
Other theatre operating costs		30,637			120,963			1,822			(17,121	)		136,301
General and administrative expenses		13,472			(306	)		302						13,468
Depreciation expenses		6,514			19,735			360						26,609
Gain on sales of property and equipment		(9	)		(55	)		(506	)					(570	)

		77,041			252,160			4,123			(17,121	)		316,203

Operating income		12,689			36,649			1,411			—			50,749
Interest expense		(1,337	)		19,603			0						18,266
Loss on extinguishment of debt		9,579			—			—						9,579

Income before reorganization costs and income taxes		4,447			17,046			1,411			—			22,904
Reorganization expense		(8,997	)		—			—						(8,997	)

Income (loss) before income taxes and equity in earnings of subsidiaries		13,444			17,046			1,411			—			31,901
Income tax expense		5,979			6,921			0						12,900

		7,465			10,125			1,411			—			19,001
Equity in earnings of subsidiaries		11,536			—			—			(11,536	)		—

Net income for common stockholders	$	19,001		$	10,125		$	1,411		($	11,536	)	$	19,001

Condensed Consolidating Statements of Cash Flows
For Nine months Ended September 30, 2004


	Carmike
	Cinemas, Inc.			Guarantor			Non-guarantor						Consolidated
	(Restated)			Subsidiaries			Subsidiaries			Eliminations			(Restated)
Operating activities
Net income	$	19,001		$	10,125		$	1,411		$	(11,536	)	$	19,001
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		6,514			19,735			360			—			26,609
Deferred income taxes		5,979			6,283			0			—			12,262
Non-cash deferred compensation		4,038			—			0			—			4,038
Non-cash reorganization items		(9,219	)		—			0			—			(9,219	)
Loss on extinguishment of debt		9,579			—			0			—			9,579
Gain on sales of property and equipment		(9	)		(55	)		(506	)		—			(570	)
Changes in operating assets and liabilities		(18,366	)		(39,634	)		1,740			11,536			(44,724	)

Net cash used in operating activities		17,517			(3,546	)		3,005			—			16,976
Investing activities
Purchases of property and equipment		(9,349	)		(14,017	)		(275	)		—			(23,641	)
Proceeds from sale of property and equipment		17			1,272			0			—			1,289

Net cash used in investing activities		(9,332	)		(12,745	)		(275	)		—			(22,352	)
Financing activities
Additional borrowing, net of debt issuance costs		250,263			—			—			—			250,263
Repayments of debt		(334,010	)		(883	)		0			—			(334,893	)
Issuance of common stock, net		(2,127	)					—			—			(2,127	)
Issuance of common stock, net		89,346			—			—			—			89,346

Net cash provided by (used in) financing activities		3,472			(883	)		0			—			2,589

Increase (decrease) in cash and cash equivalents		11,657			(17,174	)		2,730			—			(2,787	)
Cash and cash equivalents at beginning of period		24,982			15,250			1,004			—			41,236

Cash and cash equivalents at end of period	$	36,639		$	(1,924	)	$	3,734		$	—		$	38,449

NOTE 12 — LEGAL PROCEEDINGS

From time to time, we are involved in routine litigation and legal proceedings in the ordinary course of our business, such as personal injury claims, employment matters, contractual disputes and claims alleging ADA violations. Currently, we do not have any pending litigation or proceedings that we believe will have a material adverse effect, either individually or in the aggregate, upon us.

On September 16, 2004, the Equal Employment Opportunity Commission (“EEOC”) filed a lawsuit against Carmike in the U.S. District Court, E.D., North Carolina, alleging that seven named claimants and “other similarly situated male employees” were sexually harassed by a male supervisor who worked at the Carmike 15 Theater in Raleigh, North Carolina from February 2003 until his termination in mid-October 2003. Carmike learned, only after this alleged harasser had stopped working for Carmike that he had a criminal record relating to indecent liberties with a minor. In its lawsuit, the EEOC sought injunctive and monetary relief, including compensatory and punitive damages and costs. Carmike filed its answer and defenses to the EEOC’s complaint on November 15, 2004. On November 4, 2004, a motion to intervene was filed on behalf of five claimants and family members/guardians of five other claimants. The proposed complaint submitted with the motion to intervene included claims under state and federal law, including claims of negligent hiring, promotion, and retention, negligent training and supervision, assault, intentional and negligent infliction of emotional distress, sexual harassment, and retaliation/constructive discharge. In the proposed complaint, the intervenors sought injunctive and monetary relief, including compensatory and punitive damages, attorneys’ fees, and costs. The motion to intervene was granted on November 23, 2004 and the intervenors served their complaint on December 9, 2004. Carmike timely answered the intervenors’ complaint on January 14, 2005. Thereafter, an eleventh claimant moved to intervene. His motion to intervene was granted on March 28, 2005 and he served a complaint (very similar to the other intervenors’ complaints) on April 19, 2005. The parties resolved the case following mediation on July 29, 2005, and agreed to a settlement of $765 thousand. The settlement was paid at the end of September 2005 and the case was dismissed with prejudice subject to a consent decree.

NOTE 13 — IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123(R), Share Based Payment (“SFAS 123(R)”). SFAS 123(R) revises FASB Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation and requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. In addition, FAS 123(R) supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and amends FASB Statement of Financial Accounting Standards No. 95, Statement of Cash Flows (“SFAS 95”).

SFAS 123(R) requires companies to use fair value to measure stock-based compensation awards. The “intrinsic value” method of accounting, which APB No. 25 allowed, resulted in no expense for many awards of stock options where the exercise price of the option equaled the price of the underlying stock at grant date. Under SFAS 123(R), the fair value of the award is not remeasured after its initial estimation on the grant date (except under specific circumstances).

