UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2008

OR

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

For the transition period from              to             

Commission file number 000-14993

CARMIKE CINEMAS, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

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

(706) 576-3400

(Registrant’s Telephone Number, Including Area Code)

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

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

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

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

Common Stock, par value $0.03 per share — 12,829,481 shares outstanding as of August 1, 2008.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)	3
CONDENSED CONSOLIDATED BALANCE SHEETS	3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS	4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20
ITEM 4. CONTROLS AND PROCEDURES	20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	21
ITEM 1A. RISK FACTORS	21
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	21
ITEM 5. OTHER INFORMATION	22
ITEM 6. EXHIBITS	23
EXHIBIT INDEX	23
SIGNATURES	24
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO
EX-32.2 SECTION 906 CERTIFICATION OF CFO

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARMIKE CINEMAS, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except share and per share data)

	June 30, 2008			December 31, 2007
	(Unaudited)
Assets:
Current assets:
Cash and cash equivalents	$	15,339		$	21,975
Restricted cash		805			225
Accounts receivable		4,050			4,120
Inventories		1,897			1,668
Prepaid expenses		6,998			5,689
Total current assets		29,089			33,677
Property and equipment:
Land		56,522			56,522
Buildings and building improvements		317,670			317,186
Leasehold improvements		133,126			133,220
Assets under capital leases		70,687			70,195
Equipment		235,761			237,483
Construction in progress		48			511
Total property and equipment		813,814			815,117
Accumulated depreciation and amortization		(333,278	)		(317,804	)
Property and equipment, net of accumulated depreciation		480,536			497,313
Assets held for sale		7,700			8,398
Other assets		25,351			27,129
Intangible assets, net of accumulated amortization		1,460			1,528
Total assets	$	544,136		$	568,045
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	22,857		$	28,190
Dividends payable		2,245			2,244
Accrued expenses		31,759			33,905
Current maturities of long-term debt, capital leases and long-term financing obligations		4,760			4,648
Total current liabilities		61,621			68,987
Long-term liabilities:
Long-term debt, less current maturities		291,977			298,465
Capital leases and long-term financing obligations, less current maturities		118,377			118,600
Other		12,904			12,983
Total long-term liabilities		423,258			430,048
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred Stock, $1.00 par value per share: 1,000,000 shares authorized, no shares issued		0			0
Common Stock, $0.03 par value per share: 20,000,000 shares authorized, 13,230,872 shares issued and 12,829,481 shares outstanding at June 30, 2008, and 13,222,872 shares issued and 12,822,367 shares outstanding at December 31, 2007		394			394
Treasury stock, 401,391 and 400,505 shares at cost, at June 30, 2008 and December 31, 2007		(10,935	)		(10,925	)
Paid-in capital		284,605			287,788
Accumulated deficit		(214,807	)		(208,247	)
Total stockholders’ equity		59,257			69,010
Total liabilities and stockholders’ equity	$	544,136		$	568,045

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

3

CARMIKE CINEMAS, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
	(Unaudited)						(Unaudited)
Revenues:
Admissions	$	77,057		$	83,363		$	155,492		$	154,912
Concessions and other		41,167			44,765			79,869			81,902
Total operating revenues		118,224			128,128			235,361			236,814
Operating costs and expenses:
Film exhibition costs		43,976			47,281			85,924			85,361
Concession costs		4,451			5,018			8,613			8,617
Other theatre operating costs		47,316			49,489			97,090			95,240
General and administrative expenses		4,647			5,380			10,299			11,393
Depreciation and amortization		9,235			10,420			18,471			20,015
Loss (gain) on sale of property and equipment		522			(1,068	)		533			(1,392	)
Total operating costs and expenses		110,147			116,520			220,930			219,234
Operating income		8,077			11,608			14,431			17,580
Interest expense, net		10,063			11,862			21,206			23,665
Gain on sale of investments		0			(1,678	)		0			(1,678	)
Gain (Loss) from continuing operations before income tax		(1,986	)		1,424			(6,775	)		(4,407	)
Income tax expense (benefit) (Note 3)		87			58,415			(81	)		56,003
Loss from continuing operations		(2,073	)		(56,991	)		(6,694	)		(60,410	)
Income (loss) from discontinued operations, net of tax (Note 5)		(146	)		149			134			(167	)
Net loss available for common stockholders	$	(2,219	)	$	(56,842	)	$	(6,560	)	$	(60,577	)
Weighted average shares outstanding:
Basic		12,657			12,614			12,654			12,549
Diluted		12,657			12,614			12,654			12,549
Net loss per common share - Basic:
Loss from continuing operations	$	(0.16	)	$	(4.52	)	$	(0.53	)	$	(4.81	)
Income (loss) from discontinued operations, net of tax		(0.01	)		0.01			0.01			(0.01	)
	$	(0.17	)	$	(4.51	)	$	(0.52	)	$	(4.82	)
Net loss per common share - Diluted:
Loss from continuing operations	$	(0.16	)	$	(4.52	)	$	(0.53	)	$	(4.81	)
Income (loss) from discontinued operations, net of tax		(0.01	)		0.01			0.01			(0.01	)
	$	(0.17	)	$	(4.51	)	$	(0.52	)	$	(4.82	)
Dividends declared per share	$	0.175		$	0.175		$	0.35		$	0.35

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

4

CARMIKE CINEMAS, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Six Months Ended June 30,
	2008			2007
	(Unaudited)
Cash flows from operating activities:
Net loss	$	(6,560	)	$	(60,577	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		18,507			20,206
Amortization of debt issuance costs		1,164			1,078
Deferred income taxes		0			55,903
Stock-based compensation		1,305			1,298
Other		812			602
Gain on sale of property and equipment		(247	)		(2,106	)
Changes in operating assets and liabilities:
Accounts receivable and inventories		189			(456	)
Prepaid expenses and other assets		(729	)		263
Accounts payable		(4,382	)		(4,954	)
Accrued expenses and other liabilities		(2,207	)		(676	)
Net cash provided by operating activities		7,852			10,581
Cash flows from investing activities:
Purchases of property and equipment		(4,464	)		(10,040	)
Release (funding) of restricted cash		(580	)		361
Proceeds from sale of property and equipment		2,760			5,096
Net cash used in investing activities		(2,284	)		(4,583	)
Cash flows from financing activities:
Debt activities:
Repayments of long-term debt		(6,539	)		(1,616	)
Repayments of capital lease and long-term financing obligations		(1,168	)		(638	)
Proceeds from long-term financing arrangements		0			239
Issuance of common stock		0			1,203
Purchase of treasury stock		(10	)		(2,658	)
Dividends paid		(4,487	)		(4,385	)
Net cash used in financing activities		(12,204	)		(7,855	)
Decrease in cash and cash equivalents		(6,636	)		(1,857	)
Cash and cash equivalents at beginning of period		21,975			26,016
Cash and cash equivalents at end of period	$	15,339		$	24,159
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	20,073		$	22,324
Income taxes	$	0		$	0
Non-cash investing and financing activities:
Assets acquired through capital lease obligations	$	491		$	0
Dividends declared not yet paid at end of period	$	2,245		$	2,245
Non-cash purchase of property and equipment	$	205		$	2,483

