CARMIKE CINEMAS INC - FORM 10-Q

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EX-32.2 - SECTION 906 CERTIFICATION OF CFO - CARMIKE CINEMAS INC	dex322.htm
EX-31.2 - SECTION 302 CERTIFICATION OF CFO - CARMIKE CINEMAS INC	dex312.htm
EX-31.1 - SECTION 302 CERTIFICATION OF CEO - CARMIKE CINEMAS INC	dex311.htm
EX-32.1 - SECTION 906 CERTIFICATION OF CEO - CARMIKE CINEMAS INC	dex321.htm

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, 2010

¨	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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ 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):

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 — 12,879,173 shares outstanding as of July 19, 2010.

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		19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		26
ITEM 4. CONTROLS AND PROCEDURES		26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		27
ITEM 1A. RISK FACTORS		27
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		27
ITEM 4. RESERVED		27
ITEM 5. OTHER INFORMATION		27
ITEM 6. EXHIBITS		28
EXHIBIT INDEX		28
SIGNATURES		29
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

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, 2010			December 31, 2009
	(Unaudited)
Assets:
Current assets:
Cash and cash equivalents	$	18,373		$	25,696
Restricted cash		96			403
Accounts receivable		4,955			5,010
Inventories		2,603			2,551
Prepaid expenses		6,827			6,791

Total current assets		32,854			40,451


Property and equipment:
Land		54,233			54,671
Buildings and building improvements		272,660			274,050
Leasehold improvements		120,229			125,075
Assets under capital leases		50,924			53,787
Equipment		214,631			214,293
Construction in progress		1,608			431

Total property and equipment		714,285			722,307
Accumulated depreciation and amortization		(338,111	)		(331,728	)

Property and equipment, net of accumulated depreciation		376,174			390,579

Assets held for sale		2,249			2,249
Intangible assets, net of accumulated amortization		1,175			1,251
Other assets		23,176			19,448

Total assets	$	435,628		$	453,978


Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	29,209		$	26,152
Accrued expenses		30,585			33,376
Current maturities of long-term debt, capital leases and long-term financing obligations		4,292			4,261

Total current liabilities		64,086			63,789

Long-term liabilities:
Long-term debt, less current maturities		238,988			248,171
Capital leases and long-term financing obligations, less current maturities		116,341			116,684
Other		14,363			14,032

Total long-term liabilities		369,692			378,887


Commitments and contingencies (Note 7)

Stockholders’ equity:
Preferred Stock, $1.00 par value per share: 1,000,000 shares authorized, no shares issued		—			—
Common Stock, $0.03 par value per share: 20,000,000 shares authorized, 13,328,372 shares issued and 12,879,173 shares outstanding at June 30, 2010, and 13,266,372 shares issued and 12,862,963 shares outstanding at December 31, 2009		400			395
Treasury stock, 449,199 and 403,409 shares at June 30, 2010 and December 31, 2009, respectively		(11,657	)		(10,945	)
Paid-in capital		288,120			286,903
Accumulated deficit		(275,013	)		(265,051	)

Total stockholders’ equity		1,850			11,302

Total liabilities and stockholders’ equity	$	435,628		$	453,978

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

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,
	2010			2009			2010			2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues:
Admissions	$	84,784		$	88,814		$	167,002		$	169,972
Concessions and other		42,688			44,175			84,588			84,753

Total operating revenues		127,472			132,989			251,590			254,725
Operating costs and expenses:
Film exhibition costs		48,169			51,132			94,449			94,385
Concession costs		4,942			4,696			9,103			8,521
Other theatre operating costs		53,364			52,961			107,185			104,156
General and administrative expenses		4,493			3,807			9,304			7,866
Separation agreement charges		—			—			—			5,462
Depreciation and amortization		8,029			8,773			16,096			17,427
(Gain) loss on sale of property and equipment		(18	)		(105	)		9			(151	)
Impairment of long-lived assets		3,237			—			3,724			—

Total operating costs and expenses		122,216			121,264			239,870			237,666

Operating income		5,256			11,725			11,720			17,059
Interest expense		9,777			8,739			18,665			17,754
Loss on extinguishment of debt		7			—			2,568			—

Income (loss) from continuing operations before income tax		(4,528	)		2,986			(9,513	)		(695	)
Income tax expense		2,138			—			560			—

Income (loss) from continuing operations		(6,666	)		2,986			(10,073	)		(695	)
Income (loss) from discontinued operations (Note 6)		154			(161	)		111			(476	)

Net income (loss)	$	(6,512	)	$	2,825		$	(9,962	)	$	(1,171	)


Weighted average shares outstanding:
Basic		12,756			12,675			12,720			12,672
Diluted		12,756			12,686			12,720			12,672

Net income (loss) per common share (Basic and Diluted):
Income (loss) from continuing operations	$	(0.52	)	$	0.24		$	(0.79	)	$	(0.05	)
Income (loss) from discontinued operations, net of tax		0.01			(0.02	)		0.01			(0.04	)

Net income (loss) per common share	$	(0.51	)	$	0.22		$	(0.78	)	$	(0.09	)

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

CARMIKE CINEMAS, INC. and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Six Months Ended June 30,
	2010			2009
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net loss	$	(9,962	)	$	(1,171	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		16,123			17,418
Amortization of debt issuance costs		1,864			1,153
Impairment of long-lived assets		3,724			—
Write-off unamortized debt issuance costs related to the extinguishment of debt		2,568			—
Stock-based compensation		1,222			478
Other		885			1,079
Gain on sale of property and equipment		(274	)		(149	)
Changes in operating assets and liabilities:
Accounts receivable and inventories		63			(255	)
Prepaid expenses and other assets		1,052			(740	)
Accounts payable		1,843			3,992
Accrued expenses and other liabilities		(1,653	)		7,447

Net cash provided by operating activities		17,455			29,252


Cash flows from investing activities:
Purchases of property and equipment		(5,613	)		(7,116	)
Release of restricted cash		307			112
Proceeds from sale of property and equipment		774			1,745

Net cash used in investing activities		(4,532	)		(5,259	)


Cash flows from financing activities:
Debt activities:
Issuance of long-term debt		262,350			—
Repayments of long-term debt		(272,100	)		(16,398	)
Debt issuance costs		(9,000	)		—
Short-term borrowings		5,000			—
Repayments of short term borrowings		(5,000	)		—
Repayments of capital lease and long-term financing obligations		(784	)		(833	)
Purchase of treasury stock		(712	)		(2	)

Net cash used in financing activities		(20,246	)		(17,233	)


Increase (decrease) in cash and cash equivalents		(7,323	)		6,760
Cash and cash equivalents at beginning of period		25,696			10,867

Cash and cash equivalents at end of period	$	18,373		$	17,627


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	19,769		$	16,109
Income taxes	$	3,721		$	300

Non-cash investing and financing activities:
Non-cash purchase of property and equipment	$	598		$	76

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

CARMIKE CINEMAS, INC. and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2010 and 2009

(unaudited)

(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 (the “SEC”). 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, 2010 and December 31, 2009, and the results of operations for the three and six month periods ended June 30, 2010 and 2009 and cash flows for the six month periods ended June 30, 2010 and 2009. 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, 2009 (“2009 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 2010. 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, 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 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. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are recognized in the period they are determined.

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 6 – Discontinued Operations.