SFAS 123(R) must be adopted no later than the beginning of the Company’s 2006 fiscal year. Based on our valuation under the Black-Scholes option valuation model, presently used by the Company and still appropriate under SFAS 123(R), the Company estimates additional compensation expense from adoption to be approximately $1.0 million for the years ended December 31, 2005 and 2006. The Company will evaluate other valuation methods, prior to implementation, to determine the most appropriate for the Company. See Note 1 to “Notes To Consolidated Financial Statements” for the calculation of the Company’s stock-based compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”).

NOTE 14 — RECLASSIFICATIONS

Certain amounts in the accompanying consolidated financial statements have been reclassified to conform to the current period’s presentation.

NOTE 15 — RESTATEMENTS

Previously issued financial statements as of and for the year ended December 31, 2004 and the three and nine month periods ended September 30, 2004 have been restated to reflect adjustments to income tax expense (benefit) and deferred taxes. We have determined that a portion of accrued stock compensation expense for stock issuable under the Carmike Cinemas, Inc. 2002 stock plan and certain bonus payments were treated as being fully tax deductible in our financial statements. The stock compensation expense is being accrued over the five year requisite service period and the bonuses are accrued in the performance year, in accordance with generally accepted accounting principles. Internal Revenue Code Section 162(m) limits a taxpayer’s deduction for non-performance based compensation to $1 million on an annual basis for covered employees. Generally, an employee’s salary and bonus (unless, with respect to bonuses,

certain shareholder approval requirements are satisfied) are considered non-performance based compensation. Because cash compensation to a covered employee exceeded $1 million in certain periods and because the combination of cash and stock compensation is expected to exceed the $1 million limitation in the period in which the stock grants become deductible for tax purposes, a portion of the cash compensation expense was non-deductible and a portion of the stock compensation expense is expected to be non-deductible. As a result, no tax benefit should be attributed to the non-deductible portion of the compensation expense in the year in which it is reported in the financial statements. Because our previously issued financial statements reported a tax benefit for the full amount of the compensation expense, a correction to our previously issued financial statements is required. These accounting errors resulted in the understatement of income tax expense and the overstatement of deferred tax assets. The restatement adjustments, which reduced previously reported net income by $0.4 million and $0.9 million, respectively for the three and nine month periods ended September 30, 2004, are non-cash and had no effect on operating cash flows or the Company’s compliance with its debt covenants.

A summary of the significant effects of the restatements pertaining to this filing are as follows:

Effects on earnings per common share were as follows:


	Basic			Diluted
September 30, 2004
Income tax expense effect	$	(0.03	)	$	(0.03	)

Balance Sheet effects:


	December 31, 2004
	As Previously
	Reported			As Restated
Consolidated Balance Sheet
Deferred income tax asset	$	54,414		$	50,601
Total other assets		84,693			80,880
Total assets		643,668			639,855
Retained deficit		(50,857	)		(54,670	)
Total Equity		258,498			254,685
Total liabilities and stockholders’ equity	$	643,668		$	639,855

Income Statement and Statement of Cash Flows effects:


	For the three months ended
	September 30, 2004
	As Previously
	Reported		As Restated
Consolidated Statement of Operations
Income Tax Expense	$	4,574	$	4,933
Net Income (loss) available for common stockholders		7,626		7,267
Income (loss) per common share: Basic	$	.64	$	.61
Income (loss) per common share: Diluted	$	.60	$	.57


	For the nine months ended
	September 30, 2004
	As Previously
	Reported		As Restated
Consolidated Statement of Operations
Income Tax Expense	$	11,962	$	12,900
Net Income (loss) available for common stockholders		19,939		19,001
Income (loss) per common share: Basic	$	1.72	$	1.64
Income (loss) per common share: Diluted	$	1.62	$	1.54
Consolidated Statement of Cash Flows
Net Income (loss)	$	19,939		19,001
Deferred income taxes		11,324		12,262


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

EMERGENCE FROM CHAPTER 11

On January 4, 2002, the United States Bankruptcy Court for the District of Delaware entered an order confirming our Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code, dated as of November 14, 2001 (the “Plan”). The Plan became effective on January 31, 2002. A description of the Plan is disclosed in our Annual Report on Form 10-K for the year ended December 31, 2004 under the caption “Our Reorganization.” On February 11, 2005, the Company filed a motion seeking an order entering a final decree closing the bankruptcy cases. On March 15, 2005, the United States Bankruptcy Court of the District of Delaware entered a final decree closing the bankruptcy cases.

GKC THEATRES ACQUISITION

On May 19, 2005, the Company acquired 100% of the stock of George G. Kerasotes Corporation (“GKC Theatres”) for a net purchase price of $62.1 million. The Company’s consolidated financial statements for and as of the three and nine month periods ended September 30, 2005, include the assets and liabilities and the operating results of GKC Theatres beginning with the acquisition date. With the GKC Theatres acquisition, we added 30 theatres with 263 screens in Illinois, Indiana, Michigan and Wisconsin.

RESTATEMENTS

During the fourth quarter of 2005, the Company determined that it was necessary to restate previously issued financial statements for changes in deferred taxes and income tax expense. Due to errors in the accounting for income taxes for stock grants under our 2002 stock plan and certain executive bonuses (the “Accounting Errors”), we are restating the previously issued financial statements for the years ended December 31, 2003 and December 31, 2004 and the quarters ended March 31, 2005 and June 30, 2005 (collectively the “Restated Periods”).

