UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

OR

Commission file number 000-14993

CARMIKE CINEMAS, INC.

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

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

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

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

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

Common Stock, par value $0.03 per share — 12,151,492 shares outstanding as of May 6, 2004

Table of Contents

PART I            FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

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

See accompanying notes

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See accompanying notes

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

See accompanying notes

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

See accompanying notes

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CARMIKE CINEMAS, INC. and SUBSIDIARIES
For the Three Months Ended March 31, 2004 and 2003

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

On August 8, 2000, Carmike Cinemas, Inc. (“Carmike”) and its subsidiaries, Eastwynn Theatres, Inc., Wooden Nickel Pub, Inc. and Military Services, Inc. (collectively “the Company”) filed voluntary petitions for relief under Chapter 11 (the “Chapter 11 Cases”) of the United States Bankruptcy Code. In connection with the Chapter 11 Cases, the Company was required to report in accordance with Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code, (“SOP 90-7”). SOP 90-7 requires, among other things, (1) pre-petition liabilities that are subject to compromise be segregated in the Company’s consolidated balance sheet as liabilities subject to compromise and (2) the identification of all transactions and events that are directly associated with the reorganization of the Company in the Consolidated Statements of Operations.

Further, the Company’s accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and bankruptcy related items) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the consolidated financial statements and footnotes included in Carmike’s Annual Report on Form 10-K for the year ended December 31, 2003.

The Company has identified several significant accounting policies which can be reviewed in detail in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”). Reflected in the March 31, 2003 and 2004 Statement of Operations is $1.3 million and $1.4 million, respectively, of stock-based employee compensation cost related to stock grants ($0.8 million from fixed accounting and $0.5 million and $0.6 million, respectively, from variable accounting.)

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The Company has adopted SFAS No. 148, Accounting for Stock Based Compensation-Transition and Disclosure (“SFAS No. 148”). For SFAS No. 148 purposes, the fair value of each option grant and stock based award has been estimated as of the date of grant using the Black-Scholes option

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pricing model with the following weighted-average assumptions:

The estimated fair value of the options granted during 2003 are $12.12 and $14.44 per share. Had compensation cost been determined consistent with SFAS No. 123 Accounting for Stock Based Compensation (“SFAS No. 123”), utilizing the assumptions detailed above, the Company’s pro forma net income (loss) and pro forma basic and diluted earnings (loss) per share would have decreased to the following amounts (in thousands, except share data):

The Company’s Board of Directors declared a quarterly dividend of $0.175 per share on March 31, 2004. The dividend is payable on August 2, 2004 to stockholders of record as of July 15, 2004. The aggregate amount of this dividend is approximately $2.1 million

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NOTE 2 — OTHER ASSETS

The Company has $8.6 million in surplus long-term real estate assets held for sale as of March 31, 2004. The carrying values of these assets are reviewed periodically as to relative market conditions and are adjusted in accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-lived Assets (“SFAS No. 144”). Disposition of these assets is contingent on current market conditions and we cannot be assured that they will be sold at a value equal to or greater than the current carrying value. Other assets are as follows:

NOTE 3 — DEBT

Debt consisted of the following (in thousands):

New Financing Transactions

On February 4, 2004 the Company completed a public offering of 4,850,000 shares of its common stock (3,000,000 of which were issued and sold by the Company and 1,850,000 of which were sold by selling stockholders), priced at $32.00 per share. An additional 675,000 shares were sold by certain selling stockholders on February 11, 2004 pursuant to an underwriters’ over-allotment option. Net proceeds to the Company, after discounts and estimated expenses, were $90.1 million. In addition, the Company completed an offering of $150 million of 7.500% senior subordinated notes due 2014 to institutional investors and entered into new senior secured credit facilities consisting of a $50 million 54-month revolving credit facility and a $100 million five-year term loan. The Company used the proceeds from the common stock offering, the 7.500% senior subordinated notes and the new term loan credit facility, as well as excess cash, to repay the outstanding balance under the post-bankruptcy term loan, tender for or redeem its 10 3/8%

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senior subordinated notes, repay a portion of its long-term trade payables and pay related transaction fees and expenses. Payments totaling $7.3 million were made to GoldmanSachs & Co. for underwriting fees, agency fees, arranger and other services related to the new financing transactions. Under the indenture that governs the notes and the agreements related to the new senior secured credit facilities, the Company will continue to be subject to customary covenants. However, these covenants do not currently prohibit the Company from paying dividends. A description of the new credit facilities and the new notes is provided below.