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

5

CARMIKE CINEMAS, INC. and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2008 and 2007

(in thousands except share and per share data)

NOTE 1—BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Carmike Cinemas, Inc. (referred to as “we”, “us”, “our”, and the “Company”) has prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission. 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, 2008, and the results of operations for the three and six month periods ended June 30, 2008 and 2007 and cash flows for the six month periods ended June 30, 2008 and 2007. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The Company believes that the disclosures are adequate to make the information presented not misleading. These condensed 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, 2007 (“2007 Form 10-K”). That report includes a summary of our critical accounting policies. There have been no material changes in our accounting policies during the first six months of 2008. The financial statements include the accounts of the Company’s wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.

Accounting Estimates

In the preparation of financial statements in conformity with GAAP, management must make certain estimates, judgments and assumptions. These estimates, judgments and assumptions are made when accounting for items and matters such as, but not limited to, depreciation, amortization, asset valuations, impairment assessments, lease classification, stock-based compensation, employee benefits, income taxes, reserves and other provisions and contingencies. These estimates are based on the information available when recorded. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. The Company bases its estimates on historical experience, forecasted performance and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company also assesses potential losses in relation to threatened or pending legal matters. If a loss is considered probable and the amount can be reasonably estimated, the Company recognizes an expense for the estimated loss. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are recognized in the period they are realized.

Discontinued Operations

The results of operations for theatres that have been disposed of or classified as held for sale are eliminated from the Company’s continuing operations and classified as discontinued operations for each period presented within the Company’s condensed consolidated statements of operations. Theatres are reported as discontinued operations when the Company no longer has continuing involvement in the theatre operations and the cash flows have been eliminated, which generally occurs when the Company no longer has operations in a given market. See Note 5 – Discontinued Operations.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair values, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies whenever other accounting standards require or permit assets or liabilities to be measured at fair value; accordingly, it does not expand the use of fair value in any new circumstances. Fair value under SFAS 157 is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability, and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data; for example, a reporting entity’s own data. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. FASB Staff Position (“FSP”) No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP FAS 157-1”), states that SFAS 157 does not apply under SFAS No. 13, “Accounting for Leases” (“SFAS 13”), and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS

6

13. With respect to financial assets and liabilities, SFAS 157 is effective for fiscal years beginning after November 15, 2007. For nonfinancial assets and liabilities, except those items recognized or disclosed at fair value on an annual or more frequent basis, FASB Staff Position No. FAS 157-2 (“FSP 157-2”) permits companies to adopt the provisions of SFAS 157 for fiscal years beginning after November 15, 2008. We adopted SFAS 157 as of January 1, 2008 for financial assets and liabilities, and elected to defer our adoption of SFAS 157 for nonfinancial assets and liabilities as permitted by FSP 157-2. There was no impact to our consolidated financial statements as a result of our adoption of SFAS 157. The impact of adopting SFAS 157 for nonfinancial assets and liabilities on January 1, 2009 is still under consideration by the Company.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which requires the acquirer in a business combination to measure all assets acquired and liabilities assumed at their acquisition date fair value. SFAS 141(R) applies whenever an acquirer obtains control of one or more businesses. The new standard also requires the following in a business combination:

• acquisition related costs, such as legal and due diligence costs, be expensed as incurred;

• acquirer shares issued as consideration be recorded at fair value as of the acquisition date;

• contingent consideration arrangements be included in the purchase price allocation at their acquisition date fair value;

• with certain exceptions, pre-acquisition contingencies be recorded at fair value;

• negative goodwill be recognized as income rather than as a pro rata reduction of the value allocated to particular assets;

• restructuring plans be recorded in purchase accounting only if the requirements in FASB statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”), are met as of the acquisition date; and

• adjustments to deferred income taxes, after the purchase accounting allocation period, will be included in income rather than as an adjustment to goodwill.

SFAS 141(R) requires prospective application for business combinations consummated in fiscal years beginning on or after December 15, 2008.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 allows entities to choose to measure many financial assets and financial liabilities at fair value and report unrealized gains and losses on items for which the fair value option has been elected through earnings. SFAS 159 was effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 on January 1, 2008 did not have an impact on the Company’s results of operations or financial position.

NOTE 2—DEBT

Debt consisted of the following on the dates indicated:

	June 30, 2008			December 31, 2007
Term loan	$	162,048		$	162,884
Delayed-draw term loan		132,956			138,660
		295,004			301,544
Current maturities		(3,027	)		(3,079	)
	$	291,977		$	298,465

In 2005, the Company 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 $405,000.

The senior secured credit facilities consist of:

• a $170,000 seven year term loan facility:

• a $185,000 seven year delayed-draw term loan facility; and

• a $50,000 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 $125,000.

The interest rate for the Company’s senior secured credit agreement under its outstanding revolving and term loans, as amended, is set to a margin above the London interbank offered rate (“LIBOR”) or base rate, as the case may be, based on the Company’s consolidated leverage ratio as defined in the credit agreement, with the margin ranging from 3.00% to 3.50% for loans based on

7

LIBOR and 2.00% to 2.50% for loans based on the base rate. At June 30, 2008, the average interest rate was 6.38%. The final maturity date of the revolving credit facility is May 19, 2010, and the final maturity date of the term loans is May 19, 2012.

The credit agreement requires that mandatory prepayments be made from (1) 100% of the net cash proceeds from certain asset sales and dispositions, other than a sales-leaseback transaction, and issuances of certain debt, (2) 85% of the net cash proceeds from sales-leaseback transactions, (3) various percentages (ranging from 0% to 75% depending on the Company’s consolidated leverage ratio) of excess cash flow as defined in the credit agreement, and (4) 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 the Company’s ability, and that of its restricted subsidiaries, to:

• pay dividends or make any other restricted payments to parties other than to the Company;

• incur additional indebtedness;

• create liens on their assets;

• make certain investments;

• sell or otherwise dispose of their assets;

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

• enter into transactions with the Company’s affiliates.

