10-Q

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 June 30, 2006

OR

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o      Accelerated filer þ      Non-accelerated filer 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.

As of August 15, 2006, 12,715,622 shares of common stock, par value $0.03 per share, were outstanding.

TABLE OF CONTENTS

	Page
EXPLANATORY NOTE		3
PART I FINANCIAL INFORMATION		4
ITEM 1. FINANCIAL STATEMENTS		4
CONSOLIDATED BALANCE SHEETS		4
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)		5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)		6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		33
ITEM 4. CONTROLS AND PROCEDURES		33
PART II OTHER INFORMATION		36
ITEM 1. LEGAL PROCEEDINGS		36
ITEM 1A. RISK FACTORS		36
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		36
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		36
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		36
ITEM 5. OTHER INFORMATION		36
ITEM 6. EXHIBITS		37
SIGNATURES		38
EXHIBIT INDEX		39
EX-23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP
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

EXPLANATORY NOTE

During May of 2006, we determined that it was necessary to restate our previously issued consolidated financial statements for the years ended December 31, 2004 and 2003 because of certain misstatements in those financial statements. Accordingly, we have restated our previously issued consolidated financial statements for the years ended December 31, 2004 and 2003 and the condensed consolidated financial statements for the quarters ended March 31, 2005, June 30, 2005 and 2004 and September 30, 2005 and 2004. The misstatements in our previously issued financial statements are principally attributable to certain errors in accounting for lease transactions and other matters as described in Note 1 of the notes to our condensed consolidated financial statements included herein.

     The restatement adjustments increased previously reported accumulated deficit as of January 1, 2005 by $11.6 million, decreased previously reported net loss by $0.1 million for the three months ended June 30, 2005, and decreased net loss by $0.01 million for the six months ended June 30, 2005. The restatement does not affect our audited consolidated financial statements for the year ended December 31, 2005 filed on Form 10-K, but it does affect our previously filed quarterly reports on Form 10-Q/A for the quarters ended March 31, 2005 and June 30, 2005 and on Form 10-Q for the quarter ended September 30, 2005. We filed Forms 10-Q/A on August 4, 2006 for the quarters ended June 30, 2005 and September 30, 2005 to restate the three-month and year-to-date results in those quarters. On August 21, 2006, we filed our Form 10-Q for the quarter ended March 31, 2006, which included the restated results for the quarter ended March 31, 2005.

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PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CONSOLIDATED BALANCE SHEETS
CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands, except for share data)

	June 30, 2006			December 31, 2005
	(unaudited)
Assets:
Current assets:
Cash and cash equivalents	$	20,586		$	23,609
Restricted cash		2,286			3,602
Accounts and notes receivable		2,284			2,056
Inventories		2,104			1,802
Deferred income tax asset		6,029			6,029
Prepaid expenses		7,319			6,287
Total current assets		40,608			43,385
Investment in and advances to partnerships		3,860			3,763
Deferred income tax asset		45,054			42,344
Assets held for sale		6,037			5,434
Other		31,455			32,702
Property and equipment, net		551,284			569,947
Goodwill		38,460			38,460
Intangible assets, net		1,857			2,082
Total assets	$	718,615		$	738,117
Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable	$	15,879		$	23,516
Accrued expenses		40,933			42,443
Dividends payable		—			2,154
Current maturities of long-term debt, capital leases and long-term financing obligations		3,215			2,435
Total current liabilities		60,027			70,548
Long-term liabilities:
Long-term debt, less current maturities		318,159			313,774
Capital leases and long-term financing obligations, less current maturities		115,760			115,809
Other		7,840			5,269
Total long-term liabilities		441,759			434,852
Commitments and contingencies		—			—
Stockholders’ Equity:
Preferred Stock, $1.00 par value, authorized 1,000,000 shares, none outstanding at June 30, 2006 and December 31, 2005, respectively		—			—
Common Stock, $0.03 par value, authorized 20,000,000 shares, 12,715,622 and 12,455,622 shares issued at June 30, 2006 and December 31, 2005, respectively and 12,434,658 and 12,309,002 shares outstanding at June 30, 2006 and December 31, 2005, respectively		382			374
Paid-in capital		297,103			297,256
Treasury stock, 280,964 and 146,620 shares at cost at June 30, 2006 and December 31, 2005, respectively		(8,258	)		(5,210	)
Accumulated deficit		(72,398	)		(59,703	)
Total stockholders’ equity		216,829			232,717
Total liabilities and stockholders’ equity	$	718,615		$	738,117

The accompanying notes are an integral part of these consolidated financial statements

4

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands, except per share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
				2005						2005
	2006			(restated)			2006			(restated)
Revenues
Admissions	$	84,874		$	78,780		$	157,439		$	145,832
Concessions and other		45,455			41,005			84,635			75,173
		130,329			119,785			242,074			221,005
Costs and Expenses
Film exhibition costs		47,833			46,920			85,108			82,302
Concession costs		5,251			4,447			9,341			8,043
Other theatre operating costs		49,488			47,203			100,096			91,308
General and administrative expenses		9,752			4,354			15,533			8,342
Depreciation and amortization		10,476			9,789			20,768			18,030
Gain on sales of property and equipment		(293	)		(424	)		(437	)		(426	)
		122,507			112,289			230,409			207,599
Operating income		7,822			7,496			11,665			13,406
Other expenses
Interest expense		11,646			8,332			22,259			16,067
Loss on extinguishment of debt		4,811			5,795			4,811			5,795
Loss before reorganization costs and income taxes		(8,635	)		(6,631	)		(15,405	)		(8,456	)
Reorganization benefit (expense)		—			(3	)		—			2,388
Loss before income taxes		(8,635	)		(6,634	)		(15,405	)		(6,068	)
Income tax benefit		(2,114	)		(4,255	)		(2,710	)		(4,013	)
Net loss	$	(6,521	)	$	(2,379	)	$	(12,695	)	$	(2,055	)
Weighted average shares outstanding:
Basic		12,402			12,212			12,370			12,175
Diluted		12,402			12,212			12,370			12,175
Net loss per common share:
Basic	$	(0.53	)	$	(0.19	)	$	(1.03	)	$	(0.17	)
Diluted	$	(0.53	)	$	(0.19	)	$	(1.03	)	$	(0.17	)
Dividend declared per common share.	$	—		$	0.18		$	0.18		$	0.35

The accompanying notes are an integral part of these consolidated financial statements

5

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands)

	Six Months Ended
	June 30,
				2005
	2006			(restated)
Operating Activities
Net loss	$	(12,695	)	$	(2,055	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		20,768			18,030
Amortization of debt issuance costs		1,322			1,113
Deferred income taxes		(2,710	)		(1,446	)
Stock-based compensation		2,031			1,728
Reorganization items		—			(2,388	)
Loss on extinguishment of debt		4,811			3,820
Gain on sales of property and equipment		(437	)		(426	)
Changes in operating assets and liabilities:
Accounts and notes receivable and inventories		(530	)		(527	)
Prepaid expenses		(1,129	)		(13,820	)
Accounts payable		(6,637	)		(10,384	)
Accrued expenses and other liabilities		1,153			2,015
Net cash provided by (used in) operating activities		5,947			(4,340	)
Investing Activities
Purchases of property and equipment		(11,509	)		(55,885	)
Acquisition of GKC Theatres’ stock, net of cash acquired		—			(61,596	)
Release of other restricted cash		316			—
Proceeds from sales of property and equipment		1,201			1,706
Net cash used in investing activities		(9,992	)		(115,775	)
Financing Activities
Additional borrowings		156,000			175,000
Repayments of long-term debt		(150,836	)		(104,202	)
Repayments of liabilities subject to compromise		—			(958	)
Repayments of capital leases and long-term financing obligations		(588	)		(2,916	)
Proceeds from long-term financing obligations		6,317			7,521
Debt issuance costs		(2,493	)		—
Purchase of treasury stock		(3,048	)		(5,210	)
Dividends paid		(4,330	)		(4,282	)
Net cash provided by financing activities		1,022			64,953
Decrease in cash and cash equivalents		(3,023	)		(55,162	)
Cash and cash equivalents at beginning of period		23,609			56,944
Cash and cash equivalents at end of period	$	20,586		$	1,782

The accompanying notes are an integral part of these consolidated financial statements

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CARMIKE CINEMAS, INC. and SUBSIDIARIES For the Three and Six Months Ended June 30, 2006 and 2005

NOTE 1 — RESTATEMENTS

     The Carmike Cinemas, Inc. consolidated financial statements for the three and six months ended June 30, 2005 and incorporated herein include two restatements. The first restatement was filed on November 10, 2005 on Form 10-Q/A and is referenced below as “Amendment 1.” The second restatement was filed on August 4, 2006 on Form 10-Q/A and is referenced below as “Amendment 2.”

Amendment 1

     Previously issued financial statements for the years ended December 31, 2003 and 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 decreased the net loss by $1.6 million for the three and six months ended June 30, 2005, are non-cash and had no effect on operating cash flows or our compliance with its debt covenants.

     A summary of the significant effects of the restatements are as follows:

     Consolidated Statement of Operations effects:

	For the three months ended						For the six months ended
	June 30, 2005						June 30, 2005
	As Previously						As Previously
	Reported			As Restated			Reported			As Restated
Consolidated Statements of Operations
Income tax benefit	$	(2,723	)	$	(4,348	)	$	(2,395	)	$	(4,022	)
Net loss		(4,121	)		(2,496	)		(3,687	)		(2,060	)
Loss per common share:
Basic		(0.34	)		(0.20	)		(0.30	)		(0.17	)
Diluted		(0.34	)		(0.20	)		(0.30	)		(0.17	)

Amendment 2

     During the second quarter of 2006, we determined that it was necessary to restate our previously issued financial statements for each of the years ended December 31, 2004 and 2003, the quarter ended March 31, 2005, and each of the quarters ended June 30, 2005 and 2004 and September 30, 2005 and 2004 to correct for errors in the financial statements related to our failure to properly account for certain lease related transactions. The following errors in the application of generally accepted accounting principles to lease transactions have been corrected:

7

• Where separation of the ground lease and building lease elements of a theatre lease was required pursuant to the provisions of Statement of Financial Standards (“SFAS”) No. 13, Accounting for Leases (“SFAS 13”), as amended, we had utilized a pro rata method to fragment leases into building and land elements. The land lease should have been determined by applying an appropriate incremental borrowing rate to the fair value of the land with the remaining lease payments being applied to the lease of the building.

• For purposes of determining whether the lease is a capital lease because the present value of the minimum lease payments exceeds 90% of the fair value of the leased property, we used an incorrect incremental borrowing rate. Similarly, to the extent the lease was determined to be a capital lease, the same incorrect rate was utilized to record the capital lease obligation.