New Revolving Credit Facility

On February 4, 2004, we entered into a new revolving credit facility with Goldman Sachs Credit Partners L.P. as sole lead arranger, sole book runner and sole syndication agent and Wells Fargo Foothill, Inc. as administrative agent and collateral agent. The revolving credit facility provides for borrowings of up to $50 million. The interest rate for borrowings under the new revolving credit facility is set from time to time at our option (subject to certain conditions set forth in the new revolving credit facility) at either: (1) a specified base rate plus 2.25% per annum or (2) LIBOR plus 3.25% per annum. The final maturity date of the facility is August 4, 2008.

The new revolving credit facility contains covenants which, among other things, limit our ability, and that of our restricted subsidiaries, to:

•		pay certain dividends or make any other restricted payments;
•		create liens on our assets;
•		make certain investments;
•		consolidate, merge, transfer assets or acquire properties or businesses;
•		enter into transactions with our affiliates; and
•		engage in any sale-leaseback or similar transaction involving any of our assets.

Our new revolving credit facility generally prohibits us from incurring additional indebtedness or materially amending the terms of any agreement relating to existing indebtedness without lender approval. Our new revolving credit agreement generally prohibits us from incurring additional indebtedness, other than purchase money debt, capital leases or acquired debt less than $10.0 million or subordinated debt or other unsecured debt less than $2.5 million, in each case subject to compliance with financial covenants. In addition, under our new revolving credit agreement, our capital expenditures generally may not exceed $35 million, plus any unused portion carried over from a preceding year, with certain exceptions. The new revolving credit facility also contains financial covenants that require us to maintain specified ratios of consolidated total debt to adjusted EBITDA (4.50 to 1.00) and adjusted EBITDA to consolidated cash interest expense (2.00 to 1.00). The terms governing each of these ratios are defined in the new revolving credit facility.

Our failure to comply with any of these covenants, including compliance with the financial ratios, is an event of default under the new revolving credit facility, in which case, the agent may, and if requested by the lenders holding a certain minimum percentage of the commitments shall, terminate the new revolving credit facility with respect to additional advances and may declare all or any portion of the obligations due and payable. Other events of default under the new revolving

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credit facility include:

•		our failure to pay principal or interest on the loans when due and payable, or our failure to pay certain expenses;
•		the occurrence of a change of control, as defined in the agreement; or
•		a breach or default by us or our subsidiaries under the new term loan facility, the indenture relating to the notes or other debt exceeding $2.5 million in any single case, or $5.0 million in the aggregate.

Borrowings under the new revolving credit facility are secured by first priority security interests in substantially all of our tangible and intangible assets, including the capital stock of our subsidiaries. All of our subsidiaries guaranteed our obligations under the new revolving credit facility.

New Term Loan Facility

On February 4, 2004, we entered into a new term loan facility with Goldman Sachs Credit Partners L.P. as sole lead arranger, sole book runner and sole syndication agent and National City Bank as administrative agent and collateral agent. The new term loan facility provides for borrowings of $100 million, which were drawn on the closing of the facility. The interest rate for the borrowings under the new term loan facility is equal to, at our option, (1) a specified base rate plus 2.25% per annum or (2) LIBOR plus 3.25% per annum. The final maturity date of the loan is February 4, 2009. Under the facility we are required to make annual principal amortization payments of $1.0 million or $250,000 per quarter.

The new term loan facility contains certain negative covenants which among other things, limit our ability, and that of our restricted subsidiaries, to:

•		pay certain dividends or make any other restricted payments;
•		create liens on our assets;
•		make certain investments;
•		consolidate, merge, transfer assets or acquire properties or businesses;
•		enter into transactions with our affiliates; and
•		engage in any sale-leaseback or similar transaction involving any of our assets.

Under our new term loan facility, we are generally permitted to incur additional debt so long as we maintain a ratio of adjusted EBITDA to consolidated fixed charges of 2.00 to 1.00. Notwithstanding this limitation, we are also permitted to incur other indebtedness, including purchase money debt and capital leases less than $12.5 million, acquired debt of less than $12.5 million and other unsecured debt up to $7.5 million.