We have determined that a portion of accrued stock compensation expense for stock issuable under the Carmike Cinemas, Inc. 2002 stock plan and certain bonus payments were treated as being fully tax deductible in our financial statements. The stock compensation expense is being accrued over the five year requisite service period and the bonuses are accrued in the performance year, in accordance with generally accepted accounting principles. Internal Revenue Code Section 162(m) limits a taxpayer’s deduction for non-performance based compensation to $1 million on an annual basis for covered employees. Generally, an employee’s salary and bonus (unless, with respect to bonuses, certain shareholder approval requirements are satisfied) are considered non-performance based compensation. Because cash compensation to a covered employee exceeded $1 million in certain periods and because the combination of cash and stock compensation is expected to exceed the $1 million limitation in the period in which the stock grants become deductible for tax purposes, a portion of the cash compensation expense was non-deductible and a portion of the stock compensation expense is expected to be non-deductible. As a result, no tax benefit should be attributed to the non-deductible portion of the compensation expense in the year in which it is reported in the financial statements. Because our previously issued financial statements reported a tax benefit for the full amount of the compensation expense, a correction to our previously issued financial statements is required. These accounting errors resulted in the understatement of income tax expense and the overstatement of deferred tax assets. The restatement adjustments, which reduced previously reported net income by $0.4 million and $0.9 million, respectively for the three and nine month periods ended September 30, 2004, are non-cash and had no effect on operating cash flows or the Company’s compliance with its debt covenants.

RESULTS OF OPERATIONS

Comparison of Three and Nine months Ended September 30, 2005 and 2004

Revenues.

The Company collects substantially all of its revenues from the sales of admission tickets and concessions. The table below provides a comparative summary of the operating data for this revenue generation.


	For the three months ended				For the nine months ended
	Sept. 30, 2005		Sept. 30, 2004		Sept. 30, 2005		Sept. 30, 2004
Average theatres		307		287		294		291
Average screens		2,468		2,200		2,314		2,217
Average attendance per screen		5,887		6,875		18,190		21,540
Average admission price	$	5.32	$	5.14	$	5.31	$	5.14
Average concession sales per patron	$	2.73	$	2.59	$	2.73	$	2.54
Total attendance (in thousands)		14,530		15,126		42,091		47,754
Total revenues (in thousands)	$	116,857	$	116,928	$	338,309	$	366,952

Total revenues for the three months ended September 30, 2005 compared to the three months ended September 30, 2004 decreased 0.6%. This decrease is due to a 3.9% decrease in total attendance partially offset by increases in average admission and concession prices. Total revenues for the nine months ended September 30, 2005 decreased 7.8%. This decrease is due to a 11.9% decrease in total attendance partially offset by increases in average admission and concession prices. The decrease in attendance was driven by the poor box office performance of many films during the three and nine months ended September 30, 2005. We operated 307 theatres with 2,469 screens as of September 30, 2005 compared to 285 theatres with 2,195 screens as of September 30, 2004.

The table below shows the activity of theatre openings, closures and acquisitions for the three months ended September 30, 2005.


							Average Screens/
	Theatres			Screens			Theatre
Total at June 30, 2005		311			2,471			8.0
Opens/reopens		2			43
Closures		(6	)		(45	)

Total at September 30, 2005		307			2,469			8.0

The closures shown above were the result of normal lease expirations. The Company incurred no additional liability due to these closures.

The following table sets forth the percentage of total revenues represented by certain items reflected in our consolidated statement of operations for the periods indicated:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
				(restated)						(restated)
Revenues:
Admissions		66.1	%		66.5	%		66.1	%		66.9	%
Concession & Other		33.9			33.5			33.9			33.1

Total Revenue		100.0			100.0			100.0			100.0
Cost and expenses:
Film exhibition costs (1)(2)		53.1	%		53.8	%		55.2	%		51.8	%
Concession costs (2)		9.4			10.3			10.3			10.8
Other theatre operating costs		40.4			39.1			41.2			37.1
General and administrative		3.2			3.9			4.2			3.7
Depreciation expenses		8.4			8.0			8.2			7.3
Gain on sales of property and equipment		(0.1	)		0.0			(0.1	)		(0.2	)

Total costs and expenses		90.2			90.3			93.5			86.2

Operating income		9.8			9.7			6.5			13.8
Interest expense		6.6			3.6			6.2			5.0
Loss on extinguishment of debt		0.0			0.0			1.7			2.6


Income (loss) before reorganization costs and income taxes		3.1			6.1			(1.4	)		6.2
Reorganization expense (benefit)		0.0			(4.4	)		(0.7	)		(2.5	)

Net income (loss) before income taxes		3.1			10.4			(0.7	)		8.7
Income tax expense (benefit)		2.0			4.2			(0.5	)		3.5

Net income (loss) available for common stockholders		1.1	%		6.2	%		(0.2	)%		5.2	%


(1)		Film exhibition costs include advertising expenses net of co-op reimbursements.

(2)		All costs are expressed as a percentage of total revenues, except film exhibition costs, which are expressed as a percentage of admission revenues, and concession costs, which are expressed as a percentage of concession and other revenues.

		The table below summarizes operating expense data for the periods presented.


