##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Mark One) þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2003
 OR o
    
    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.  Delaware
    
    58-1469127(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)1301 First Avenue, Columbus, Georgia
    
    31901(Address of Principal Executive Offices)
    
    (Zip Code)
 (706) 576-3400
(Registrants Telephone Number, including Area Code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.03 per share 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K o Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes   þ   No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).   Yes o   No þ As of March 15, 2004, 12,088,512 shares of Common Stock were outstanding.
The aggregate market value of the shares of Common Stock, par value $.03 per
share, held by non-affiliates was approximately $281,035,603. Documents Incorporated by Reference Specified portions of Carmike Cinemas, Inc.s Proxy Statement relating to
the 2004 Annual Meeting of Stockholders are incorporated by reference into Part
III.




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Table of Contents Page NumberPART IITEM 1.
    
    BUSINESS
    
    
    2ITEM 2.
    
    PROPERTIES
    
    
    22ITEM 3.
    
    LEGAL PROCEEDINGS
    
    
    23ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    23EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    23PART IIITEM 5.
    
    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    25ITEM 6.
    
    SELECTED FINANCIAL AND OTHER DATA
    
    
    26ITEM 7.
    
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
    
    
    28ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
    
    
    47ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    47ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
    
    
    48ITEM 9A.
    
    CONTROLS AND PROCEDURES
    
    
    48*PART IIIITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    49ITEM 11.
    
    EXECUTIVE COMPENSATION
    
    
    49ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
    
    
    50ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    50ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    50PART IVITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
    
    
    50EX-21 LIST OF SUBSIDIARIESEX-23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLPEX-23.2 CONSENT OF ERNST & YOUNG LLPEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO
   *
    
    Incorporated by reference from Proxy Statement relating to the
2004 Annual
Meeting of Stockholders. 1




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PART I 
 ITEM 1. BUSINESS. Overview We are one of the largest motion picture exhibitors in the United States.
As of December 31, 2003, we owned, operated or had an interest in 299 theatres
with 2,253 screens located in 35 states, making us the second largest exhibitor
in the country by number of theatres and the fourth largest by number of
screens. We owned 70 of these theatres, leased 225 of these theatres and
operated an additional four theatres under shared ownership. Of our 299
theatres, 259 show films on a first-run basis and 40 are discount theatres. We target small- to mid-size non-urban markets. More than 80% of our
theatres are located in communities with populations of fewer than 100,000
people. We believe there are several benefits of operating in small- to
mid-size markets, including:  
    
    Less competition from other exhibitors.We believe a majority of our
theatres have limited competition for patrons. We believe most of our
markets are already adequately screened and our smaller markets in
particular cannot support significantly more screens. In addition,
because most of our principal competitors are focused on building
megaplexes, we do not expect many of our markets to be targeted by our
competitors for new theatres.
    
    Lower operating costs.We believe that we benefit from lower labor,
occupancy and maintenance costs than most other large exhibitors. For
example, as of December 31, 2003, approximately 48% of our hourly
employees worked for the federal minimum wage. Additionally, we own 70,
or approximately 23%, of our theatres, which we believe provides us with
further cost benefits. We believe the percentage of our owned theatres
is among the highest of the large public theatre exhibitors.
    
    Fewer alternative entertainment opportunities.In our typical
markets, patrons have fewer entertainment alternatives than in larger
markets, where options such as professional sports and cultural events
are more likely to be available.
    
    Greater access to film product.We believe we are the sole exhibitor
in 74.4% of our film licensing zones, which we believe provides us with
greater flexibility in selecting films that meet the preferences of
patrons in our markets. 2




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The following table sets forth geographic information regarding our
theatre circuit as of December 31, 2003: State
    
    Theatres
    
    Screens
    
    State
    
    Theatres
    
    ScreensAlabama
    
    
    17
    
    
    
    152
    
    
    New Mexico
    
    
    1
    
    
    
    2Arkansas
    
    
    10
    
    
    
    88
    
    
    New York
    
    
    1
    
    
    
    8Colorado
    
    
    8
    
    
    
    57
    
    
    North Carolina
    
    
    36
    
    
    
    296Delaware
    
    
    1
    
    
    
    14
    
    
    North Dakota
    
    
    7
    
    
    
    40Florida
    
    
    10
    
    
    
    80
    
    
    Ohio
    
    
    6
    
    
    
    39Georgia
    
    
    27
    
    
    
    226
    
    
    Oklahoma
    
    
    10
    
    
    
    52Idaho
    
    
    4
    
    
    
    17
    
    
    Pennsylvania
    
    
    25
    
    
    
    189Illinois
    
    
    2
    
    
    
    6
    
    
    South Carolina
    
    
    14
    
    
    
    102Iowa
    
    
    9
    
    
    
    87
    
    
    South Dakota
    
    
    5
    
    
    
    35Kansas
    
    
    1
    
    
    
    12
    
    
    Tennessee
    
    
    28
    
    
    
    224Kentucky
    
    
    10
    
    
    
    51
    
    
    Texas
    
    
    12
    
    
    
    91Louisiana
    
    
    3
    
    
    
    22
    
    
    Utah
    
    
    3
    
    
    
    39Maryland
    
    
    1
    
    
    
    8
    
    
    Virginia
    
    
    10
    
    
    
    67Michigan
    
    
    1
    
    
    
    5
    
    
    Washington
    
    
    1
    
    
    
    12Minnesota
    
    
    9
    
    
    
    76
    
    
    West Virginia
    
    
    4
    
    
    
    28Missouri
    
    
    1
    
    
    
    8
    
    
    Wisconsin
    
    
    2
    
    
    
    18Montana
    
    
    13
    
    
    
    74
    
    
    Wyoming
    
    
    2
    
    
    
    9Nebraska
    
    
    5
    
    
    
    19Totals
    
    
    299
    
    
    
    2,253
 From time to time, we convert weaker performing theatres to discount
theatres for the exhibition of films that have previously been shown on a
first-run basis. Many of these theatres are typically in smaller markets where
we are the only exhibitor in the market. At December 31, 2003, we operated 40
theatres with 165 screens as discount theatres. We also operate a very small
number of theatres for the exhibition of first-run films at a reduced admission
price. We are the sole exhibitor in many of the small- to mid-size markets in
which we operate. The introduction of a competing theatre in these markets
could significantly impact the performance of our theatres. In addition, the
type of motion pictures preferred by patrons in these markets is typically more
limited than in larger markets, which increases the importance of selecting
films that will appeal to patrons in our specific theatre markets. Theatre Development and Operations Development We carefully review small- to mid-size markets to evaluate the return on
capital of opportunities to build new theatres or renovate our existing
theatres. The circumstances under which we believe we are best positioned to
benefit from building new theatres are in markets in which:  
    
    we believe building a new theatre provides an attractive cash flow
opportunity;
    
    we already operate a theatre and could best protect that theatre by
expanding our presence; or 3




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
    
    a film licensing zone is currently underserved by an exhibitor. In general, we do not believe that building theatres in film licensing
zones in which competitors operate provides attractive investment opportunities
for us. Our bankruptcy, as discussed below under the caption Our Reorganization,
and the excessive number of screens resulting from the industrys overbuilding
of theatres in the last few years have been significant influences on our
current growth strategy. We opened two theatres during the year ended December
31, 2003. If opportunities exist where new construction will be profitable to
us, we will consider building additional theatres in future periods. From our
bankruptcy through December 31, 2003, we closed 33% of our theatres. We
continuously analyze our theatres and evaluate approaches to optimize our
portfolio. The following table shows information about the changes in our theatre
circuit during the periods presented: AverageScreens/Theatres
    
    Screens
    
    TheatreTotal at December 31, 2000
    
    
    352
    
    
    
    2,438
    
    
    
    6.9New Construction
    
    
    1
    
    
    
    16Closures
    
    
    (30
    )
    
    
    (121
    )Total at December 31, 2001
    
    
    323
    
    
    
    2,333
    
    
    
    7.2New Construction
    
    
    0
    
    
    
    0Closures
    
    
    (15
    )
    
    
    (71
    )Total at December 31, 2002
    
    
    308
    
    
    
    2,262
    
    
    
    7.3New Construction
    
    
    2
    
    
    
    31Closures
    
    
    (11
    )
    
    
    (40
    )Total at December 31, 2003
    
    
    299
    
    
    
    2,253
    
    
    
    7.5
 Operations Our theatre operations are under the supervision of our Chief Operating
Officer, General Manager of Operations and four division managers. The
division managers are responsible for implementing our operating policies and
supervising our eighteen operating districts. Each operating district has a
district manager who is responsible for overseeing the day-to-day operations of
our theatres. Corporate policy development, strategic planning, site selection
and lease negotiation, theatre design and construction, concession purchasing,
film licensing, advertising, and financial and accounting activities are
centralized at our corporate headquarters. We have an incentive bonus program for theatre level management, which
provides for bonuses based on incremental improvements in theatre
profitability, including concession sales. As part of this program, we evaluate
mystery shopper reports on the quality of service, cleanliness and film
presentation at individual theatres. Box office admissions.The majority of our revenues come from the sale of
movie tickets. For the year ended December 31, 2003, box office admissions
totaled $332.1 million, or 67% of total revenues. At December 31, 2003, of our
299 theatres, 259 showed first-run films, which we 4




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license from distributors owned by the major studios, as well as from
independent distributors. The remaining 40 of our theatres featured pictures at
a discount price. Most of the tickets we sell are sold at our theatre box offices
immediately before the start of a picture. As of December 31, 2003, at 38 of
our theatres, patrons can buy tickets in advance either over the phone or on
the Internet. These alternate sales methods do not currently represent a
meaningful portion of our revenues, nor are they expected to be in the near
term. Concessions.Concession sales are our second largest revenue source after
box office admissions, constituting 30% of total revenues for the year ended
December 31, 2003. Our strategy emphasizes quick and efficient service built
around a limited menu primarily focused on higher margin items such as popcorn,
candy and soft drinks. In addition, in a limited number of markets, we offer
bottled water, frozen drinks, coffee, ice cream, hot dogs and pretzels in order
to respond to competitive conditions. We actively seek to promote concession
sales through the design and appearance of our concession stands, the
introduction of special promotions from time to time, by reducing wait times
and by training our employees to up-sell products. In addition, our management
incentive bonus program includes concession results as a component of
determining the bonus awards. We manage all inventory purchasing centrally
with authority required from our central office before orders may be placed. During 2003, we purchased substantially all of our concession supplies and
janitorial supplies from Showtime Concession, except for beverage supplies. We
are by far the largest customer of Showtime Concession. Our current agreement
with Showtime Concession will expire on December 8, 2006. If this relationship
were disrupted, we could be forced to negotiate a number of substitute
arrangements with alternative vendors which are likely to be, in the aggregate,
less favorable to us than the current arrangement. During 2003, we purchased our beverage supplies from The Coca-Cola
Company. Our current agreement with The Coca-Cola Company will expire on June
30, 2004. Under the agreement, The Coca-Cola Company may raise beverage supply
costs and, in fact, has increased such costs by 3.3% beginning January 31, 2004
through the term of the agreement. If beverage supply costs are increased at a
higher rate or we are unable to negotiate favorable terms with The Coca-Cola
Company or a competing beverage supplier when the agreement is up for renewal,
our margins on concessions may be negatively impacted. Other revenues.Most of our theatres include electronic video games
located in or adjacent to the lobby. We also generate revenues through
on-screen advertising on all of our screens. We operate two family
entertainment centers under the name Hollywood Connection® which feature
multiplex theatres and other forms of family entertainment. These revenue
streams comprised the remaining 3% of our revenue generation for the year ended
December 31, 2003. Film Licensing We obtain licenses to exhibit films by directly negotiating with film
distributors. We license films through our booking office located in Columbus,
Georgia. Our Senior Vice President - Film, in consultation with our Chief
Executive Officer, directs our motion picture bookings. 5




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Prior
to negotiating for a film license, our Senior Vice President - Film
and film-booking personnel evaluate the prospects for upcoming films. The
criteria considered for each film include cast, director, plot, performance of
similar films, estimated film rental costs and expected MPAA rating. Because
we only license a portion of newly released first-run films, our success in
licensing depends greatly upon the availability of commercially popular motion
pictures, but also upon our knowledge of the preferences of patrons in our
markets and insight into trends in those preferences. We maintain a database
that includes revenue information on films previously exhibited in our markets.
We use this historical information to match new films with particular markets
so as to maximize revenues. The table below depicts the industrys top 10
films for the year ended December 31, 2003 compared to our top 10 films for the
same period, based on reported gross receipts: Industry
    
    
    
    
    
    Carmike Cinemas1.
    
    Finding Nemo
    
    
    1.
    
    
    Finding Nemo2.
    
    Pirates of the Caribbean: The
Curse of the Black Pearl
    
    
    2.
    
    
    Pirates of the
Caribbean: The Curse
of the Black Pearl3.
    
    The Matrix Reloaded
    
    
    3.
    
    
    Bruce Almighty4.
    
    Lord of the Rings: The Return of
the King
    
    
    4.
    
    
    The Matrix Reloaded5.
    
    Bruce Almighty
    
    
    5.
    
    
    X2: X-Men United6.
    
    X2: X-men United
    
    
    6.
    
    
    Lord of the Rings: The Return on the
King7.
    
    Elf
    
    
    7.
    
    
    Elf8.
    
    Terminator 3: Rise of the Machines
    
    
    8.
    
    
    Anger Management9.
    
    Bad Boys II
    
    
    9.
    
    
    2 Fast 2 Furious10.
    
    The Matrix Revolutions
    
    
    10.
    
    
    The Hulk
 Film Rental Fees We typically enter into licenses that provide for rental fees based on
either firm terms established prior to the opening of the picture or on a
mutually agreed settlement upon the conclusion of the film run. Under a firm
terms formula, we pay the distributor a specified percentage of the box office
receipts, and this percentage declines over the term of the run. Firm term
film rental fees are generally the greater of (1) 60 to 70% of gross box office
receipts, gradually declining to as low as 30% over a period of four to seven
weeks or (2) a specified percentage (e.g., 90%) of the excess gross box office
receipts over a negotiated allowance for theatre expenses (commonly known as a
90-10 arrangement). The settlement process allows for negotiation based upon
how a film actually performs. A firm terms agreement could result in lower
than anticipated film rent if the film outperforms expectations especially with
respect to the films run and, conversely, there is a downside risk when the
film underperforms. Film Licensing Zones Film licensing zones are geographic areas established by film distributors
where any given film is allocated to only one theatre within that area. In our
markets, these zones generally encompass three to five miles. In film
licensing zones where we have little or no competition, we obtain film licenses
by selecting a film from among those offered and negotiating directly with the
distributor. In competitive film licensing zones, a distributor will allocate
its films among the exhibitors in the zone. When films are licensed under the
allocation process, a 6




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distributor will choose which exhibitor is offered a movie and then that
exhibitor will negotiate film rental terms directly with the distributor for
the film. Relationship With Distributors We depend on, among other things, the quality, quantity, availability and
acceptance by movie-going customers of the motion pictures produced by the
motion picture production companies and licensed for exhibition to the motion
picture exhibitors by distribution companies. Disruption in the production of
motion pictures by the major studios and/or independent producers or poor
performance of motion pictures could have an adverse effect on our business. While there are numerous distributors that provide quality first-run
movies to the motion picture exhibition industry, the following ten major
distributors accounted for approximately 99.8% of our box office admissions for
the year ended December 31, 2003: Buena Vista, DreamWorks, Fox, MGM/UA,
Miramax, New Line Cinema, Paramount, Sony, Universal and Warner Brothers. Management Information Systems We have developed a proprietary computer system, which we call IQ-Zero,
that is installed in each of our theatres. IQ-Zero allows us to centralize
most theatre-level administrative functions at our corporate headquarters,
creating significant operating leverage. IQ-Zero allows corporate management
to monitor ticket and concession sales and box office and concession staffing
on a daily basis, enabling our theatre managers to focus on the day-to-day
operations of the theatre. In addition, it also coordinates payroll, tracks
theatre invoices and generates operating reports analyzing film performance and
theatre profitability. IQ-Zero also generates information we use to quickly
detect theft. IQ-2000 is an enhanced version of the IQ-Zero system and has
been installed in our theatres built since 1999. IQ-2000 facilitates new
services such as advanced ticket sales and Internet ticket sales. Its expanded
capacity will allow for future growth and more detailed data tracking and trend
analysis. There is active communication between the theatres and corporate
headquarters, which allows our senior management to react to vital profit and
staffing information on a daily basis and perform the majority of the
theatre-level administrative functions. Competition The motion picture exhibition industry is fragmented and highly
competitive. In markets where we are not the sole exhibitor, we compete
against regional and independent operators as well as the larger theatre
circuit operators. Our operations are subject to varying degrees of competition with respect
to film licensing, attracting customers, obtaining new theatre sites or
acquiring theatre circuits. In those areas where real estate is readily
available, there are few barriers preventing competing companies from opening
theatres near one of our existing theatres, which may have a material adverse
effect on our theatres. Competitors have built or are planning to build
theatres in certain areas in which 7




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we operate, which have resulted and may continue to result in excess
capacity in such areas which adversely affects attendance and pricing at our
theatres in such areas. From the mid- to late-1990s, industry screen count grew faster than
attendance. As a result of this rapid overbuilding, the total number of
screens reached an all-time high of 37,396 in 2000, according to the MPAA.
When the economics of many of these theatres became unsustainable, most major
exhibitors, ourselves included, were required to restructure and to close
underperforming locations. At December 31, 2003, the domestic screen count had
declined to 35,786. We believe the reduction in screen count, combined with
the trends described above, has meaningfully improved the economics of the film
exhibition industry. The opening of large multiplexes and theatres with stadium seating by us
and certain of our competitors has tended to, and is expected to continue to,
draw audiences away from certain older and smaller theatres, including theatres
operated by us. In addition, demographic changes and competitive pressures can
lead to a theatre location becoming impaired. However, at this time we are not
aware of any such situations. In addition to competition with other motion picture exhibitors, our
theatres face competition from a number of alternative motion picture
exhibition delivery systems, such as cable television, satellite and
pay-per-view services and home video systems. The expansion of such delivery
systems could have a material adverse effect upon our business and results of
operations. We also compete for the publics leisure time and disposable
income with all forms of entertainment, including sporting events, concerts,
live theatre and restaurants. Regulatory Environment The distribution of motion pictures is in large part regulated by federal
and state antitrust laws and has been the subject of numerous antitrust cases.
Certain consent decrees resulting from such cases bind certain major motion
picture distributors and require the motion pictures of such distributors to be
offered and licensed to exhibitors, including us, on a theatre-by-theatre
basis. Consequently, exhibitors such as our company cannot assure themselves of
a supply of motion pictures by entering into long-term arrangements with major
distributors but must compete for licenses on a film-by-film and
theatre-by-theatre basis. The Americans with Disabilities Act (ADA), which became effective in
1992, and certain state statutes and local ordinances, among other things,
require that places of public accommodation, including theatres (both existing
and newly constructed), be accessible to patrons with disabilities. The ADA
requires that theatres be constructed to permit persons with disabilities full
use of a theatre and its facilities. Also, the ADA may require certain
modifications be made to existing theatres in order to make them accessible to
patrons and employees who are disabled. For example, we are aware of several
lawsuits that have been filed against other exhibitors by disabled moviegoers
alleging that certain stadium seating designs violate the ADA. 8




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On June 30, 1998, we executed a settlement agreement with the U.S.
Department of Justice under Title III of the ADA. Under the settlement
agreement, we agreed to complete the readily achievable removal of barriers to
accessibility, or alternatives to barrier removal, at two theatres in Des
Moines, Iowa and to distribute to all of our theatres a questionnaire designed
to assist our management in the identification of existing and potential
barriers and a threshold determination of what steps might be available for
removal of such existing and potential barriers. We were not required to pay
any damages or fines. We continue to assess the impact of such questionnaires
on our theatres. We construct new theatres to be accessible to the disabled
and believe we are otherwise in substantial compliance with applicable
regulations relating to accommodating the needs of the disabled. We have a
Director of ADA Compliance to monitor our ADA requirements. Our theatre operations are also subject to federal, state and local laws
governing such matters as construction, renovation and operation of our
theatres as well as wages, working conditions, citizenship, and health and
sanitation requirements and licensing. We believe that our theatres are in
material compliance with such requirements. We own, manage and/or operate theatres and other properties which may be
subject to certain U.S. federal, state and local laws and regulations relating
to environmental protection, including those governing past or present releases
of hazardous substances. Certain of these laws and regulations may impose
joint and several liability on certain statutory classes of persons for the
costs of investigation or remediation of such contamination, regardless of
fault or the legality of original disposal. These persons include the present
or former owner or operator of a contaminated property and companies that
generated, disposed of or arranged for the disposal of hazardous substances
found at the property. Other environmental laws, such as those regulating
wetlands, may affect our site development activities, and some environmental
laws, such as those regulating the use of fuel tanks, could affect our ongoing
operations. Additionally, in the course of maintaining and renovating our
theatres and other properties, we periodically encounter asbestos containing
materials that must be handled and disposed of in accordance with federal,
state and local laws, regulations and ordinances. Such laws may impose
liability for release of asbestos containing materials and may entitle third
parties to seek recovery from owners or operators of real properties for
personal injury associated with asbestos containing materials. We believe that
our activities are in material compliance with such requirements. Employees As of December 31, 2003, we had approximately 9,030 employees, of which 38
were covered by collective bargaining agreements and 7,688 were part-time. As
of December 31, 2003, approximately 48% of our employees were paid at the
federal minimum wage and, accordingly, the minimum wage largely determines our
labor costs for those employees. We believe we are more dependent upon minimum
wage employees than most other motion picture exhibitors. Although our ability
to secure employees at the minimum wage in our smaller markets is advantageous
to us because it lowers our labor costs, we are also more likely than other
exhibitors to be immediately and adversely affected if the minimum wage is
raised. 9




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Properties As of December 31, 2003, we owned 70 of our theatres and leased 225 of our
theatres. We operated an additional four theatres under shared ownership. We typically enter into long-term leases that provide for the payment of
fixed monthly rentals, contingent rentals based on a percentage of revenue over
a specified amount and the payment of property taxes, common area maintenance,
insurance and repairs. We, at our option, can renew a substantial portion of
our theatre leases at the then fair rental rate for various periods with
renewal periods of up to 20 years. We own our headquarters building, which has approximately 48,500 square
feet, in Columbus, Georgia. Pursuant to the terms of industrial revenue bonds
which were issued in connection with the construction of the corporate office,
our interest in the building is encumbered by a lien in favor of the Downtown
Development Authority of Columbus, Georgia. Legal Proceedings From time to time, we are involved in routine litigation and legal
proceedings in the ordinary course of our business, such as personal injury
claims, employment matters, contractual disputes and claims alleging ADA
violations. Currently, we do not have pending any litigation or proceedings
that we believe will have a material adverse effect, either individually or in
the aggregate, upon us. In addition, we emerged from bankruptcy under chapter
11 on January 31, 2002. The chapter 11 filing and our subsequent
reorganization are discussed under Our Reorganization. Trademarks and Tradenames We own or have rights to trademarks or trade names that are used in
conjunction with the operations of our theatres. We own Carmike Cinemas® and
Hollywood Connection® trademarks. In addition, our logo is our trademark.
Coca-Cola® is a registered trademark used in this annual report on Form 10-K
and is owned by and belongs to The Coca-Cola Company. Website Access Our website address is www.carmike.com. You may obtain free electronic
copies of our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports, at our website
under the heading Corporate Information. These reports are available on our
website as soon as reasonably practicable after we electronically file such
material, or furnish it to, the Securities and Exchange Commission. Our Reorganization On August 8, 2000, we and our subsidiaries Eastwynn Theatres, Inc., Wooden
Nickel Pub, Inc. and Military Services, Inc. filed voluntary petitions for
relief under chapter 11 of the 10




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bankruptcy code. 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 became effective on January 31, 2002. In our reorganization, substantially all of our unsecured and partially
secured liabilities as of August 8, 2000, were subject to compromise or other
treatment until the plan of reorganization was confirmed by the bankruptcy
court. Generally, actions to enforce or otherwise effect repayment of all
pre-chapter 11 liabilities as well as all pending litigation against us were
stayed while we continued our business operations as debtors-in-possession. Background Our reorganization resulted from a sequence of events and the unforeseen
effect that these events had in the aggregate on us. Weak film performance
during the summer of 2000 contributed to our lower revenues for that summer,
which were significantly below our internal projections. Like our competitors,
we had increased our costs by expending significant funds in building
megaplexes and in making improvements to existing theatres in order to attract
and accommodate larger audiences. Consequently, the effect of poor summer
returns was substantial on our efforts to comply with the financial covenants
under our then $200 million revolving credit facility and $75 million term loan
credit agreement, which we sometimes refer to as the pre-reorganization bank
facilities. On June 30, 2000, we were in technical default of certain
financial covenants contained in the pre-reorganization bank facilities and
were unable to negotiate amendments with the lenders to resolve these
compliance issues, as we had been able to do in the past. On July 28, 2000,
the agents under the pre-reorganization bank facilities issued a payment
blockage notice to us and the indenture trustee for our 9 3/8% senior
subordinated notes due 2009, (the Original Senior Subordinated Notes),
prohibiting our payment of the semi-annual interest payment in the amount of
$9.4 million due to the noteholders on August 1, 2000. Faced with, among other
things, significant operating shortfalls, unavailability of credit and problems
dealing with our lenders, we voluntarily filed for bankruptcy in order to
continue our business. Operations During Reorganization We could not pay pre-petition debts without prior bankruptcy court
approval during our bankruptcy case. Immediately after the commencement of our
bankruptcy case, we sought and obtained several orders from the bankruptcy
court which were intended to stabilize our business and enable us to continue
operations as debtors-in-possession. The most significant of these orders:  
    
    permitted us to operate our consolidated cash management system
during our bankruptcy case in substantially the same manner as it was
operated prior to the commencement of our bankruptcy case;
    
    authorized payment of pre-petition wages, vacation pay and employee
benefits and reimbursement of employee business expenses; 11




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
    
    authorized payment of pre-petition sales and use taxes we owed;
    
    authorized us to pay up to $2.3 million of pre-petition obligations
to critical vendors, common carriers and workers compensation
insurance, to aid us in maintaining operation of our theatres, and $37.2
million to film distributors as set forth below; and
    
    authorized debt service payments for the loan related to Industrial
Revenue Bonds issued by the Downtown Development Authority of Columbus,
Georgia. As debtors-in-possession, we had the right during the reorganization
period, subject to bankruptcy court approval and other limitations, to assume
or reject executory contracts and unexpired leases on our theatres. In this
context, assumption means that we agree to perform our obligations and cure
all existing defaults under the contract or lease, and rejection means that
we are relieved from our obligations to perform further under the contract or
lease but are subject to a claim for damages for breach of the rejected
contract or lease. Any damages resulting from rejection of executory contracts
and unexpired leases were treated as general unsecured claims in our
reorganization. During the reorganization period, we received approval from
the bankruptcy court to reject theatre leases relating to 136 of our theatre
locations. As of the date of our bankruptcy petition, film distributors held claims
against us aggregating approximately $37.2 million. After we commenced our
bankruptcy, several distributors elected to cease supplying us with new film
product until their claims against us for pre-petition film exhibition fees
were paid in full. We negotiated an agreement with each of our principal film
distributors to repay their pre-petition claims for film exhibition fees in
full in 17 weekly installments. Based on those agreements, the film
distributors began to supply us with new film product again. Our payments
under the agreements began on September 18, 2000 and were concluded by December
26, 2000. In connection with our reorganization, we reached an agreement to
restructure our master lease facility, which we refer to as the Original
MoviePlex Lease, with MoviePlex Realty Leasing, L.L.C. and entered into the
Second Amended and Restated Master Lease, dated as of September 1, 2001. Under
our new MoviePlex master lease, we leased six MoviePlex properties for 15 years
with an option to extend the term for an additional five years. The Original
MoviePlex Lease was terminated and pre-petition defaults under the Original
MoviePlex Lease were cured up to a maximum amount of $493,680. The initial
first twelve months base rent for the six theatres is an aggregate of $5.4
million per year ($450,000 per month), subject to periodic increases thereafter
and certain additional rent obligations such as percentage rent. Percentage
rent is an amount equal to 12% of all aggregate revenue we earn in the leased
theatres in excess of one-half of ten times our base rent for any lease year. Our Plan Of Reorganization The material features of the plan of reorganization are described below:  
    
    The plan of reorganization provided for the issuance or reservation
for future issuance of up to 10,000,000 shares of common stock in the
aggregate (20,000,000 shares of common stock are authorized in our
amended and restated certificate of incorporation), and for the 12




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cancellation of all of our then existing Class A and Class B common stock
and preferred stock. As of December 31, 2003, we had 9,088,512 shares of a
single class of common stock outstanding.
    
    The holders of our cancelled Class A and Class B common stock
received in the aggregate 22.2% of the shares reserved for issuance
under the plan of reorganization.
    
    The holders of our cancelled Series A preferred stock received in the
aggregate 41.2% of the shares reserved for issuance under the plan of
reorganization. These holders are affiliates of Carmike and have board
representation.
    
    Certain holders of $45.7 million in aggregate principal amount of the
cancelled 9 3/8% senior subordinated notes we issued prior to our
reorganization received in the aggregate 26.6% of the shares reserved
for issuance under the plan of reorganization. These holders are
affiliates of Carmike and have board representation.
    
    We reserved 1,000,000 shares of our common stock for issuance under a
new management incentive plan, which we refer to as the 2002 Stock Plan.
Under the 2002 Stock Plan, 780,000 shares were authorized for issuance
to Michael W. Patrick pursuant to his new employment agreement as our
Chief Executive Officer and 220,000 were authorized for issuance to
seven other members of our senior management.
    
    Certain banks holding claims in our reorganization received
replacement debt and cash in the amount of $35.6 million, representing
accrued and unpaid post-petition interest on their prior claims from
August 8, 2000 to January 31, 2002. The prior bank claims arose under
(1) the Amended and Restated Credit Agreement among the banks party
thereto and Wachovia Bank, N.A., as agent, and us, dated as of January
29, 1999, and amended as of March 31, 2000 and (2) the term loan credit
agreement among the banks party thereto, Wachovia Bank, N.A., as
administrative agent, Goldman Sachs Credit Partners, L.P., as
syndication agent, and First Union National Bank, as documentation
agent, and us, dated as of February 25, 1999, as amended as of July 13,
1999, and further amended as of March 31, 2000. The replacement debt was
approximately $254.5 million and carried interest at the greater of: (a)
at our option, (i) a specified base rate plus 3.5% or (ii) an adjusted
LIBOR plus 4.5%; and (b) 7.75% per annum.
    
    We issued $154.3 million of our former 10 3/8% senior subordinated
notes due 2009 in exchange for $154.3 million aggregate principal amount
of the claims in our reorganization concerning the 9 3/8% senior
subordinated notes.
    
    Leases covering 136 of our underperforming theatres were rejected.
Lease terminations and settlement agreements are being negotiated for
the resolution of lease termination claims, and the restructuring or
other disposition of lease obligations.
    
    We agreed to pay our general unsecured creditors the amount of their
allowed claims in our reorganization, including claims for damages
resulting from the rejection of executory contracts and unexpired
leases, plus interest on those amounts at an annual rate of 9.4%. At
December 31, 2003, the amount of such claims remaining unpaid was $29.5
million, and the aggregate accrued interest on such claims was $3.7
million. Of the $29.5 million in 13




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remaining claims, $21.5 million are disputed. As such, our ultimate
liability for these claims is uncertain and is subject to bankruptcy court
resolution. On the effective date of our reorganization, we entered into a $254.5
million term loan credit agreement, which governed the terms of the banks
replacement debt. On the same date we closed on a revolving credit agreement
totaling $50.0 million. We borrowed $20.0 million of the revolving credit
agreement in partial repayment of our obligations owing to the banks under the
term loan credit agreement, and we repaid all outstanding amounts under the
revolving credit agreement. Risk Factors The following are risk factors for Carmike. Our business will be adversely affected if there is a decline in the number of
motion pictures available for screening or in the appeal of motion pictures to
patrons. Our business 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. Our results of
operations will vary from period to period based upon the number and popularity
of the motion pictures we show in our theatres. A disruption in the production
of motion pictures by, or a reduction in the marketing efforts of, the major
studios and/or independent producers, a lack of motion pictures, the poor
performance of motion pictures in general 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 substantial lease and debt obligations could impair our financial
flexibility and our competitive position. We now have, and will continue to have, significant debt obligations. Our
current long-term debt obligations are as follows:  
    
    Our new term loan credit agreement provides for borrowings of up to
$100.0 million, of which all was outstanding as of February 27, 2004.
    
    Our new revolving credit agreement provides for borrowings of up to
$50.0 million. There were no amounts outstanding as of February 27,
2004.
    
    Our 7.500% senior subordinated notes, issued as of February 4, 2004,
total $150.0 million.
    
    Amounts owed on our industrial revenue bonds total $0.7 million at
December 31, 2003.
    
    As of February 27, 2004, we estimate that our general unsecured
creditors will receive an aggregate of $21.4 million plus interest at an
annual rate of 9.4% in resolution of their allowed claims, with a final
maturity date of January 31, 2007. As of February 27, 2004, total
accrued interest on these claims was approximately $4 million. Of these claims,
$21.4 million are disputed. 14




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We also have, and will continue to have, significant lease obligations.
As of December 31, 2003, our total capital and operating lease obligations for
leases with terms over one year totaled $641.8 million. These obligations could have important consequences for us. For example,
they could:  
    
    limit our ability to obtain necessary financing in the future and
make it more difficult for us to satisfy our lease and debt obligations;
    
    require us to dedicate a substantial portion of our cash flow to
payments on our lease and debt obligations, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures and other corporate requirements;
    
    make us more vulnerable to a downturn in our business and limit our
flexibility to plan for, or react to, changes in our business; and
    
    place us at a competitive disadvantage compared to competitors that
might have stronger balance sheets or better access to capital by, for
example, limiting our ability to enter into new markets or renovate our
theatres. If we are unable to meet our lease and debt obligations, we could be
forced to restructure or refinance our obligations, to seek additional equity
financing or to sell assets, which we may not be able to do on satisfactory
terms or at all. As a result, we could default on those obligations. We may not generate sufficient cash flow to meet our needs. Our ability to service our indebtedness and to fund potential capital
expenditures for theatre construction, expansion or renovation will require a
significant amount of cash, which depends on many factors beyond our control.
Our ability to make scheduled payments of principal, to pay the interest on or
to refinance our indebtedness is subject to general industry economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. We cannot assure you that our business will generate
sufficient cash flow from operations to meet our needs. Our business is subject to significant competitive pressures. Large multiplex theatres, which we and some of our competitors built, have
tended to and are expected to continue to draw audiences away from certain
older theatres, including some of our theatres. In addition, demographic
changes and competitive pressures can lead to the impairment of a theatre.
Over the last several years, we and many of our competitors have closed a
significant number of theatres. Our competitors or smaller entrepreneurial
developers may purchase or lease these abandoned buildings and reopen them as
theatres in competition with us. We face varying degrees of competition from other motion picture
exhibitors with respect to licensing films, attracting customers, obtaining new
theatre sites and acquiring theatre circuits. In those areas where real estate
is readily available, there are few barriers preventing competing companies
from opening theatres near one of our existing theatres. Competitors have
built and are planning to build theatres in certain areas in which we operate.
In the past, these 15




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developments have resulted and may continue to result in excess capacity
in those areas, adversely affecting attendance and pricing at our theatres in
those areas. Even where we are the only exhibitor in a film licensing zone
(and therefore do not compete for films), we still may experience competition
for patrons from theatres in neighboring zones. There have also been a number
of consolidations in the film exhibition industry, and the impact of these
consolidations could have an adverse effect on our business if greater size
would give larger operators an advantage in negotiating licensing terms. Our theatres also compete with a number of other motion picture delivery
systems including cable television, pay-per-view, video disks and cassettes,
satellite and home video systems. New technologies for motion picture delivery
(such as video on demand) could also have a material adverse effect on our
business and results of operations. While the impact of these alternative
types of motion picture delivery systems on the motion picture exhibition
industry is difficult to determine precisely, there is a risk that they could
adversely affect attendance at motion pictures shown in theatres. Theatres also face competition from a variety of other forms of
entertainment competing for the publics leisure time and disposable income,
including sporting events, concerts, live theatre and restaurants. Our revenues vary significantly depending upon the timing of the motion picture
releases by distributors. Our business is seasonal, with higher revenues generated during the summer
months and year-end holiday season. While motion picture distributors have
begun to release major motion pictures more evenly throughout the year, the
most marketable motion pictures 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. Additionally, the unexpected emergence
of a hit film may occur in these or other periods. As a result, the timing
of motion picture releases affects our results of operations, which may vary
significantly from quarter to quarter and year to year. If we do not comply with the covenants in our credit agreements or otherwise
default under them, we may not have the funds necessary to pay all our amounts
that could become due. On February 4, 2004, we completed an offering of $150 million of 7.500%
senior subordinated notes due 2014 to institutional investors and entered into
new senior secured credit facilities consisting of a $50 million revolving
credit facility and a $100 million five-year term loan. The notes offering and
the new credit facilities replaced our post-bankruptcy term loan credit
agreement, post-bankruptcy revolving credit agreement and 10 3/8% senior
subordinated notes, which had been in place since our reorganization. Under
the indenture that governs the 7.500% senior subordinated notes and the
agreements relating to the new senior secured credit facilities, we are subject
to limitations on our ability to incur additional indebtedness, make capital
expenditures and other customary covenants. We may be unable to fund our additional capital needs. 16




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Our access to capital may be limited because of our current leverage. In
addition, because of our bankruptcy, we may have difficulty obtaining financing
for new development on terms that we find attractive. Traditional sources of
financing new theatres through landlords may be unavailable for a number of
years. The opening of large multiplexes by our competitors and the opening of
newer theatres with stadium seating in certain of our markets have led us to
reassess a number of our theatre locations to determine whether to renovate or
to dispose of underperforming locations. Further advances in theatre design
may also require us to make substantial capital expenditures in the future or
to close older theatres that cannot be economically renovated in order to
compete with new developments in theatre design. We are subject to restrictions imposed by our lenders that limit the
amount of our capital expenditures. As a result, we may be unable to make the
capital expenditures that we would otherwise believe necessary. In addition,
we cannot assure you that our business will generate sufficient cash flow from
operations, that currently anticipated revenue growth will be realized or that
future capital will be available for us to fund our capital expenditure needs. We may be limited in our ability to utilize, or may not be able to utilize, net
operating loss carryforwards to reduce our future tax liability. As of December 31, 2003, after utilizing approximately $25.0 million for
2003, we had approximately $90.4 million of federal and state operating loss
carryforwards with which to offset our future taxable income. Section 382 of
the Internal Revenue Code of 1986 imposes an annual limitation on the use of a
corporations net operating loss carryforwards if the corporation undergoes an
ownership change, which in general terms is a change in beneficial ownership
of the companys stock that exceeds 50 percentage points during a three year
testing period. The determination of whether we underwent an ownership change for purposes
of section 382 as a result of the issuance of common stock pursuant to our plan
of reorganization (the Plan Stock Issuance) is subject to a number of highly
complex legal issues and factual uncertainties. In our federal income tax
return for 2002, we reported the Plan Stock Issuance as causing a section 382
ownership change, although the matter is not free from doubt and arguments can
be advanced to support the contrary position. Based on our reported tax
treatment, we believe that the special exception in section 382(l)(5) available
to debtors in bankruptcy applied, so that our net operating loss carryforwards
did not become subject to a section 382 limitation as a result of the Plan
Stock Issuance. If, however, we underwent a second ownership change within two
years following our date of reorganization  that is, by January 31, 2004  and
assuming that the Plan Stock Issuance caused an ownership change, our net
operating losses would have become subject to a section 382 limitation of zero
and their future use effectively would have been eliminated. While we do not
believe that the sale of our common stock in the offering we completed on
February 4, 2004 caused a second ownership change, future changes in the direct
or indirect beneficial ownership of our common stock, which may be beyond our
control, could trigger an ownership change and thus limit, or possibly
eliminate altogether, our ability to use these net operating loss carryforwards
in a subsequent taxable year. 17




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If it were determined that we did not undergo an ownership change as a
result of the Plan Stock Issuance, the issuance of common stock in our recently
completed offering would trigger an ownership change, which would cause our net
operating loss carryforwards to become subject to an annual limitation on their
use equal to the value of our equity immediately prior to the date of the
ownership change, subject to certain adjustments, multiplied by the applicable
federal long-term tax-exempt interest rate. Deterioration in our relationships with any of the major film distributors
could adversely affect our access to commercially successful films and could
adversely affect our business and results of operations. Our business depends to a significant degree on maintaining good
relationships with the major film distributors that license films to our
theatres. A deterioration in our relationships with any of the major film
distributors could adversely affect our access to commercially successful films
and adversely affect our business and results of operations. We suffered such
a deterioration for a period of time while we were in bankruptcy. When we
commenced our bankruptcy, several film distributors ceased supplying us with
new film product in light of their claims against us for exhibition fees
aggregating approximately $37.2 million. Those film distributors recommenced
supplying us with new film product upon our agreeing to pay their claims in
full, which we did in 17 weekly installments ending on December 26, 2000. Because the distribution of motion pictures is in large part regulated by
federal and state antitrust laws and has been the subject of numerous antitrust
cases, we cannot ensure a supply of motion pictures by entering into long-term
arrangements with major distributors. Rather, we must compete for licenses on
a film-by-film and theatre-by-theatre basis and are required to negotiate
licenses for each film and for each theatre individually. Our success depends on our ability to retain key personnel. We believe that our success is due in part to our experienced management
team. We depend in large part on the continued contribution of our senior
management and, in particular, Michael W. Patrick, our President and Chief
Executive Officer. Losing the services of one or more members of our senior
management could adversely affect our business and results of operations. We
entered into a five-year employment agreement with Michael W. Patrick as Chief
Executive Officer on January 31, 2002, the term of which extends for one year
each December 31, provided that neither we nor Mr. Patrick chooses not to
extend the agreement. We maintain no key man life insurance policies for any
senior officers or managers except for a $1.8 million policy covering Mr.
Patrick. We face uncertainties related to digital cinema. If a digital cinema roll-out progresses rapidly, we may not have adequate
resources to finance the conversion costs. Digital cinema is in an
experimental stage in the motion picture exhibition 18




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industry. There are multiple parties competing to be the leading
manufacturer of digital cinema technology. However, there are significant
obstacles to the acceptance of digital cinema, including quality of image and
costs. Electronic projectors will require substantial investment in
re-equipping theatres. If the conversion process rapidly accelerates, we may
have to raise additional capital to finance the conversion costs associated
with it. The additional capital necessary may not, however, be available to us
on terms we deem acceptable. A prolonged economic downturn could materially affect our business by reducing
amounts consumers spend on attending movies. Our business depends on consumers voluntarily spending discretionary funds
on leisure activities. Movie theatre attendance may be affected by prolonged
negative trends in the general economy that adversely affect consumer spending.
Any reduction in consumer confidence or disposable income in general may
affect the demand for movies or severely impact the motion picture production
industry such that our business and operations could be adversely affected. Compliance with the Americans with Disabilities Act could require us to incur
significant capital expenditures and litigation costs in the future. The Americans with Disabilities Act of 1990, or the ADA, and certain state
statutes and local ordinances, among other things, require that places of
public accommodation, including both existing and newly constructed theatres,
be accessible to customers with disabilities. The ADA requires that theatres
be constructed to permit persons with disabilities full use of a theatre and
its facilities. The ADA may also require that certain modifications be made to
existing theatres in order to make them accessible to patrons and employees who
are disabled. We are subject to a settlement agreement arising from a
complaint filed with the U.S. Department of Justice concerning theatres
operated by us in Des Moines, Iowa. As a result of the settlement agreement,
we removed barriers to accessibility at two Des Moines theatres and distributed
to all of our theatre managers a questionnaire designed to assist our central
management in identifying existing and potential barriers and determining what
steps might be available for removal of such existing and potential barriers. We are aware of several lawsuits that have been filed against other motion
picture exhibitors by disabled moviegoers alleging that certain stadium seating
designs violated the ADA. If we fail to comply with the ADA, remedies could
include imposition of injunctive relief, fines, awards for damages to private
litigants and additional capital expenditures to remedy non-compliance.
Imposition of significant fines, damage awards or capital expenditures to cure
non-compliance could adversely affect our business and operating results. We are subject to other federal, state and local laws which limit the manner in
which we may conduct our business. Our theatre operations are subject to federal, state and local laws
governing matters such as construction, renovation and operation of our
theatres as well as wages, working conditions, citizenship and health and
sanitation requirements and licensing. While we believe that our theatres are
in material compliance with these requirements, we cannot predict the extent to 19




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which any future laws or regulations that regulate employment matters will
impact our operations. At December 31, 2003, approximately 48% of our
employees were paid at the federal minimum wage and, accordingly, the minimum
wage largely determines our labor costs for those employees. Increases in the
minimum wage will increase our labor costs. Disruption of our relationship with our primary concession suppliers could harm
our margins on concessions. We purchase substantially all of our concession supplies, except for
beverage supplies, as well as janitorial supplies from Showtime Concession
Supply, Inc. and are by far its largest customer. In return for our concession
supplies, we pay Showtime Concession at set prices that are based on the type
of concession supplied. Our current agreement with Showtime Concession will
expire on December 8, 2006. If this relationship were disrupted, we could be
forced to negotiate a number of substitute arrangements with alternative
vendors which are likely to be, in the aggregate, less favorable to us than the
current arrangement. We purchase our beverage supplies from The Coca-Cola Company. Our current
agreement with The Coca-Cola Company will expire on June 30, 2004. Under the
agreement, The Coca-Cola Company may raise beverage supply costs and, in fact,
has increased such costs by 3.3% beginning January 31, 2004 through the term of
the agreement. If beverage supply costs are increased at a higher rate or we
are unable to negotiate favorable terms with The Coca-Cola Company or a
competing beverage supplier when the agreement is up for renewal, our margins
on concessions may be negatively impacted. Our development of new theatres poses a number of risks. We plan to continue to expand our operations through the development of
new theatres and the expansion of existing theatres. Developing new theatres
poses a number of risks. Construction of new theatres may result in cost
overruns, delays or unanticipated expenses related to zoning or tax laws.
Desirable sites for new theatres may be unavailable or expensive, and the
markets in which new theatres are located may deteriorate over time.
Additionally, the market potential of new theatre sites cannot be precisely
determined, and our theatres may face competition in new markets from
unexpected sources. Newly constructed theatres may not perform up to our
expectations. We face significant competition for potential theatre locations and for
opportunities to acquire existing theatres and theatre circuits. Because of
this competition, we may be unable to add to our theatre circuit on terms we
consider acceptable. If we determine that assets are impaired, we will be required to recognize a
charge to earnings. The opening of large multiplexes and theatres with stadium seating by us
and certain of our competitors has tended to, and is expected to continue to,
draw audiences away from certain older theatres, including some of our
theatres. In addition, demographic changes and competitive pressures can lead
to the impairment of a theatre. Whenever events or changes in circumstances
indicate that the carrying amount of an asset or a group of assets may not be 20




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recoverable, we review those assets to be held and used in the business
for impairment of long-lived assets and goodwill. We also periodically review
and monitor our internal management reports and the competition in our markets
for indicators of impairment of individual theatres. If we determine that
assets are impaired, we are required to recognize a charge to earnings. We had impairment charges in four of the last five fiscal years totaling
$187.5 million. Our impairment charge recognized for 2001 was significantly
larger than in prior years due to the write-off of leasehold improvements on
rejected theatres, the impact of closing owned theatres, the diminished value
of our entertainment centers and the write-down of surplus equipment removed
from closed theatres. Additionally, in 2001 we included equipment in the
theatre valuation calculations based on the reduced capital building program in
the future as well as the excess supply of equipment in inventory. We incurred
no impairment charge in 2002. For fiscal year 2003, our impairment charge was
$1.1 million. Through December 31, 2003, we believe we have properly tested
for impairments. There can be no assurance that we will not take additional
charges in the future related to the impairment of our assets. Our bankruptcy reorganization could harm our business, financial condition and
results of operations. We estimate that our aggregate liability at December 31, 2003 for general
unsecured creditors is approximately $29.5 million, which includes our
estimated liability for damages resulting from the rejection of executory
contracts and unexpired leases which we have not already paid. As of December
31, 2003, total accrued interest on these claims was $3.7 million. Subsequent
to December 31, 2003, we paid approximately $7.6 million of these claims, with
$0.5 million reduced due to changes in estimates. Certain of these claims
remain unsettled and are subject to ongoing negotiation and possible
litigation. We estimate the amount of the disputed claims at December 31, 2003
to be $21.5 million; however, the final amounts we pay in satisfaction of the
claims will depend on the bankruptcy courts determination. In addition, new
claims could be asserted that could exceed our estimate. The final amounts
paid in connection with these claims could materially exceed our current
estimates, which could reduce our profitability or cause us to incur losses
that would impair our ability to make required principal and interest payments
on our indebtedness and affect the trading price of our common stock. In addition, our past inability to meet our obligations that resulted in
our filing for bankruptcy protection, or the perception that we may not be able
to meet our obligations in the future, could adversely affect our ability to
obtain adequate financing, to enter into new leases for theatres or to retain
or attract high-quality employees. It could also adversely affect our
relationships with our suppliers. Our business makes us vulnerable to future fears of terrorism. If future terrorist incidents or threats cause our customers to avoid
crowded settings such as theatres, our attendance would be adversely affected. 21




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We have significant stockholders with the ability to influence our actions. Entities affiliated with Goldman, Sachs & Co. beneficially owned
approximately 25% of the shares of our common stock following the recently
completed common stock offering. This ownership interest and the Goldman
entities board representation allows them to have significant input on major
corporate decisions. The Goldman entities may exert their influence in a manner
that is not consistent with the interests of other stockholders. Our certificate of incorporation and bylaws contain provisions that make it
more difficult to effect a change in control of the company. Certain provisions of our certificate of incorporation and bylaws and the
Delaware General Corporation Law could have the effect of delaying, deterring
or preventing a change in control of the company not approved by the board of
directors, even if the change in control were in the stockholders interests.
Under our certificate of incorporation, our board of directors has the
authority to issue up to one million shares of preferred stock and to determine
the price, rights, preferences and privileges of those shares without any
further vote or action by our stockholders. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. While we have
no present intention to issue shares of preferred stock, an issuance of
preferred stock in the future could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
company. In addition, our bylaws provide that a special meeting of the
stockholders of the company may only be called by the Chairman, President or
Secretary, at the request in writing of a majority of our board of directors or
at the request in writing of stockholders owning at least 66 2/3% of our
capital stock then issued and outstanding and entitled to vote. Further, we are subject to the anti-takeover provisions of section 203 of
the Delaware General Corporation Law, which prohibits us from engaging in a
business combination with an interested stockholder for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The application of section 203 could have the effect of
delaying or preventing a change of control that could be advantageous to the
stockholders. 
 ITEM 2. PROPERTIES. As of December 31, 2003, we owned 70 of our theatres and leased 225 of our
theatres. We operated an additional four theatres under shared ownership. We typically enter into long-term leases that provide for the payment of
fixed monthly rentals, contingent rentals based on a percentage of revenue over
a specified amount and the payment of property taxes, common area maintenance,
insurance and repairs. We, at our option, can renew a substantial portion of
our theatre leases at the then fair rental rate for various periods with
renewal periods of up to 20 years. We own our headquarters building, which has approximately 48,500 square
feet, in Columbus, Georgia. Pursuant to the terms of industrial revenue bonds
which were issued in 22




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##### Table of Contents



connection with the construction of the corporate office, our interest in
the building is encumbered by a lien in favor of the Downtown Development
Authority of Columbus, Georgia. 
 ITEM 3. LEGAL PROCEEDINGS. From time to time, we are involved in routine litigation and legal
proceedings in the ordinary course of our business, such as personal injury
claims, employment matters, contractual disputes and claims alleging ADA
violations. Currently, we do not have pending any litigation or proceedings
that we believe will have a material adverse effect, either individually or in
the aggregate, upon our financial position, liquidity or results of operations. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders during the
last quarter of the year ended December 31, 2003. 
 EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth certain information as of March 15, 2004
regarding the executive officers of Carmike. For purposes of this section,
references to Carmike include Carmikes predecessor, Martin Theatres, Inc. Name
    
    Age
    
    TitleMichael W. Patrick
    
    
    53
    
    
    President, Chief Executive Officer and Chairman of the Board of DirectorsFred W. Van Noy
    
    
    46
    
    
    Senior Vice President, Chief Operating OfficerMartin A. Durant
    
    
    55
    
    
    Senior Vice President  Finance, Treasurer and Chief
Financial OfficerAnthony J. Rhead
    
    
    62
    
    
    Senior Vice President  Film and SecretaryH. Madison Shirley
    
    
    51
    
    
    Senior Vice President  Concessions and Assistant SecretaryMarilyn B. Grant
    
    
    56
    
    
    Vice President  AdvertisingPhilip A. Smitley
    
    
    45
    
    
    Assistant Vice President and Controller
 Michael W. Patrickhas served as Carmikes President since October 1981,
director since April 1982, Chief Executive Officer since March 1989 and
Chairman of the Board of Directors since January 2002. He joined Carmike in
1970 and served in a number of operational and film booking and buying
capacities prior to becoming President. Mr. Patrick serves as a director of
the Will Rogers Institute, and he is a member of the Board of Trustees of
Columbus State University Foundation, Inc. 23




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##### Table of Contents



Fred W. Van Noyjoined Carmike in 1975. He served as a District Manager
from 1984 to 1985 and as Western Division Manager from 1985 to 1988, when he
became Vice President  General Manager. In December 1997, he was elected to
the position of Senior Vice President  Operations. In November 2000, he
became Senior Vice President  Chief Operating Officer. Martin A. Durantjoined Carmike in July 1999 as Senior Vice President 
Finance, Treasurer and Chief Financial Officer. Prior to joining Carmike, Mr.
Durant was Senior Vice President  Corporate Services for AFLAC Incorporated, a
Columbus, Georgia based international holding company, for a period of ten
years. Prior to his position with AFLAC he was President of a venture capital
firm located in Florida. Mr. Durant began his career with KPMG Peat Marwick
and is a Certified Public Accountant. Anthony J. Rheadjoined Carmike in June 1981 as manager of the booking
office in Charlotte, North Carolina. In July 1983, Mr. Rhead became Vice
President  Film, in December 1997 was elected Senior Vice President  Film and
in January 2002 he was elected Senior Vice President  Film and Secretarty.
Prior to joining Carmike, he worked as a film booker for Plitt Theatres, Inc.
from 1973 to 1981. H. Madison Shirleyjoined Carmike in 1976 as a theatre manager. He served
as a District Manager from 1983 to 1987 and as Director of Concessions from
1987 until 1990. He became Vice President  Concessions in 1990 and Senior
Vice President  Concessions and Assistant Secretary in December 1997. Marilyn B. Grantjoined Carmike in 1975 as a bookkeeper. She served as
Advertising Coordinator from 1984 to 1985 and became the Director of
Advertising in 1985. In August 1990, she was elected to her present position
as Vice President  Advertising. Philip A. Smitleyjoined Carmike in April 1997 as Controller. In January
1998, he was elected to his present position of Assistant Vice President and
Controller. In March 1999, he assumed the duties of interim Chief Financial
Officer pending the appointment of Martin A. Durant in July 1999. Prior to
joining Carmike, Mr. Smitley was Divisional Controller  Transportation of
Burnham Service Corporation, a trucking company. On March 22, 2002, Mr.
Smitley filed a personal voluntary petition for relief under Chapter 7 of the
Federal Bankruptcy Code in the United States Bankruptcy Court of the Middle
District of Alabama. This petition was discharged on August 2, 2002. All of the executive officers were serving as our executive officers or
those of our subsidiaries when we filed our voluntary petition for relief under
the bankruptcy code. 24




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##### Table of Contents



PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock is currently traded on the Nasdaq National Market under
the symbol CKEC, but it has traded on the NASDs over-the-counter Bulletin
Board (the OTCBB) and the New York Stock Exchange at different times in the
past. From January 31, 2002 until May 22, 2002, our new common stock was
traded on the OTCBB under the symbol CMKC. Prior to that time, our
pre-reorganization Class A common stock traded on the OTCBB under the symbol
CKECQ from January 17, 2001 until January 30, 2002. The Class A common stock
previously traded on the New York Stock Exchange under the symbol CKE until
trading in our stock on the New York Stock Exchange was suspended prior to
trading on January 12, 2001 because we had fallen below certain New York Stock
Exchange criteria for continued listing. The last reported sale price of the common stock on March 15, 2004 was
$36.90 per share. The table below sets forth the high and low closing prices
of our new common stock from January 31, 2002 through December 31, 2003: 2003
    
    High
    
    LowFourth Quarter
    
    $
    36.53
    
    
    $
    26.25Third Quarter
    
    
    27.44
    
    
    
    20.76Second Quarter
    
    
    23.66
    
    
    
    19.30First Quarter
    
    
    23.14
    
    
    
    18.58
 2002
    
    High
    
    LowFourth Quarter
    
    $
    21.32
    
    
    $
    16.60Third Quarter
    
    
    25.70
    
    
    
    16.45Second Quarter
    
    
    30.12
    
    
    
    19.50First Quarter
    
    
    21.25
    
    
    
    15.50
 As of March 15, 2004, there were approximately 249 record holders of our
common stock and there were no shares of any other class of stock issued and
outstanding. During fiscal year 2003, we did not make any sales of unregistered equity
securities. We have never declared or paid a dividend on our common stock. However,
our board of directors intends to declare a quarterly dividend of $0.175 per
share of common stock in the second quarter of 2004. We intend to pay
quarterly dividends for the foreseeable future at our boards discretion,
subject to many considerations, including limitations imposed by covenants in
the indenture for our 7.500% senior subordinated notes and our new credit
facilities, operating results, capital requirements and other factors. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources  Material Credit Agreement and
Covenant Compliance. 25




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL AND OTHER DATA. The consolidated selected financial and other data below should be read in
conjunction with Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated financial statements
and notes thereto. The selected financial and other data for each of the four
fiscal years in the period ended December 31, 2002 are derived from our
consolidated financial statements which have been audited by Ernst & Young LLP,
independent auditors. The data presented for the period ended December 31,
2003 is derived from our consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent auditors. During the period from August 8, 2000 through January 31, 2002, we
operated as a debtor-in-possession under chapter 11 of the bankruptcy code. Our
results of operations during the reorganization period were significantly
affected by the bankruptcy proceeding and are therefore not comparable in all
respects with our results for other periods. In addition, the per share data
for all periods prior to 2002 reflect the shares of our previously outstanding
classes of common stock, which were cancelled when our reorganization became
effective. The results from those periods are not comparable to the year ended
December 31, 2003, which are based on a different number of shares of our new
class of common stock issued when the reorganization became effective. For the Year Ended December 31,1999
    
    2000(1)
    
    2001(1)
    
    2002 (1)
    
    2003(in millions except per share and operating data)Statement of Operations Data:Revenues:Admissions
    
    $
    336.0
    
    
    $
    315.4
    
    
    $
    311.8
    
    
    $
    342.8
    
    
    $
    332.1Concessions and other (2)
    
    
    148.1
    
    
    
    143.9
    
    
    
    145.1
    
    
    
    163.6
    
    
    
    161.0Total revenues (2)
    
    
    484.1
    
    
    
    459.3
    
    
    
    457.0
    
    
    
    506.5
    
    
    
    493.1Costs and expenses:Film exhibition costs
    
    
    181.5
    
    
    
    185.2
    
    
    
    171.2
    
    
    
    189.3
    
    
    
    180.4Concession costs
    
    
    19.0
    
    
    
    21.0
    
    
    
    20.2
    
    
    
    19.2
    
    
    
    18.0Other theatre operating costs
    
    
    191.1
    
    
    
    194.8
    
    
    
    182.1
    
    
    
    182.8
    
    
    
    181.7General and administrative expenses
    
    
    7.3
    
    
    
    6.9
    
    
    
    8.8
    
    
    
    15.0
    
    
    
    15.3Depreciation and amortization expenses (3)
    
    
    41.1
    
    
    
    43.2
    
    
    
    42.2
    
    
    
    32.1
    
    
    
    31.8Impairment of long-lived assets (4)
    
    
    33.0
    
    
    
    21.3
    
    
    
    132.2
    
    
    
    
    
    
    
    1.1Loss on extinguishment of debt (5)
    
    
    10.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring charge (4)
    
    
    (2.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on sales of property and equipment (2)
    
    
    (2.8
    )
    
    
    (3.0
    )
    
    
    
    
    
    
    (0.7
    )
    
    
    (3.0
    )Total costs and expenses
    
    
    477.7
    
    
    
    469.3
    
    
    
    556.7
    
    
    
    437.7
    
    
    
    425.3Operating income (loss)
    
    
    6.4
    
    
    
    (10.0
    )
    
    
    (99.7
    )
    
    
    68.8
    
    
    
    67.8Interest expense
    
    
    36.9
    
    
    
    31.0
    
    
    
    6.1
    
    
    
    102.8
    
    
    
    39.8Income (loss) before reorganization costs
and income taxes
    
    
    (30.4
    )
    
    
    (41.0
    )
    
    
    (105.8
    )
    
    
    (34.0
    )
    
    
    28.0Reorganization costs
    
    
    
    
    
    
    7.0
    
    
    
    19.5
    
    
    
    20.5
    
    
    
    (4.1
    )Income (loss) before income taxes
    
    
    (30.4
    )
    
    
    (48.0
    )
    
    
    (125.4
    )
    
    
    (54.5
    )
    
    
    32.1Income tax expense (benefit)
    
    
    (11.5
    )
    
    
    25.5
    
    
    
    
    
    
    
    (14.7
    )
    
    
    (75.3
    )
 26




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For the Year Ended December 31,1999
    
    2000(1)
    
    2001(1)
    
    2002 (1)
    
    2003(in millions except per share and operating data)Net income (loss)
    
    
    (18.9
    )
    
    
    (73.6
    )
    
    
    (125.4
    )
    
    
    (39.8
    )
    
    
    107.4Preferred stock dividends
    
    
    3.0
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) available to common
stockholders
    
    $
    (21.9
    )
    
    $
    (75.1
    )
    
    $
    (125.4
    )
    
    $
    (39.8
    )
    
    $
    107.4Weighted average common shares outstanding
(in thousands):Basic
    
    
    11,375
    
    
    
    11,344
    
    
    
    11,344
    
    
    
    9,195
    
    
    
    8,991Diluted
    
    
    11,375
    
    
    
    11,344
    
    
    
    11,344
    
    
    
    9,195
    
    
    
    9,448Earnings (loss) per common share:Basic
    
    $
    (1.93
    )
    
    $
    (6.62
    )
    
    $
    (11.05
    )
    
    $
    (4.33
    )
    
    $
    11.94Diluted
    
    $
    (1.93
    )
    
    $
    (6.62
    )
    
    $
    (11.05
    )
    
    $
    (4.33
    )
    
    $
    11.37Balance Sheet Data:Cash and cash equivalents (deficit)
    
    $
    (4.2
    )
    
    $
    52.5
    
    
    $
    94.2
    
    
    $
    53.5
    
    
    $
    41.2Property and equipment, net (4)
    
    
    666.2
    
    
    
    621.2
    
    
    
    460.1
    
    
    
    438.3
    
    
    
    420.8Total assets
    
    
    794.4
    
    
    
    761.3
    
    
    
    618.1
    
    
    
    556.7
    
    
    
    604.3Total debt (6)
    
    
    470.3
    
    
    
    52.0
    
    
    
    49.7
    
    
    
    418.8
    
    
    
    376.4Liabilities subject to compromise
    
    
    
    
    
    
    529.2
    
    
    
    508.1
    
    
    
    37.4
    
    
    
    21.5Retained earnings (deficit)
    
    
    45.0
    
    
    
    (30.1
    )
    
    
    (155.5
    )
    
    
    (195.3
    )
    
    
    (87.9
    )Total stockholders equity
    
    $
    204.2
    
    
    $
    129.1
    
    
    $
    3.7
    
    
    $
    13.2
    
    
    $
    126.6Other Financial Data:Net cash provided by (used in) operating
activities (7)
    
    $
    59.6
    
    
    $
    25.4
    
    
    $
    49.4
    
    
    $
    15.6
    
    
    $
    51.8Net cash provided by (used in) investing
activities (7)
    
    $
    (135.0
    )
    
    $
    (15.6
    )
    
    $
    (1.0
    )
    
    $
    (14.5
    )
    
    $
    (12.1
    )Net cash provided by (used in) financing
activities (7)
    
    $
    66.6
    
    
    $
    47.0
    
    
    $
    (6.8
    )
    
    $
    (41.7
    )
    
    $
    (51.9
    )Capital expenditures
    
    $
    140.5
    
    
    $
    44.9
    
    
    $
    9.2
    
    
    $
    18.0
    
    
    $
    18.8Operating Data:Theatres at period end (8)
    