The lenders under the new term loan facility have a second priority security interest in substantially all our tangible and intangible assets, including the capital stock of our subsidiaries. All of the security interests and liens that secure the new term loan facility are junior and

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subordinate to the liens and security interests of the collateral agent under the new revolving facility. Our subsidiaries guaranteed our obligations under the new term loan facility.

We may voluntarily pre-pay the term loan, in whole or in part, at (1) 103.0% of the amount repaid if such repayment occurs on or prior to the first anniversary of the closing of the new term loan facility; (2) 102.0% of the amount repaid if such repayment occurs after the first anniversary but before the second anniversary; (3) 101.0% of the amount repaid if such repayment occurs after the second anniversary but before the third anniversary and (4) 100% of the amount repaid if such repayment occurs after the third anniversary.

New Senior Subordinated Notes

On February 4, 2004, we completed an offering of $150 million in aggregate principal amount of 7.500% senior subordinated notes due February 15, 2014 to institutional investors.

The indenture contains covenants, which, among other things, restrict our ability to:

•		make restricted payments;
•		consolidate, merge or otherwise transfer all or substantially all of our assets;
•		incur additional indebtedness;
•		issue certain types of stock; and
•		enter into transactions with affiliates.

In addition, under the terms of the indenture governing the new notes, we are prohibited from incurring any subordinated debt that is senior in any respect in right of payment to the new notes. We intend to register the notes with the Securities and Exchange Commission in 2004.

Upon a change of control, as defined in the indenture, subject to certain exceptions, we are required to offer to repurchase from each holder all or any part of each holder’s notes at a purchase price of 101% of the aggregate principal amount thereof plus accrued and unpaid interest to the date of purchase.

The indenture contains customary events of default for agreements of that type, including payment defaults, covenant defaults and bankruptcy defaults. If any event of default under the new indenture occurs and is continuing, then the trustee or the holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately.

Our subsidiaries have guaranteed the notes that are junior and subordinated to the subsidiary guarantees of our senior debt on the same basis as the notes are junior and subordinated to the senior debt. Interest at 7.500% per annum from the issue date to maturity is payable on the notes each February 15 and August 15. The notes are redeemable at our option under certain conditions.

In conjunction with this refinancing, prepaid fees relating to the post-bankruptcy credit facilities, as well as premiums paid to retire the 10.375% senior subordinated notes amounted to $9.6 million.

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NOTE 4 — PROCEEDINGS UNDER CHAPTER 11

On January 31, 2002, the Company emerged from bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. A description of the proceedings under the Chapter 11 Cases is contained in Note 2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

Reorganization costs for the three month periods ended March 31, 2004 and 2003 are as follows (in thousands):

NOTE 5 — LIABILITIES SUBJECT TO COMPROMISE

The principal categories of obligations classified as Liabilities Subject to Compromise under the Chapter 11 Cases are identified below. The amounts in total may vary significantly from the stated amounts of proofs of claims filed with the bankruptcy court, and may be subject to future adjustments depending on bankruptcy court action, further developments with respect to potential disputed claims, and determination as to the value of any collateral securing claims or other events. During the three months ended March 31, 2004, certain claims and long-term trade payables were resolved for amounts different from their original claims; these changes resulted in a net change in estimate of liability of $1.2 million.

A summary of the principal categories of claims classified as Liabilities Subject to Compromise at March 31, 2004 and December 31, 2003 are as follows (in thousands):

The change in outstanding liabilities subject to compromise results from a change in estimate of $0.3 million and settlements of $1.6 million.

NOTE 6 — INCOME TAXES

As of December 31, 2003 the Company reversed the valuation allowance related to its deferred tax assets as it was determined to be more likely than not that net deferred tax assets would be realized in future periods. At March 31, 2004 the Company has deferred tax assets of approximately $72.9 million remaining. The income tax expense of $970,000 for the three months ended March 31, 2004 reflects a combined federal and state tax rate of 37.5%.

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For tax purposes, any discharge of the liabilities pursuant to the Chapter 11 filing may result in income that is excluded from the Company’s taxable income. However, certain of the Company’s tax attributes, including net operating loss carryforwards, may be reduced by the amount of any cancellation of debt income. To the extent the amount excluded exceeds these tax attributes, the tax basis in the Company’s property must be reduced by the amount of the excluded cancellation of debt income.

After taking into account the taxable income for the three months ended March 31, 2004 the Company’s net operating loss carryovers available, the Company has federal and state net operating loss carryovers of approximately $89.5 million which begin to expire in the year 2020.

NOTE 7 — STOCK PLANS

Upon emergence from Chapter 11, the Company’s Board of Directors approved a new management incentive plan, the Carmike Cinemas, Inc. 2002 Stock Plan (the “2002 Stock Plan”). The Board of Directors has approved the grant of 780,000 shares under the 2002 Stock Plan to Michael W. Patrick, the Company’s Chief Executive Officer. Pursuant to the terms of Mr. Patrick’s employment agreement dated January 31, 2002 these shares 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, the Company’s Stock Option Committee (which administered the 2002 Stock Plan prior to August 2002) approved grants of the remaining 220,000 shares to a group of seven other members of senior management. These shares are to be earned over a three year period, commencing with the year ended December 31, 2002, with the shares being earned as the executive achieves specific performance goals set for the executive to be achieved during each of these years. In some instances the executive may earn partial amounts of his or her stock grant based on graded levels of performance. Shares earned each year will vest and be receivable approximately two years after the calendar year in which they were earned, provided, with certain exceptions, the executive remains an employee of the Company. One of the seven grants to senior executives includes a grant of 35,000 shares to P. Lamar Fields, a former employee of the Company. Pursuant to an agreement with Mr. Fields, the Company will deliver to Mr. Fields the 17,000 shares earned in connection with his performance in 2002. These 17,000 shares shall vest on January 31, 2005. Of the 220,000 shares granted to members of senior management, 86,250 shares were earned on December 31, 2002 and 14,250 shares were forfeited. However, the Compensation Committee approved two additional grants of 5,500 shares to two members of senior management on March 7, 2003, which shares are deemed to be earned and subject only to vesting requirements. For the year ended December 31, 2003, 62,980 shares were earned and 10,520 shares were forfeited. Therefore, of the original 220,000 shares granted to members of senior management, 160,230 shares are deemed to have been earned, subject only to vesting requirements, 24,770 shares have been forfeited and 35,000 shares may be earned over the next year. The Company has included in stockholders’ equity, $11.0 million and $9.6 million at March 31, 2004 and December 31, 2003, respectively, related to the 2002 Stock Plan.

On May 31, 2002, the Board of Directors adopted the Carmike Cinemas, Inc. Non-Employee Directors Long-Term Stock Incentive Plan (the “Directors Incentive Plan”), which was approved by the stockholders on August 14, 2002. The purpose of the Directors Incentive Plan is to provide incentives that will attract, retain and motivate qualified and experienced persons for

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service as non-employee directors of Carmike. There are a total of 75,000 shares reserved under the Directors Incentive Plan. The Board of Directors approved a grant of 5,000 shares each to two independent directors on August 14, 2002. Additionally, the Board of Directors approved stock option grants of 5,000 shares in June 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 15,000 shares in the aggregate during 2002 and 2003, represent the only stock options outstanding under the Directors Incentive Plan at March 31, 2004.

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. The purpose of the Employee Incentive Plan is to provide incentives, competitive with those of similar companies, which will attract, retain and motivate qualified and experienced persons to serve as employees and consultants of the Company and to further align such employees’ and consultants’ interest with those of the Company’s stockholders. There are a total of 500,000 shares reserved under the Employee Incentive Plan. The Company granted an aggregate of 150,000 options pursuant to this plan on March 7, 2003 to three members of senior management. The exercise price for the 150,000 stock options is $21.79 per share and 75,000 options vest on December 31, 2005 and 75,000 options vest on December 31, 2006, respectively. On December 18, 2003, the Company granted an aggregate of 180,000 options to six members of management. The exercise price for the 180,000 options is $35.63 and they vest ratably over three years beginning December 31, 2005 through December 31, 2007.

NOTE 8 — EARNINGS PER SHARE

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

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NOTE 9 — CONDENSED FINANCIAL DATA

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

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

Condensed Consolidating Balance Sheets
As of March 31, 2004

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Condensed Consolidating Statements of Operations
For Quarter Ended March 31, 2004

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Condensed Consolidating Statements of Cash Flows
For Quarter Ended March 31, 2004

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Condensed Consolidating Balance Sheets
As of December 31, 2003

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Condensed Consolidating Statements of Operations
For Quarter Ended March 31, 2003

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Condensed Consolidating Statements of Cash Flows
For Quarter Ended March 31, 2003

NOTE 10 — IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2003, the FASB issued FASB Interpretation No. 46R, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, (“FIN 46R”). FIN 46R requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46R is currently effective for all new variable interest entities created or acquired after February 1, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46R must be applied for the first interim or annual period ending after March 15, 2004. Adoption of FIN 46R had no effect on the Company’s financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“SFAS No. 150”). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. With the exception of certain measurement criteria deferred indefinitely by the FASB, SFAS No. 150 was effective for financial instruments entered

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into or modified after May 31, 2003 and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. We do not currently have any such instruments and therefore the adoption of SFAS No. 150 did not have an impact on our financial condition, results of operations or cash flows.

NOTE 11 — RECLASSIFICATIONS

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

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

EMERGENCE FROM CHAPTER 11

     On January 4, 2002, the United States Bankruptcy Court for the District of Delaware entered an order confirming our Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated as of November 14, 2001 (the “Plan”). The Plan became effective on January 31, 2002. A description of the Plan is disclosed in our Annual Report on Form 10-K for the year ended December 31, 2003 under the caption “Our Reorganization.”

RESULTS OF OPERATIONS

     Comparison of Three Months Ended March 31, 2004 and 2003

     Revenues. Total revenues for the three months ended March 31, 2004 increased 13.3% to $116.9 million from $103.2 million for the three months ended March 31, 2003. The increase in revenue is attributable to an 8.8% increase in attendance, as well as higher average admission and concession prices. Our average admission price was $5.13 for the three months ended March 31, 2004 compared to $4.85 for the three months ended March 31, 2003. The average concession sale per patron was $2.17 for the three months ended March 31, 2004 compared to $2.14 for the three months ended March 31, 2003. Attendance per average screen was 6,955 for the three months ended March 31, 2004 compared to 6,310 for the three months ended March 31, 2003.

     We operated 291 theatres with 2,219 screens at March 31, 2004 compared to 304 theatres with 2,251 screens at March 31, 2003.

     Film exhibition costs, concession costs and other theatre operating costs. Film exhibition costs for the three months ended March 31, 2004 increased 12.0% to $36.3 million from $32.4 million for the three months ended March 31, 2003 due to increased sales volume associated with higher attendance and higher admission prices. As a percentage of admissions revenue, film exhibition costs were 45.7% for the three months ended March 31, 2004 as compared to 46.8% for the three months ended March 31, 2003. Concessions costs for the three months ended March 31, 2004 increased 7.9% to $4.1 million from $3.8 million for the three months ended March 31, 2003 due to higher attendance. As a percentage of concessions and miscellaneous revenues, concession costs were 11.0% for the three months ended March 31, 2004 as compared to 11.2% for the three months ended March 31, 2003. Other theatre operating costs

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for the three months ended March 31, 2004 increased 6.0% to $45.9 million from $43.3 million for the three months ended March 31, 2003 due to higher attendance.

     General and administrative expenses. General and administrative expenses for the three months ended March 31, 2004 increased 15.2% to $3.8 million from $3.3 million for the three months ended March 31, 2003. The increases are due to non-cash deferred compensation expenses related to the 2002 Stock Plan and overall increases in other expenses. Expenses relating to the 2002 Stock Plan for the three months ended March 31, 2004 and 2003 were $1.4 million and $1.3 million, respectively.

     Depreciation and amortization expenses. Depreciation and amortization for the three months ended March 31, 2004 increased 7.8% to $8.3 million from $7.7 million for the three months ended March 31, 2003. This increase reflects the effect of purchases of fixed assets during the latter portion of 2003 and first quarter 2004.

     Gain on sales of property and equipment. Gain on sales of property and equipment for the three months ended March 31, 2004 decreased 87.3% to $305,000 from $2.4 million for the three months ended March 31, 2003. This decrease was due to lower sales of surplus property. We sold 1.9 acres of land during the three months ended March 31, 2004 compared to five theatres and one parcel of land during the three months ended March 31, 2003.

     Interest expense. Interest expense for the three months ended March 31, 2004 decreased 28.2% to $7.4 million from $10.3 million for the three months ended March 31, 2003. The decrease is related directly to lower indebtedness and interest rates obtained through our debt refinancing, as well as interest reductions created by lowering estimates on outstanding Liabilities Subject to Compromise.