	For the three months ended								For the nine months ended
						% variance									% variance
	Sept. 30,			Sept. 30,		favorable/			Sept. 30,			Sept. 30,			favorable/
(in thousands)	2005			2004		(unfavorable)			2005			2004			(unfavorable)
Film exhibition costs	$	41,038		$	41,857		(2.0)	%	$	123,340		$	127,282			(3.1)	%
Concession costs	$	3,734		$	4,043		(7.6)	%	$	11,777		$	13,113			(10.2)	%
Other theatre operating costs	$	47,195		$	45,746		3.2	%	$	139,441		$	136,301			2.3	%
General and administrative expenses	$	3,726		$	4,588		(18.8)	%	$	14,333		$	13,468			6.4	%
Depreciation expenses	$	9,822		$	9,363		4.9	%	$	27,819		$	26,609			4.5	%
(Gain) on sales of property and equipment	($	72	)	$	7		(1128.6)	%	($	498	)	($	570	)		(12.6)	%

Film Exhibition Costs. Film exhibition costs generally fluctuate in direct relation to the increases and decreases in admissions revenue. The decrease in film exhibition costs on a percentage basis for the three months ended September 30, 2005, as compared to the three months ended September 30, 2004, was due to a decrease in per-film rental rates. As a percentage of admissions revenue, film exhibition costs were 53.1% for the three months ended September 30, 2005 as compared to 53.8% for the three months ended September 30, 2004. GKC Theatres’ film exhibition costs were 54.5% from the period of acquisition date through September 30, 2005.

Film exhibition costs for the nine months ended September 30, 2005 decreased 3.1% to $123.3 million from $127.3 million for the nine months ended September 30, 2004 due to the decrease in admission revenues of $22.0 million, offset somewhat by higher film rent percentages on the products played during the nine month period ended September 30, 2005 as compared to 2004. As a percentage of admissions revenue, film exhibition costs were 55.2% for the nine months ended September 30, 2005 as compared to 51.8% for the nine months ended September 30, 2004. Included in the nine months ending September 30, 2005 was ‘Star Wars 3: Revenge of Sith’, a high grossing and high film rent movie compared to ‘The Passion of the Christ’, an unusually high grossing and lower film rent movie included in the nine months ending September 30, 2004

Concession Costs. Concession costs fluctuate with the changes in concessions revenue. As a percentage of concessions and other revenues, concession costs decreased to 9.4% of concession and other revenue for the three months ended September 30, 2005, as compared to 10.3% of concession and other revenue for the three months ended September 30, 2004. Concession costs, as a percentage of concessions and other revenues for the nine months ended September 30, 2005, were 10.3% as compared to 10.8% for the nine months ended September 30, 2004. We continue to focus on limited, high margin product offerings such as popcorn and soft drinks to keep our concession costs low.

Other Theatre Operating Costs. Other theatre operating costs for the three months ended September 30, 2005 increased 3.2% compared to the three months ended September 30, 2004 and increased 2.3% for the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004. The increase was the result of increased travel, training, point of sales conversion costs and supplies relating to the GKC Theatres acquisition as well as increases in professional fees, rents related to new theatre openings, repairs and replacements.

General and Administrative Expenses. General and administrative expenses for the three months ended September 30, 2005 decreased 18.8% compared to the three months ended September 30, 2004. The decrease was due to a change in our deferred compensation expense based on fluctuations in stock price and a third quarter reduction in professional fees and costs. General and administrative expenses for the nine months ended September 30, 2005 increased 6.4% compared to the nine months ended September 30, 2004. The increase was the result of general increases in insurance and expenses relating to the implementation of the Company’s record retention program and offsite backup data facility, salaries related to an increase in corporate staff, and travel and conversion expenses related to the GKC Theatres acquisition and an overall increase in professional fees and costs associated with Sarbanes-Oxley compliance.

Depreciation Expense. Depreciation expense for the three months ended September 30, 2005 increased 4.9% compared to the three months ended September 30, 2004. This increase reflects the purchases and construction of fixed assets during 2005 and depreciation on the fixed assets acquired with the GKC Theatres acquisition for three months ended September 30, 2005. Depreciation expense for the nine months ended September 30, 2005 increased 4.5% compared to the nine months ended September 30, 2004. This reflects an increase in assets placed in service due to completed construction projects and depreciation on the fixed assets of GKC Theatres.

Gain on Sales of Property and Equipment. The gain on sales of property and equipment for the three months ended September 30, 2005 amounted to $72,000 compared to a loss of $7,000 for the three months ended September 30, 2004. This increase reflects the sale of real property in the three months ended September 30, 2005, compared to the sale of depreciated property for the three months ended September 30, 2004. Gain on sales of property and equipment for the nine months ended September 30, 2005 amounted to $498,000 compared to $570,000 for the nine months ended September 30, 2004.

Operating Income. Operating income for the three months ended September 30, 2005 was $11.4 million compared to $11.3 million for the three months ended September 30, 2004. GKC Theatres contributed $.6 million to operating income for the three months ended September 30, 2005 and $2.1 million to operating income from the period of the acquisition date through September 30, 2005. As a percentage of revenues, operating income for the three months ended September 30, 2005 was 9.8% compared to 9.7% for the three months ended September 30, 2004. Operating income, as a percentage of revenues, for the nine months ended September 30, 2005 was 6.5% compared to 13.8% for the nine months ended September 30, 2004.

Interest expense. Interest expense for the three months ended September 30, 2005 increased 82.5% to $7.7 million from $4.2 million for the three months ended September 30, 2004. The increase is related to higher indebtedness related to the GKC Theatres acquisition obtained through a refinancing of the Company’s credit facility that closed on May 19, 2005, which is described under “Liquidity and Capital Resources-New Credit Facilities”. Interest expense for the nine months ended September 30, 2005 increased 15.5% compared to the nine months ended September 30, 2004 due to the reasons discussed above.

Loss on extinguishment of debt. The refinancing of the Company’s credit facilities, as described under “Liquidity and Capital Resources – New Credit Facilities”, resulted in the write-off of $3.8 million of loan fees related to its February 4, 2004 credit facilities. The $5.8 million loss on extinguishment of debt also included a $2.0 million pre-payment premium on the retirement of its $100.0 million term loan for the nine months ended September 30, 2005.