The senior secured credit facilities also contain financial covenants that require the Company to maintain specified ratios of funded debt to adjusted EBITDA, as defined, and adjusted EBITDA to interest expense. As of June 30, 2008, the Company was in compliance with all of the financial covenants.

The senior secured credit agreement places certain restrictions on the Company’s ability to make capital expenditures. In addition to the dollar limitation described below, the Company 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.

The Company has from time to time amended the senior secured credit agreement, and the most recent amendments included, among other items:

• amending the Company’s consolidated leverage ratio such that from and after the effective date the ratio may not exceed 4.75 to 1.00 as of the last day of any quarter for the four-quarter period then ending;

• amending the Company’s consolidated interest coverage ratio such that from and after the effective date the ratio may not be less than 1.65 to 1.00 as of the last day of any quarter for the four-quarter period then ending;

• limiting the aggregate capital expenditures that the Company may make, or commit to make, to $30,000 for any fiscal year, provided that up to $10,000 of unused capital expenditures in a fiscal year may be carried over to the succeeding fiscal year; and

• permitting sale-leaseback transactions of up to an aggregate of $175,000.

The Company’s 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 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. Other events of default under the senior secured credit facilities include:

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

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

• a breach or default by the Company or its subsidiaries on the payment of principal of any indebtedness (as defined in the credit agreement) in an aggregate amount greater than $5,000.

8

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

NOTE 3—INCOME TAXES

Net Operating Loss Carryforward

At June 30, 2008, the Company had federal and state operating loss carryforwards, before consideration of the limitations described below, of $116,707 to offset the Company’s future taxable income, as compared to $110,221 at December 31, 2007. The federal and state operating loss carryforwards begin to expire in the year 2020. In addition, the Company’s alternative minimum tax credit carryforward has an indefinite carryforward life.

The Company believes that an “ownership change” within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, occurred during 2007. The ownership change will subject the Company’s net operating loss carryforwards to an annual limitation, which may significantly restrict its ability to use them to offset taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate. The date of ownership change and the occurrence of more than one ownership change can significantly impact the amount of the annual limitation. The Company is currently analyzing the information to determine the amount of such limitation. To further refine its estimate of the limitation, the Company must determine whether or not it had a net unrealized built-in gain or loss (“NUBIG” or “NUBIL”) at the date of the ownership change. Generally, a NUBIG or NUBIL is determined based on the difference between the fair market value of the assets and their tax basis. If the computed NUBIG or NUBIL is below a de minimis threshold, the amount of the NUBIG or NUBIL is considered to be zero. Otherwise, certain deductions recognized during the five-year period beginning on the date of ownership change would be subject to limitation when a NUBIL is present. Conversely, the Section 382 limitation would be increased by certain income recognized during this five-year period. The Company is currently evaluating whether or not a NUBIG or NUBIL exists.

Valuation Allowance

The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and net operating loss and tax credit carryforwards. At June 30, 2008 and December 31, 2007, the Company’s consolidated net deferred tax assets were $79,057 and $76,625, respectively, before the effects of any valuation allowance. In accordance with SFAS No. 109 “Accounting for Income Taxes” (“SFAS 109”), the Company regularly assesses whether it is more likely than not that its deferred tax asset balances will be recovered from future taxable income, taking into account such factors as earnings history, carryback and carryforward periods, and tax planning strategies. When sufficient evidence exists that indicates that recovery is uncertain, a valuation allowance is established against the deferred tax assets, increasing the Company’s income tax expense in the period that such conclusion is made.

A significant factor in the Company’s assessment of the recoverability of its deferred tax asset is its history of cumulative losses during the current and two prior periods. During the second quarter of 2007, the Company concluded that the recoverability of the deferred tax assets was uncertain based upon cumulative losses in the current period and the preceding two years and recorded a valuation allowance to fully reserve its deferred tax assets. The Company has not recognized any income tax benefits since that time. The Company expects that it will not recognize income tax benefits until a determination is made that a valuation allowance for all or some portion of the deferred tax assets is no longer required.

Income Tax Uncertainties

The Company adopted the provisions of FIN 48 on January 1, 2007, with no impact on beginning retained earnings. As of the date of adoption, the Company had liabilities for unrecognized tax benefits aggregating $3,326. The adoption of FIN 48 required the Company to reclassify certain amounts related to uncertain tax positions. As a result, the Company increased its deferred tax assets by $1,486, and increased liabilities for FIN 48 by $1,486 on the adoption date. During the six months ended June 30, 2008, there was no change in the Company’s FIN 48 liability.

As of June 30, 2008, there are no tax positions the disallowance of which would affect the Company’s annual effective income tax rate.

The Company files consolidated and separate income tax returns in the United States federal jurisdiction and in many state jurisdictions. The Company is no longer subject to United States federal income tax examinations for years before 2000 and is no longer subject to state and local income tax examinations by tax authorities for years before 1998.

9

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within its income tax expense. Due to its net operating loss carryforward position, the Company recognized no interest and penalties during the three and six months ended June 30, 2008 and 2007, respectively.

NOTE 4—EQUITY BASED COMPENSATION

The Company’s total stock-based compensation expense was approximately $607 and $797 for the three months ended June 30, 2008 and 2007, respectively and $1,305 and $1,298 for the six months ended June 30, 2008 and 2007, respectively. These amounts were recorded in general and administrative expenses. As of June 30, 2008, the Company had approximately $2,303 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s plans. This cost is expected to be recognized as stock-based compensation expense over a weighted-average period of approximately one year. This expected cost does not include the impact of any future stock-based compensation awards.

Options – Service Condition Vesting

The Company currently uses the Black-Scholes option pricing model to determine the fair value of its time vesting stock options for which vesting is dependent only on employees providing future service. The following table sets forth information about the weighted-average fair value and the weighted-average assumptions of such options granted during 2006 (there were no options with service condition vesting granted during 2007 and the six months ended June 30, 2008):

	2006
Fair value of options on grant date	$	9.80
Expected life (years)		9
Risk-free interest rate		4.79	%
Expected dividend yield		4.00	%
Expected volatility		65	%

The following table sets forth the summary of option activity for stock options with service vesting conditions as of June 30, 2008:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at January 1, 2008	188,334		$	30.39	5.51	—
Exercised	—			—
Forfeited	(23,334	)	$	35.63
Outstanding at June 30, 2008	165,000		$	29.65	5.23	—
Exercisable at June 30, 2008	165,000		$	29.65	5.23	—

Options – Market Condition Vesting

On April 13, 2007, the Compensation and Nominating Committee approved (pursuant to the 2004 Incentive Stock Plan) the grant of an aggregate of 260,000 stock options, at an exercise price equal to $25.95 per share, to a group of eight senior executives. The April 13, 2007 stock option grants are aligned with market performance, as one-third of these stock options each will vest when the Company achieves an increase in the trading price of its common stock (over the $25.95 exercise price) equal to 25%, 30% and 35%, respectively. The Company determined the aggregate grant date fair value of these stock options to be approximately $1,430. The fair value of these options was estimated on the date of grant using a Monte Carlo simulation model. The model generates the fair value of the award at the grant date and compensation expense is not subsequently adjusted for the number of shares that are ultimately vested.