• For certain leases, we incorrectly utilized a period exceeding the term of the lease for purposes of amortizing leasehold improvements or capital lease assets. Adjustments were recorded to reflect the amounts computed using the correct lease term.

• We did not correctly re-assess lease classification upon modification of the terms of certain leases. Accordingly, in some cases, the classification of the leases may have been incorrectly recorded in the financial statements and/or amounts related to the capital leases were not correctly adjusted for such modification.

• We did not correctly account for certain build-to-suit arrangements in which, for financial reporting purposes, we were considered the owner of these assets during the construction period. Upon completion of the construction projects, we determined that we were unable to meet the requirements for sale-leaseback treatment under SFAS No. 98, Accounting for Leases: Sale-Leaseback Transactions Involving Real Estate: Sales-Type Leases of Real Estate; Definition of the Lease Term; and Initial Direct Costs of Direct Financing Leases (“SFAS 98”); accordingly, project costs funded by the landlord should have been recorded as financing obligations.

• We incorrectly capitalized interest on payments we made for construction of lessor-owned assets under lease arrangements in which we were not considered the owner of the project for financial reporting purposes. Additionally, for one build-to-suit construction project, we utilized an incorrect interest rate for purposes of capitalizing interest, and incorrectly capitalized interest over periods in which construction activity had been deferred for reasons other than normal construction delays.

• We included contingent payments under lease arrangements classified as capital leases or financing obligations as rent expense, rather than interest expense.

• We did not revise deferred rental liability calculations to reflect modifications of the terms on certain of our operating leases.

• We incorrectly reported the cost of our contribution to lessor assets through the funding of project costs as leasehold improvements, rather than as building costs, assets under capital lease or prepaid rent, as appropriate under each arrangement.

     In addition, we did not ensure the completeness and accuracy of supporting schedules and underlying data for routine journal entries and journal entries recorded as part of our period-end closing and consolidation process. As a result, during 2005, we incorrectly recorded journal entries regarding directors fees, discount ticket and other revenue, capitalized interest, and accrued expense. During 2004, we incorrectly recorded journal entries regarding other revenue and accrued expenses. These errors impact the quarterly results of operations presented in this Form 10-Q.

     The financial statements, notes thereto and related disclosures contained in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2005 have been restated to adjust for the errors noted above. These restatements reflect a $11.6 million increase to accumulated deficit at January 1, 2005 as well as adjustments to deferred tax assets, net property plant and equipment, capital leases, financing obligations, other assets, deferred expenses, and accrued expenses. Adjustments were also made to reflect the tax effect of the restatement adjustments.

8

     In addition, we revised our presentation of dividends declared totaling $2.2 million and $4.3 million for the three and six months ended June 30, 2005, respectively, to present the charge as a reduction of paid-in capital, rather than increase in Accumulated deficit.

     The effect of the restatements on earnings per common share was as follows:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2005		2005
Basic		0.01		0.00
Diluted		0.01		0.00

     A summary of the significant effects of the restatements is found below and on the following pages :

Consolidated Statement of Operations and Cash Flows effects:

	For the three months ended
	June 30, 2005
	As Previously
	Reported (1)			As Restated
Consolidated Statements of Operations
Concessions and other	$	40,989		$	41,005
Total revenues		119,769			119,785
Other theater operating costs		47,744			47,203
General and administrative expenses		5,607			4,354
Depreciation and amortization		9,733			9,789
Gain on sales of property and equipment and termination of capital lease		(424	)		(424	)
Operating income		5,742			7,496
Interest expense		6,788			8,332
Income tax benefit		(4,348	)		(4,255	)
Net loss		(2,496	)		(2,379	)
Loss per common share: Basic		(0.20	)		(0.19	)
Loss per common share: Diluted		(0.20	)		(0.19	)

	For the six months ended
	June 30, 2005
	As Previously
	Reported (1)			As Restated
Consolidated Statements of Operations
Admissions	$	146,349		$	145,832
Concessions and other		75,103			75,173
Total revenue		221,452			221,005
Other theater operating costs		92,178			91,308
General and administrative expenses		10,675			8,342
Depreciation and amortization		17,997			18,030
Gain on sales of property and equipment and termination of capital lease		(426	)		(426	)
Operating income		10,683			13,406
Interest expense		13,358			16,067
Income tax benefit		(4,022	)		(4,013	)
Net loss		(2,060	)		(2,055	)
Loss per common share: Basic		(0.17	)		(0.17	)
Loss per common share: Diluted		(0.17	)		(0.17	)

9

Consolidated Statement of Cash Flows effects:

	For the six months ended
	June 30, 2005
	As Previously
	Reported (1)			As Restated
Consolidated Statements of Cash Flows
Net cash used in operating activities	$	(6,835	)	$	(4,340	)
Net cash used in investing activities		(109,466	)		(115,775	)
Net cash provided by financing activities		60,946			64,953

(1) As previously reported on form 10-Q/A filed November 10, 2005 to restate income tax expense (benefit) and deferred taxes and referred to above as Amendment 1.

NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation. We have prepared the accompanying unaudited Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. This information reflects all adjustments which in the opinion of management are necessary for a fair presentation of the statement of financial position as of June 30, 2006, and the results of operations for the three and six month periods ending June 30, 2006 and 2005 and the cash flows for the six month periods ending June 30, 2006 and 2005. Except for the restatement adjustments described in Note 1, all adjustments made have been of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. We believe that the disclosures are adequate to make the information presented not misleading. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2005 (“2005 Form 10-K”). That report includes a summary of our critical accounting policies. There have been no material changes in our accounting policies during fiscal 2006, except for the adoption of statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123 (R)”) as noted in “Stock-Based Compensation” below. We have revised our presentation of certain items within the investing activities section of the consolidated statement of cash flows for the six months ended June 30, 2005.

     Proceedings under Chapter 11. On August 8, 2000, we and our subsidiaries, Eastwynn Theatres, Inc., Wooden Nickel Pub, Inc. and Military Services, Inc. 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, we were 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 our consolidated balance sheet as liabilities subject to compromise and (2) the identification of all transactions and events that are directly associated with our reorganization in the Consolidated Statements of Operations. We emerged from the Chapter 11 Cases pursuant to our plan of reorganization effective on January 31, 2002. On February 11, 2005, we 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.

     Reorganization benefit (expense) for the three and six month periods ended June 30, 2005 is as follows (in thousands):

	Three months ended			Six months ended
	June 30, 2005			June 30, 2005
Change in estimate for general unsecured claims		—			391
Settlement of accrued professional fees		(3	)		1,997
	$	(3	)	$	2,388

     Use of Estimates. The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.

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     Stock-Based Compensation. On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all stock-based compensation payments and supersedes the current accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). SFAS 123(R) is effective for all annual periods beginning after June 15, 2005. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 107 (“SAB 107”) relating to the adoption of SFAS 123(R).

     Beginning with the first quarter of fiscal 2006, we adopted SFAS 123(R) using the modified prospective method of adoption. See Note 7 for a description of our stock plans and related disclosures. We currently use the Black-Scholes option pricing model to determine the fair value of our stock options. The determination of the fair value of the awards on the date of grant using an option-pricing model is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rates and expected dividends.

     We have not granted any stock options during the three or six months ended June 30, 2006. If and when we grant stock options in the future, we will consider the guidance in SAB 107 regarding the assumptions used to calculate their estimated fair value. All stock option awards are amortized based on their graded vesting over the requisite service period of the awards.

     We may also issue restricted stock awards to certain key employees. Generally, the restricted stock vests over a one to three year period, thus we recognize compensation expense over the one to three year period equal to the grant date value of the shares awarded to the employee. Should the non-vested awards include performance or market conditions, we will examine the appropriate requisite service period to recognize the cost associated with the award on a case by case basis.

     Prior to the adoption of SFAS 123(R), we applied the intrinsic value-based method of accounting prescribed by APB 25 and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, issued in March 2000, to account for our fixed plan options and provided the required pro forma disclosures prescribed by SFAS No. 123, Accounting for Stock-Based Compensation, as amended (“SFAS 123”). Under APB 25, compensation was recognized over the grant’s vesting period only if the current market price of the underlying stock on the date of grant exceeds the exercise price.

     No options were granted during the three or six months ended June 30, 2006. The following table provides the fair value of the options granted during the six months ended June 30, 2005 using the Black-Scholes option pricing model together with a description of the assumptions used to calculate the fair value:

	Six Months
	Ended
	June 30, 2005
Expected term (years)		9.0
Risk-free interest rate		4.40	%
Expected dividend yield		2.76	%
Expected volatility		0.40

     Had compensation cost for the three and six months ended June 30, 2005 been determined consistent with SFAS No. 123, Accounting for Stock Based Compensation, (“SFAS No. 123”), utilizing the assumptions detailed above, our pro forma net loss and pro forma basic and diluted loss per share would have decreased to the following amounts (in thousands, except share data):

	Three Months Ended			Six Months Ended
	June 30,			June 30,
	2005			2005
	(restated)			(restated)
Net loss:
As reported	$	(2,379	)	$	(2,055	)
Plus: expense recorded on deferred stock compensation, net of related tax effects		669			1,683
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(1,063	)		(2,331	)

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	Three Months Ended			Six Months Ended
	June 30,			June 30,
	2005			2005
	(restated)			(restated)
Pro forma — for SFAS No. 123	$	(2,773	)	$	(2,703	)
Basic net loss per common share:
As reported	$	(0.19	)	$	(0.17	)
Pro forma — for SFAS No. 123	$	(0.23	)	$	(0.22	)
Diluted net loss per common share:
As reported	$	(0.19	)	$	(0.17	)
Pro forma — for SFAS No. 123	$	(0.23	)	$	(0.22	)

     Prior to the adoption of SFAS 123(R), we presented all tax benefits for deductions resulting from the exercise of stock options and disqualifying dispositions as operating cash flows on our consolidated statement of cash flows. SFAS 123(R) requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow. This requirement reduces net operating cash flows and increases net financing cash flows in periods after adoption. Total cash flow will remain unchanged from what would have been reported under prior accounting rules.

NOTE 3 — DESCRIPTION OF BUSINESS

     Our primary business is the operation of motion picture theatres which generate revenues principally through admissions and concessions sales. We consider ourselves to be in a single reportable segment. Substantially all revenues are received in cash and credit cards and are recognized as income at the point of sale. Ten major distributors in the motion picture industry produced films which accounted for approximately 90% of admissions revenue.