Impairment of Long-Lived Assets

Long-lived assets are tested for recoverability whenever events or circumstances indicate that the assets’ carrying values may not be recoverable. The Company performs its impairment analysis at the individual theatre-level, the lowest level of independent, identifiable cash flow. Management reviews all available evidence when assessing long-lived assets for impairment, including negative trends in theatre-level cash flow, the impact of competition, the age of the theatre, and alternative uses of the assets. The Company’s evaluation of negative trends in theatre-level cash flow considers the seasonality of the business, with significant revenues and cash flow generated in the summer and year-end holiday season. Absent any unusual circumstances, management evaluates new theatres for potential impairment only after a theatre has been open and operational for a sufficient period of time to allow its operations to mature.

For those assets that are identified as potentially being impaired, if the undiscounted future cash flows from such assets are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying value and the asset’s fair value. The fair value of the assets is primarily estimated using the discounted future cash flow of the assets with consideration of other valuation techniques and using assumptions consistent with those used by market participants. Significant judgment is involved in estimating cash flows and fair value, and significant assumptions include attendance levels, admissions and concessions pricing, and the weighted average cost of capital. Management’s estimates are based on historical and projected operating performance.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (the “FASB”) issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires disclosure of transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons and the timing of the transfers and information on purchases, sales, issuance, and settlements on a gross basis in the reconciliation of the assets and liabilities measured under Level 3 of the fair value measurement hierarchy. This guidance is effective for the Company beginning January 1, 2010. The adoption did not have an impact on the Company’s consolidated financial position or results of operations.

Other Theatre Operating Costs

During the three months ended June 30, 2010, the Company recorded approximately $1.0 million as a result of a sales and use tax audit. The underpayment of such taxes occurred in 2005 and 2006.

NOTE 2—IMPAIRMENT OF LONG-LIVED ASSETS

For the three and six months ended June 30, 2010, impairment charges aggregated to $3.2 million and $3.7 million, respectively. The impairment affected twelve theatres with 143 screens and eighteen theatres and 183 screens for the three and six months ended June 30, 2010, respectively. The Company did not record impairment charges during the three and six months ended June 30, 2009. The impairments were primarily the result of deterioration in operating results of these theatres.

The estimated aggregate fair value of the long-lived assets impaired during the three and six months ended June 30, 2010 was approximately $10.9 million and $11.7 million, respectively. These fair value estimates are considered Level 3 estimates and were derived primarily from discounting estimated future cash flows and reference to appraised values.

NOTE 3—DEBT

Our debt consisted of the following on the dates indicated:


	June 30, 2010			December 31, 2009
Term loan	$	243,685		$	139,634
Less discount on term loan		(2,248	)		0
Delayed draw term loan credit agreement		—			111,152

		241,437			250,786
Current maturities		(2,449	)		(2,615	)

	$	238,988		$	248,171

In January 2010, the Company entered into a $265,000 senior secured term loan facility with an interest rate of LIBOR (subject to a floor of 2.0%) plus a margin of 3.5%, or the base rate plus a margin of 2.5% (subject to a floor of 3.0%), as the Company may elect. The debt was issued with a discount of approximately $2,600, which is being amortized to interest expense using the effective interest method over the life of the debt. The proceeds were used to repay the Company’s $170,000 seven year term loan that was due in May 2012 with a then outstanding balance of $139,600 and the $185,000 seven year delayed-draw term loan facility that was due in May 2012 with a then outstanding balance of $111,150. The Company recorded a loss on extinguishment of debt of $2,568 during the six months ended June 30, 2010, for the write-off of unamortized debt issuance costs. The Company is currently required to make 21 consecutive principal repayments of the senior secured term loan borrowings in the amount of $612 on the last day of each calendar quarter, with a balance of $230,818 due at final maturity on January 27, 2016. During the six months ended June 30, 2010, the Company voluntarily prepaid $20,000 in debt. At June 30, 2010, and 2009, the average interest rate was 5.50% and 4.57%, respectively.

In January 2010, the Company also entered into a new $30,000 revolving credit facility with an interest rate of LIBOR plus a margin of 4.0% (subject to a floor of 2.0%), or base rate plus a margin 3.0% (subject to a 3.0% floor), as the Company may elect. Thereafter, the applicable margins are subject to adjustment based on the Company’s ratio of total debt to EBITDA as reflected in the Company’s quarterly or annual financial statements, with the margins ranging from 3.50% to 4.00% on LIBOR based loans, and from 2.50% to 3.00% on base rate based loans. In addition, the Company is required to pay commitment fees on the unused portion of the new revolving credit facility. The commitment fee rate is initially 0.75% per annum, and is also subject to adjustment thereafter based on the Company’s ratio of total debt to EBITDA, with the rates ranging from 0.50% to 0.75%. The final maturity date of the new revolving credit facility is January 27, 2013. The new $30,000 revolving credit facility replaced the prior $50,000 revolving credit facility that was scheduled to mature in May 2010.

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 the Company’s present and future assets.

The Company is required as part of the new senior secured term loan facility to enter into interest rate protection to the extent necessary to provide that at least 50% of the term loan is subject to either a fixed interest rate or interest rate protection for a period of not less than three years.

Interest Rate Cap Agreement

On April 15, 2010, the Company entered into a three-year interest rate cap agreement. This agreement caps the base interest rate on $125,000 of aggregate principal amount of the Company’s outstanding term loan at 9.5%. The Company has not designated this agreement as an accounting hedge and changes in fair value of the cap agreement will be recorded through earnings within interest expense. As of June 30, 2010, the fair value of the interest rate cap was immaterial.

Debt Covenants

The senior secured term loan and revolving 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;

•

enter into transactions with their affiliates; and

•

engage in businesses other than those in which the Company is currently engaged or those reasonably related thereto.

The senior secured credit agreement places certain restrictions on the Company’s ability to make capital expenditures.

The senior secured term loan facility also contains financial covenants that require the Company to maintain a ratio of funded debt to adjusted EBITDA of no more than 4.75, a ratio of adjusted EBITDA to interest expense of no less than 1.75 and a ratio of total adjusted debt (adjusted for certain leases and financing obligations) to EBITDA plus rental expense of no more than 7.15. Beginning with the three month period ending March 31, 2011, the financial covenants contain normal and customary periodic changes in the required ratios over the life of the senior secured credit agreement.

As of June 30, 2010, the Company was in compliance with all of the financial covenants in its senior secured credit agreement.

NOTE 4—INCOME TAXES

The Company’s effective income tax rate is based on expected income, statutory tax rates, tax planning opportunities available in the various jurisdictions in which it operates and the impact of valuation allowances against deferred tax assets. For interim financial reporting, the Company generally estimates the annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate. The Company refines the estimates of the year’s taxable income as new information becomes available, including actual year-to-date financial results. This continual estimation process often results in a change to the expected effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected annual income tax rate. Significant judgment is required in determining the effective tax rate and in evaluating the Company’s tax positions. This approach is known as the annual effective tax rate method and was used to calculate tax expense for the three months ended March 31, 2010.

For the three months and six months ended June 30, 2010, the Company has utilized the discrete effective tax rate method, as allowed by ASC 740-270, “Income Taxes - Interim Reporting,” to calculate taxes. The Company believes that, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method. The estimated annual effective tax rate would not be reliable due to its sensitivity to minimal changes to forecasted annual pre-tax earnings. Under the discrete method, the Company determines the tax expense based upon actual results as if the interim period were an annual period. The income tax expense for the three months ended June 30, 2010 includes the effect of the application of the discrete effective rate on a year to date basis.

The Company experienced an “ownership change” within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, (the “IRC”) during the fourth quarter of 2008. The ownership change has and will continue to subject the Company’s net operating loss carryforwards to an annual limitation, which will 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 the Company’s stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.