Reorganization expense (benefit). No activity occurred for the three months ended September 30, 2005, compared to a reorganization benefit of $5.1 million for the three months ended September 30, 2004. We recognized a reorganization benefit of $2.4 million for the nine months ended September 30, 2005, compared to a reorganization benefit of $9.0 million for the nine months ended September 30, 2004. On March 15, 2005, the United States Bankruptcy Court of the District of Delaware entered a final decree closing the bankruptcy cases.

Income tax expense. The Company recognized an income tax expense of $2.4 million for the three months ended September 30, 2005, representing a combined federal and state tax rate of 69.3%, compared to income tax expense of $4.9 million for the three months ended September 30, 2004, representing a combined federal and state tax rate of 40.4%. The effective tax rate has increased due to the relationship of nondeductible items, principally related to executive compensation, to estimated annual pre-tax book income. The income tax benefit for the nine months ended September 30, 2005 was $1.7 million compared to income tax expense of $12.9 million for the nine months ended September 30, 2004, reflecting the change in both income before taxes and the effective tax rate

LIQUIDITY AND CAPITAL RESOURCES

The Company’s revenues are collected in cash and credit card payments. Because we receive our revenue in cash prior to the payment of related expenses, we have an operating “float” which partially finances our operations. Our current liabilities exceeded our current assets by $44.5 million as of September 30, 2005, as compared to December 31, 2004 when our current assets exceeded our current liabilities by $2.8 million. The working capital deficit is related to lower revenues during the first nine months of 2005, increased uses of cash for construction related activity and the GKC Theatres acquisition. The deficit will be funded through cash on hand, anticipated operating cash flows and the ability to draw from our new revolving credit agreement. At September 30, 2005, we had available borrowing capacity of $50 million under our new revolving credit facility.

During the three months and nine months ended September 30, 2005, we made capital expenditures of approximately $9.8 million and $58.9 million, respectively. Our total budgeted capital expenditures for 2005 are $60.0 million, which we anticipate will be funded by using operating cash flows, available cash from our new revolving credit facility and landlord-funded new construction and theatre remodeling, when available. We expect that substantially all of these capital expenditures will continue to consist of new theatre construction and theatre remodeling. Our capital expenditures for any new theatre generally precede the opening of the new theatre by several months. In addition, when we rebuild or remodel an existing theatre, the theatre must be closed, which results in lost revenue until the theatre is reopened. Therefore, capital expenditures for new theatre construction, rebuilds and remodeling in a given quarter may not result in revenues from the new theatre or theatres for several quarters.

Net cash provided by operating activities was $1.9 million for the nine months ended September 30, 2005 compared to net cash provided by operating activities of $17.0 million for the nine months ended September 30, 2004. This change is principally due to lower after tax income and a reduction in cash used for working capital items.

Net cash used in investing activities was $119.0 million for the nine months ended September 30, 2005 compared to $22.4 million for the nine months ended September 30, 2004. This increased use of cash is related to our increased capital expenditures program and the acquisition of GKC Theatres for a net purchase price of $62.1 million. As of September 30, 2005, the Company had under construction projects that will result in 7 additional screens at existing locations, 56 screens at 5 new theatres and 12 screens that are being remodeled.

For the nine months ended September 30, 2005, net cash provided by financing activities was $60.2 million compared to net cash provided by financing activities of $2.6 million for the nine months ended September 30, 2004. The increase in cash for the nine months ended September 30, 2005 is due to the refinancing of our credit facilities on May 19, 2005 (as described below) offset by the payment of cash dividends of approximately $6.4 million.

Our liquidity needs are funded by operating cash flow, sales of surplus assets, availability under our new credit agreements and short term float. The exhibition industry is very seasonal with the studios normally releasing their premiere film product during the holiday season and summer months. This seasonal positioning of film product makes our needs for cash vary significantly from period to period. Additionally, the ultimate performance of the film product at any time during the calendar year will have the most dramatic impact on our cash needs.

Our ability to service our indebtedness will require a significant amount of cash. Our ability to generate this cash will depend largely on future operations. Based upon our current level of operations, we believe that cash flow from operations, available cash, sales of surplus assets and borrowings under our new credit agreements will be adequate to meet our liquidity needs. However, the possibility exists that, if our liquidity needs are not met and we are unable to service our indebtedness, we could come into technical default under any of our debt instruments, causing the agents or trustees for those instruments to declare all payments due immediately or, in the case of our senior debt, to issue a payment blockage to the more junior debt.

We cannot make assurances that our business will continue to generate significant cash flow to fund our liquidity needs. We are dependent to a large degree on the public’s acceptance of the films released by the studios. We are also subject to a high degree of competition and low barriers of entry into our industry. In the future, we may need to refinance all or a portion of our indebtedness on or before maturity. We cannot make assurances 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.

As of September 30, 2005, we were in compliance with all of the financial covenants as defined in our debt agreements.

As of September 30, 2005, we did not have any off-balance sheet financing transactions.

NEW CREDIT FACILITIES

The new senior secured credit facilities consist of:

	•		a $170.0 million seven year term loan facility used to finance the transactions described below;

	•		a $185.0 million seven year delayed-draw term loan facility, with a twenty- four month commitment available to finance permitted acquisitions and related fees and expenses; and

	•		a $50.0 million five year revolving credit facility available for general corporate purposes.

