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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

Commission file number 000-14993

CARMIKE CINEMAS, INC.

(706) 576-3400
(Registrant’s telephone number, including area code)

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

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

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

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

Common Stock, $.03 par value —
     9,088,512 shares outstanding as of May 9, 2003

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

See accompanying notes

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See accompanying notes

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

See accompanying notes

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

See accompanying notes

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CARMIKE CINEMAS, INC. and SUBSIDIARIES
For the Three Months Ended March 31, 2003 and 2002

NOTE 1 — BASIS OF PRESENTATION

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

On January 4, 2002, the United States Bankruptcy Court for the District of Delaware entered an order confirming the Company’s Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated as of November 14, 2001 (the “Plan”). The Plan became effective on January 31, 2002 (the “Reorganization Date”).

Further, the Company’s accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and bankruptcy related items) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the consolidated financial statements and footnotes included in Carmike’s Annual Report on Form 10-K for the year ended December 31, 2002.

NOTE 2 — PROCEEDINGS UNDER CHAPTER 11

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

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Reorganization costs for the three month periods ended March 31, 2003 and 2002 are as follows (in thousands):

NOTE 3 — LIABILITIES SUBJECT TO COMPROMISE

The principal categories of obligations classified as Liabilities Subject to Compromise under the Chapter 11 Cases are identified below. The amounts in total may vary significantly from the stated amounts of proofs of claims filed with the bankruptcy court, and may be subject to future adjustments depending on bankruptcy court action, further developments with respect to potential disputed claims, and determination as to the value of any collateral securing claims or other events.

A summary of the principal categories of claims classified as Liabilities Subject to Compromise at March 31, 2003 and December 31, 2002 are as follows (in thousands):

NOTE 4 — INCOME TAXES

For the fiscal year ended December 31, 2002, the Company had net deferred tax assets of approximately $79.9 million that were fully offset by a valuation allowance. Further, as a result of its Chapter 11 filing, default on bank facilities, and changes in future projections of operating results, the Company believes that doubt remains as to the ability to recognize future tax benefits related to its deferred tax assets. Thus, the Company continues to offset existing deferred tax assets with a valuation allowance.

In connection with the reorganization and Chapter 11 filing, the Company is currently evaluating whether it underwent an ownership change or changes within the meaning of Section 382 of the Internal Revenue Code. If so, the ability of the Company to use its net operating losses may be severely limited and subject to an annual limitation based on the product of the fair value of the Company immediately before the reorganization multiplied by the federal long-term tax exempt bond rate. Furthermore, the Company is currently evaluating available elections based on existing tax law that may impact the usability of future losses and possibly mitigate the consequences of the Section 382 limitation.

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

It is anticipated that the Company will not pay income taxes in 2003. Also, after the 2002 estimated taxable loss and taking into account the net operating loss carryback claim filed in the first quarter of 2002, the Company has federal and state net operating loss carryovers of approximately $116.0 million which begin to expire in the year 2020.

NOTE 5 — STOCK PLANS

Upon emergence from Chapter 11, the Board of Directors and Stockholders approved a new management incentive plan, (the “2002 Stock Plan”). Under the 2002 Stock Plan one million shares were reserved for members of management. Of the one million reserved shares, 780,000 have been authorized for issuance to the CEO upon completion of the required vesting period. The remaining 220,000 have been authorized for issuance to members of senior management upon reaching certain performance criteria during 2002, 2003 and 2004, as well as meeting required vesting restrictions. All of the shares relating to the 2002 Stock Plan will be granted with no purchase price to the grantee. As of December 31, 2002, 97,250 shares were granted subject to vesting requirements within the 2002 Stock Plan. Reflected in net income for the first quarter of 2003 and 2002, is $1.3 million and $0.5 million, respectively, of stock-based employee compensation cost.

On May 31, 2002, the Board of Directors adopted the Directors Incentive Plan, which was approved by the Stockholders on August 14, 2002. The purpose of the Directors Incentive Plan is to provide incentives that will attract, retain and motivate qualified and experienced persons for service as non-employee Directors of Carmike. There are a total of 75,000 shares reserved under the Directors Incentive Plan. The Board of Directors approved a grant of 5,000 shares each to two independent Directors on August 14, 2002. The option grant price was based on the fair market value of the stock on the date of the grant. These grants of 10,000 shares in the aggregate, represent the only stock options outstanding under the Directors Incentive Plan.

On July 19, 2002, the Board of Directors adopted the Employee and Consultant Long-Term Stock Incentive Plan, which was approved by the Shareholders on August 14, 2002. The purpose of the Employee and Consultant Long-Term Stock Incentive Plan is to provide incentives, competitive with those of similar companies, which will attract, retain and motivate qualified and experienced persons to serve as employees and consultants of the Company and to further align such employees’ and consultants’ interest with those of the Company’s stockholders through compensation that is based on the Company’s Common Stock thereby promoting the long-term financial interest of the Company and its subsidiaries. There are a total of 500,000 shares reserved under the Employee and Consultant Long-Term Stock Incentive Plan. The Company granted an aggregate of 150,000 options pursuant to this plan on March 7, 2003 to three members of senior management. The exercise price for the 150,000 stock options is $21.74

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and 75,000 options vest on December 31, 2005 and 75,000 options vest on December 31, 2006, respectively.

NOTE 6 — CONDENSED FINANCIAL DATA

The Company and its majority owned subsidiaries have fully, unconditionally, and jointly and severally guaranteed the Company’s obligations under the Company’s 10 3/8% senior subordinated notes. The Company has one subsidiary and several unconsolidated affiliates that are not guarantors of the subordinated notes. Separate financial statements and other disclosures of each of the guarantors are not presented because management has determined that they would not be material to investors.

Combined separate financial data for the guarantor subsidiaries is as follows (in thousands):

(1)

Net of parent company management and license fees of approximately $4.9 million and $5.4 million for the quarters ended March 31, 2003 and 2002, respectively.

NOTE 7 — IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In November 2002, the FASB issued FASB Interpretation Number 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, (“FIN 45”). FIN 45 requires an entity to disclose in its interim and annual financial statements information with respect to its obligations under certain guarantees that it has issued. It also requires an entity to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN 45 are effective for interim and annual reports after December 15, 2002. The initial recognition and

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initial measurement requirements of FIN 45 are effective prospectively for guarantees issued or modified after December 15, 2002. The Company is currently assessing the initial measurement requirements of FIN 45. However, management does not believe that the recognition requirements will have a material impact on the Company’s financial position, cash flows or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, (“FIN 46”). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company is currently evaluating the effect that the adoption of FIN 46 will have on its results of operations and financial condition.

NOTE 8 — RECLASSIFICATIONS

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

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

EMERGENCE FROM CHAPTER 11

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

RESULTS OF OPERATIONS

     Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2003

     Revenues. Total revenues decreased 11.3% from $116.3 million for the quarter ended March 31, 2002 to $103.2 million for the quarter ended March 31, 2003. This reduction resulted from a drop in admissions revenue from $78.7 million for the quarter ended March 31, 2002 to $69.2 million for the quarter ended March 31, 2003, as well as a 9.8% drop in concessions and miscellaneous revenues from $37.7 million for the quarter ended March 31, 2002 to $34.0 million for the quarter ended March 31, 2003. The primary factor contributing to the reduction in revenues was an overall reduction in attendance.

     Our average admission price was $4.85 in both the first quarters of 2002 and 2003. The average concession sale per patron was $2.15 for the quarter ended March 31, 2002 compared to $2.14 for the quarter ended March 31, 2003. Attendance per average screen for the quarter ended March 31, 2002 was 7,030 compared to 6,310 for the quarter ended March 31, 2003.

     We operated 312 theatres with 2,275 screens at March 31, 2002 compared to 304 theatres with 2,251 screens at March 31, 2003.

     Film Exhibition Costs, Concession Costs and Other Theatre Operating Costs. Film exhibition costs decreased as a percentage of total admissions revenue from 51.1% for the quarter ended March 31, 2002 to 46.9% for the quarter ended March 31, 2003. Film rental rates are strongly influenced by the perceived popularity of a motion picture and negotiated on a case-by-case basis. Rate fluctuations, especially in off-peak periods, vary dramatically. Such factors caused the reduction in film exhibition costs for the first quarter of 2003.

     Concession costs decreased 24% from $5.0 million for the quarter ended March 31, 2002 to $3.8 million for the quarter ended March 31, 2003. This reduction was due to lower attendance during the first quarter of 2003.

     Other theatre costs decreased 4.2% from $45.2 million for the quarter ended March 31, 2002 to $43.3 million for the quarter ended March 31, 2003. This decrease was due to reduced salary costs attributable to lower attendance and a reduction in rent expense related to contingent rent agreements and normal lease attrition.

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     General and administrative expenses. General and administrative expenses increased from $2.4 million for the quarter ended March 31, 2002 to $3.3 million for the quarter ended March 31, 2003. This increase was due primarily to non-cash deferred compensation expenses related to the 2002 Stock Plan. Expenses relating to the 2002 Stock Plan were $0.5 million for the quarter ended March 31, 2002 compared to $1.3 million for the quarter ended March 31, 2003.

     Depreciation and amortization expenses. Depreciation and amortization expenses decreased 3.8% from $8.0 million for the quarter ended March 31, 2002 to $7.7 million for the quarter ended March 31, 2003. This reduction is due to older assets reaching full maturity as well as the disposal of assets through sales transactions.

     Interest expense. Interest expense for the quarter ended March 31, 2002 decreased from $71.5 million to $10.3 million for the quarter ended March 31, 2003. The interest reported for 2002 includes $59.2 million of prior year’s interest not previously recorded due to accounting for interest under requirements of SOP 90-7.

     Gain on real estate sales. Gain on real estate sales increased from $141 thousand for the quarter ended March 31, 2002 to $2.4 million for the quarter ended March 31, 2003. This increase was due to the sale of surplus property held for sale. We routinely acquire excess land in conjunction with our theatre development. This excess land is normally sold at a gain as property values rise. Additionally, we will sell closed properties as the market dictates.

     Income tax expense. We recognized no income tax expense for the quarters ended March 31, 2002 or 2003, but did recognize a tax benefit of $14.7 million in 2002. The income tax benefit was the result of the Job Creation and Worker Assistance Act of 2002, which allowed for the additional carryback of net operating losses resulting in a cash refund of $14.7 million.

LIQUIDITY AND CAPITAL RESOURCES

     Our revenues are collected in cash and credit card payments. Because we receive our revenues in cash prior to the payment of related expenses, we have an operating “float” which partially finances our operations. Our current liabilities exceeded our current assets by $28.5 million as of December 31, 2002 compared to $29.2 million at March 31, 2003. The decreased deficit recorded as of March 31, 2003 reflects the reduction in accounts payable and accrued expenses funded through operating cash flows, as well as an increase in prepaid assets. The deficit will be funded through anticipated operating cash flows as well as the ability to draw from our revolving credit agreement. At May 2, 2003, we