The Company determined that at the date of the ownership change, it had a net unrealized built-in loss (“NUBIL”). The NUBIL is determined based on the difference between the fair market value of the Company’s assets and their tax basis at the ownership change. Because of the NUBIL, certain deductions recognized during the five-year period beginning on the date of the IRC Section 382 ownership change (the “recognition period”) are subjected to the same limitation as the net operating loss carryforwards. Because the annual limitation is applied first against the realized built-in losses (“RBILs”), the Company does not expect to utilize any of its net operating carryforwards during the five year recognition period. The amount of RBILs limited was $0.2 million and $0.4 million for the three and six months ended June 30, 2010, which reduced the current income tax benefit. The amount of the disallowed RBILs could increase if the Company disposes of assets with built-in losses at the date of the ownership change during the recognition period. Principally as a result of all the aforementioned limitations and the Company’s history of operating losses, the Company’s net deferred tax assets are fully offset by a valuation allowance at June 30, 2010 and December 31, 2009.

The Company recognizes a tax benefit associated with an uncertain tax position when, in the Company’s judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The Company has no substantial uncertain tax position liabilities at June 30, 2010 or December 31, 2009.

The effective tax rate from continuing operations for the six months ended June 30, 2010 was a negative 5.9%, which differs from the statutory tax rates primarily due to the impact of Section 382 and valuation allowance. The Company did not record an income tax provision or benefit in the three or six months ended June 30, 2009 because it did not project taxable income for the full year and due to limitations on its net operating loss carry-forwards. The Company regularly assesses 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 determination is made.

NOTE 5—EQUITY BASED COMPENSATION

In March 2004, the Board of Directors adopted the Carmike Cinemas, Inc. 2004 Incentive Stock Plan (the “2004 Incentive Stock Plan”). The Company’s Compensation and Nominating Committee (or similar committee) may grant stock options, stock grants, stock units, and stock appreciation rights under the 2004 Incentive Stock Plan to certain eligible employees and to outside directors. As of June 30, 2010, there were 365,750 shares available for future grants under the 2004 Incentive Stock Plan.

The determination of the fair value of stock option awards on the date of grant using option-pricing models is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include the Company’s expected stock price volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rates and expected dividends. The expected volatility is based on the historical volatility. The Company uses historical data to estimate stock option exercise and forfeiture rates. The expected term represents the period over which the share-based awards are expected to be outstanding. The dividend yield is an estimate of the expected dividend yield on the Company’s stock. The risk-free rate is based on U.S. Treasury yields in effect at the time of the grant for the expected term of the stock options. All stock option awards are amortized based on their graded vesting over the requisite service period of the awards.

The Company also issues restricted stock awards to certain key employees and directors. Generally, the restricted stock vests over a one to three year period and compensation expense is recognized over the one to three year period equal to the grant date value of the shares awarded to the employee. As of June 30, 2010, the Company has issued 68,000 shares of performance-based nonvested stock awards dependent on the achievement of EBITDA targets that vest over a three-year period. Performance-based nonvested stock awards are recognized as compensation expense over the vesting period based on the fair value on the date of grant and the number of shares ultimately expected to vest. The Company has determined the achievement of the performance factor is probable.

The Company’s policy is to issue new shares upon exercise of options and the issuance of stock grants.

The Company’s total stock-based compensation expense was approximately $538 and $344 for the three months ended June 30, 2010 and 2009, respectively, and $1,222 and $478 for the six months ended June 30, 2010 and 2009, respectively. These amounts were recorded in general and administrative expenses. As of June 30, 2010, the Company had approximately $3,222 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 2.4 years. 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 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 of options granted, and the weighted-average assumptions for such options granted, during the first six months of 2010 and 2009:


	2010			2009
Fair value of options on grant date	$	6.84		$	5.20
Expected life (years)		6			6
Risk-free interest rate		2.50	%		2.80	%
Expected dividend yield		—	%		—	%
Expected volatility		71	%		68	%

The Company’s stock-based compensation expense is recorded based on an estimated forfeiture rate of 5%.

The following table sets forth the summary of option activity for stock options with service vesting conditions as of June 30, 2010:


	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at January 1, 2010	550,000	$	14.60	7.77
Granted	173,500	$	10.60	9.67
Exercised	—	$
Forfeited	—	$

Outstanding at June 30, 2010	723,500	$	13.64	7.85	$	21

Exercisable on June 30, 2010	236,667	$	22.80	5.02	$	21

Expected to vest June 30, 2010	462,491	$	10.60	9.22	$

Options – Market Condition Vesting

In April 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 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 and such amount was expensed prior to 2009. The fair value of these options was estimated on the date of grant using a Monte Carlo simulation model and compensation expense is not subsequently adjusted for the number of shares that are ultimately vested.

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, 2010:


	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at January 1, 2010	190,000		$	25.95	7.29
Forfeited	(20,000	)		—

Outstanding at June 30, 2010	170,000		$	25.95	6.79	$	—

Exercisable at June 30, 2010	—		$	—	—	$	—

Expected to vest at June 30, 2010	—		$	—	—	$	—

Restricted Stock

The following table sets forth the summary of activity for restricted stock grants, including performance based awards, for the six months ended June 30, 2010:


	Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2010	179,500		$	19.56
Granted	134,500		$	11.20
Vested	(141,667	)	$	22.29
Forfeited	(4,500	)	$	15.81

Nonvested at June 30, 2010	167,833		$	10.65

NOTE 6 – 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, 2010 and 2009, the Company closed three theatres in each period, and for the six months ended June 30, 2010 and 2009, the Company closed six theatres in each period. With respect to these closures during the three months ended June 30, 2010 and 2009, the Company classified one theatre in each period as discontinued operations, and for the six months ended June 30, 2010 and 2009, the Company classified one and three theatres, respectively, as discontinued operations. The Company reported the results of these operations, including gains or losses on 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.

All activity from prior years included in the accompanying consolidated statements of operations has been reclassified to separately reflect 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.

The following table sets forth the summary of activity for discontinued operations for the three and six months ended June 30, 2010 and 2009:


	Three Months Ended June 30,
	2010			2009
Revenue from discontinued operations	$	84		$	211

Operating loss before income taxes	$	(116	)	$	(86	)
Income tax benefit for discontinued operations	$	10		$	—
Gain (loss) on disposal, before taxes	$	284		$	(75	)
Income tax expense on disposal	$	(24	)	$	—

Income (loss) from discontinued operations	$	154		$	(161	)


	Six Months Ended June 30,
	2010			2009
Revenue from discontinued operations	$	147		$	632

Operating loss before income taxes	$	(179	)	$	(474	)
Income tax expense for discontinued operations	$	(11	)	$	—
Gain (loss) on disposal, before taxes	$	284		$	(2	)
Income tax benefit on disposal	$	17		$	—

Income (loss) from discontinued operations	$	111		$	(476	)

NOTE 7—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 its financial position, results of operations or cash flow.

NOTE 8—FINANCIAL INSTRUMENTS

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term maturities of these assets and liabilities.

The fair value of the senior secured credit facilities described in Note 3 – “Debt”, which consists of a term loan facility and a revolving facility, is estimated based on quoted market prices at the date of measurement.


	As of June 30,		As of December 31,
	2010		2009
Carrying amount	$	243,685	$	250,786
Fair value	$	241,945	$	242,886

NOTE 9—NET INCOME (LOSS) PER SHARE

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, common stock equivalents aggregating 1,063,778 and 450,055 shares for the three months ended June 30, 2010 and 2009 and 1,135,917 and 440,525 for the six months ended June 30, 2010 and 2009, respectively, were excluded from the calculation of diluted loss per share given their anti-dilutive effect.

NOTE 10—GUARANTOR SUBSIDIARIES

On June 8, 2010 the Company filed a registration statement on Form S-3 which was amended on July 7, 2010. When such registration statement becomes effective, it will register certain securities, including debt securities which may be guaranteed by certain of Carmike Cinemas, Inc.’s subsidiaries and may be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933.

Carmike Cinemas, Inc. may sell debt securities and if so, it is expected that such securities would be fully and unconditionally guaranteed, on a joint and several basis, by the following 100% directly or indirectly owned subsidiaries: Eastwynn Theatres, Inc., George G. Kerasotes Corporation, GKC Indiana Theatres, Inc., GKC Michigan Theatres, Inc., GKC Theatres, Inc., and Military Services, Inc. Therefore, the Company is providing the following condensed consolidating financial statement information as of June 30, 2010 and December 31, 2009 and for the three and six months in the periods ended June 30, 2010 and June 30, 2009 in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered:

CONDENSED CONSOLIDATING BALANCE SHEET


	As of June 30, 2010 (in thousands)
	Carmike Cinemas, Inc			Guarantor Subsidiaries			Eliminations			Consolidated
Assets:
Current assets:
Cash and cash equivalents	$	—		$	18,373		$	—		$	18,373
Restricted cash		96			—			—			96
Accounts receivable		3,710			1,245			—			4,955
Inventories		532			2,071			—			2,603
Prepaid expenses		2,455			4,372			—			6,827

Total current assets		6,793			26,061			—			32,854


Property and equipment:
Land		13,080			41,153			—			54,233
Buildings and building improvements		48,975			223,685			—			272,660
Leasehold improvements		16,838			103,391			—			120,229
Assets under capital leases		8,675			42,249			—			50,924
Equipment		55,980			158,651			—			214,631
Construction in progress		460			1,148			—			1,608

Total property and equipment		144,008			570,277			—			714,285
Accumulated depreciation and amortization		(69,294	)		(268,817	)		—			(338,111	)

Property and equipment, net of accumulated depreciation		74,714			301,460			—			376,174

Investment in subsidiaries and intercompany receivables		222,857			—			(222,857	)		—
Assets held for sale		1,273			976			—			2,249
Other		15,371			7,805			—			23,176
Intangible assets, net of accumulated amortization		—			1,175			—			1,175

Total assets	$	321,008		$	337,477		$	(222,857	)	$	435,628


Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	23,767		$	5,442		$	—		$	29,209
Accrued expenses		22,399			8,186			—			30,585
Current maturities of long-term debt, capital leases and long-term financing obligations		2,666			1,626			—			4,292

Total current liabilities		48,832			15,254			—			64,086

Long-term liabilities:
Long-term debt, less current maturities		238,988			—			—			238,988
Capital leases and long-term financing obligations, less current maturities		28,511			87,830			—			116,341
Intercompany liabilities		—			137,936			(137,936	)		—
Other		2,827			11,536			—			14,363

Total long-term liabilities		270,326			237,302			(137,936	)		369,692


Stockholders’ equity:
Preferred Stock		—			—			—			—
Common Stock		400			1			(1	)		400
Treasury stock		(11,657	)		—			—			(11,657	)
Paid-in capital		288,120			237,800			(237,800	)		288,120
Accumulated deficit		(275,013	)		(152,880	)		152,880			(275,013	)

Total stockholders’ equity		1,850			84,921			(84,921	)		1,850

Total liabilities and stockholders’ equity	$	321,008		$	337,477		$	(222,857	)	$	435,628

CONDENSED CONSOLIDATING BALANCE SHEET


	As of December 31, 2009 (in thousands)
	Carmike Cinemas, Inc			Guarantor Subsidiaries			Eliminations			Consolidated
Assets:
Current assets:
Cash and cash equivalents	$	16,232		$	9,464		$	—		$	25,696
Restricted cash		403			—			—			403
Accounts receivable		4,819			191			—			5,010
Inventories		436			2,115			—			2,551
Prepaid expenses		2,553			4,238			—			6,791

Total current assets		24,443			16,008			—			40,451

Property and equipment:
Land		13,080			41,591			—			54,671
Buildings and building improvements		48,763			225,287			—			274,050
Leasehold improvements		16,668			108,407			—			125,075
Assets under capital leases		8,675			45,112			—			53,787
Equipment		55,341			158,952			—			214,293
Construction in progress		431			—			—			431

Total property and equipment		142,958			579,349			—			722,307
Accumulated depreciation and amortization		(66,136	)		(265,592	)		—			(331,728	)

Property and equipment, net of accumulated depreciation		76,822			313,757			—			390,579

Investment in subsidiaries and intercompany receivables		227,125			—			(227,125	)		—
Assets held for sale		1,273			976			—			2,249
Other		11,537			7,911			—			19,448
Intangible assets, net of accumulated amortization		—			1,251			—			1,251

Total assets	$	341,200		$	339,903		$	(227,125	)	$	453,978


Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	25,738		$	414		$	—		$	26,152
Accrued expenses		22,105			11,271			—			33,376
Current maturities of long-term debt, capital leases and long-term financing obligations		2,780			1,481			—			4,261

Total current liabilities		50,623			13,166			—			63,789

Long-term liabilities:
Long-term debt, less current maturities		248,171			—			—			248,171
Capital leases and long-term financing obligations, less current maturities		28,491			88,193			—			116,684
Intercompany liabilities		—			134,631			(134,631	)		—
Other		2,613			11,419			—			14,032

Total long-term liabilities		279,275			234,243			(134,631	)		378,887


Stockholders’ equity:
Preferred Stock		—			—			—			—
Common Stock		395			1			(1	)		395
Treasury stock		(10,945	)		—			—			(10,945	)
Paid-in capital		286,903			237,800			(237,800	)		286,903
Accumulated deficit		(265,051	)		(145,307	)		145,307			(265,051	)

Total stockholders’ equity		11,302			92,494			(92,494	)		11,302

Total liabilities and stockholders’ equity	$	341,200		$	339,903		$	(227,125	)	$	453,978

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


	Three Months Ended June 30, 2010 (in thousands)
	Carmike Cinemas, Inc			Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Admissions	$	14,293		$	70,491		$	—		$	84,784
Concessions and other		13,693			35,150			(6,155	)		42,688

Total operating revenues		27,986			105,641			(6,155	)		127,472

Operating costs and expenses:
Film exhibition costs		8,249			39,920			—			48,169
Concession costs		878			4,064			—			4,942
Other theatre operating costs		10,203			49,316			(6,155	)		53,364
General and administrative expenses		3,845			648			—			4,493
Depreciation and amortization		1,631			6,398			—			8,029
Gain on sale of property and equipment		1			(19	)		—			(18	)
Impairment of long-lived assets		172			3,065			—			3,237

Total operating costs and expenses		24,979			103,392			(6,155	)		122,216

Operating income		3,007			2,249			—			5,256
Interest expense		2,819			6,958			—			9,777
Equity in loss of subsidiaries		5,798			—			(5,798	)		—
Loss on extinguishment of debt		7			—			—			7

Loss before income tax and discontinued operations		(5,617	)		(4,709	)		5,798			(4,528	)
Income tax expense		885			1,253			—			2,138

(Loss) income from continuing operations		(6,502	)		(5,962	)		5,798			(6,666	)
Income (loss) from discontinued operations		(10	)		164			—			154

Net income (loss)	$	(6,512	)	$	(5,798	)	$	5,798		$	(6,512	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


	Six Months Ended June 30, 2010 (in thousands)
	Carmike Cinemas, Inc			Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Admissions	$	29,349		$	137,653		$	—		$	167,002
Concessions and other		27,641			68,976			(12,029	)		84,588

Total operating revenues		56,990			206,629			(12,029	)		251,590

Operating costs and expenses:
Film exhibition costs		16,848			77,601			—			94,449
Concession costs		1,686			7,417			—			9,103
Other theatre operating costs		21,130			98,084			(12,029	)		107,185
General and administrative expenses		8,026			1,278			—			9,304
Depreciation and amortization		3,248			12,848			—			16,096
Gain on sale of property and equipment		17			(8	)		—			9
Impairment of long-lived assets		172			3,552			—			3,724

Total operating costs and expenses		51,127			200,772			(12,029	)		239,870

Operating income		5,863			5,857			—			11,720
Interest expense		5,541			13,124			—			18,665
Equity in loss of subsidiaries		7,573			—			(7,573	)		—
Loss on extinguishment of debt		2,568			—			—			2,568

Loss before income tax and discontinued operations		(9,819	)		(7,267	)		7,573			(9,513	)
Income tax expense		132			428			—			560

Loss from continuing operations		(9,951	)		(7,695	)		7,573			(10,073	)
Income (loss) from discontinued operations		(11	)		122			—			111

Net income (loss)	$	(9,962	)	$	(7,573	)	$	7,573		$	(9,962	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


	Three Months Ended June 30, 2009 (in thousands)
	Carmike Cinemas, Inc			Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Admissions	$	15,210		$	73,604		$	—		$	88,814
Concessions and other		14,228			36,335			(6,388	)		44,175

Total operating revenues		29,438			109,939			(6,388	)		132,989

Operating costs and expenses:
Film exhibition costs		8,973			42,159			—			51,132
Concession costs		849			3,847			—			4,696
Other theatre operating costs		10,417			48,932			(6,388	)		52,961
General and administrative expenses		3,114			693			—			3,807
Depreciation and amortization		1,763			7,010			—			8,773
Gain on sale of property and equipment		(18	)		(87	)		—			(105	)

Total operating costs and expenses		25,098			102,554			(6,388	)		121,264

Operating income		4,340			7,385			—			11,725
Interest expense		2,315			6,424			—			8,739
Equity in earnings of subsidiaries		(805	)		—			805			—

Income before income tax and discontinued operations		2,830			961			(805	)		2,986
Income tax expense		—			—			—			—

Income from continuing operations		2,830			961			(805	)		2,986
Loss from discontinued operations		(5	)		(156	)		—			(161	)

Net income (loss)	$	2,825		$	805		$	(805	)	$	2,825

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


	Six Months Ended June 30, 2009 (in thousands)
	Carmike Cinemas, Inc			Guarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Admissions	$	28,404		$	141,568		$	—		$	169,972
Concessions and other		27,238			69,822			(12,307	)		84,753

Total operating revenues		55,642			211,390			(12,307	)		254,725

Operating costs and expenses:
Film exhibition costs		16,077			78,308			—			94,385
Concession costs		1,555			6,966			—			8,521
Other theatre operating costs		21,022			95,441			(12,307	)		104,156
General and administrative expenses		6,506			1,360			—			7,866
Separation agreement charges		5,452			10			—			5,462
Depreciation and amortization		3,541			13,886			—			17,427
Gain on sale of property and equipment		33			(184	)		—			(151	)

Total operating costs and expenses		54,186			195,787			(12,307	)		237,666

Operating income		1,456			15,603			—			17,059
Interest expense		4,633			13,121			—			17,754
Equity in earnings of subsidiaries		(2,056	)		—			2,056			—

(Loss) income before income tax and discontinued operations		(1,121	)		2,482			(2,056	)		(695	)
Income tax expense		—			—			—			—

(Loss) income from continuing operations		(1,121	)		2,482			(2,056	)		(695	)
Loss from discontinued operations		(50	)		(426	)		—			(476	)

Net income (loss)	$	(1,171	)	$	2,056		$	(2,056	)	$	(1,171	)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


	For the Six Months Ended June 30, 2010 (in thousands)
	Carmike Cinemas, Inc.			Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided by operating activities	$	5,165		$	12,290		$	—	$	17,455

Cash flows from investing activities:
Purchases of property and equipment		(1,142	)		(4,471	)				(5,613	)
Proceeds from sale of property and equipment		3			771					774
Other Investing activities		307			—					307

Net cash used in investing activities		(832	)		(3,700	)				(4,532	)

Cash flows from financing activities:
Issuance of long-term debt		262,350			—					262,350
Repayments of long-term debt		(272,175	)		(709	)				(272,884	)
Intercompany receivable/payable		(1,028	)		1,028					—
Other financing activities		(9,712	)		0					(9,712	)

Net cash (used in) provided by financing activities		(20,565	)		319			—		(20,246	)


Increase / (decrease) in cash and cash equivalents		(16,232	)		8,909			—		(7,323	)
Cash and cash equivalents at beginning of period		16,232			9,464					25,696

Cash and cash equivalents at end of period	$	—		$	18,373		$	—	$	18,373

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


	For the Six Months Ended June 30, 2009 (in thousands)
	Carmike Cinemas, Inc.			Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided by operating activities	$	16,681		$	12,571		$	—	$	29,252

Cash flows from investing activities:
Purchases of property and equipment		(3,850	)		(3,266	)				(7,116	)
Proceeds from sale of property and equipment		147			1,598					1,745
Other Investing activities		112			—					112

Net cash used in investing activities		(3,591	)		(1,668	)		—		(5,259	)

Cash flows from financing activities:
Issuance of long-term debt		—			—					—
Repayments of long-term debt		(16,533	)		(698	)				(17,231	)
Intercompany receivable/payable		13,488			(13,488	)				—
Other financing activities		(2	)		0					(2	)

Net cash used in financing activities		(3,047	)		(14,186	)		—		(17,233	)


Increase / (decrease) in cash and cash equivalents		10,043			(3,283	)		—		6,760
Cash and cash equivalents at beginning of period		(8,565	)		19,432					10,867

Cash and cash equivalents at end of period	$	1,478		$	16,149		$	—	$	17,627

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company

We are one of the largest motion picture exhibitors in the United States and as of June 30, 2010 we owned, operated or had an interest in 240 theatres with 2,250 screens located in 35 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, 2010, we had 224 theatres with 2,125 screens on a digital-based platform, including 197 theatres with 544 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 provides a competitive advantage to us in many markets where we compete for film and patrons.

We generate revenue primarily from box office receipts and concession sales along with additional revenues from screen advertising sales, our two Hollywood Connection fun centers, video games located in some of our theatres, and theatre rentals. Our revenue depends to a substantial degree on the availability of suitable motion pictures for screening in our theatres and the appeal of such motion pictures to patrons in our specific theatre markets. A disruption in the production of motion pictures, a lack of motion pictures, or the failure of motion pictures to attract the patrons in our theatre markets will likely adversely affect our business and results of operations.

Our revenue also varies significantly depending upon the timing of the film releases by distributors. While motion picture distributors now release major motion pictures more evenly throughout the year, the most marketable films are usually released during the summer months and the year-end holiday season, and we usually earn more during those periods than in other periods during the year. As a result, the timing of such releases affects our results of operations and cash flows, which may vary significantly from quarter to quarter and year to year.

Film rental costs are variable in nature and fluctuate with the prospects of a film and the box office revenues of a film. Film rental rates are generally negotiated on a film-by-film and theatre-by-theatre basis and are typically higher for blockbuster films. Advertising costs, which are expensed as incurred, primarily represent advertisements and movie listings placed in newspapers. The cost of these advertisements is based on, among other things, the size of the advertisement and the circulation of the newspaper.

Concessions costs fluctuate with our concession revenues. We purchase concession supplies to replace units sold. We purchase substantially all of our concession supplies, except for beverage supplies, from one supplier.