The Company used the $170.0 million new term loan, in addition to approximately $4.6 million of available cash, to (1) fund the $62.1 million net purchase price of the GKC Theatres acquisition, (2) repay borrowings of approximately $101.2 million (including principal, interest and fees) under the Company’s former term loan facility, (3) repay approximately $5.1 million of outstanding borrowings (including accrued interest and fees) under the Company’s former revolving credit facility, and (4) pay related fees and expenses. The Company did not draw upon the new revolving credit facility in connection with these transactions.

In connection with the transactions described above, the Company terminated its former $50 million revolving credit facility and repaid approximately $5.1 million, which included $5.0 million in unpaid outstanding principal and $0.1 million in accrued interest and fees. Also, the Company terminated its former $100 million term loan, and repaid approximately $98.8 million in principal, $.4 million of accrued interest and paid $2.0 million in prepayment fees. The Company recognized a $5.8 million loss on its extinguishment of debt which consisted of $3.8 million of loan fees related to its February 4, 2004 credit facilities and a $2.0 million prepayment premium on the retirement of its term loan.

The interest rate for borrowings under the new term loan is set from time to time at the Company’s option (subject to certain conditions set forth in the new credit agreement) at either: (1) a specified base rate plus 1.50% or (2) the Eurodollar Base Rate (as defined in the new credit agreement) divided by the difference between one and the Eurocurrency Reserve Requirements (as defined in the new credit agreement) plus 2.50%. The final maturity date of the new term loan is May 19, 2012.

The interest rate for borrowings under the new revolving credit facility for the initial six-month period is set from time to time at the Company’s option (subject to certain conditions set forth in the new credit agreement) at either: (1) a specified base rate plus 1.25% or (2) the Eurodollar Base Rate divided by the difference between one and the Eurocurrency Reserve Requirements plus 2.25%. Thereafter, the applicable rates of interest under the new revolving credit facility are based on the Company’s consolidated leverage ratio, with the margins applicable to base rate loans ranging from 0.50% to 1.25%, and the margins applicable to Eurodollar Loans (as defined in the new credit agreement) ranging from 1.50% to 2.25%. The final maturity date of the new revolving credit facility is May 19, 2010.

The new senior secured credit facilities contain covenants which, among other things, restrict the Company’s ability, and that of its restricted subsidiaries, to:

	•		pay dividends or make any other restricted payments;

	•		incur additional indebtedness;

	•		create liens on its assets;

	•		make certain investments;

	•		sell or otherwise dispose of assets;

	•		consolidate, merge or otherwise transfer all or any substantial part of its assets;

	•		enter into transactions with its affiliates; and

	•		engage in any sale-leaseback, synthetic lease or similar transaction involving any of its assets.

	•		the Company’s failure to pay principal on the loans when due and payable, or its failure to pay interest on the loans or to pay certain fees and expenses (subject to applicable grace periods);

	•		the occurrence of a change of control (as defined in the new credit agreement); or

	•		a breach or default by the Company or its subsidiaries on the payment of principal of any Indebtedness (as defined in the new credit agreement) in an aggregate amount greater than $5.0 million.

The Company may voluntarily pre-pay the term loans, in whole or in part, without premium or penalty.

SEASONALITY

Typically, movie studios release films with the highest expected revenues during the summer and the holiday period between Thanksgiving and Christmas, causing seasonal fluctuations in revenues. However, movie studios are increasingly introducing more popular film titles throughout the year. In addition, in years where Christmas falls on a weekend day, our revenues are typically lower because our patrons generally have shorter holiday periods away from work or school.

IMPAIRMENT OF PROPERTY AND EQUIPMENT

The Company reviews its property and equipment for potential impairment charges when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The continued depressed box office performance experienced throughout of 2005 will be one of the many factors considered during our next review. While the Company believes this depressed box office performance to be cyclical and temporary in nature, we will review and consider the full year financial performance of our theatre portfolio, competitive factors and full year industry trends and projections to determine if impairment charges are necessary.

INFORMATION ABOUT FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements within the meaning of the federal securities laws. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the SEC or in connection with oral statements made to the press, potential investors or others. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words, “believes,” “expects,” “anticipates,” “plans,” “estimates,” “intends,” “projects,” “should,” “will,” or similar expressions. These statements include, among others, statements regarding our strategies, sources of liquidity, the availability of film product and the opening or closing of theatres during 2005 and 2006.

Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on beliefs and assumptions of our management, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding expected pricing levels, competitive conditions and general economic conditions. These assumptions could prove inaccurate. The forward-looking statements also involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:

	•		the availability of suitable motion pictures for exhibition in our markets;

	•		competition in our markets;

	•		competition with other forms of entertainment;

	•		identified weaknesses in internal controls and procedures under Section 404 of the Sarbanes-Oxley Act of 2002;

	•		the effect of our leverage on our financial condition; and

	•		other factors, including the risk factors previously disclosed in our Annual Report on Form 10-K Amendment No. 2, for the year ended December 31, 2004, under the caption “Risk Factors.”

We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to various market risks. We have floating rate debt instruments and, therefore, are subject to the market risk related to changes in interest rates. Interest paid on our debt is largely subject to changes in interest rates in the market. Our new revolving credit facility and our new seven-year term loan credit facility are based on a structure that is priced over an index or LIBOR rate option. An increase of 1% in interest rates would increase the interest expense on our $170 million term loan credit agreement by approximately $1.7 million on an annual basis. If our $50 million revolving credit agreement was fully drawn a 1% increase in interest rates would increase interest expense by $500,000 on an annual basis. The interest rate on our 7.500% senior subordinated notes is fixed and changes in interest rates will have no effect on annual interest expense.