The following table sets forth information about the weighted-average fair value of such options granted and the weighted-average assumptions used for such grants:

	2007
Fair value of options on grant date	$	5.50
Risk-free interest rate		4.70	%
Expected dividend yield		2.70	%
Expected volatility		34	%

10

The following table sets forth the summary of option activity for the Company’s stock options with market condition vesting for the six months ended June 30, 2008:

	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at January 1, 2008	260,000	$	25.95	9.29
Granted	0		—
Outstanding at June 30, 2008	260,000	$	25.95	8.79	—
Exercisable at June 30, 2008	0		—	—	—
Expected to vest at June 30, 2008	260,000		—	—	—

Restricted Stock

The following table sets forth the summary of activity for restricted stock grants under the Company’s 2002 Stock Plan and 2004 Incentive Stock Plan for the six months ended June 30, 2008:

	Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2008	169,834		$	25.70
Granted	12,500		$	8.19
Vested	(17,500	)	$	25.26
Forfeited	(2,500	)	$	25.95
Nonvested at June 30, 2008	162,334		$	24.40

NOTE 5—DISCONTINUED OPERATIONS

Theatres are generally considered for closure due to an expiring lease term, underperformance, or the opportunity to better deploy invested capital. During the three months ended June 30, 2008 and 2007, the Company closed five and three theatres, respectively and for the six months ended June 30, 2008 and 2007, the Company closed six and nine theatres, respectively. The Company reported the results of these operations, including gains or losses on disposal, as discontinued operations in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). The operations and cash flow of these theatres have been eliminated from the Company’s operations, and the Company will not have any continuing involvement in their operations.

In accordance with SFAS 144, all prior year activity included in the accompanying condensed consolidated statements of operations have been reclassified to separately show the results of operations from discontinued operations through the respective date of the theatre closings. Assets and liabilities associated with the discontinued operations have not been segregated in the accompanying condensed consolidated balance sheets as they are not material.

The following table provides information regarding discontinued operations for the periods presented.

	For the three months ended June 30,					For the six months ended June 30,
($ in thousands)	2008			2007		2008		2007
Revenue from discontinued operations	$	101		$	2,007	$	814	$	3,930
Operating gain (loss) before income taxes	$	(233	)	$	239	$	215	$	(267	)

11

Income tax benefit	$	(60)	$	(138)	$	(212)	$	(367)
Gain (loss) on disposal before income taxes	$	(74)	$	608	$	780	$	714
Income tax expense (benefit) for gain on disposal	$	(27)	$	228	$	293	$	267
Income (loss) from discontinued operations	$	(146)	$	149	$	134	$	(167)

NOTE 6—COMMITMENTS AND CONTINGENCIES

Contingencies

The Company, in the normal course of business, is involved in routine litigation and legal proceedings, such as personal injury claims, employment matters, contractual disputes and claims alleging Americans with Disabilities Act violations. Currently, there is no pending litigation or proceedings that the Company believes will have a material adverse effect, either individually or in the aggregate, on its business or financial position, results of operations or cash flow.

Employment Agreement

The Company is party to an employment agreement with its chief executive officer which is currently in effect until January 31, 2012 and requires annual payments aggregating approximately $850.

NOTE 7—NET INCOME (LOSS) PER SHARE

Net income (loss) per share is presented in conformity with SFAS No. 128, “Earnings Per Share” (“SFAS 128”). In accordance with SFAS 128, basic net income (loss) per common share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted income (loss) per share is computed using the weighted average number of common shares and common stock equivalents outstanding. As a result of the Company’s net losses, all common stock equivalents aggregating 601,501 and 609,210 for the three and six months ended June 30, 2008, respectively, and 459,250 and 435,250 for the three and six months ended June 30, 2007, respectively, were excluded from the calculation of diluted loss per share for all such periods given their anti-dilutive effect.

12

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

Overview

We are one of the largest motion picture exhibitors in the United States and as of June 30, 2008 we owned, operated or had an interest in 257 theatres with 2,308 screens located in 36 states. We target small to mid-size non-urban markets with the belief that they provide a number of operating benefits, including lower operating costs and fewer alternative forms of entertainment.

As of June 30, 2008, we had 235 theatres with 2,170 screens on a digital-based platform, including 193 theatres with 428 screens equipped for 3-D. We believe our leading-edge technologies allow us not only greater flexibility in showing feature films, but also provide us with the capability to explore revenue-enhancing alternative content programming. Digital film content can be easily moved to and from auditoriums in our theatres to maximize attendance. The superior quality of digital cinema and our 3-D capability could provide a competitive advantage to us in markets where we compete for film and patrons.

Results of Operations

Comparison of Three and Six Months Ended June 30, 2008 and June 30, 2007

Revenues. We collect substantially all of our revenues from the sale of admission tickets and concessions. The table below provides a comparative summary of the operating data for this revenue generation.

	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Average theatres		259		279		261		283
Average screens		2,318		2,412		2,329		2,425
Average attendance per screen		5,403		6,006		10,632		11,180
Average admission per patron	$	6.16	$	5.84	$	6.30	$	5.81
Average concessions and other sales per patron	$	3.29	$	3.14	$	3.24	$	3.07
Total attendance (in thousands)		12,524		14,487		24,766		27,116
Total revenues (in thousands)	$	118,224	$	128,128	$	235,361	$	236,814

Total revenue decreased approximately 8% to $118.2 million for the three months ended June 30, 2008 compared to $128.1 million for the three months ended June 30, 2007, due to the closure of underperforming theatres and a decrease in the average attendance per screen offset by an increase in average admissions per patron and concessions and other sales per patron. Total revenues decreased approximately 1% to $235.4 million for the six months ended June 30, 2008 compared to $236.8 million for the six months ended June 30, 2007, due to the closure of underperforming theatres and a decrease in the average attendance per screen offset by an increase in average admissions per patron and concessions and other sales per patron.