Other theatre costs consist primarily of theatre labor and occupancy costs. Theatre labor includes a fixed cost component that represents the minimum staffing needed to operate a theatre and a variable component that fluctuates in relation to revenues as theatre staffing is adjusted to address changes in attendance. Facility lease expense is primarily a fixed cost as most of our leases require a fixed monthly rent payment. Certain of our leases are subject to percentage rent clauses that require payments of amounts based on the level of revenue achieved at the theatre-level. Other occupancy costs possess both fixed and variable components such as utilities, property taxes, janitorial costs, and repairs and maintenance.

The ultimate performance of our film product any time during the calendar year will have a dramatic impact on our cash needs. In addition, the seasonal nature of the exhibition industry and positioning of film product makes our needs for cash vary significantly from quarter to quarter. Generally, our liquidity needs are funded by operating cash flow, available funds under our credit agreement and short term float. Our ability to generate this cash will depend largely on future operations.

In light of the continuing challenging conditions in the credit markets and the wider economy, we continue to focus on operating performance improvements. This includes managing our operating costs, implementing pricing initiatives and closing underperforming theatres. We also intend to allocate our available capital primarily to improving the condition of our theatres and reducing our overall leverage. To this end, during the six months ended June 30, 2010, we made voluntary pre-payments of $20 million to reduce bank debt.

For a summary of risks and uncertainties relevant to our business, please see “Item 1A. Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2009.

Results of Operations

Comparison of Three and Six Months Ended June 30, 2010 and June 30, 2009

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,
	2010		2009		2010		2009
Average theatres		241		248		242		249
Average screens		2,260		2,286		2,266		2,288
Average attendance per screen (1)		5,444		5,984		10,732		11,564
Average admission per patron (1)	$	6.89	$	6.50	$	6.87	$	6.44
Average concessions and other sales per patron (1)	$	3.47	$	3.23	$	3.48	$	3.21
Total attendance (in thousands) (1)		12,304		13,680		24,321		26,451
Total revenues (in thousands)	$	127,472	$	132,989	$	251,590	$	254,725

(1)

Includes activity from theatres designated as discontinued operations and reported as such in the consolidated statements of operations.

Total revenue decreased approximately 4.1% to $127.5 million for the three months ended June 30, 2010 compared to $133.0 million for the three months ended June 30, 2009, due to a decrease in total attendance from 13.7 million in the second quarter of 2009 to 12.3 million for the second quarter of 2010 partially offset by an increase in average admissions per patron from $6.50 in the second quarter of 2009 to $6.89 for the second quarter of 2010 and an increase in average concessions and other sales per patron from $3.23 for the second quarter of 2009 to $3.47 for the second quarter of 2010. Attendance was down period over period due to a less favorable movie slate while average admissions per patron increased primarily due to premium 3-D pricing. Average concessions and other sales per patron increased primarily due to pricing increases on concession products.

Total revenue decreased approximately 1.2% to $251.6 million for the six months ended June 30, 2010 compared to $254.7 million for the six months ended June 30, 2009, due to a decrease in total attendance from 26.5 million for the 2009 period to 24.3 million for the 2010 period partially offset by an increase in average admissions per patron from $6.44 for the 2009 period to $6.87 for the 2010 period and an increase in average concessions and other sales per patron from $3.21 for the 2009 period to $3.48 for the 2010 period.

Admissions revenue decreased approximately 4.5% to $84.8 million for the three months ended June 30, 2010 from $88.8 million for the same period in 2009, due to a decrease in total attendance partially offset by an increase in average admissions per patron from $6.50 in the second quarter of 2009 to $6.89 for the second quarter of 2010.

Admissions revenue decreased approximately 1.7% to $167.0 million for the six months ended June 30, 2010 from $170.0 million for the same period in 2009, due to a decrease in total attendance partially offset by an increase in average admissions per patron from $6.44 for the 2009 period to $6.87 for the 2010 period.

Concessions and other revenue decreased approximately 3.4% to $42.7 million for the three months ended June 30, 2010 compared to $44.2 million for the same period in 2009, due to a decrease in total attendance partially offset by an increase in average concessions and other sales per patron from $3.23 for the second quarter of 2009 to $3.47 for the second quarter of 2010.

Concessions and other revenue decreased approximately 0.2% to $84.6 million for the six months ended June 30, 2010 compared to $84.8 million for the same period in 2009, due to a decrease in total attendance partially offset by an increase in average concessions and other sales per patron from $3.21 for the 2009 period to $3.48 for the 2010 period.

We operated 240 theatres with 2,250 screens at June 30, 2010 compared to 247 theatres with 2,285 screens at June 30, 2009.

Operating costs and expenses. The tables below summarize operating expense data for the periods presented.


	Three Months Ended June 30,								Six Months Ended June 30,
($’s in thousands)	2010			2009			% Change		2010		2009			% Change
Film exhibition costs	$	48,169		$	51,132		(6	)	$	94,449	$	94,385		0
Concession costs	$	4,942		$	4,696		5		$	9,103	$	8,521		7
Other theatre operating costs	$	53,364		$	52,961		1		$	107,185	$	104,156		3
General and administrative expenses	$	4,493		$	3,807		18		$	9,304	$	7,866		18
Depreciation and amortization	$	8,029		$	8,773		(8	)	$	16,096	$	17,427		(8	)
Loss (gain) on sale of property and equipment	$	(18	)	$	(105	)	n/m		$	9	$	(151	)	n/m
Impairment of long-lived assets	$	3,237		$	—		n/m		$	3,724	$	—		n/m

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 as a percentage of revenues are generally higher for periods with more blockbuster films. Film exhibition costs for the three months ended June 30, 2010 decreased to $48.2 million as compared to $51.1 million for the three months ended June 30, 2009 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 for the three months ended June 30, 2010 were 56.8% as compared to 57.6% for the three months ended June 30, 2009 primarily as a result of a lower percentage of revenues generated by top tier films. Film exhibition costs for the six months ended June 30, 2010 was flat at $94.4 million for the six months ended June 30, 2009. As a percentage of admissions revenue, film exhibition costs for the six months ended June 30, 2010 were 56.6% as compared to 55.5% for the six months ended June 30, 2009 primarily as a result of higher film rent on 3D and top-tier films partially offset by a reduction in advertising expense in the first three months of 2010.

Concession costs. Concession costs fluctuate with changes in concessions revenue and product sales mix and changes in our cost of goods sold. Concession costs increased to approximately $4.9 million for the three months ended June 30, 2010 from $4.7 million for the three months ended June 30, 2009 due to increased product cost and lower volume based incentives from suppliers. As a percentage of concessions and other revenues, concession costs for the three months ended June 30, 2010 were 11.6% as compared to 10.6% for the three months ended June 30, 2009 primarily due to an increase in cost of concession supplies and lower concession rebates compared to 2009. Concession costs increased to approximately $9.1 million compared to $8.5 million for the six months ended June 30, 2010 and 2009 due to a decrease in attendance partially offset by higher average concessions and other sales to patrons. As a percentage of concessions and other revenues, concession costs were 10.8% for the six months ended June 30, 2010 and 10.1% for the six months ended June 30, 2009 due to a decrease in concession volume rebates and an increase in the cost of concession supplies.

Other theatre operating costs. Other theatre operating costs for the three months ended June 30, 2010 increased to $53.4 million as compared to $53.0 million for the three months ended June 30, 2009. The increase in our other theatre operating costs was primarily the result of an increase in salaries and wages expense, an increase in insurance costs and an increase in 3D equipment service charges partially offset by a decrease in repairs and replacements. Other theatre operating costs for the six months ended June 30, 2010 increased to $107.2 million as compared to $104.2 million for the six months ended June 30, 2009. The increase in our other theatre operating costs was primarily the result of an increase in taxes and licenses, an increase in salaries and wages expense, an increase in insurance costs and an increase in 3D equipment service charges which was partially offset by a reduction in repair and maintenance costs. Taxes and licenses were negatively impacted by the recording of sales and use taxes totaling approximately $1.0 million identified as a result of an audit. The underpayment of such taxes occurred in 2005 and 2006.

General and administrative expenses. General and administrative expenses for the three months ended June 30, 2010 increased to $4.5 million as compared to $3.8 million for the three months ended June 30, 2009. The increase in our general and administrative expenses was due to an increase in salaries and wages, incentive compensation and legal and professional fees. General and administrative expenses for the six months ended June 30, 2010 increased to $9.3 million as compared to $7.9 million for the six months ended June 30, 2009. The increase in our general and administrative expenses was due to an increase in salaries and wages and incentive compensation partially offset by a decrease in legal and professional fees.

Depreciation and amortization. Depreciation and amortization expenses for the three and six months ended June 30, 2010 decreased approximately 8% as compared to the three and six months ended June 30, 2009. 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, prior period impairments 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 gain of $18,000 on the sales of property and equipment for the three months ended June 30, 2010, as compared to a gain of $105,000 for the three months ended June 30, 2009. We recognized a loss of $9,000 on the sales of property and equipment for the six months ended June 30, 2010, as compared to a gain of $151,000 for the six months ended June 30, 2009.

Separation agreement charges. We recognized charges of $5.5 million for estimated expenses pertaining to the separation agreement with our former Chairman, Chief Executive Officer and President, Michael W. Patrick for the six months ended June 30, 2009.

Impairment of long-lived assets. Impairment of long-lived assets for the three and six months ended June 30, 2010 increased to $3.2 million and $3.7 million, respectively, compared to zero impairment charges for the three and six months ended June 30, 2009. The $3.7 million of impairment charges for the six months ended June 30, 2010 pertained to continuing operations. The impairment charges affect 18 theatres with 183 screens and were primarily the result of deterioration in operating results.

Operating Income. Operating income for the three months ended June 30, 2010 decreased 55% to $5.3 million as compared to $11.7 million for the three months ended June 30, 2009. As a percentage of revenues, operating income for the three months ended June 30, 2010 was 4.1% as compared to 8.8% for the three months ended June 30, 2009. These fluctuations are primarily a result of the factors described above. Operating income for the six months ended June 30, 2010 decreased 31% to $11.7 million as compared to $17.1 million for the six months ended June 30, 2009. As a percentage of revenues, operating income for the six months ended June 30, 2010 was 4.7% as compared to 6.7% for the six months ended June 30, 2009. These fluctuations are primarily a result of the separation agreement charges and the other factors described above.

Interest expense, net. Interest expense, net for the three months ended June 30, 2010 increased 9% to $9.8 million from $8.7 million for the three months ended June 30, 2009. The increase was primarily related to a combination of an increase in interest rates partially offset by a decrease in the average debt outstanding. Interest income, included in interest expense net, was $16,000 for the three months ended June 30, 2010 as compared to $21,000 for the same period in 2009. Interest expense, net for the six months ended June 30, 2010 increased 5% from $17.8 million for the six months ended June 20, 2009 to $18.7 million. Interest costs were also negatively impacted due to the recording of interest costs of approximately $0.7 million associated with underpayment of sales and use taxes related to prior years.

Income tax. During the three and six months ended June 30, 2010, we recorded income tax expense of $2.1 million and $0.6 million. We did not record an income tax provision or benefit in the six months ended June 30, 2009 because we did not project taxable income for the full year and due to the limitations on our net operating loss carryforwards. For the three months and six months ended June 30, 2010, the Company has utilized the discrete tax rate method, as allowed by ASC 740-270, “Income Taxes - Interim Reporting” to calculate taxes. The Company believes that, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method. The estimated annual effective tax rate would not be reliable due to its sensitivity to minimal changes to forecasted annual pre-tax earnings. Under the discrete method, the Company determines the tax expense based upon actual results as if the interim period were an annual period. The income tax expense for the three months ended June 30, 2010 includes the effect of the application of the discrete effective rate on a year to date basis.

At June 30, 2010 and December 31, 2009, our consolidated net deferred tax assets were $63.2 million, 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 determination is made.

Income (loss) from discontinued operations, net of tax benefit. 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, 2010 and 2009, we closed three theatres in each period, and for the six months ended June 30, 2010 and 2009, we closed six theatres in each period. With respect to these closures during the three months ended June 30, 2010 and 2009, we classified one theatre in each period as discontinued operations, and for the six months ended June 30, 2010 and 2009, we classified one and three theatres, respectively, as discontinued operations. We reported the results of these operations, including gains or losses on disposal, as discontinued operations. The operations and cash flow of these theatres have been eliminated from our operations, and we will not have any continuing involvement in their operations.

The accompanying condensed consolidated statements of operations separately show the results from discontinued operations through the respective dates 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 income from discontinued operations, net of tax benefit, for the three and six months ended June 30, 2010 of $154,000 and $111,000, respectively, as compared to a loss of $161,000 and $476,000 for the three and six months ended June 30, 2009. The results from discontinued operations include a gain of $260,000 and $301,000 for the three and six months ended June 30, 2010, respectively, on disposal of assets, net of taxes, and a loss on disposal of assets of $75,000 and $2,000 for the three and six months ended June 30, 2009, respectively.

Liquidity and Capital Resources

General

We typically maintain current liabilities in excess of our current assets which results in a working capital deficit. We are able to operate with a substantial working capital deficit because our operating revenues are primarily received on a cash basis. Rather than maintain significant cash balances that would result from this pattern of operating cash flows, we utilize operating cash flows in excess of those required for investing activities to make discretionary payments on our debt balances. We had a working capital deficit of $31.2 million as of June 30, 2010 compared to a working capital deficit of $23.3 million at December 31, 2009.

At June 30, 2010, we had available borrowing capacity of $30 million under our revolving credit facility and approximately $18.4 million in cash and cash equivalents on hand as compared to $25.7 million in cash and cash equivalents at December 31, 2009. On January 27, 2010, we terminated our prior $50.0 million revolving credit facility and entered into our existing $30.0 million three year revolving credit facility. The material terms of our new revolving credit facility (including limitations on our ability to freely use all the available borrowing capacity) are described below in “Credit Agreement and Covenant Compliance.”

Net cash provided by operating activities was $17.5 million for the six months ended June 30, 2010 compared to cash provided by operating activities of $29.3 million for the six months ended June 30, 2009. This decrease in our cash provided by operating activities was due primarily to lower operating results and a reduction in accrued expenses and other liabilities as compared to the prior period. Net cash used in investing activities was $4.5 million for the six months ended June 30, 2010 compared to $5.3 million for the six months ended June 30, 2009. 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 and a decrease in proceeds from sales of property and equipment. Capital expenditures were $5.6 million for the six months ended June 30, 2010 and $7.1 million for the six months ended June 30, 2009 primarily due to no theatres being under development in 2010. Net cash used in financing activities was $20.2 million for the six months ended June 30, 2010 compared to $17.2 million for the six months ended June 30, 2009. The increase in our net cash used in financing activities is primarily due to $20.0 million of unscheduled prepayments of long-term debt in the first six months of 2010 as compared to $5.0 million of unscheduled prepayments of long-term debt in the first six months of 2009 and the incurrence of $9.0 million of debt issuance costs in the first six months of 2010.

Our liquidity needs are funded by operating cash flow and availability under our senior secured credit agreement. 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 flow.

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 the first six months of 2010, we closed six of our underperforming theatres and estimate closing up to an aggregate of ten theatres in 2010.

We plan to make a total of approximately $15 million to $20 million in capital expenditures for calendar year 2010. Pursuant to our January 2010 senior secured credit agreement, the aggregate capital expenditures that we may make, or commit to make for any fiscal year is limited to $22 million, provided that up to $5 million of the unused capital expenditures in a fiscal year may be carried over to the succeeding fiscal year. The Company has announced plans to install its own large digital format screen. The BigD-Large Format Digital Experience will include a larger screen, enhanced sound and premium seating accommodations. The Company intends to roll out the BigD-Large Format Digital Experience at up to 24 locations by the end of 2011.

Credit Agreement and Covenant Compliance

On January 27, 2010, we entered into a new Credit Agreement (the “Credit Agreement”), by and among us, as borrower, and several banks and other financial institutions or entities from time to time parties to the Credit Agreement, as lenders. Our new long-term debt obligations consist of the following:

•

a $265.0 million six year term loan facility (issued at a $2.6 million discount) that matures on January 27, 2016; and

•

a $30.0 million three year revolving credit facility that matures on January 27, 2013.

The interest rate for borrowings under the new term loan facility is LIBOR (subject to a 2.00% floor) plus a margin of 3.50%, or the Base Rate (as defined in the Credit Agreement) (subject to a 3.00% floor) plus a margin of 2.50%, as we may elect.

The interest rate for borrowings under the new revolving credit facility is LIBOR (subject to a 2.00% floor) plus an initial margin of 4.00%, or Base Rate (subject to a 3.00% floor) plus margin of 3.00%, as we may elect. Thereafter, the applicable margins are subject to adjustment based on our ratio of total debt to EBITDA as reflected in our quarterly or annual financial statements, with the margins ranging from 3.50% to 4.00% on LIBOR based loans, and from 2.50% to 3.00% on Base Rate based loans.

The Credit Agreement requires that mandatory prepayments be made from (1) 100% of the net cash proceeds from certain asset sales, dispositions or issuances of certain debt obligations, (2) 100% 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 term loan and revolving 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.

Debt Covenants

The senior secured term loan and revolving credit facilities contain covenants which, among other things, limit our ability, and that of our subsidiaries, to:

•

pay dividends or make any other restricted payments to parties other than us;

•

incur additional indebtedness and financing obligations;

•

create liens on our assets;

•

make certain investments;

•

sell or otherwise dispose of our assets other than in the ordinary course of business;

•

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

•

enter into transactions with our affiliates; and

•

engage in businesses other than those in which we are currently engaged or those reasonably related thereto.

The Credit Agreement imposes an annual limit of $22.0 million on our ability to make capital expenditures, plus a carryforward of $5.0 million of any unused capital expenditures from the prior year. In addition to the dollar limitation, we may not make any capital expenditure if any default or event of default under the Credit Agreement has occurred and is continuing, or if a breach of the financial covenants contained in the Credit Agreement would result on a pro forma basis after giving effect to the capital expenditure.

Debt Service

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 and our 2010 business plan, we believe that cash flow from operations, available cash and available borrowings under our Credit Agreement will be adequate to meet our liquidity needs for the next 12 months. However, the possibility exists that, if our operating performance is less than expected, we could come into default under our debt instruments, causing our lenders to accelerate maturity and declare all payments immediately due and payable.

We are required to make principal repayments of our term loan borrowings in 21 consecutive quarterly installments, each in the amount of $612,249, with the balance of $230,817,776 due at final maturity on January 27, 2016. Any amounts that may become outstanding under our revolving credit facility would be due and payable on January 27, 2013.

Debt Covenant Compliance

The new Credit Agreement also contains financial covenants that require us to maintain a ratio of funded debt to adjusted EBITDA (“leverage ratio”) of no more than 4.75, a ratio of adjusted EBITDA to interest expense (“interest coverage ratio”) of no less than 1.75 and a ratio of total adjusted debt (adjusted for certain leases and financing obligations) to EBITDA plus rental expense (“EBITDAR ratio”) of no more than 7.15.

As of June 30, 2010, we were in compliance with all of the financial covenants in Credit Agreement. As of June 30, 2010, our leverage, interest coverage and EBITDAR ratios were 3.72, 2.55, and 6.15, respectively.

While we currently believe we will remain in compliance with these financial covenants through December 31, 2010 based on current projections, it is possible that we may not comply with some or all of our financial covenants. In order to avoid such non-compliance, we have the ability to reduce, postpone or cancel certain identified discretionary spending. We could also seek waivers or amendments to the credit agreement in order to avoid non-compliance. However, we can provide no assurance that we will successfully obtain such waivers or amendments from our lenders. If we are unable to comply with some or all of the financial or non-financial covenants and if we fail to obtain future waivers or amendments to the credit agreement, the lenders may terminate our 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 new senior secured credit facilities include:

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

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the occurrence of a change of control (as defined in the Credit Agreement);

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a breach or default by us or our subsidiaries on the payment of principal of any other indebtedness in an aggregate amount greater than $10 million;

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a breach of representations or warranties in any material respect; or

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a failure to perform other obligations under the Credit Agreement and the security documents for the senior secured credit facilities (subject to applicable cure periods).

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, 2009.

Impact of Recently Issued Accounting Standards

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires disclosure of transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons and the timing of the transfers and information on purchases, sales, issuance, and settlements on a gross basis in the reconciliation of the assets and liabilities measured under Level 3 of the fair value measurement hierarchy. This guidance is effective for us beginning January 1, 2010 and did not have an impact on our consolidated financial position or results of operations.

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 future operating results, our strategies, sources of liquidity, debt covenant compliance, the availability of film product, our capital expenditures, and the opening and closing of theatres. These statements are based on the current expectations, estimates or projections of management and do not guarantee future performance. The forward-looking statements also involve risks and uncertainties, which could cause actual outcomes and results to differ materially from what is expressed or forecasted in these 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:

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general economic conditions in our regional and national markets;

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

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our ability to operate at expected levels of cash flow;

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

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

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

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competition in our markets;

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competition with other forms of entertainment;

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the effect of leverage on our financial condition;

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prices and availability of operating supplies;

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impact of continued cost control procedures on operating results;

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the impact of asset impairments;

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the impact of terrorist acts;

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changes in tax laws, regulations and rates;

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

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other factors, including the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009, 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 our other SEC reports, accessible on the SEC’s website at www.sec.gov and our website at www.carmike.com.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

On April 15, 2010 we entered into a three-year interest rate cap agreement. This agreement caps the base interest rate on $125,000 of aggregate principal amount of our outstanding term loan at 9.5%.

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, as of June 30, 2010, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the three months ended June 30, 2010, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

For information relating to the Company’s legal proceedings, see Note 7, Commitments and Contingencies, 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, 2009. 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, 2009.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

RESERVED

ITEM 5.

OTHER INFORMATION

None.

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		Certificate of Amendment to amended and Restated Certificated of Incorporation of Carmike Cinemas, Inc, (filed as Exhibit 3.1 to Carmike’s Current Report on Form 8-K filed May 21, 2010 and incorporated herein by reference).

3.3		Amended and Restated By-Laws of Carmike Cinemas, Inc. (filed as Exhibit 3.1 to Carmike’s Current Report on Form 8-K filed on January 22, 2009 and incorporated herein by reference).

11		Computation of per share earnings (provided in Note 9 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.

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 2, 2010	By:	/s/ S. David Passman III
		S. David Passman III
		President, Chief Executive Officer and Director
		(Principal Executive Officer)

Date: August 2, 2010	By:	/s/ Richard B. Hare
		Richard B. Hare
		Senior Vice President—Finance, Treasurer and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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