The Company has 32 theatre leases that have increases contingent on changes in the Consumer Price Index (“CPI”). A 1.0% change in the CPI would increase rent expense by $3.2 million over the remaining lives of these leases, which management does not believe would have a material impact on the Company’s consolidated financial statements.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is accumulated and communicated to our Company’s management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.

As required by Securities and Exchange Commission rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that, in light of the material weaknesses described below, as of September 30, 2005, the Company’s disclosure controls and procedures were not effective at the reasonable assurance level.

As a result of these control deficiencies, management performed additional procedures to ensure that the Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles. Accordingly, the Company believes that the financial statements included in the Company’s quarterly report on this Form 10-Q fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented in accordance with generally accepted accounting principles.

Material Weakness in Internal Control Over Financial Reporting

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2004, the Company identified the following material weaknesses in its internal control over financial reporting which continued to exist as of September 30, 2005:

1. As of December 31, 2004, the Company did not maintain effective controls over the accounting for and reporting of non-routine and non-systematic transactions because it did not have adequate personnel who possessed sufficient depth and experience to correctly account for such transactions in accordance with generally accepted accounting principles. As a result, the Company did not properly account for its fourth quarter acquisition of the remaining 50% interest in a limited liability company, which operates two theatres, in which the Company previously had a 50% equity investment in accordance with generally accepted accounting principles. This control deficiency resulted in immaterial misstatements to the Company’s consolidated financial statements for the year ended December 31, 2004. In addition, the Company’s lack of adequate personnel who possessed sufficient depth and experience contributed to the restatement of the Company’s Form 10-K for the year ended December 31, 2003 and its Form 10-Qs for the quarters ended March 31 and June 30, 2004 to correct errors related to lease accounting primarily affecting property, plant and equipment, financing obligations, rent expense, interest expense and depreciation expense. Additionally, this control deficiency could result in a material misstatement to the Company’s annual or interim consolidated financial statements that would not be prevented or detected.

2. As of December 31, 2004, the Company did not have the appropriate level of expertise to properly calculate and review its accounting for income taxes. Specifically, the Company did not maintain effective controls over the accounting for income taxes and the determination of income taxes payable, deferred income tax assets and liabilities and the related income tax provision. This control deficiency resulted in the restatement of the Company’s consolidated financial statements for the year ended December 31, 2003 and its consolidated financial statements for the quarters ended March 31 and June 30, 2004, as well as adjustments to the Company’s consolidated financial statements for the quarter ended September 30, 2004 and the year ended December 31, 2004. This control deficiency also resulted in the restatement, discussed in Note 18 to the consolidated financial statements, of the Company’s consolidated financial statements, reported in its Form 10-K Amendment No. 2 for the years ended December 31, 2003 and 2004 and its consolidated financial statements for the quarters ended March 31 and June 30, 2005, as well as adjustments to the Company’s consolidated financial statements for the quarter ended September 30, 2005. Additionally, this control deficiency could result in a misstatement of income taxes payable, deferred income tax assets and liabilities and the related income tax provision that would result in a material misstatement to the Company’s annual or interim consolidated financial statements that would not be prevented or detected.

Our management had previously concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2004, because of the material weaknesses described above. In connection with the restatement of the Company’s consolidated financial statements described in Note 15 to the consolidated financial statements, our management determined that the restatement was an additional effect of the material weaknesses described above.

Changes in Internal Control Over Financial Reporting

As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — GKC Theatres Acquisition,” on May 19, 2005, the Company acquired 100% of the stock of GKC Theatres. The Company is currently in the process of converting GKC Theatres’ 30 theatres to the Company’s financial reporting systems. However, during the quarter ended September 30, 2005, the results of operations for the substantial majority of the theatres in the GKC Theatres circuit were reported through GKC Theatres’ financial reporting systems. As of September 30, 2005, the Company had not tested these systems or GKC Theatres’ internal controls related to these systems. Other than the changes discussed in this paragraph, there were no changes to our internal control over financial reporting during the quarter ended September 30, 2005 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Remediation Measures for Identified Material Weaknesses

During the quarter ended June 30, 2005, we made the following changes in our internal control over financial reporting in an effort to remediate the material weakness related to the accounting for income taxes and the determination of income taxes payable, deferred income tax assets and liabilities and the related income tax provision:

	•		Engaged an outside consultant to assist management in preparation of the Company’s tax provision for inclusion in the financial statements;

	•		Formalized processes, procedures and documentation standards relating to the income tax provision; and

	•		Enhanced the levels of review in and accelerated the timing of the preparation of the quarterly and annual income tax provision.

We believe the errors in our consolidated financial statements related to improper tax deductions taken for cash and stock compensation were discovered as a result of these remedial measures. Although we believe the steps taken to date have improved the design effectiveness of our control over the accounting for income taxes, we have not completed our documentation and testing of the corrective processes and procedures relating to the income tax provision. Certain of the corrective processes, procedures and controls relate to annual controls that cannot be tested until the preparation of our 2005 annual income tax provision. Accordingly, we will continue to monitor the effectiveness of our internal controls over financial reporting relating to the review of our accounting for income taxes.

As of the end of the period covered by this quarterly report, the Company had not fully implemented the remediation described below. Accordingly, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were not effective at the end of the third quarter of 2005.

The Company’s planned remediation measures in connection with the material weaknesses described above include the following:

	1.		The Company will require continuing education during 2005 for the accounting and finance staff to ensure compliance with current and emerging financial reporting and compliance practices and for the tax manager to ensure compliance with current and emerging tax reporting and compliance practices.