Admissions revenue decreased approximately 8% to $77.1 million for the three months ended June 30, 2008 from $83.4 million for the same period in 2007, due to a decrease in our average attendance per screen offset by an increase in average admissions per patron. Admissions revenue increased less than 1% to $155.5 million for the six months ended June 30, 2008 from $154.9 million for the same period in 2007, due to an increase in our average admissions per patron that was offset by a decrease in average attendance per screen.

Concessions and other revenue decreased approximately 8% to $41.2 million for the three months ended June 30, 2008 compared to $44.8 million for the same period in 2007, due to a decrease in attendance offset by an increase in our average concessions and other sales per patron. Concessions and other revenue decreased approximately 2% to $79.9 million for the six months ended June 30, 2008 compared to $81.9 million for the same period in 2007, due to a decrease in attendance offset by an increase in our average concessions and other sales per patron.

We operated 257 theatres with 2,308 screens at June 30, 2008 compared to 276 theatres with 2,399 screens at June 30, 2007.

Operating costs and expenses. The table below summarizes operating expense data for the periods presented.

	Three Months Ended June 30,
($’s in thousands)	2008		2007			% Change
Film exhibition costs	$	43,976	$	47,281		(7	)%
Concession costs	$	4,451	$	5,018		(11	)%
Other theatre operating costs	$	47,316	$	49,489		(4	)%
General and administrative expenses	$	4,647	$	5,380		(14	)%
Depreciation and amortization	$	9,235	$	10,420		(11	)%
Loss (gain) on sale of property and equipment	$	522	$	(1,068	)	(149	)%

13

	Six Months Ended June 30,
($’s in thousands)	2008		2007			% Change
Film exhibition costs	$	85,924	$	85,361		1	%
Concession costs	$	8,613	$	8,617		(0	)%
Other theatre operating costs	$	97,090	$	95,240		2	%
General and administrative expenses	$	10,299	$	11,393		(10	)%
Depreciation and amortization	$	18,471	$	20,015		(8	)%
Loss (gain) on sale of property and equipment	$	533	$	(1,392	)	(138	)%

Film exhibition costs. Film exhibition costs fluctuate in direct relation to the increases and decreases in admissions revenue and the mix of aggregate and term film deals. Film exhibition costs for the three months ended June 30, 2008 decreased to $44.0 million as compared to $47.3 million for the three months ended June 30, 2007 due to a decrease in admissions revenue primarily as a result of a decrease in attendance. As a percentage of admissions revenue, film exhibition costs were 57% for the three months ended June 30, 2008 and June 30, 2007. Film exhibition costs for the six months ended June 30, 2008 increased to $85.9 million as compared to $85.4 million for the six months ended June 30, 2007 due to a slight increase in admissions revenue. As a percentage of admissions revenue, film exhibition costs were 55% for the six months ended June 30, 2008 and June 30, 2007.

Concessions costs. Concessions costs fluctuate with changes in concessions revenue and product sales mix and changes in our cost of goods sold. Concession costs for the three months ended June 30, 2008 decreased to $4.5 million as compared to $5.0 million for the three months ended June 30, 2007 due to a decrease in concessions revenue primarily as a result of a decrease in attendance offset by an increase in average concessions and other sales per patron. As a percentage of concessions and other revenues, concession costs were 11% for the three months ended June 30, 2008 and 2007. Concession costs were flat at $8.6 million for the six months ended June 30, 2008 and 2007 due to an increase in average concessions and other sales per patron offset by a decrease in attendance. As a percentage of concessions and other revenues, concession costs were 11% for the six months ended June 30, 2008 and 2007. Our focus continues to be a limited concessions offering of high margin products; such as soft drinks, popcorn and individually packaged candy, to maximize our profit potential.

Other theatre operating costs. Other theatre operating costs for the three months ended June 30, 2008 decreased to $47.3 million as compared to $49.5 million for the three months ended June 30, 2007. The decrease in our other theatre operating costs is primarily the result of decreased personnel costs and occupancy costs. Other theatre operating costs for the six months ended June 30, 2008 increased to $97.1 million as compared to $95.2 million for the six months ended June 30, 2007. The increase in our other theatre operating costs is primarily the result of increased maintenance costs which were partially offset by decreased personnel costs and occupancy costs.

General and administrative expenses. General and administrative expenses for the three months ended June 30, 2008 decreased to $4.6 million as compared to $5.4 million for the three months ended June 30, 2007. General and administrative expenses for the six months ended June 30, 2008 decreased to $10.3 million as compared to $11.4 million for the six months ended June 30, 2007. The decrease in our general and administrative expenses is due primarily to reductions in our salaries and wages expense, incentive compensation and legal and professional fees.

Depreciation and amortization. Depreciation and amortization expenses for the three months ended June 30, 2008 decreased approximately 11% as compared to the three months ended June 30, 2007. Depreciation and amortization expenses for the six months ended June 30, 2008 decreased approximately 8% as compared to the six months ended June 30, 2007. The decrease in depreciation and amortization expenses resulted from a combination of a lower balance of property and equipment due to theatre closures, asset sales and other property and equipment disposals, as well as a portion of our long-lived assets becoming fully depreciated.

Net loss (gain) on sales of property and equipment. We recognized a loss of $522,000 on the sales of property and equipment for the three months ended June 30, 2008, as compared to a gain of $1.1 million for the three months ended June 30, 2007. We recognized a loss of $533,000 on the sales of property and equipment for the six months ended June 30, 2008, as compared to a gain of $1.4 million for the six months ended June 30, 2007.

14

Operating Income. Operating income for the three months ended June 30, 2008 decreased 30% to $8.1 million as compared to $11.6 million for the three months ended June 30, 2007. As a percentage of revenues, operating income for the three months ended June 30, 2008 was 7% as compared to 9% for the three months ended June 30, 2007. Operating income for the six months ended June 30, 2008 decreased 18% to $14.4 million as compared to $17.6 million for the six months ended June 30, 2007. As a percentage of revenues, operating income for the six months ended June 30, 2008 was 6% as compared to 7% for the six months ended June 30, 2007. These fluctuations are the result of the factors described above.

Interest expense, net. Interest expense, net for the three months ended June 30, 2008 decreased 15% to $10.1 million from $11.9 million for the three months ended June 30, 2007. Interest expense, net for the six months ended June 30, 2008 decreased 10% to $21.2 million from $23.7 million for the six months ended June 30, 2007. The decrease is primarily related to a combination of lower average outstanding debt and a reduction in interest rates. Interest income, included in interest expense, net, was $25,000 and $135,000 for the three and six months ended June 30, 2008, respectively, as compared to $98,000 and $267,000 for the same periods in 2007.

Income tax. During the first six months of 2007 and 2008 we did not recognize any tax benefit. At June 30, 2008 and December 31, 2007, our consolidated net deferred tax assets were $79.1 million and $76.6 million, respectively, before the effects of any valuation allowance. We regularly assess whether it is more likely than not that our deferred tax asset balance will be recovered from future taxable income, taking into account such factors as our earnings history, carryback and carryforward periods, and tax planning strategies. When sufficient evidence exists that indicates that recovery is uncertain, a valuation allowance is established against the deferred tax asset, increasing our income tax expense in the period that such conclusion is made.

A significant factor in our assessment of the recoverability of the deferred tax asset is our history of cumulative losses during the current and two prior periods. During the second quarter of 2007, we concluded that the recoverability of the deferred tax assets was uncertain based upon cumulative losses in the current period and the preceding two years and determined that a valuation allowance was necessary to fully reserve our deferred tax assets. We have not recognized any income tax benefits since that time. We expect that we will not recognize income tax benefits until a determination is made that a valuation allowance for all or some portion of the deferred tax assets is no longer required.

Income (loss) from discontinued operations, net of tax. We generally consider theatres for closure due to an expiring lease term, underperformance, or the opportunity to better deploy invested capital. During the three months ended June 30, 2008 and 2007, we closed five and three theatres, respectively, and for the six months ended June 30, 2008 and 2007, we closed six and nine theatres, respectively, and reported the results of these operations, including gains or losses in disposal, as discontinued operations. The operations and cash flow of these theatres have been eliminated from the Company’s operations, and the Company will not have any continuing involvement in their operations.

The accompanying condensed consolidated statements of operations separately show the results of operations from discontinued operations through the respective date of the theatre closings. Assets and liabilities associated with the discontinued operations have not been segregated from assets and liabilities from continuing operations as they are not material. We recorded a loss from discontinued operations, net of tax expenses, for the three months ended June 30, 2008 of $146,000 as compared to a gain of $149,000 for the three months ended June 30, 2007. The results from discontinued operations include a loss on disposal of assets, net of tax expense, of $47,000 for the three months ended June 30, 2008 as compared to a gain of $380,000 for the three months ended June 30, 2007. We recorded income from discontinued operations, net of tax for the six months ended June 30, 2008 of $134,000 as compared to a loss of $167,000 for the six months ended June 30, 2007. The results from discontinued operations include a gain on disposal of assets, net of tax expenses, of $487,000 and $447,000 for the six months ended June 30, 2008 and June 30, 2007, respectively.

Liquidity and Capital Resources

General

Our revenues are collected in cash and credit card payments. Because we receive our revenues in cash prior to the payment of related expenses, we have an operating “float” which partially finances our operations. We had a working capital deficit of $32.5 million as of June 30, 2008 compared to working capital deficit of $35.3 million at December 31, 2007.

At June 30, 2008, we had available borrowing capacity of $50 million under our revolving credit facility and approximately $15.3 million in cash and cash equivalents on hand. The material terms of our revolving credit facility (including limitation on our ability to freely use all the available borrowing capacity) are described below in “Material Credit Agreements and Covenant Compliance.”

15

Net cash provided by operating activities was $7.9 million for the six months ended June 30, 2008 compared to $10.6 million for the six months ended June 30, 2007. This decrease in our cash provided by operating activities was due primarily to a reduction in accounts payable and accrued expenses. Net cash used in investing activities was $2.3 million for the six months ended June 30, 2008, compared to $4.6 million for the six months ended June 30, 2007. The decrease in our net cash used in investing activities is primarily due to a decrease in cash used for the purchases of property and equipment. Capital expenditures were $4.5 million for the six months ended June 30, 2008 and $10.0 million for the six months ended June 30, 2007. For the six months ended June 30, 2008, net cash used in financing activities was $12.2 million compared to $7.9 million for the six months ended June 30, 2007. Our financing activities include $4.5 million of dividends paid during both the six months ended June 30, 2008 and 2007. The increase in our net cash used in financing activities for the six months ended June 30, 2008 compared to the six months ended June 30, 2007 is primarily due to a $5 million unscheduled repayment of long-term debt offset by a decrease in cash used for the purchase of treasury stock.

Our liquidity needs are funded by operating cash flow and availability under our credit agreements. The exhibition industry is 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 quarter to quarter. Additionally, the ultimate performance of the films any time during the calendar year will have a dramatic impact on our cash needs.

Net Operating Loss Carryforward

As of June 30, 2008, after generating approximately $6.5 million of operating loss carryforwards for the six months ended June 30, 2008, we had approximately $116.7 million of federal and state operating loss carryforwards with which to offset our future taxable income, before consideration of the limitations described in Note 3-Income Taxes. The federal and state net operating loss carryforwards will begin to expire in the year 2020.

We believe that an “ownership change” within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, occurred during 2007. The ownership change will subject our net operating loss carryforwards to an annual limitation, which may significantly restrict our ability to use them to offset our taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate. The date of ownership change and the occurrence of more than one ownership change can significantly impact the amount of the annual limitation. We are currently analyzing the information to determine the amount of such limitation. To further refine its estimate of the limitation, the Company must determine whether or not it had a net unrealized built-in gain or loss (“NUBIG” or “NUBIL”) at the date of the ownership change. Generally, a NUBIG or NUBIL is determined based on the difference between the fair market value of the assets and their tax basis. If the computed NUBIG or NUBIL is below a de minimis threshold, the amount of the NUBIG or NUBIL is considered to be zero. Otherwise, certain deductions recognized during the five-year period beginning on the date of ownership change would be subject to limitation when a NUBIL is present. Conversely, the Section 382 limitation would be increased by certain income recognized during this five-year period. The Company is currently evaluating whether or not a NUBIG or NUBIL exists.

Material Credit Agreements and Covenant Compliance

In 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 million.

The senior secured credit facilities consist of:

• a $170 million seven year term loan facility;

• a $185 million seven year delayed-draw term loan facility; and

• a $50 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 million.

As of June 30, 2008, we had the following amounts outstanding under each of the facilities described above:

• $162.0 million was outstanding under our $170 million term loan facility;

• $133.0 million was outstanding under our $185 million delayed-draw term loan facility; and

• no amounts were outstanding under our $50 million revolving credit facility.

16

The interest rate for our senior secured credit agreement under the outstanding revolving and term loans, as amended, is set to a margin above the London interbank offered rate (“LIBOR”) or base rate, as the case may be, based on the Company’s corporate consolidated leverage ratio as defined in the credit agreement, with the margin ranging from 3.0% to 3.5% for loans based on LIBOR and 2.0% to 2.5% for loans based on the base rate. As of June 30, 2008 and 2007, the average interest rate was 6.38% and 8.61%, respectively. The final maturity date of the revolving credit facility is May 19, 2010, and the final maturity date of the term loans is May 19, 2012.

The credit agreement requires that mandatory prepayments be made from (1) 100% of the net cash proceeds from certain asset sales and dispositions, other than a sales-leaseback transaction, and issuances of certain debt, (2) 85% of the net cash proceeds from sales-leaseback transactions, (3) various percentages (ranging from 0% to 75% depending on our consolidated leverage ratio) of excess cash flow as defined in the credit agreement, and (4) 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 to parties other than us;

• incur additional indebtedness;

• create liens on our assets;

• make certain investments;

• sell or otherwise dispose of our assets;

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

• enter into transactions with our affiliates.

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 of June 30, 2008, we were in compliance with all of the financial covenants.

The senior secured credit agreement places certain restrictions on our ability to make capital expenditures. In addition to the dollar limitation described below, 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.

We have from time to time amended the senior secured credit agreement and the most recent amendments included, among other items:

• amending our consolidated leverage ratio such that from and after the effective date the ratio may not exceed 4.75 to 1.00 as of the last day of any quarter for the four-quarter period then ending;

• amending our consolidated interest coverage ratio such that from and after the effective date the ratio may not be less than 1.65 to 1.00 as of the last day of any quarter for the four-quarter period then ending;

• limiting the aggregate capital expenditures that we may make, or commit to make, to $30 million for any fiscal year, provided, that up to $10 million of unused capital expenditures in a fiscal year may be carried over to the succeeding fiscal year; and

• permitting sale-leaseback transactions of up to an aggregate of $175 million.

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 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. Other events of default under the senior secured credit facilities include:

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

17

• 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.

We plan to make a total of approximately $13 million in capital expenditures for calendar year 2008. Pursuant to the eighth amendment to our senior secured credit agreement, the aggregate capital expenditures that we may make, or commit to make for any fiscal year is limited to $30 million, provided that up to $10 million of the unused capital expenditures in a fiscal year may be carried over to the succeeding fiscal year. We from time to time close older theatres or do not renew the leases, and the expenses associated with exiting these closed theatres typically relate to costs associated with removing owned equipment for redeployment in other locations and are not material to our operations. In 2008, we plan to close 16 of our underperforming theatres as a part of our operating performance improvement plan, five of which were closed during the quarter ended June 30, 2008.

Our ability to service our indebtedness, particularly our term loans that are due through 2012, will require a significant amount of cash. Our ability to generate this cash will depend largely on future operations. Our 2007 operating results were significantly lower than expectations, principally due to declines in box office attendance. As a result of the deterioration in 2007 results, as well as other factors, we recorded substantial goodwill and long-lived asset impairment charges and also fully reserved our deferred tax assets. Based upon our current level of operations, and our 2008 business plan, we believe that cash flow from operations, available cash and available borrowings under our credit agreements will be adequate to meet our liquidity needs for the next 12 months. However, the possibility exists that, if our liquidity needs are not met and we are unable to service our indebtedness, we could come into default under our debt instruments, causing the agents or trustees to accelerate maturity and declare all payments immediately due and payable.

The following are some factors that could affect our ability to generate sufficient cash from operations:

• further substantial declines in box office attendance, as a result of a continued general economic downturn, competition and a lack of consumers’ acceptance of the movie products in our markets;

• inability to achieve targeted admissions and concessions price increases, due to competition in our markets.

The occurrence of these conditions could require us to seek additional funds from external sources or to refinance all or a portion of our existing indebtedness in order to meet our liquidity requirements. 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. If we have insufficient cash flow to fund our liquidity needs and are unable to refinance our indebtedness or raise additional capital, we could come into default under our debt instruments as described above. In addition, we may be unable to pursue growth opportunities in new and existing markets and to fund our capital expenditure needs.

Contractual Obligations

We did not have any material changes to our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007.

Impact of Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair values, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies whenever other accounting standards require or permit assets or liabilities to be measured at fair value; accordingly, it does not expand the use of fair value in any new circumstances. Fair value under SFAS 157 is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability, and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data; for example, a reporting entity’s own data. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. FASB Staff Position (“FSP”) No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP FAS 157-1”), states that SFAS 157 does not apply under SFAS No. 13, “Accounting for Leases” (“SFAS 13”), and other accounting pronouncements that address fair value measurements for purposes of lease classification or

18

measurement under SFAS 13. With respect to financial assets and liabilities, SFAS 157 is effective for fiscal years beginning after November 15, 2007. For nonfinancial assets and liabilities, except those items recognized or disclosed at fair value on an annual or more frequent basis, FASB Staff Position No. FAS 157-2 (“FSP 157-2”) permits companies to adopt the provisions of SFAS 157 for fiscal years beginning after November 15, 2008. We adopted SFAS 157 as of January 1, 2008 for financial assets and liabilities, and elected to defer our adoption of SFAS 157 for nonfinancial assets and liabilities as permitted by FSP 157-2. There was no impact to our consolidated financial statements as a result of our adoption of SFAS 157. The impact of adopting SFAS 157 for nonfinancial assets and liabilities on January 1, 2009 is still under consideration by the Company.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which requires the acquirer in a business combination to measure all assets acquired and liabilities assumed at their acquisition date fair value. SFAS 141(R) applies whenever an acquirer obtains control of one or more businesses. The new standard also requires the following in a business combination:

• acquisition related costs, such as legal and due diligence costs, be expensed as incurred;

• acquirer shares issued as consideration be recorded at fair value as of the acquisition date;

• contingent consideration arrangements be included in the purchase price allocation at their acquisition date fair value;

• with certain exceptions, pre-acquisition contingencies be recorded at fair value;

• negative goodwill be recognized as income rather than as a pro rata reduction of the value allocated to particular assets;

• restructuring plans be recorded in purchase accounting only if the requirements in FASB statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”), are met as of the acquisition date; and

• adjustments to deferred income taxes, after the purchase accounting allocation period, will be included in income rather than as an adjustment to goodwill.

SFAS 141(R) requires prospective application for business combinations consummated in fiscal years beginning on or after December 15, 2008.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 allows entities to choose to measure many financial assets and financial liabilities at fair value and report unrealized gains and losses on items for which the fair value option has been elected through earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 at January 1, 2008 did not have an impact on our results of operations or financial position.

Forward-Looking Information

Certain items in this report are considered forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “plan,” “estimate,” “expect,” “project,” “anticipate,” “intend,” “believe” and other words and terms of similar meaning in connection with discussion of future operating or financial performance. These statements include, among others, statements regarding our strategies, sources of liquidity, the availability of film product, our capital expenditures, digital cinema implementation and the opening and closing of theatres (including our operating performance improvement plan). These statements are based on the current expectations, estimates or projections of management and do not guarantee future performance. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. As a result, these statements speak only as of the date they were made and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Our actual results and future trends may differ materially depending on a variety of factors, including:

• general economic conditions in our regional and national markets;

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

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

• financial market conditions including, but not limited to, changes in interest rates and the availability and cost of capital;

• our ability to meet our contractual obligations, including all outstanding financing commitments;

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

• competition in our markets;

• competition with other forms of entertainment;

19

• identified weaknesses in internal control over our financial reporting;

• the effect of leverage on our financial condition;

• prices and availability of operating supplies;

• impact of continued cost control procedures on operating results;

• the impact of asset impairments;

• the impact of terrorist acts;

• changes in tax laws, regulations and rates;

• financial, legal, tax, regulatory, legislative or accounting changes or actions that may affect the overall performance of our business; and

• other factors, including the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007, under the caption “Risk Factors”.

Other important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified elsewhere in this report and in Carmike’s other SEC reports, accessible on the SEC’s website at www.sec.gov and the Company’s website at www.carmike.com.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk from the information provided under “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2007.

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 SEC’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 in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.

As required by SEC 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 on Form 10-Q. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, these officers have concluded that, in light of the material weakness described below, as of June 30, 2008, our disclosure controls and procedures were not effective.

As a result of these control deficiencies, management performed additional procedures to ensure that our condensed consolidated financial statements are prepared in accordance with GAAP. Accordingly, we believe that the financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows.

Material Weakness in Internal Control Over Financial Reporting

A material weakness is a control deficiency or combination of deficiencies that results in a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

As of December 31, 2007, we identified the following material weakness in our internal control over financial reporting, which continued to exist as of June 30, 2008:

We did not maintain effective internal control over financial reporting with respect to the application of GAAP as it relates to unusual and non-routine events or transactions such as long-lived asset impairment and GAAP disclosures; had inadequate processes to identify changes in GAAP and the business practices that may affect the method or processes of recording transactions; and had ineffective controls over critical spreadsheets used in the preparation of accounting and financial information.

20

These deficiencies have not been fully remediated. Accordingly, management has determined that these control deficiencies continue to constitute a material weakness at June 30, 2008.

Plan of Remediation for Identified Material Weakness

Management has prepared an action plan for all identified deficiencies at December 31, 2007, including assigning responsibility and due dates. The status of this plan is being monitored by management and reviewed by the Audit Committee periodically. In addition, the 2008 performance goals for certain members of senior management include the remediation and maintenance of effective internal control.

With respect to the identified material weakness, we continue to refine our internal controls, processes and procedures to timely and properly monitor, evaluate and record unusual and non-routine transactions in accordance with GAAP. We have begun the process of realigning responsibilities within our accounting and finance departments. We have hired additional resources to focus on research and the application of GAAP and supplement this with assistance from outside advisors for the evaluation of unusual and non-routine transactions. Additionally, we will continue to focus on continuing education for our current accounting and finance staff.

Although the number of spreadsheets has been reduced due to the implementation of new accounting and fixed asset systems, we will implement additional reviews of significant spreadsheets by personnel other than the preparer. Additionally, we will use the available software security to protect complex calculations in our significant spreadsheets to effectively control the integrity and data used in preparation and analysis of accounting and financial information.

Changes in Internal Control Over Financial Reporting

We continue to work on our efforts to improve internal control over financial reporting, including the remediation of the material weakness listed above. There were no changes to our internal control over financial reporting during the quarter ended June 30, 2008 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information relating to the Company’s legal proceedings, see Note 6, Litigation under Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors discussed under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. See also “Forward-Looking Statements,” included in Part I, Item 2 of this Quarterly Report on Form 10-Q. There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

At the Annual Meeting of Stockholders held on May 22, 2008, seven directors were elected to the Board of Directors with the following votes:

21

Name	For	Withheld
Michael W. Patrick	11,944,013	270,999
Alan J. Hirschfield	11,955,939	259,073
S. David Passman III	11,685,439	529,573
Carl L. Patrick, Jr.	11,942,600	272,412
Roland C. Smith	11,747,411	467,601
Fred W. Van Noy	12,019,351	195,661
Patricia A. Wilson	11,685,439	529,573

At the same meeting, the following proposal was voted upon and approved:

Approval of an amendment to the Carmike Cinemas, Inc. 2004 Incentive Stock Plan to increase the maximum number of shares of common stock that my be issued pursuant to stock grants.

For	Against	Abstain	Broker Non-Vote
8,453,921	2,789,181	75,113	896,797

At the same meeting, the following proposal was voted upon and approved:

Approval of an amendment to the Carmike Cinemas, Inc. 2004 Incentive Stock Plan to increase the aggregate number of shares of common stock authorized for issuance under the plan.

For	Against	Abstain	Broker Non-Vote
8,442,537	2,800,466	75,212	896,797

At the same meeting, the following proposal was voted upon and approved:

Ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year 2008.

For	Against	Abstain	Broker Non-Vote
12,198,596	15,051	1,365	0

ITEM 5. OTHER INFORMATION

None.

22

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 3.1 to Carmike’s Form 8-K filed November 13, 2007 and incorporated herein by reference).
10.1	Carmike Cinemas, Inc. 2004 Incentive Stock Plan, as amended and restated, approved by the stockholders on May 22, 2008 (filed as Appendix A to Carmike’s proxy statement filed on April 21, 2008 and incorporated herein by reference).
11	Computation of per share earnings (provided in Note 7 of the notes to condensed consolidated financial statements included in this report under the caption “Net Income (Loss) Per Share”).
31.1	Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certificate 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	Certificate 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.

23

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CARMIKE CINEMAS, INC.
Date: August 11, 2008	By:	/s/ Michael W. Patrick
		Michael W. Patrick
		President and Chief Executive Officer
		Chairman of the Board of Directors
		(Principal Executive Officer)
Date: August 11, 2008	By:	/s/ Richard B. Hare
		Richard B. Hare
		Senior Vice President - Finance, Treasurer and
		Chief Financial Officer
		(Principal Financial Officer)
Date: August 11, 2008	By:	/s/ Jeffrey A. Cole
		Jeffrey A. Cole
		Assistant Vice President - Controller
		(Principal Accounting Officer)

24