NOTE 4 — ACQUISITION OF GKC THEATRES

     On May 19, 2005, we acquired 100% of the stock of George G. Kerasotes Corporation (“GKC Theatres”) for a net purchase price of $61.6 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 consolidated financial statements for the three and six month periods ended June 30, 2005 include the operating results for the period from acquisition date through June 30, 2005. Pursuant to SFAS 141, Business Combinations (“SFAS 141”), we applied purchase accounting to the transaction, resulting in recognition of additional property and equipment of $54.1 million. We recognized additional goodwill and other intangibles of approximately $17.5 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 $58.4 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 escrow has been classified as restricted cash in our consolidated balance sheet. The current escrow amount of $1.0 million was settled during and remitted to the GKC stockholders in the first quarter of 2006 while the short-term escrow amount of $2.2 million is to be settled within 18 months of the date of acquisition, which is expected to be on or before November 2006, subject to certain outstanding claims.

Pro Forma Results of Operations

     The following pro forma results of operations for the three and six months ended June 30, 2005 assume the acquisition occurred at the beginning of the fiscal year January 1, 2005 and reflects the full results of operations for the three month and six 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):

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	Three Months Ended			Six Months Ended
	June 30, 2005			June 30, 2005
	(restated)			(restated)
Revenues	$	124,749		$	238,081
Income from operations	$	6,863		$	14,257
Net Income (loss)	$	(2,916	)	$	(1,992	)
Earnings per share:
Basic	$	(0.24	)	$	(0.16	)
Diluted:	$	(0.24	)	$	(0.16	)

NOTE 5 — DEBT

     Debt consisted of the following (in thousands):

	June 30,			December 31,
	2006			2005
Term loan	$	165,374		$	166,225
Delayed draw term loan		156,000			—
7.500% senior subordinated notes		—			150,000
		321,374			316,225
Current maturities		(3,215	)		(2,451	)
	$	318,159		$	313,774

Senior Secured Credit Facilities

     On May 19, 2005, we entered into a 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 credit agreement provides for senior secured credit facilities in the aggregate principal amount of $405.0 million.

     The 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 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.

     On June 6, 2006, we drew down $156 million of the $185 million delayed-draw term loan to repurchase our outstanding $150 million of 7.50% senior subordinated notes due 2014 and to repay related fees and expenses. At this time, the portion of the delayed-draw term loan commitment which was not used for this repurchase was cancelled.

     As described in the fourth and fifth amendments to our senior secured credit agreement, the interest rate for borrowings under our outstanding revolving and term loans is set to a margin above the London interbank offered rate (“Libor”) or base rate, as the case may be, based on our corporate credit ratings from Moody’s Investors Service, Inc. and Standard & Poor’s Rating Services in effect from time to time, with the margin ranging from 2.50% to 3.50% for loans based on Libor and 1.50% to 2.50% for loans based on the base rate. These amendments also temporarily increase the margin described above by 0.50% per annum until such time as our audited financial statements for the year ended December 31, 2005 and our unaudited financial statements for the quarter ended March 31, 2006 are delivered to the lenders. In addition, this 0.50% per annum increase will remain in effect since we were unable to deliver our unaudited financial statements for the quarter ended June 30, 2006 by August 14, 2006 and will continue in effect if we are unable to deliver our unaudited financial statements for the quarter ended September 30, 2006 by November 14, 2006, or until such time as these unaudited financial statements are delivered.

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     In addition, as described in the fifth amendment, we have also agreed, that by October 25, 2006, we will enter into and maintain hedging agreements to the extent necessary to provide that at least 45% of the aggregate principal amount outstanding on our term loans is subject either to a fixed interest rate or interest rate protection through a date not earlier than May 19, 2008. The final maturity date of the term loan facility and delayed-draw term loan facility is May 19, 2012.

     The interest rate for borrowings under the revolving credit facility for the initial six-month period was set from time to time at our option (subject to certain conditions set forth in the 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 revolving credit facility are based on our 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 credit agreement) ranging from 1.50% to 2.25%. The rate at June 6, 2006 was 10.25%; on June 8, 2006, we converted the rate to a 90-day LIBOR-based rate, which was 8.52%. The final maturity date of the revolving credit facility is May 19, 2010.

     If we repay the term loans prior to June 2, 2007, we will be subject to a 1% prepayment fee for optional and most mandatory prepayments, unless the prepayment results from a change of control transaction or the issuance by us of subordinated debt of up to $150 million. The credit agreement requires that mandatory prepayments be made 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 our consolidated leverage ratio) of excess cash flow as defined in the credit agreement, and (3) 50% of the net cash proceeds from the issuance of certain equity and capital contributions.

     The senior secured credit facilities contain covenants which, among other things, restrict our ability, and that of our restricted subsidiaries, to:

• pay dividends or make any other restricted payments;

• incur additional indebtedness;

• create liens on our assets;

• make certain investments;

• sell or otherwise dispose of assets;

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

• enter into transactions with our affiliates; and

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

     The senior secured credit facilities also contain financial covenants that require us 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 credit agreement, as amended.

     Generally, the senior secured credit facilities do not place restrictions on our ability to make capital expenditures. However, we may not make any capital expenditure if any default or event of default under the 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 credit agreement on a pro forma basis after giving effect to the capital expenditure.

     Our failure to comply with any of these covenants, including compliance with the financial ratios, is an event of default under the 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

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under the revolving credit facility and the term loan facilities due and payable. As of June 30, 2006, we were in compliance with all of the financial covenants. Other events of default under the senior secured credit facilities include:

• our 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 credit agreement); or

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

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

     Event of Default

     We had not submitted audited financial statements for the year ended December 31, 2005 by the 65th day following the end of the previous fiscal year nor had we submitted unaudited financial statements for the three month period ended March 31, 2006 by the 40th day following the end of such three month period as required by the financial covenants under our senior secured credit facility.

     On April 3, 2006, we obtained a waiver for the covenant regarding delivery of our audited financial statements for the year ended December 31, 2005 by entering into a second amendment to the credit agreement with Bear, Stearns & Co. Inc., and the other lending parties. This second amendment, which had an effective date of March 28, 2006, extended the date by which we were to submit audited financial statements for the year ended December 31, 2005 to the lenders to May 15, 2006. On May 9, 2006, we obtained a second waiver for delivery of such audited financial statements by entering into a third amendment to the credit agreement with Bear, Stearns & Co. Inc. and the other lending parties extending the delivery date to June 30, 2006. The third amendment also included a waiver regarding the delivery of the unaudited financial statements for the three month period ended March 31, 2006, extending the delivery date of such unaudited financial statements to June 30, 2006.

     Effective June 2, 2006, we entered into a fourth amendment to our senior secured credit agreement with the lending parties thereunder, which included an extension of the deadline for the delivery of our audited financial statements for the year ended December 31, 2005 and unaudited financial statements for the three month period ended March 31, 2006 until July 27, 2006.

     Effective July 27, 2006, we entered into a fifth amendment to our senior secured credit agreement, which included (i) an extension of the deadline for the delivery of our audited financial statements for the year ended December 31, 2005 until September 30, 2006; (ii) an extension of the deadline for delivery of our unaudited financial statements for the quarter ended March 31, 2006 until September 30, 2006; and (iii) an extension of the deadline for delivery of our unaudited financial statements for the quarters ended June 30, 2006 and September 30, 2006 until December 31, 2006.

     The fifth amendment also provides that until we have delivered to the lenders the audited financial statements for the year ended December 31, 2005 and the unaudited financial statements for the quarter ended March 31, 2006, the maximum principal amount of indebtedness that we may incur under the $50 million revolving credit facility comprising part of the senior secured credit agreement is $10 million. In addition, the maximum principal amount of indebtedness that we may incur under the revolving credit facility will continue to be limited to $10 million since we were unable to deliver our unaudited financial statements for the quarter ended June 30, 2006 by August 14, 2006 and will continue to be so limited if we are unable to deliver our unaudited financial statements for the quarter ended September 30, 2006 by November 14, 2006, or until such time as these unaudited financial statements are delivered.

     We filed our audited financial statements for the year ended December 31, 2005 on Form 10-K on August 4, 2006. In addition, we filed our unaudited financial statements for the quarter ended March 31, 2006 on Form 10-Q on August 21, 2006 and our amended Forms 10-Q/A for the quarters ended June 30, 2005 and September 30, 2005 on August 4, 2006.

15

     The amendments provide for waivers of certain defaults under the credit agreement, including the default resulting from our 7.50% senior subordinated notes being accelerated. In addition, the fourth amendment permitted our existing undrawn $185 million delayed-draw term loan commitment to be used to repay or repurchase our outstanding $150 million of 7.50% senior subordinated notes and to pay related fees and expenses upon the acceleration of such notes. On June 6, 2006, we drew down $156 million on this delayed-draw term loan to repay our outstanding 7.50% senior subordinated notes, all accrued and unpaid interest thereon and certain other fees and expenses related thereto. These notes are no longer outstanding and the related indenture is no longer in effect. The undrawn portion of the delayed-draw term loan terminated upon the funding of such $156 million. The delayed-draw term loan has a maturity date of May 19, 2012. See “7.50% Senior Subordinated Notes” below.

     Covenant Compliance

     As of June 30, 2006, we were in compliance with all of the financial covenants in our senior secured credit agreement. While we currently believe that we will remain in compliance with these financial covenants as of September 30, 2006 and December 31, 2006 based on current projections, it is reasonably possible that we may not comply with some or all of our financial covenants as of these future dates. In order to avoid such non-compliance, we have the ability to reduce, postpone or cancel certain identified discretionary spending in the quarters ended September 30, 2006 and December 31, 2006. We could also seek future waivers or amendments to the senior secured credit agreement in order to avoid non-compliance; however, we can provide no assurance that we will successfully obtain such waivers or amendments from our lenders. If we are unable to comply with some or all of the financial covenants or if we fail to obtain future waivers or amendments to the senior secured credit agreement, the administrative agent may, and if requested by the lenders holding a certain minimum percentage of the commitments shall, terminate our revolving credit facility and may declare all or any portion of the obligations under the revolving credit facility and the term loan facilities due and payable.

7.50% Senior Subordinated Notes

     On February 4, 2004, we completed an offering of $150.0 million in aggregate principal amount of 7.50% senior subordinated notes due February 15, 2014 to institutional investors. As discussed further below, on June 6, 2006, we drew down $156 million on our delayed-draw term loan to repay our outstanding 7.50% senior subordinated notes, all accrued and unpaid interest thereon and certain other fees and expenses related thereto. The notes are no longer outstanding and the indenture governing the notes is no longer in effect.