     Operating Income. Operating income for the three months ended March 31, 2004 increased 26.0% to $18.9 million compared to $15.0 million for the three months ended March 31, 2003. As a percentage of revenues, the operating income for the three months ended March 31, 2004 was 16.2% compared to 14.5% for the three months ended March 31, 2003.

     Loss on extinguishment of debt. On February 4, 2004, the Company finalized a refinancing of its debt which caused the write-off of $1.8 million of loan fees related to the post-bankruptcy credit facilities and premium payments on the retirement of the 10.375% senior subordinated notes of $7.8 million.

     Income tax expense. Reflecting the reversal of the deferred tax asset valuation allowance at December 31, 2003, we recognized an income tax expense of $970,000 for the three months ended March 31, 2004, representing a combined federal and state tax rate of 37.5%, compared to no income tax expense for the three months ended March 31, 2003.

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 $11.4 million as of March 31, 2004 compared to $17.7 million at December 31, 2003. The decreased deficit recorded

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as of March 31, 2004 reflects the reduction in current long-term debt through our refinancing that was completed on February 4, 2004. As a component of this debt restructuring, the Company also issued 3.0 million shares of common stock for aggregate net proceeds of $90.1 million. The proceeds from this offering were used to reduce outstanding debt. The deficit will be funded through anticipated operating cash flows as well as the ability to draw from our new revolving credit agreement. At March 31, 2004, we had available borrowing capacity of $50 million under our new revolving credit facility. As of May 6, 2004, we had approximately $23.0 million in cash and cash equivalents on hand.

     Our purchases of property and equipment are limited by our new credit agreements to $35.0 million in fiscal year 2004. During the three months ended March 31, 2004, we purchased property and equipment at a cost of approximately $3.4 million. Our total budgeted purchases of property and equipment for 2004 is $35.0 million which we anticipate will be funded by using operating cash flows, available cash from our revolving line of credit and landlord-funded new construction and theatre remodeling, when available.

     Net cash used in operating activities was $20.2 million for the three months ended March 31, 2004 compared to $13.4 million for the three months ended March 31, 2003. This change is principally due to the accelerated payment of long-term trade payables provided for within the terms of our refinancing. Net cash used in investing activities was $2.8 million for the three months ended March 31, 2004 compared to cash provided by investing activities of $3.8 million for the three months ended March 31, 2003. For the three months ended March 31, 2004 cash provided by financing activities was $8.5 million compared to cash used in financing activities of $4.0 million for the three months ended March 31, 2003 as a result of our refinancing.

     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, 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.

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As of March 31, 2004, the Company is in compliance with all of the financial covenants as defined in its debt agreements.

     As of March 31, 2004, we did not have any off-balance sheet financing transactions.

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.

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” or similar expressions. These statements include, among others, statements regarding our strategies, sources of liquidity, and the opening or closing of theatres during 2004.

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

•		the availability of suitable motion pictures for exhibition in our markets;
•		competition in our markets;
•		competition with other forms of entertainment;
•		the effect of our leverage on our financial condition; and
•		other factors, including the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2003 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.

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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 payable under our new term loan agreement is based on a spread over LIBOR or another index.

     Interest paid on our debt is largely subject to changes in interest rates in the market. Our revolving credit agreement and our new term loan agreement are based on a structure that is priced over an index or LIBOR rate option. A change of 1.0% in interest rates would raise the effective interest rate by 0.3%.

     A substantial number of our theatre leases have increases contingent on changes in the Consumer Price Index (“CPI”). A 1.0% change in CPI would not have a material effect to rent expense.

ITEM 4. CONTROLS AND PROCEDURES.

     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 the design and operation of our disclosure controls and procedures are effective. There were no changes to our internal control over financial reporting during the period covered by this quarterly report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

     Disclosure controls and procedures are our controls and other procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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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 pending any litigation or proceedings that we believe will have a material adverse effect, either individually or in the aggregate, upon our financial position, liquidity or results of operations.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES.

     None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

     None.

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

     None.

ITEM 5. OTHER INFORMATION.

     None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Listing of Exhibits

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     (b) Reports on Form 8-K

		On January 15, 2004, we filed a Current Report on Form 8-K reporting information under Items 5 and 7.
		On January 20, 2004, we furnished a Current Report on Form 8-K reporting information under Items 7 and 12.

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On February 20, 2004, we filed a Current Report on Form 8-K reporting information under Items 5 and 7.

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.

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