	2.		The Company will utilize outside consultants, other than the Company’s independent registered public accounting firm, to assist management in its analysis of complex accounting transactions and related reporting and in the preparation of the Company’s tax provision for inclusion in the financial statements.

	3.		The Company will assess staffing levels and expertise in its accounting and finance areas and take the steps necessary to appropriately staff the accounting and finance departments.

	4.		The Company and the Audit Committee, as necessary, will consider additional items, or will alter the planned steps identified above, in order to further remediate the material weaknesses described above.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.


Exhibit
Number		Description
3.1		Amended and Restated Certificate of Incorporation of Carmike Cinemas, Inc. (filed as Exhibit 3.1 to Carmike’s Amendment to Form 8-A filed January 31, 2002 and incorporated herein by reference).

3.2		Amended and Restated By-Laws of Carmike Cinemas, Inc. (filed as Exhibit 3.2 to Carmike’s Amendment to Form 8-A filed January 31, 2002 and incorporated herein by reference).

3.3		Amendment No. 1 to the Amended and Restated By-Laws of Carmike Cinemas, Inc. (filed as Exhibit 3.2 to Carmike’s Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference).

4.1		Indenture, dated as of February 4, 2004, among Carmike Cinemas, Inc., each of the Guarantors named therein and Wells Fargo Bank Minnesota, National Association, as Trustee (filed as Exhibit 4.2 to Carmike’s Current Report on Form 8-K filed February 20, 2004 and incorporated herein by reference).

4.2		Supplemental Indenture, dated as of May 19, 2005, among Carmike Cinemas, Inc., the Guaranteeing


Exhibit
Number		Description
		Subsidiaries named therein, and Wells Fargo Bank, National Association (successor by merger with Wells Fargo Bank Minnesota, National Association), as Trustee (filed as Exhibit 4.1 to Carmike’s Current Report on Form 8-K filed May 25, 2005 and incorporated herein by reference).

4.3		Exchange and Registration Rights Agreement, dated as of February 4, 2004, among Carmike Cinemas, Inc., each of the Guarantors named therein and Goldman, Sachs & Co. (filed as Exhibit 4.3 to Carmike’s Current Report on Form 8-K filed February 20, 2004 and incorporated herein by reference).

4.4		Registration Rights Agreement, dated as of January 31, 2002, by and among Carmike Cinemas, Inc. and certain stockholders (filed as Exhibit 99.3 to Amendment No. 1 to Schedule 13D of Goldman Sachs & Co., et. al., filed February 8, 2002 and incorporated herein by reference).

11		Computation of per share earnings (provided in Note 10 to the Notes to Consolidated Financial Statements included in this report under the caption “Earnings Per Share”).

31.1		Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit Index


Exhibit
Number		Description
3.1		Amended and Restated Certificate of Incorporation of Carmike Cinemas, Inc. (filed as Exhibit 3.1 to Carmike’s Amendment to Form 8-A filed January 31, 2002 and incorporated herein by reference).

3.2		Amended and Restated By-Laws of Carmike Cinemas, Inc. (filed as Exhibit 3.2 to Carmike’s Amendment to Form 8-A filed January 31, 2002 and incorporated herein by reference).

3.3		Amendment No. 1 to the Amended and Restated By-Laws of Carmike Cinemas, Inc. (filed as Exhibit 3.2 to Carmike’s Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference).

4.1		Indenture, dated as of February 4, 2004, among Carmike Cinemas, Inc., each of the Guarantors named therein and Wells Fargo Bank Minnesota, National Association, as Trustee (filed as Exhibit 4.2 to Carmike’s Current Report on Form 8-K filed February 20, 2004 and incorporated herein by reference).

4.2		Supplemental Indenture, dated as of May 19, 2005, among Carmike Cinemas, Inc., the Guaranteeing Subsidiaries named therein, and Wells Fargo Bank, National Association (successor by merger with Wells Fargo Bank Minnesota, National Association), as Trustee (filed as Exhibit 4.1 to Carmike’s Current Report on Form 8-K filed May 25, 2005 and incorporated herein by reference).

4.3		Exchange and Registration Rights Agreement, dated as of February 4, 2004, among Carmike Cinemas, Inc., each of the Guarantors named therein and Goldman, Sachs & Co. (filed as Exhibit 4.3 to Carmike’s Current Report on Form 8-K filed February 20, 2004 and incorporated herein by reference).

4.4		Registration Rights Agreement, dated as of January 31, 2002, by and among Carmike Cinemas, Inc. and certain stockholders (filed as Exhibit 99.3 to Amendment No. 1 to Schedule 13D of Goldman Sachs & Co., et. al., filed February 8, 2002 and incorporated herein by reference).

11		Computation of per share earnings (provided in Note 10 to the Notes to Consolidated Financial Statements included in this report under the caption “Earnings Per Share”).

31.1		Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


	CARMIKE CINEMAS, INC.
Date: November 9, 2005	By:	/s/ Michael W. Patrick
		Michael W. Patrick
		President, Chief Executive Officer and Chairman of the Board of Directors (Duly Authorized Officer)


Date: November 9, 2005	By:	/s/ Martin A. Durant
		Martin A. Durant
		Senior Vice President — Finance, Treasurer and Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer)

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			Page
PART I FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS (UNAUDITED)		3
		CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)		4
		CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)		5
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		6
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			24
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			30
	ITEM 4. CONTROLS AND PROCEDURES			31
PART II OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS			33
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			33
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES			33
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			33
	ITEM 5. OTHER INFORMATION			33
	ITEM 6. EXHIBITS			33
SIGNATURES				35
EXHIBIT INDEX				36
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

1.		I have reviewed this quarterly report on Form 10-Q of Carmike Cinemas, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: