UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended March 31, 2005

OR

For the transition period from                      to                     

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 þ No o

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

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

As of May 3, 2005, 12,309,002 shares of common stock, par value $0.03 per share, were outstanding.

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

2

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands, except per share data)

See accompanying notes

3

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 and Nine Months Ended March 31, 2005 and 2004

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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

     Further, the Company’s accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and bankruptcy related items) considered necessary for a fair statement have been included. Operating results for the three month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the consolidated financial statements and footnotes included in Carmike’s Annual Report on Form 10-K for the year ended December 31, 2004.

     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, 2004.

     The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”). Reflected in the Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 is $1.0 million and $1.4 million, respectively, of stock-based employee compensation cost related to stock grants ($0.8 million from fixed accounting and $0.2 million and $0.6 million, respectively, from variable accounting.)

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

     The estimated fair value of the options granted during 2004 is $16.96 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 22, 2005. The dividend was paid on May 2, 2005 to stockholders of record as of April 4, 2005. The aggregate amount of this dividend was approximately $2.2 million.

NOTE 2 – ASSETS HELD FOR SALE

     The Company has $6.2 million in surplus long-term real estate assets held for sale as of March 31, 2005. The carrying values of these assets are reviewed periodically as to relative market conditions and are adjusted in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. No impairment was deemed necessary on the assets in the first quarter of 2005. Disposition of these assets is contingent on current

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market conditions and we cannot be assured that they will be sold at a value equal to or greater than the current carrying value.

NOTE 3 — OTHER ASSETS

Other assets are as follows: (in thousands)

NOTE 4 — DEBT

Debt consisted of the following (in thousands):

NOTE 5 — PROCEEDINGS UNDER CHAPTER 11

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

     A description of the proceedings under the Chapter 11 Cases is contained in Note 2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

     Reorganization benefits for the three month periods ended March 31, 2005 and 2004 are as follows (in thousands):

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NOTE 6 — LIABILITIES SUBJECT TO COMPROMISE

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

NOTE 7 — INCOME TAXES

     At March 31, 2005 the Company had deferred tax assets of approximately $54.1 million remaining. The income tax expense of $0.3 million for the three months ended March 31, 2005 reflects a combined federal and state tax rate of 38.0%.

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

     The Company has federal and state net operating loss carryforwards of approximately $84.2 million which will begin to expire in the year 2020.

NOTE 8 — STOCK PLANS

     Upon emergence from Chapter 11, the Company’s Board of Directors approved a new management incentive plan, the Carmike Cinemas, Inc. 2002 Stock Plan (the “2002 Stock Plan”). The Board of Directors approved the grant of 780,000 shares under the 2002 Stock Plan to Michael W. Patrick, the Company’s Chief Executive Officer. Pursuant to the terms of Mr. Patrick’s employment agreement dated January 31, 2002 these shares are delivered in three equal installments on January 31, 2005, 2006 and 2007 unless, prior to the delivery of any such installment, Mr. Patrick’s employment is terminated for Cause (as defined in his employment agreement) or he has violated certain covenants set forth in such employment agreement. In May 2002, the Company’s Stock Option Committee (which administered the 2002 Stock Plan prior to August 2002) approved grants of the remaining 220,000 shares to a group of seven other members of senior management. These shares were earned over a three year period, commencing with the year ended December 31, 2002, with the shares being earned as the executive achieved specific performance goals set for the executive during each of these years. In some instances the executive earned partial amounts of his or her stock grant based on graded levels of performance. Shares earned each year vest and are receivable approximately two years after the calendar year in which they were earned, provided, with certain exceptions, the executive remains an employee of the Company. One of the seven grants to senior executives includes a grant of 35,000 shares to a former employee of the Company.

     Pursuant to an agreement with the former employee, the Company delivered to the former employee the 17,000 shares earned in connection with his performance in 2002 when they vested on January 31, 2005. Of the 220,000 shares granted to members of senior management, 204,360 shares were earned as of March 31, 2005, subject only to vesting requirements and 15,640 shares have been forfeited. The Company has included in stockholders’ equity $7.4 million and $15.4 million at March 31, 2005 and December 31, 2004, respectively, related to the unvested shares within the 2002 Stock Plan.

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

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

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

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

NOTE 9 — EARNINGS PER SHARE

     Earnings per share calculations contain dilutive adjustments for shares under the various stock plans discussed in Note 8. The following table reflects the effects of those plans on the earnings.

     (in thousands, except per share data),

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NOTE 10 — 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 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, 2005

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Condensed Consolidating Statements of Operations
For Three Months Ended March 31, 2005

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Condensed Consolidating Statements of Cash Flows
For Three Months Ended March 31, 2005

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Condensed Consolidating Balance Sheets
As of December 31, 2004

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Condensed Consolidating Statements of Operations
For Three Months Ended March 31, 2004

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

NOTE 11 — 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. The Company has established a reserve of $1.0 million for potential litigation. The Company relied on the provisions of Financial Accounting Standard No. 5, Accounting for Contingencies in establishing this reserve. The Company determined that it was probable that a liability had been incurred based on the filing of a lawsuit by the EEOC as described below. Additionally, the Company determined the amount of the loss could be reasonably estimated based on the demands of the claimants. Currently, we do not have any other pending litigation or proceedings that we believe will have a material adverse effect, either individually or in the aggregate, upon us.

     On or about September 16, 2004, the Equal Employment Opportunity Commission (“EEOC”) filed a lawsuit against Carmike in the U.S. District Court, E.D. North Carolina, alleging that seven named claimants and “other similarly situated male employees” were sexually harassed by a male supervisor who worked at the Carmike 15 Theater in Raleigh, North Carolina from February 2003 until his termination in mid-October 2003. Carmike learned, only after this alleged harasser had stopped working for Carmike that he had a criminal record relating to indecent liberties with a minor. In its lawsuit, the EEOC seeks injunctive and monetary relief, including compensatory and punitive damages and costs. Carmike filed its answer and defenses to the EEOC’s complaint on November 15, 2004. On or about November 4, 2004, a motion to intervene was filed on behalf of five claimants and family members/guardians of five other claimants. The proposed complaint submitted with the motion to intervene included claims under state and federal law, including claims of negligent hiring, promotion, and retention, negligent training and supervision, assault, intentional and negligent infliction of emotional distress, sexual harassment, and retaliation/constructive discharge. In the proposed complaint, the intervenors seek injunctive and monetary relief, including compensatory and punitive damages, attorneys’ fees, and costs. The motion to intervene was granted on

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November 23, 2004 and the intervenors served their complaint on December 9, 2004. Carmike timely answered the intervenors’ complaint on January 14, 2005. Thereafter, an eleventh claimant moved to intervene. His motion to intervene was granted on March 28, 2005 and he served a complaint (very similar to the other intervenors’ complaints) on April 19, 2005. The case is now in the discovery period.

     We are prepared to defend these claims vigorously and believe that resolution of these claims will not have a material adverse effect on our business or financial position. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may have a material adverse effect on our results of operation in a particular period.

NOTE 12- IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

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

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

     SFAS 123(R) must be adopted no later than the beginning of the Company’s 2006 fiscal year. Based on our valuation under the Black-Scholes option valuation model, presently used by the Company and still appropriate under SFAS 123(R), the Company estimates additional compensation expense from adoption to be approximately $1.0 million for the years ended December 31, 2005 and 2006. The Company will evaluate other valuation methods, prior to implementation, to determine the most appropriate for the Company.

NOTE 13 — RECLASSIFICATIONS

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

NOTE 14 — SUBSEQUENT EVENTS: ACQUISITION AND REFINANCING

     On April 19, 2005, the Company announced it had entered into an agreement with Georgia G. Kerasotes Corporation (“GKC Theatres”) to acquire 100% of the stock of GKC Theatres for $66 million. The transaction is expected to close in May 2005, subject to the completion of final due diligence, customary closing conditions and regulatory approvals. As of March 31, 2005, GKC Theatres operated 30 theatres with 263 screens in Illinois, Michigan, Indiana and Wisconsin.

     On April 28, 2005, the Company announced that it has received a commitment from Bear Stearns Corporate Lending, Inc. to provide $455 million in new senior secured credit facilities. The facilities will include a $100 million five year revolving credit facility and $355 million in term loan facilities. The term loan facilities will consist of a fully drawn $170 million seven year maturity term loan and a $185 million delayed draw term loan with a twenty-four month commitment.

     The Company intends to use the proceeds from the facilities to fund the acquisition of GKC Theatres, to repay borrowings under the Company’s current $98.750 million term loan, for general corporate purposes and to fund potential future acquisitions. The refinancing is expected to close not before May 18, 2005 and no later than June 15, 2005.

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

EMERGENCE FROM CHAPTER 11

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

RESULTS OF OPERATIONS

Comparison of Three Months Ended March 31, 2005 and 2004

     Revenues.

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

     Total revenues for the three months ended March 31, 2005 compared to the three months ended March 31, 2004 decreased 13.0%. This decrease is due to a 17.7% decrease in total attendance partially offset by increases in average admission prices and average concession prices. The decrease in attendance was driven by a lack of high grossing films compared to the same period in 2004. We operated 281 theatres with 2,187 screens at March 31, 2005 compared to 291 theatres with 2,219 screens at March 31, 2004.

     The table below shows the activity of theatre openings and closures for the three months ended March 31, 2005.

     The closure shown above was the result of a normal lease expiration. The Company incurred no additional liability due to this closure.

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

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