     Event of Default

     On April 3, 2006, the trustee for the 7.50% senior subordinated notes notified us that we were in violation of the covenant requiring us to file our Annual Report on Form 10-K with the SEC within the time frame specified by the SEC’s rules and regulations, thereby triggering a default under the note indenture. The notice further stated that if this default continued for an additional sixty days then an event of default under the note indenture would occur. We did not file our Annual Report on Form 10-K on or before June 2, 2006 and did not receive the requisite consents to obtain a waiver of the default under the note indenture. Consequently, the default was not cured during the 60-day cure period and therefore constituted an event of default under the note indenture which entitled the trustee under the notes and/or the holders of at least 25% in aggregate principal amount of the outstanding notes to declare all of the notes immediately due and payable. On June 2, 2006, we received notice from the holders of over 25% in aggregate principal amount of the notes that such holders had accelerated the notes. As a consequence, on June 4, 2006, $150 million in aggregate principal amount of the notes (representing all of the outstanding notes) plus accrued and unpaid interest thereon became immediately due and payable. As permitted under the fourth amendment to our senior secured credit agreement with the lending parties thereunder, we borrowed $156 million under our existing delayed-draw term loan commitment and repaid all of the outstanding notes on June 6, 2006. The notes are no longer outstanding and the indenture governing the notes is no longer in effect.

NOTE 6 — INCOME TAXES

     As described in Note 1 of the notes to our interim condensed consolidated financial statements, previously issued financial statements as of and for the three- and six-month periods ended June 30, 2005 have been restated to reflect adjustments to income tax expense (benefit) and deferred taxes.

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     At June 30, 2006, we had deferred tax assets of approximately $51.1 million remaining. The income tax benefit of approximately $2.7 million for the six months ended June 30, 2006, reflects a combined federal and state effective tax rate of 17.6%. The effective tax rate has decreased from 66.1% for the six months ended June 30, 2005 due to the relationship of nondeductible items, principally related to executive compensation, to estimated annual pre-tax book loss. Our effective rate for the six months ended June 30, 2006 is 17.6% compared to 8.8% for the three months ended March 31, 2006, due to a revision in our estimated annual pre-tax loss.

     The sale of shares in the offering of August 2004, caused us 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.

     We have federal and state net operating loss carryforwards of approximately $99.0 million which will begin to expire in the year 2020.

NOTE 7 — STOCK PLANS

Stock Options

     Our stock option program is a long-term retention program that is intended to attract, retain and provide incentives for directors, officers and employees in the form of incentive and non-qualified stock options and restricted stock. These plans are described in more detail below. The Board of Directors has the sole authority to determine who receives such grants, the type, size and timing of such grants, and to specify the terms of any non-competition agreements relating to the grants.

General Stock Option Information

     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 stock option 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. These grants of 20,000 shares in the aggregate during 2002, 2003 and 2004 represent the only stock options outstanding under the Directors Incentive Plan prior the plan being superseded on May 21, 2004, the effective date of the Carmike Cinemas, Inc. 2004 Incentive Stock Plan (the “2004 Incentive Stock Plan”).

     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. We 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 vested on December 31, 2005 and 75,000 options vest on December 31, 2006. On December 18, 2003, we 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. These grants of 330,000 shares in the aggregate during 2003 represent the only stock options outstanding under the Employee Incentive Plan prior the plan being superseded on May 21, 2004, the effective date of the 2004 Incentive Stock Plan.

     The following table sets forth the summary of option activity under our stock option plans for the six months ended June 30, 2006:

17

				Weighted		Weighted
	Number			Average		Average
	of Shares			Exercise Price		Fair Value
Balance, December 31, 2005		335,000		$	28.58	$	16.50
Granted		—			—		—
Exercised		—			—		—
Settled (1)		(25,000	)	$	21.79		12.82
Forfeited (1)		(60,000	)	$	29.86		17.30
Expired		—			—		—
Balance, June 30, 2006		250,000		$	28.95	$	16.67

(1) In the six months ended June 30, 2006, we recorded a $104,000 charge related to the Release and Consulting Agreement entered into with our former Chief Financial Officer (“CFO”) which provided that the former CFO shall be paid the cash equivalent for 25,000 vested stock options granted under Carmike’s 2002 Stock Plan based on the difference between the strike price of $21.74 and the then-market price of $25.36 on December 31, 2005, the date at which the options vested. All of the former CFO’s remaining options were forfeited without regard to vesting.

     Information regarding stock options outstanding at June 30, 2006 is summarized below:

	Options Outstanding				Options Exercisable
	Number of		Weighted Average Remaining				Weighted Average
Prices	Shares		Contractual Life (Years)		Number of Shares		Fair Value
$19.95		10,000		6.38		10,000	$	11.59
$21.40		5,000		6.93		5,000	$	12.42
$21.79		100,000		6.69		50,000	$	12.82
$22.05		5,000		9.37		5,000	$	11.66
$35.63		125,000		7.47		41,668	$	20.49
$37.46		5,000		7.76		5,000	$	17.54
Totals		250,000		7.39		116,668	$	15.59

     The aggregate intrinsic value of options outstanding and exercisable as of June 30, 2006 was approximately $11,300. As of June 30, 2006 there was approximately $536,000 in unrecognized compensation costs related to non-vested stock options that is expected to be recognized over a weighted average period of approximately 0.7 years.

Stock Plans

     Upon emergence from Chapter 11, our Board of Directors approved a new management incentive plan, the 2002 Stock Plan and authorized 1,000,000 shares for future issuance. The Board of Directors approved the grant of 780,000 shares under the 2002 Stock Plan to Michael W. Patrick, our Chief Executive Officer. Pursuant to the terms of Mr. Patrick’s employment agreement dated January 31, 2002 these shares will be 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, our Stock Option Committee (which administered the 2002 Stock Plan prior to August 2002) approved grants of 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 during each of these years. Shares earned will vest and be receivable approximately two years after the calendar year in which they were earned, provided, with certain exceptions, the executive remains one of our employees. One of the seven grants to senior executives includes a grant of 35,000 shares to one of our former employees.

     On March 31, 2004, the Board of Directors adopted the 2004 Incentive Stock Plan, which was approved by the stockholders on May 21, 2004. The 2004 Incentive Stock Plan replaced the Employee Incentive Plan and the Directors Incentive Plan. The Compensation and Nominating Committee (or similar 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 1,055,000 shares of common stock reserved for issuance pursuant to grants made under the 2004 Incentive Stock Plan in addition to any shares which may be forfeited under the Employee Incentive Plan and the Directors Incentive Plan after the effective date of the 2004 Incentive Stock Plan.

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     On May 19, 2005, our non-employee directors received annual equity compensation consisting of 250 restricted shares each (an aggregate of 1,500 restricted shares of common stock, of which 250 were later forfeited by a former director) pursuant to the 2004 Incentive Stock Plan, which vested on May 19, 2006. Effective as of the 2006 annual meeting of stockholders, each of our non-employee directors will receive an annual grant of 2,500 restricted shares of common stock at each annual meeting of stockholders which will vest in full at the next annual meeting of stockholders.

     On March 27, 2006, 7,500 restricted shares were granted pursuant to the 2004 Incentive Stock Plan to our new Chief Financial Officer, Richard B. Hare. The 7,500 restricted shares will vest ratably over a three year period, commencing with the period ended March 27, 2007, if Mr. Hare remains an employee on such date.

     We delivered 324,110 shares to management on January 31, 2006 and 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, we retained 134,344 and 146,620 of these shares respectively in treasury and remitted the corresponding tax withholding in cash on behalf of the stock recipients.

     The following table summarizes the activity in the 2002 Stock Plan since January 1, 2005 and its status at June 30, 2006:

			Status at June 30, 2006
	Grants and		Shares Earned,		Shares Earned		Shares
	Forfeitures (1)		Pending Vesting		and Awarded		Forfeited
Balance at January 1, 2005:		984,360		628,110		356,250		37,770
Grants and forfeitures in 2006:
Shares granted to senior management		7,500		7,500
Total grants, net of forfeitures		991,860		635,610		356,250		37,770

(1) There were no grants or forfeitures in 2005 and no forfeitures in 2006.

     As of June 30, 2006 there was approximately $2.0 million of total unrecognized compensation costs related to non-vested share grants under the Plans. The costs are expected to be recognized over a weighted average period of approximately 0.4 years.

     We adopted SFAS 123(R) in the first quarter of fiscal 2006 using the modified prospective method under which prior periods are not revised for comparative purposes. Prior to fiscal year 2006, we accounted for our stock-based compensation plans under APB 25. Reflected in the Consolidated Statements of Operations for the three months ended June 30, 2006 and 2005 is $1.0 million and $588,000, respectively, of stock-based employee compensation costs and for the six months ended June 30, 2006 and 2005 is $2.0 million and $1.7 million, respectively, of stock-based employee compensation costs. The following table outlines the costs incurred for the three and six months ended June 30, 2006 and 2005 related to stock-based employee compensation costs:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
			2005					2005
	2006		(restated)			2006		(restated)
Costs related to stock options	$	163,000	$	—		$	327,000	$	—
Costs related to stock grants
Service vesting grants		811,000		804,000			1,625,000		1,608,000
Performance vesting grants		9,000		(216,000	)		79,000		120,000
Total stock compensation costs	$	983,000	$	588,000		$	2,031,000	$	1,728,000

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NOTE 8 — EARNINGS PER SHARE

     Earnings per share is presented in conformity with Statement of Financial Accounting Standards No. 128, Earnings Per Share (“SFAS 128”), for all periods presented. In accordance with SFAS 128, basic net loss per common share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net loss by the weighted average number of common shares outstanding plus common stock equivalents for each period. Due to losses in all periods presented, there were no dilutive shares.

     Earnings per share calculations contain dilutive adjustments for shares under the various stock plans discussed in Note 7 of the notes to our interim condensed consolidated financial statements. The following table reflects the effects of those plans on the earnings per share (in thousands, except for share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
				2005						2005
	2006			(restated)			2006			(restated)
Outstanding shares		12,435			12,309			12,414			12,276
Less restricted stock issued		(33	)		(97	)		(44	)		(101	)
Basic shares outstanding		12,402			12,212			12,370			12,175
Dilutive shares:
Restricted stock awards		—			—			—			—
Stock options		—			—			—			—
		12,402			12,212			12,370			12,175
Earnings per share:
Basic	$	(0.53	)	$	(0.19	)	$	(1.03	)	$	(0.17	)
Diluted	$	(0.53	)	$	(0.19	)	$	(1.03	)	$	(0.17	)

     Anti-dilutive restricted stock grants and options to purchase common stock outstanding were excluded from the above calculations for the three and six months ended June 30, 2006 and 2005. Anti-dilutive restricted stock grants and options totaled 206,000 and 462,000 for the three months ended June 30, 2006 and 2005, respectively, and 192,000 and 449,000 for the six months ended June 30, 2006 and 2005, respectively.

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NOTE 9 — 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 Americans with Disabilities Act (“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, on us.

NOTE 10 — RECENTLY ISSUED ACCOUNTING STANDARDS

FIN 48

     In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of Statement of Financial Accounting Standards 109 (“FIN 48”). FIN 48 is effective January 1, 2007 and would require us to record any change in net assets that results from the application of FIN 48 as an adjustment to retained earnings.

     FIN 48 is applicable to all uncertain positions for taxes accounted for under SFAS 109, and is not intended to be applied by analogy to other taxes, such as sales taxes, value-add taxes, or property taxes. The scope of FIN 48 includes any position taken (or expected to be taken) on a tax return, including the decision to exclude from the return certain income or transactions. FIN 48 makes clear that its guidance also applies to positions such as (1) excluding income streams that might be deemed taxable by the taxing authorities, (2) asserting that a particular equity restructuring (e.g., a spin-off transaction) is tax-free when that position might be uncertain, or (3) the decision to not file a tax return in a particular jurisdiction for which such a return might be required.

     FIN 48 requires that we make qualitative and quantitative disclosures, including discussion of reasonably possible changes that might occur in the recognized tax benefits over the next 12 months; a description of open tax years by major jurisdictions; and a roll-forward of all unrecognized tax benefits, presented as a reconciliation of the beginning and ending balances of the unrecognized tax benefits on an aggregated basis. We are still in the process of assessing the impact that the adoption of FIN 48 may have on our consolidated results of operations, cash flows or financial position.

FSP 13-1

     In October 2005, the FASB issued FASB Staff Position (FSP) 13-1, Accounting for Rental Costs Incurred during a Construction Period. FSP 13-1 clarifies there is no distinction between the right to use a leased asset during the construction period and the right to use that asset after the construction period. Accordingly, we are no longer able to capitalize rental costs during the construction period and began expensing them as pre-opening expense prior to the theatre opening date. This FSP was effective for the first reporting period beginning after December 15, 2005, which is our first quarter in 2006 and had no effect on our financial statements for the three and six month periods ended June 30, 2006.

FAS 154

     In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections a replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154), which requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. It also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. We are not currently contemplating an accounting change which would be impacted by SFAS 154.

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

RESTATEMENTS

     The Carmike Cinemas, Inc. consolidated financial statements for the three and six months ended June 30, 2005 incorporated herein include two restatements. The first restatement was filed on November 10, 2005 on Form 10-Q/A. The

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second restatement of our financial statements for the three and six month periods ended June 30, 2005 was filed on August 4, 2006 and is referenced below as “Amendment 2.”

Amendment 2

     During the second quarter of 2006, we determined that it was necessary to restate our previously issued financial statements for each of the years ended December 31, 2004 and 2003, and each of the quarters ended March 31, 2005, June 30, 2005 and 2004, and September 30, 2005 and 2004 to correct for errors in the financial statements related to our failure to properly account for certain lease related transactions. The following errors in the application of generally accepted accounting principles to lease transactions have been corrected:

• Where separation of the ground lease and building lease elements of a theatre lease was required pursuant to the provisions of Statement of Financial Standards (“SFAS”) No. 13, Accounting for Leases (“SFAS 13”), as amended, we had utilized a pro rata method to fragment leases into building and land elements. The land lease should have been determined by applying an appropriate incremental borrowing rate to the fair value of the land with the remaining lease payments being applied to the lease of the building.

• For purposes of determining whether the lease is a capital lease because the present value of the minimum lease payments exceeds 90% of the fair value of the leased property, we used an incorrect incremental borrowing rate. Similarly, to the extent the lease was determined to be a capital lease, the same incorrect rate was utilized to record the capital lease obligation.

• For certain leases, we incorrectly utilized a period exceeding the term of the lease for purposes of amortizing leasehold improvements or capital lease assets. Adjustments were recorded to reflect the amounts computed using the correct lease term.

• We did not correctly re-assess lease classification upon modification of the terms of certain leases. Accordingly, in some cases, the classification of the leases may have been incorrectly recorded in the financial statements and/or amounts related to the capital leases were not correctly adjusted for such modification.

• We did not correctly account for certain build-to-suit arrangements in which, for financial reporting purposes, we were considered the owner of these assets during the construction period. Upon completion of the construction projects, we determined that we were unable to meet the requirements for sale-leaseback treatment under SFAS No. 98, Accounting for Leases: Sale-Leaseback Transactions Involving Real Estate: Sales-Type Leases of Real Estate; Definition of the Lease Term; and Initial Direct Costs of Direct Financing Leases (“SFAS 98”); accordingly, project costs funded by the landlord should have been recorded as financing obligations.

• We incorrectly capitalized interest on payments we made for construction of lessor-owned assets under lease arrangements in which we were not considered the owner of the project for financial reporting purposes. Additionally, for one build-to-suit construction project, we utilized an incorrect interest rate for purposes of capitalizing interest, and incorrectly capitalized interest over periods in which construction activity had been deferred for reasons other than normal construction delays.

• We included contingent payments under lease arrangements classified as capital leases or financing obligations as rent expense, rather than interest expense.

• We did not revise deferred rental liability calculations to reflect modifications of the terms on certain of our operating leases.

• We incorrectly reported the cost of our contribution to lessor assets through the funding of project costs as leasehold improvements, rather than as building costs, assets under capital lease or prepaid rent, as appropriate under each arrangement.

     In addition, we did not ensure the completeness and accuracy of supporting schedules and underlying data for routine journal entries and journal entries recorded as part of our period-end closing and consolidation process. As a result, during

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2005, we incorrectly recorded journal entries regarding directors fees, discount ticket and other revenue, capitalized interest, and accrued expenses. These errors impact the quarterly results of operations presented in this Form 10-Q.

     The financial statements, notes thereto and related disclosures contained in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2005 have been restated to adjust for the errors noted above. These restatements reflect a $11.6 million increase to accumulated deficit at January 1, 2005 as well as adjustments to deferred tax assets, net property plant and equipment, capital leases, financing obligations, other assets, deferred expenses, and accrued expenses.

     The effect of the restatements on earnings per common share was as follows:

	Three Months Ended		Six Months Ended
	June 30, 2005		June 30, 2005
Basic		0.01		—
Diluted		0.01		—

GKC THEATRES ACQUISITION

     On May 19, 2005, we acquired 100% of the stock of George G. Kerasotes Corporation (“GKC Theatres”) for a net purchase price of $61.6 million. Our consolidated financial statements as of the three and six month periods ended June 30, 2005, include 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.

RESULTS OF OPERATIONS

     Comparison of Three and Six Months Ended June 30, 2006 and 2005

     Revenues.

     We collect substantially all of our 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 six months ended
	June 30, 2006		June 30, 2005		June 30, 2006		June 30, 2005
Average theatres		296		302		298		292
Average screens		2,455		2,385		2,465		2,281
Average attendance per screen		6,456		6,208		12,012		12,083
Average admission price	$	5.36	$	5.32		5.32	$	5.31
Average concession sales per patron	$	2.86	$	2.77		2.86	$	2.72
Total attendance (in thousands)		15,849		14,807		29,610		27,561
Total revenues (in thousands) (restated)	$	130,329	$	119,785	$	242,074	$	221,005

     Total revenues for the three months ended June 30, 2006 compared to the three months ended June 30, 2005 increased 8.8%. This increase is due to a 7.0% increase in total attendance and increases in average admission and concession prices. Total revenues for the six months ended June 30, 2006 increased 9.5%. This increase is due to a 7.4% increase in total attendance and increases in average admission and concession prices. The increase in attendance was driven by the better box office performance of many films during the three and six months ended June 30, 2006, as well as increases in the average number of screens in operation for the respective periods. We operated 295 theatres with 2,455 screens as of June 30, 2006 compared to 311 theatres with 2,471 screens as of June 30, 2005.

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     The table below shows the activity of theatre openings, closures and acquisitions for the three months ended June 30, 2006.

							Average
							Screens/
	Theatres			Screens			Theatre
Total at March 31, 2006		297			2,454			8.3
Opens/reopens		2			22
Closures		(4	)		(21	)
Total at June 30, 2006		295			2,455			8.3

     The closures shown above were the result of normal lease expirations. We incurred no additional liability due to these closures. Closures generally occur in markets in which we have another theatre or have closed the theatre for remodeling or expansion.

     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						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
				(Restated)						(Restated)
Revenues:
Admissions		65.1	%		65.8	%		65.0	%		66.0	%
Concession & other revenue		34.9			34.2			35.0			34.0
Total revenue		100.0			100.0			100.0			100.0
Cost and expenses:
Film exhibition costs (1)(2)		56.4	%		59.6	%		54.1	%		56.4	%
Concession costs (2)		11.6			10.8			11.0			10.7
Other theatre operating costs		38.0			39.4			41.3			41.3
General and administrative		7.5			3.6			6.4			3.8
Depreciation and amortization		8.0			8.2			8.5			8.2
Gain on sales of property and equipment		(0.2	)		(0.4	)		(0.2	)		(0.2	)
Total costs and expenses		94.0			93.7			95.2			93.9
Operating income		6.0			6.3			4.8			6.1
Interest expense		8.9			7.0			9.2			7.3
Loss on extinguishment of debt		3.7			4.8			2.0			2.6
Loss before reorganization costs and income taxes		(6.6	)		(5.5	)		(6.4	)		(3.8	)
Reorganization expense		0.0			0.0			0.0			(1.1	)
Net loss before income taxes		(6.6	)		(5.5	)		(6.4	)		(2.7	)
Income tax benefit		(1.6	)		(3.6	)		(0.6	)		(1.8	)
Net loss		(5.0	)%		(2.0	)%		(5.8	)%		(0.9	)%

(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 six months ended
							% variance									% variance
	June 30,			June 30,			favorable/			June 30,			June 30,			favorable/
(in thousands)	2006			2005			(unfavorable)			2006			2005			(unfavorable)
				(restated)									(restated)
Film exhibition costs	$	47,833		$	46,920			(1.9	)%	$	85,108		$	82,302			(3.4	)%
Concession costs	$	5,251		$	4,447			(18.1	)%	$	9,341		$	8,043			(16.1	)%
Other theatre operating costs	$	49,488		$	47,203			(4.8	)%	$	100,096		$	91,308			(9.6	)%
General and administrative expenses	$	9,752		$	4,354			(124.0	)%	$	15,533		$	8,342			(86.2	)%
Depreciation and amortization	$	10,476		$	9,789			(6.2	)%	$	20,768		$	18,030			(14.8	)%
Gain on sales of property and equipment	$	(293	)	$	(424	)		(30.9	)%	$	(437	)	$	(426	)		2.6	%

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     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 June 30, 2006, was due to a decrease in per-film rental rates. As a percentage of admissions revenue, film exhibition costs were 56.4% for the three months ended June 30, 2006 as compared to 59.6% for the three months ended June 30, 2005 and 54.1% for the six months ended June 30, 2006 as compared to 56.4% for the six months ended June 30, 2005. The top five films during the second quarter of 2006 represented 43.6% of the total box office for the quarter and had an average film exhibition cost of 56.4%. The top five films for the second quarter 2005 represented 42.3% of the total box office and had an average film exhibition cost of 61.2%.

     Film exhibition costs for the three months ended June 30, 2006 increased 1.9% to $47.8 million from $46.9 million for the three months ended June 30, 2005. Film exhibition costs for the six months ended June 30, 2006 increased 3.4% to $85.1 million from $82.3 million for the six months ended June 30, 2005. The increase is due to an increase in admission revenues of $6.1 million and $11.6 million for the three and six months ended June 30, 2006, respectively, over the same period for 2005, offset somewhat by lower film rent percentages on the products played during the three and six month periods ended June 30, 2006 as compared to the same periods in 2005.

     Concession Costs. Concession costs fluctuate with the changes in concessions revenue. As a percentage of concessions and other revenues, concession costs increased to 11.6% of concession and other revenue for the three months ended June 30, 2006, as compared to 10.8% of concession and other revenue for the three months ended June 30, 2005. Concession costs, as a percentage of concessions and other revenues for the six months ended June 30, 2006, were 11.0% as compared to 10.7% for the six months ended June 30, 2005. 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 June 30, 2006 increased 4.8% compared to the three months ended June 30, 2005. The increase for the three month period ending June 30, 2006 was a result of higher occupancy costs, increased travel, training, point of sales conversion costs and supplies relating to the GKC Theatres acquisition. Other theatre operating costs for the six months ended June 30, 2006 increased 9.6% compared to the six months ended June 30, 2005. The increase was a result of the items noted above as well as increases in rents related to new theatre openings, repairs and replacements.

     General and Administrative Expenses. General and administrative expenses for the three months and six months ended June 30, 2006 increased 124.0% and 86.2% compared to the three months and six months ended June 30, 2005, respectively. The increase is due to an increase in professional fees associated with our restatements of prior period results and a full period of higher salaries due to the GKC Theatres acquisition, which was partially offset by decreases in travel and conversion expenses related to the GKC Theatres acquisition.

     Depreciation and Amortization. Depreciation and amortization expenses for the three months ended June 30, 2006 increased 6.2% compared to the three months ended June 30, 2005. This increase reflects the purchases and construction of fixed assets during 2006 and depreciation for the entire period on the fixed assets acquired with the GKC Theatres acquisition and depreciation on large projects. Depreciation and amortization for the six months ended June 30, 2006 increased 14.8% compared to the six months ended June 30, 2005. 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 for the three months ended June 30, 2006 amounted to $293,000 compared to a $424,000 gain for the three months ended June 30, 2005. The gain on sales of property for the six months ended June 30, 2006 amounted to $437,000 compared to a $426,000 gain for the six months ended June 30, 2005. Each of these gains reflects the sale of real estate from assets held for sale during the current period.

     Operating Income. Operating income for the three months ended June 30, 2006 increased 4.3% to $7.8 million compared to $7.5 million for the three months ended June 30, 2005. As a percentage of revenues, operating income for the three months ended June 30, 2006 was 6.0% compared to 6.3% for the three months ended June 30, 2005. Operating income, as a percentage of revenues, for the six months ended June 30, 2006 was 4.8% compared to 6.1% for the six months ended June 30, 2005. The decrease in operating income as a percentage of revenue is primarily due to the increase in general and administrative expenses, as discussed above.

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     Interest expense. Interest expense for the three months ended June 30, 2006 increased 39.8% to $11.6 million from $8.3 million for the three months ended June 30, 2005. The increase is related to higher indebtedness related to the GKC Theatres acquisition obtained through a refinancing of our credit facility that closed on May 19, 2005, and higher rates of interest on the delayed-draw term loan used to repurchase the 7.50% senior subordinated notes, which is more fully described under “Liquidity and Capital Resources — Credit Facilities”. Interest expense for the six months ended June 30, 2006 increased 38.5% to $22.3 million compared to $16.1 million for the six months ended June 30, 2005 for the same reasons noted above.

     Loss on extinguishment of debt. The repurchase of our 7.50% senior subordinated notes on June 4, 2006 resulted in a write-off of deferred loan fees of $4.8 million for the three and six month periods ended June 30, 2006. The refinancing of our credit facilities resulted in the write-off of $3.8 million of loan fees related to our February 4, 2004 credit facilities. The $5.8 million loss on extinguishment of debt for the three and six month periods ended June 30, 2005 also included a $2.0 million pre-payment premium on the retirement of our former $100.0 million term loan.

     Reorganization expense (benefit). Insignificant activity occurred for the three months ended June 30, 2005. We recognized a reorganization benefit of $2.4 million for the six months ended June 30, 2005 related to the reversal of accrued professional fees. 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. We recognized an income tax benefit of $2.7 million for the six months ended June 30, 2006, representing a combined federal and state effective tax rate of 17.6%, compared to income tax benefit of $4.0 million for the six months ended June 30, 2005, representing a combined federal and state tax effective rate of 66.1%. The effective tax rate has decreased due to the relationship of nondeductible items, principally related to executive compensation, to estimated annual pre-tax book loss. Our effective rate for the six months ended June 30, 2006 is 17.6% compared to 8.8% for the three months ended March 31, 2006, due to a revision in our estimated annual pre-tax loss.

LIQUIDITY AND CAPITAL RESOURCES

     Our 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 $20.3 million as of June 30, 2006, as compared to December 31, 2005 when our current liabilities exceeded our current assets by $27.2 million. The decrease in working capital deficit is related to higher revenues during the first six months of 2006, decreased use of cash for construction related activity and no acquisition-related expenditures in 2006. The deficit will be funded through cash on hand, anticipated operating cash flows and the ability to draw from our new revolving credit agreement. As of June 30, 2006, we had $321 million outstanding under our senior secured credit facility in addition to available borrowing capacity of $50 million under our revolving credit facility (except as explained below in Credit Facilities — Event of Default).

     During the six months ended June 30, 2006, we made capital expenditures of approximately $11.5 million. Our total budgeted capital expenditures for 2006 are $25.3 million, which we anticipate will be funded by using operating cash flows, available cash from our 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 $5.9 million for the six months ended June 30, 2006 compared to net cash used in operating activities of $4.3 million for the six months ended June 30, 2005. This change is principally due to higher depreciation and amortization, primarily associated with the assets acquired from GKC Theaters, recent construction activity and a reduction in cash used for working capital items, partially offset by an increase in our net loss.

     We delivered 260,000 shares to management on January 31, 2006 in conjunction with the 2002 Stock Plan. In order to satisfy the federal and state withholding requirements on these shares, we retained 134,344 of these shares in the treasury and remitted the corresponding tax withholding in cash ($3.0 million) on behalf of the stock recipients.

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     Net cash used in investing activities was $10.0 million for the six months ended June 30, 2005 compared to $115.8 million for the six months ended June 30, 2005. This decreased use of cash is related to the acquisition of GKC Theatres for a net purchase price of $61.6 million in 2005 and fewer construction projects in 2006. We have projects under construction that will result in 22 additional screens at 2 new theatres.

     For the six months ended June 30, 2006, net cash provided by financing activities was $1.0 million compared to net cash provided by financing activities of $65.0 million for the six months ended June 30, 2005. The decrease in cash provided by financing activities is due to the refinancing of our credit facilities on May 19, 2005 (as described below) to fund the GKC Theatres acquisition in 2005.

     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 June 30, 2006, we did not have any off-balance sheet financing transactions.

CREDIT FACILITIES

     On May 19, 2005, we entered into a 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 credit agreement provides for senior secured credit facilities in the aggregate principal amount of $405.0 million.

     The 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 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.

     On June 6, 2006, we drew down $156 million of the $185 million delayed-draw term loan to repurchase our outstanding $150 million of 7.50% senior subordinated notes due 2014 and to repay related fees and expenses. At this time, the portion of the delayed-draw term loan commitment which was not used for this repurchase was cancelled.

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     As described in the fourth and fifth amendments to our senior secured credit agreement, the interest rate for borrowings under our outstanding revolving and term loans is set to a margin above the London interbank offered rate (“Libor”) or base rate, as the case may be, based on our corporate credit ratings from Moody’s Investors Service, Inc. and Standard & Poor’s Rating Services in effect from time to time, with the margin ranging from 2.50% to 3.50% for loans based on Libor and 1.50% to 2.50% for loans based on the base rate. These amendments also temporarily increase the margin described above by 0.50% per annum until such time as our audited financial statements for the year ended December 31, 2005 and our unaudited financial statements for the quarter ended March 31, 2006 are delivered to the lenders. In addition, this 0.50% per annum increase will remain in effect since we were unable to deliver our unaudited financial statements for the quarter ended June 30, 2006 by August 14, 2006 and will continue in effect if we are unable to deliver our unaudited financial statements for the quarter ended September 30, 2006 by November 14, 2006, or until such time as these unaudited financial statements are delivered.

     In addition, as described in the fifth amendment, we have also agreed, that by October 25, 2006, we will enter into and maintain hedging agreements to the extent necessary to provide that at least 45% of the aggregate principal amount outstanding on our term loans is subject either to a fixed interest rate or interest rate protection through a date not earlier than May 19, 2008. The final maturity date of the term loan facility and delayed-draw term loan facility is May 19, 2012.

     The interest rate for borrowings under the revolving credit facility for the initial six-month period was set from time to time at our option (subject to certain conditions set forth in the 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 revolving credit facility are based on our 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 credit agreement) ranging from 1.50% to 2.25%. The rate at June 6, 2006 was 10.25%; on June 8, 2006, we converted the rate to a 90-day LIBOR-based rate, which was 8.52%. The final maturity date of the revolving credit facility is May 19, 2010.

     If we repay the term loans prior to June 2, 2007, we will be subject to a 1% prepayment fee for optional and most mandatory prepayments, unless the prepayment results from a change of control transaction or the issuance by us of subordinated debt of up to $150 million. The credit agreement requires that mandatory prepayments be made 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 our consolidated leverage ratio) of excess cash flow as defined in the credit agreement, and (3) 50% of the net cash proceeds from the issuance of certain equity and capital contributions.

     The senior secured credit facilities contain covenants which, among other things, restrict our ability, and that of our restricted subsidiaries, to:

• pay dividends or make any other restricted payments;

• incur additional indebtedness;

• create liens on our assets;

• make certain investments;

• sell or otherwise dispose of assets;

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

• enter into transactions with our affiliates; and

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

     The senior secured credit facilities also contain financial covenants that require us 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 credit agreement, as amended.

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     Generally, the senior secured credit facilities do not place restrictions on our ability to make capital expenditures. However, we may not make any capital expenditure if any default or event of default under the 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 credit agreement on a pro forma basis after giving effect to the capital expenditure.

     Our failure to comply with any of these covenants, including compliance with the financial ratios, is an event of default under the 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 revolving credit facility and the term loan facilities due and payable. As of June 30, 2006, we were in compliance with all of the financial covenants. Other events of default under the senior secured credit facilities include:

• our 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 credit agreement); or

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

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

     Event of Default

     We had not submitted audited financial statements for the year ended December 31, 2005 by the 65th day following the end of the previous fiscal year nor had we submitted unaudited financial statements for the three month period ended March 31, 2006 by the 40th day following the end of such three month period as required by the financial covenants under our senior secured credit facility.

     On April 3, 2006, we obtained a waiver for the covenant regarding delivery of our audited financial statements for the year ended December 31, 2005 by entering into a second amendment to the credit agreement with Bear, Stearns & Co. Inc., and the other lending parties. This second amendment, which had an effective date of March 28, 2006, extended the date by which we were to submit audited financial statements for the year ended December 31, 2005 to the lenders to May 15, 2006. On May 9, 2006, we obtained a second waiver for delivery of such audited financial statements by entering into a third amendment to the credit agreement with Bear, Stearns & Co. Inc. and the other lending parties extending the delivery date to June 30, 2006. The third amendment also included a waiver regarding the delivery of the unaudited financial statements for the three month period ended March 31, 2006, extending the delivery date of such unaudited financial statements to June 30, 2006.

     Effective June 2, 2006, we entered into a fourth amendment to our senior secured credit agreement with the lending parties thereunder, which included an extension of the deadline for the delivery of our audited financial statements for the year ended December 31, 2005 and unaudited financial statements for the three month period ended March 31, 2006 until July 27, 2006.

     Effective July 27, 2006, we entered into a fifth amendment to our senior secured credit agreement, which included (i) an extension of the deadline for the delivery of our audited financial statements for the year ended December 31, 2005 until September 30, 2006; (ii) an extension of the deadline for delivery of our unaudited financial statements for the quarter ended March 31, 2006 until September 30, 2006; and (iii) an extension of the deadline for delivery of our unaudited financial statements for the quarters ended June 30, 2006 and September 30, 2006 until December 31, 2006.

     The fifth amendment also provides that until we have delivered to the lenders the audited financial statements for the year ended December 31, 2005 and the unaudited financial statements for the quarter ended March 31, 2006, the maximum

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principal amount of indebtedness that we may incur under the $50 million revolving credit facility comprising part of the senior secured credit agreement is $10 million. In addition, the maximum principal amount of indebtedness that we may incur under the revolving credit facility will continue to be limited to $10 million since we were unable to deliver our unaudited financial statements for the quarter ended June 30, 2006 by August 14, 2006 and will continue to be so limited if we are unable to deliver our unaudited financial statements for the quarter ended September 30, 2006 by November 14, 2006, or until such time as these unaudited financial statements are delivered.

     We filed our audited financial statements for the year ended December 31, 2005 on Form 10-K on August 4, 2006. In addition, we filed our unaudited financial statements for the quarter ended March 31, 2006 on Form 10-Q on August 21, 2006 and our amended Forms 10-Q/A for the quarters ended June 30, 2005 and September 30, 2005 on August 4, 2006.

     The amendments provide for waivers of certain defaults under the credit agreement, including the default resulting from our 7.50% senior subordinated notes being accelerated. In addition, the fourth amendment permitted our existing undrawn $185 million delayed-draw term loan commitment to be used to repay or repurchase our outstanding $150 million of 7.50% senior subordinated notes and to pay related fees and expenses upon the acceleration of such notes. On June 6, 2006, we drew down $156 million on this delayed-draw term loan to repay our outstanding 7.50% senior subordinated notes, all accrued and unpaid interest thereon and certain other fees and expenses related thereto. These notes are no longer outstanding and the related indenture is no longer in effect. The undrawn portion of the delayed-draw term loan terminated upon the funding of such $156 million. The delayed-draw term loan has a maturity date of May 19, 2012. See “7.50% Senior Subordinated Notes” below.

     Covenant Compliance

     As of June 30, 2006, we were in compliance with all of the financial covenants in our senior secured credit agreement. While we currently believe that we will remain in compliance with these financial covenants as of September 30, 2006 and December 31, 2006 based on current projections, it is reasonably possible that we may not comply with some or all of our financial covenants as of these future dates. In order to avoid such non-compliance, we have the ability to reduce, postpone or cancel certain identified discretionary spending in the quarters ended September 30, 2006 and December 31, 2006. We could also seek future waivers or amendments to the senior secured credit agreement in order to avoid non-compliance; however, we can provide no assurance that we will successfully obtain such waivers or amendments from our lenders. If we are unable to comply with some or all of the financial covenants or if we fail to obtain future waivers or amendments to the senior secured credit agreement, the administrative agent may, and if requested by the lenders holding a certain minimum percentage of the commitments shall, terminate our revolving credit facility and may declare all or any portion of the obligations under the revolving credit facility and the term loan facilities due and payable.

7.50% Senior Subordinated Notes

     On February 4, 2004, we completed an offering of $150.0 million in aggregate principal amount of 7.50% senior subordinated notes due February 15, 2014 to institutional investors. As discussed further below, on June 6, 2006, we drew down $156 million on our delayed-draw term loan to repay our outstanding senior subordinated notes, all accrued and unpaid interest thereon and certain other fees and expenses related thereto. The notes are no longer outstanding and the indenture governing the notes is no longer in effect.

     Event of Default

     On April 3, 2006, the trustee for the 7.50% senior subordinated notes notified us that we were in violation of the covenant requiring us to file our Annual Report on Form 10-K with the SEC within the time frame specified by the SEC’s rules and regulations, thereby triggering a default under the note indenture. The notice further stated that if this default continued for an additional sixty days then an event of default under the note indenture would occur. We did not file our Annual Report on Form 10-K on or before June 2, 2006 and did not receive the requisite consents to obtain a waiver of the default under the note indenture. Consequently, the default was not cured during the 60-day cure period and therefore constituted an event of default under the note indenture which entitled the trustee under the notes and/or the holders of at least 25% in aggregate principal amount of the outstanding notes to declare all of the notes immediately due and payable. On June 2, 2006, we received notice from the holders of over 25% in aggregate principal amount of the notes that such holders had accelerated the notes. As a consequence, on June 4, 2006, $150 million in aggregate principal amount of the

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notes (representing all of the outstanding notes) plus accrued and unpaid interest thereon became immediately due and payable. As permitted under the fourth amendment to our senior secured credit agreement with the lending parties thereunder, we borrowed $156 million under our existing delayed-draw term loan commitment and repaid all of the outstanding notes on June 6, 2006. The notes are no longer outstanding and the indenture governing the notes is no longer in effect.

Contractual Obligations

     On June 6, 2006, we repurchased our 7.50% senior subordinated notes by utilizing our existing delayed-draw term loan commitment (see “Event of Default” above). As of June 30, 2006, our long-term debt obligations and future minimum payments under capital leases and operating leases, with terms over one year, and under the agreement with our Chief Executive Officer (except as indicated in footnote 5 to the table) were as follows:

	Payments Due by Period (in thousands)
	Less than						More than
	1 year		1-3 Years		3-5 Years		5 Years		Total
Term loan credit agreement (1)	$	1,671	$	3,341	$	3,341	$	157,037	$	165,390
Delayed-draw term loan credit agreement (2)		1,560		3,120		39,877		111,443		156,000
Long-term interest payments (3)		25,975		51,164		50,117		11,566		138,822
Long-term financing obligations (4)		9,399		18,944		20,039		160,973		209,355
Capital lease obligations		6,553		13,346		12,878		55,465		88,242
Operating lease obligations		40,957		76,960		68,598		268,750		455,265
Digital equipment maintenance obligations (5)		641		1,282		1,282		6,410		9,615
Employment agreement with Chief Executive Officer (6)		850		1,700		1,275		—		3,825
Total contractual cash obligations	$	87,606	$	169,857	$	197,407	$	771,644	$	1,226,514

(1)	The term loan has a maturity date of May 19, 2012. As of June 30, 2006 we had $165.4 million outstanding under this term loan.
(2)	The delayed-draw term loan credit agreement has a maturity date of May 19, 2012. As of June 30, 2006 we had $156.0 million outstanding under this delayed-draw term loan.
(3)	Long-term interest payments include payments for certain variable rate obligations. These payments were calculated based on rates in effect at June 30, 2006.
(4)	Long-term financing obligations exclude $57.8 million which is expected to be settled through non-cash consideration consisting of property subject to financing obligations.
(5)	Digital equipment maintenance obligations include payment of an annual service fee of $2,250 per year for each screen installed with digital equipment. These payments were calculated based on the number of installed screens as of June 30, 2006. The fee is for training, maintenance and monitoring for each screen installed with digital equipment. The agreement was dated December 16, 2005 and has a term of 15 years.
(6)	The employment agreement with our Chief Executive Officer provides for compensation of $850,000 per year for five years commencing January 31, 2002. The term is automatically extended each December 31 for an additional year unless either party provides required notice. The above table does not include bonus payments of up to 50% of our Chief Executive Officer’s base salary if certain performance goals are achieved or the amounts equal to 10% of his taxable annual compensation which are paid pursuant to a deferred compensation arrangement.

RECENT ACCOUNTING PRONOUNCEMENTS

FIN 48

     In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of Statement of Financial Accounting Standards 109 (“FIN 48”). FIN 48 is effective January 1, 2007 and would require us to record any change in net assets that results from the application of FIN 48 as an adjustment to retained earnings.

     FIN 48 is applicable to all uncertain positions for taxes accounted for under SFAS 109, and is not intended to be applied by analogy to other taxes, such as sales taxes, value-add taxes, or property taxes. The scope of FIN 48 includes any position

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taken (or expected to be taken) on a tax return, including the decision to exclude from the return certain income or transactions. FIN 48 makes clear that its guidance also applies to positions such as (1) excluding income streams that might be deemed taxable by the taxing authorities, (2) asserting that a particular equity restructuring (e.g., a spin-off transaction) is tax-free when that position might be uncertain, or (3) the decision to not file a tax return in a particular jurisdiction for which such a return might be required.

     FIN 48 requires that we make qualitative and quantitative disclosures, including discussion of reasonably possible changes that might occur in the recognized tax benefits over the next 12 months; a description of open tax years by major jurisdictions; and a roll-forward of all unrecognized tax benefits, presented as a reconciliation of the beginning and ending balances of the unrecognized tax benefits on an aggregated basis. We are still in the process of assessing the impact that the adoption of FIN 48 may have on our consolidated results of operations, cash flows or financial position.

FSP 13-1

     In October 2005, the FASB issued FASB Staff Position (FSP) 13-1, Accounting for Rental Costs Incurred during a Construction Period. FSP 13-1 clarifies there is no distinction between the right to use a leased asset during the construction period and the right to use that asset after the construction period. Accordingly, we are no longer able to capitalize rental costs during the construction period and began expensing them as pre-opening expense prior to the theatre opening date. This FSP was effective for the first reporting period beginning after December 15, 2005, which is our first quarter in 2006 and had no effect on our financial statements for the three and six month periods ended June 30, 2006.

FAS 154

     In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections a replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154), which requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. It also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. We are not currently contemplating an accounting change which would be impacted by SFAS 154.

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.

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

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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:

• our ability to comply with covenants contained in our senior secured credit agreement;

• our ability to maintain our Nasdaq listing;

• our ability to operate at expected levels of cash flow;

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

• competition in our markets;

• competition with other forms of entertainment;

• identified material weaknesses in internal over financial reporting;

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

• other factors, including the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005, 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 revolving credit facility and our seven-year term loan credit facility are based on a structure that is priced over an index or rate option. An increase of 1% in interest rates would increase the interest expense on our $165.4 million term loan by approximately $1.7 million on an annual basis. An increase of 1% in interest rates would increase the interest expense on our $156.0 million delayed-draw term loan by approximately $1.6 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. See “Management’s Discussion & Analysis of Financial Condition and Results of Operations — Liquidity & Capital Resources — Credit Facilities” regarding our obligation to maintain hedging agreements with respect to certain amounts of bank debt.

     We have 27 theatre leases that have increases contingent on changes in the Consumer Price Index (“CPI”). A 1% change in the CPI would increase rent expense by $2.3 million over the remaining lives of these leases, which management does not believe would have a material impact on our consolidated financial statements.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

     We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit 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 us 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

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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 June 30, 2006, our 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 our consolidated financial statements are prepared in accordance with generally accepted accounting principles. Accordingly, we believes that the financial statements included in our quarterly report on this Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented in accordance with generally accepted accounting principles.

Material Weaknesses 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 June 30, 2006, we had the following material weaknesses in its internal control over financial reporting:

1.	We did not maintain a sufficient complement of personnel with appropriate skills, training and Company-specific experience in the selection, application and implementation of generally accepted accounting principles commensurate with our financial reporting requirements. This control deficiency contributed to the material weaknesses described below. Additionally, this control deficiency could result in a misstatement of accounts and disclosures that would result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness and contributed to the following material weaknesses.
2.	We did not maintain effective control over the recording and processing of journal entries in our financial reporting process. Specifically, effective controls were not designed and in place to ensure the completeness and accuracy of supporting schedules and underlying data for routine journal entries and journal entries recorded as part of our period-end closing and consolidation process related to all significant accounts and disclosures. This control deficiency resulted in the restatement of our interim consolidated financial statements for the first three quarters of 2005 and audit adjustments to our 2005 annual consolidated financial statements to correct errors related to the recording of directors fees, discount ticket revenue, capitalized interest, deferred taxes and compensation expense primarily affecting accounts payable, general and administrative expense, admissions revenue, deferred income, interest expense, property, plant and equipment, accrued expenses and paid-in capital. Additionally, this control deficiency could result in a misstatement of the aforementioned accounts and disclosures which would result in a material misstatement to our annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.
3.	We did not maintain effective controls over the accounting for leases. Specifically, our controls over our selection, application and monitoring of our accounting policies related to the effect of lessee involvement in asset construction, lease modifications, amortization of leasehold improvements, and deferred rent were not effective to ensure the accurate accounting for leases entered into. This control deficiency resulted in the restatement of our 2004 and 2003 annual consolidated financial statements and our interim consolidated financial statements for the first three quarters of 2005 and all 2004 quarters and audit adjustments to the 2005 consolidated financial statements to correct errors related to lease accounting primarily affecting property, plant and equipment, financing obligations, deferred rent, rent expense, interest expense and depreciation expense. Additionally, this control deficiency could result in a misstatement of the aforementioned accounts and disclosures that would result in a material misstatement to our annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

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4. We did not maintain effective controls over the completeness and accuracy of income taxes. Specifically, we did not maintain effective controls over the preparation and review of income taxes payable, deferred income tax assets and liabilities and the related income tax provision. This control deficiency also resulted in the restatement, discussed in Note 18 to the consolidated financial statements, of our consolidated financial statements, reported in our Form 10-K/A 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 our consolidated financial statements for the quarter ended September 30, 2005. 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 of our annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

Plan of Remediation for Identified Material Weaknesses

     As of the end of the period covered by this quarterly report, we had not fully implemented the remediation described below. Accordingly, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the end of the second quarter of 2006.

     Subsequent to December 31, 2005, we made the following changes in our internal control over financial reporting in an effort to remediate the additional material weaknesses discussed above:

• Implemented an additional level of review to our final closing procedures which requires approval of all journal entries by our Controller.

• Revised processes, procedures and documentation standards relating to accounting for lease transactions.

• Hired new personnel in the accounting and finance areas, including a new Chief Financial Officer and a new Assistant Controller.

     Although we believe the steps taken to date have improved the design effectiveness of our internal control over financial reporting, we have not completed our documentation and testing of the corrective processes and procedures relating thereto. Accordingly, we currently expect to have material weaknesses in our internal control over financial reporting as of December 31, 2006.

     In addition to the foregoing, our planned remediation measures in connection with the material weaknesses described above include the following:

1.	We will require continuing education during 2006 for our accounting and finance staff to ensure compliance with current and emerging financial reporting and compliance practices pertaining to lease transactions;
2.	We will require continuing education during 2006 for our tax manager and staff to ensure compliance with current and emerging tax reporting and compliance practices;
3.	We will take the steps necessary to appropriately staff our accounting and finance departments; and
4.	We will retain an outside consulting firm to perform detailed account analyses and reconciliations designed to assist the accounting staff in the preparation of our financial statements.

     We, along with our Audit Committee, will consider additional items, or will alter the planned steps identified above, in an attempt to remediate these material weaknesses identified herein.

Changes in Internal Control Over Financial Reporting

     During the quarter ended June 30, 2006, there were no changes to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1. 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, on we.

ITEM 1A. RISK FACTORS

     There have been no material changes to our risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

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

     None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

     Information regarding defaults upon our senior securities is contained in Note 5 of the notes to our condensed consolidated financial statements included herein and under the heading “Credit Facilities” contained in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In addition, we have previously disclosed information regarding defaults upon our senior securities pursuant to Item 2.04 of the Company’s Form 8-K filed with the SEC on June 5, 2006.

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

     None.

ITEM 5. OTHER INFORMATION.

     None.

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ITEM 6. EXHIBITS.

Listing of 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 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).
10.1	Third Amendment, dated as of May 9, 2006 to the Credit Agreement, dated as of May 19, 2005 (as amended), by and among Carmike Cinemas, Inc., the several other banks and other financial institutions parties thereto, Wells Fargo Foothill, Inc. and Bear Stearns Corporate Lending (filed as Exhibit 10.1 to Carmike’s Current Report on Form 8-K filed May 15, 2006 and incorporated herein by reference).
10.2	Fourth Amendment, dated as of June 2, 2006, to the Credit Agreement, dated as of May 19, 2005, by and among Carmike Cinemas, Inc., the several banks and other financial institutions parties thereto, Wells Fargo Foothill, Inc. and Bear Sterns Corporate Lending Inc. (filed as Exhibit 10.36 to Carmike’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference).
11	Computation of per share earnings (provided in Note 8 of the notes to our interim condensed consolidated financial statements included in this report under the caption “Earnings Per Share”.
23.1	Consent of PricewaterhouseCoopers LLP.
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.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			CARMIKE CINEMAS, INC.
Date: August 25, 2006	By:	/s/ Michael W. Patrick
		Michael W. Patrick
		President, Chief Executive Officer and Chairman of the Board of Directors (Duly Authorized Officer)

Date: August 25, 2006	By:	/s/ Richard B. Hare
		Richard B. Hare
		Senior Vice President — Finance, Treasurer and Chief Financial Officer (Principal Financial Officer)

Date: August 25, 2006	By:	/s/ Jeffrey A. Cole
		Jeffrey A. Cole
		Assistant Vice President - Controller (Principal Accounting Officer)

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Listing of 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 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).
10.1	Third Amendment, dated as of May 9, 2006 to the Credit Agreement, dated as of May 19, 2005 (as amended), by and among Carmike Cinemas, Inc., the several other banks and other financial institutions parties thereto, Wells Fargo Foothill, Inc. and Bear Stearns Corporate Lending (filed as Exhibit 10.1 to Carmike’s Current Report on Form 8-K filed May 15, 2006 and incorporated herein by reference).
10.2	Fourth Amendment, dated as of June 2, 2006, to the Credit Agreement, dated as of May 19, 2005, by and among Carmike Cinemas, Inc., the several banks and other financial institutions parties thereto, Wells Fargo Foothill, Inc. and Bear Sterns Corporate Lending Inc. (filed as Exhibit 10.36 to Carmike’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference).
11	Computation of per share earnings (provided in Note 8 of the notes to our interim condensed consolidated financial statements included in this report under the caption “Earnings Per Share”.
23.1	Consent of PricewaterhouseCoopers LLP.
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.

39

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (No. 333-121940, No. 333-102765, No. 333-102764 and No. 333-85194) of Carmike Cinemas, Inc. of our report dated August 3, 2006 relating to the financial statements, financial statement schedules, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in the Form 10-K for the year ended December 31, 2005.

PricewaterhouseCoopers LLP
Atlanta, Georgia
August 25, 2006

EX-31.1

Exhibit 31.1

Certifications

I, Michael W. Patrick, certify that:

1. I have reviewed this 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:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 25, 2006

/s/ Michael W. Patrick Michael W. Patrick
President, Chief Executive Officer and
Chairman of the Board of Directors

EX-31.2

Exhibit 31.2

Certifications

I, Richard B. Hare, certify that:

1. I have reviewed this 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:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting , or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 25, 2006

/s/ Richard B. Hare Richard B. Hare
Senior Vice President — Finance,
Treasurer and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Quarterly Report on Form 10-Q of Carmike Cinemas, Inc. (the “Corporation”) for the period ended June 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the President, Chief Executive Officer and Chairman of the Board of Directors of the Corporation, certifies that:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Michael W. Patrick Michael W. Patrick
President, Chief Executive Officer and
Chairman of the Board of Directors

August 25, 2006

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Quarterly Report on Form 10-Q of Carmike Cinemas, Inc. (the “Corporation”) for the period ended June 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Senior Vice President — Finance, Treasurer and Chief Financial Officer of the Corporation, certifies that:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Richard B. Hare Richard B. Hare
Senior Vice President — Finance,
Treasurer and Chief Financial Officer

August 25, 2006