    
    458
    
    
    
    352
    
    
    
    323
    
    
    
    308
    
    
    
    299Screens at period end (8)
    
    
    2,848
    
    
    
    2,438
    
    
    
    2,333
    
    
    
    2,262
    
    
    
    2,253Average screens in operation
    
    
    2,753
    
    
    
    2,643
    
    
    
    2,386
    
    
    
    2,274
    
    
    
    2,252Average screens per theatre
    
    
    6.2
    
    
    
    6.9
    
    
    
    7.2
    
    
    
    7.3
    
    
    
    7.5Total attendance (in thousands)
    
    
    74,518
    
    
    
    67,804
    
    
    
    64,621
    
    
    
    69,997
    
    
    
    67,189Average ticket price
    
    $
    4.51
    
    
    $
    4.65
    
    
    $
    4.83
    
    
    $
    4.90
    
    
    $
    4.93Average concession sales per patron
    
    $
    1.84
    
    
    $
    1.98
    
    
    $
    2.10
    
    
    $
    2.17
    
    
    $
    2.19
  (1)
    
    See notes 1, 2 and 3 of notes to audited annual consolidated financial
statements with respect to our bankruptcy and financial reporting in
accordance with Statement of Position 90-7. See note 3 of notes to
audited annual consolidated financial statements with respect to
reorganization costs incurred while in bankruptcy. See note 11 of notes
to audited annual consolidated financial statements for income taxes
relative to valuation allowances for deferred income tax debits.  (2)
    
    Gain on sales of property and equipment for the years ended December 31,
1999, 2000, 2001 and 2002 as filed with the SEC, is not included in
concessions and other revenues in the foregoing table, but has been
separately stated.  (3)
    
    Goodwill amortization of $1.7 million, $1.5 million and $1.5 million is
included for the years ended December 31, 1999, 2000 and 2001,
respectively.  (4)
    
    See notes 2, 3, and 4 of notes to audited annual consolidated financial
statements with respect to impairments of long-lived assets and
restructuring charges.  (5)
    
    Loss on extinguishment of debt, gross, has been reclassified from an
extraordinary item, net of tax, in our audited annual consolidated
financial statements in accordance with SFAS 145.  (6)
    
    Includes current maturities of long-term indebtedness, capital lease
obligations and long-term trade payables; excludes long-term trade
payables and liabilities subject to compromise. 27




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##### Table of Contents



(7)
    
    See the audited annual consolidated financial statements of cash flows
for the years ended December 31, 2000, 2001, 2002 and 2003.  (8)
    
    Excludes 28 theatres and 116 screens which we closed as part of our 1998
restructuring plan in 1999. In addition, these amounts exclude theatres
which we closed upon approval of the bankruptcy court as follows: 84
theatres and 394 screens through December 31, 2000; an additional 17
theatres and 81 screens through December 31, 2001; and an additional eight
theatres and 44 screens through December 31, 2002. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. The following discussion of our financial condition and operating results
should be read in conjunction with Item 6. Selected Financial and Other Data
and our consolidated financial statements and accompanying notes. Results of Operations Financial Reporting During Reorganization In connection with our bankruptcy proceedings, we were 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, (i) that pre-petition liabilities that are subject to
compromise be segregated in our consolidated balance sheet as liabilities
subject to compromise and (ii) the identification of all transactions and
events that are directly associated with our reorganization in the consolidated
statement of operations. Seasonality Typically, movie studios release films with the highest expected revenues
during the summer and the holiday period between Thanksgiving and Christmas,
causing seasonal fluctuations in revenues. However, movie studios are
increasingly introducing more popular film titles throughout the year. Revenues We derive almost all of our revenues from box office admissions and
concession sales. We recognize admissions revenues when movie tickets are sold
at the box office, and concession sales revenues when the products are sold in
the theatre. Admissions and concession sales revenues depend primarily upon
attendance, ticket price and the price and volume of concession sales. Our
attendance is affected by the quality and timing of movie releases and our
ability to obtain films that appeal to patrons in our markets. Expenses Film exhibition costs vary according to box office admissions and are
accrued based on the specified splits of receipts in firm term agreements with
movie distributors. The agreements usually provide for a decreasing percentage
of box office admissions to be paid to the movie 28




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##### Table of Contents



studio over the first few weeks of the movies run, subject to a floor for
later weeks. Where firm terms do not apply, film exhibition costs are accrued
based on estimates of the final settlement that is agreed between us and the
movie studio after the completion of the movies run. Concession cost of sales are incurred as products are sold. We purchase
substantially all of our beverage supplies from The Coca-Cola Company. We
purchase substantially all of our other concession supplies from a single
vendor of which we are the principal customer. Other theatre operating costs include labor, utilities and occupancy, and
facility lease expenses. Labor costs have both a variable and fixed cost
component. During non-peak periods, a minimum number of staff is required to
operate a theatre facility. However, to handle attendance volume increases,
theatre staffing and thus salaries and wages vary in relation to revenues.
Utilities, repairs and maintenance services also have variable and fixed costs
components. Our occupancy expenses and property taxes are primarily fixed
costs, as we are generally required to pay applicable taxes, insurance and
fixed minimum rent. Our general and administrative expenses include costs not specific to
theatre operations, and are composed primarily of corporate overhead. Net Operating Losses As of December 31, 2003, after utilizing approximately $25.0 million for
2003, we had approximately $90.4 million of federal and state operating loss
carryforwards with which to offset our future taxable income. Net operating
losses may be carried back and then forward for specified periods. If they are
not used to offset taxable income by the end of the carryforward period, they
expire. Under section 382 of the Internal Revenue Code of 1986, as amended, a
corporation may generally be restricted in utilizing its net operating losses
to offset prospective taxable income if it experiences an ownership change,
as defined in section 382(g). The determination as to whether a corporation has
experienced an ownership change on a given date is a complex analysis of the
beneficial stock ownership of the corporation over a time period of not more
than three years. An ownership change under section 382(g) occurs when on a
testing date, the beneficial ownership of the corporation by one or more
5-percent stockholders has increased, in the aggregate, by more than 50
percentage points over the respective lowest ownership percentages of such
5-percent stockholders during the testing period preceding such date. It should
be noted that the rules for determining whether an ownership change under
section 382 has occurred are different from those applied to evaluate whether a
change in ownership as defined by Statement of Position 90-7 has occurred. The determination of whether we underwent an ownership change for purposes
of section 382 as a result of the issuance of common stock pursuant to our plan
of reorganization (the Plan Stock Issuance) is subject to a number of highly
complex legal issues and factual uncertainties. In our federal income tax
return for 2002, we reported the Plan Stock Issuance as causing a section 382
ownership change, although the matter is not free from doubt and arguments can
be advanced to support the contrary position. Based on our reported tax
treatment, we believe that the special exception in section 382(I)(5) available
to debtors in bankruptcy applied, so that our net operating loss carryforwards
did not become subject to a section 382 limitation as a result of 29




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the Plan Stock Issuance. If, however, we underwent a second ownership
change within two years following our date of reorganization  that is, by
January 31, 2004 - and assuming that the Plan Stock Issuance caused an
ownership change, our net operating losses would have become subject to a
section 382 limitation of zero and their future use effectively would have been
eliminated. While we do not believe that the sale of our common stock in the
offering we completed on February 4, 2004 caused a second ownership change,
future changes in the direct or indirect beneficial ownership of our common
stock, which may be beyond our control, could trigger an ownership change and
thus limit, or possibly eliminate altogether, our ability to use these net
operating loss carryforwards in a subsequent taxable year. If it were determined that we did not undergo an ownership change as a
result of the Plan Stock Issuance, the recently completed issuance of common
stock from our equity offering could be deemed to have triggered an ownership
change, which would cause our net operating loss carryforwards to become
subject to an annual limitation on their use equal to the value of our equity
immediately prior to the date of the ownership change, subject to certain
adjustments, multiplied by the applicable federal long-term tax-exempt interest
rate. Operating Statement Information The following table sets forth for the periods indicated the percentage of
total revenues represented by certain items reflected in our consolidated
statements of operations: For the Year Ended December 31,2001
    
    2002
    
    2003Revenues:Admissions
    
    
    68.2
    %
    
    
    67.6
    %
    
    
    67.3
    %Concessions and other
    
    
    31.8
    
    
    
    32.4
    
    
    
    32.7Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Costs and expenses:Film exhibition costs (1)
    
    
    37.5
    
    
    
    37.3
    
    
    
    36.6Concessions costs
    
    
    4.4
    
    
    
    3.8
    
    
    
    3.7Other theatre operating costs
    
    
    39.8
    
    
    
    36.0
    
    
    
    36.8General and administrative
    
    
    1.9
    
    
    
    3.0
    
    
    
    3.1Depreciation and amortization
    
    
    9.2
    
    
    
    6.3
    
    
    
    6.4Gain on sales of property and equipment
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.6
    )Impairment of long-lived assets
    
    
    28.9
    
    
    
    
    
    
    
    0.2Total costs and expenses
    
    
    121.8
    
    
    
    86.4
    
    
    
    86.2Operating income (loss)
    
    
    (21.8
    )
    
    
    13.6
    
    
    
    13.7Interest expense
    
    
    1.3
    
    
    
    20.3
    
    
    
    8.1Income (loss) before reorganization costs and income taxes
    
    
    (23.2
    )
    
    
    (6.7
    )
    
    
    5.6Reorganization costs
    
    
    4.3
    
    
    
    4.1
    
    
    
    (0.8
    )Income (loss) before income taxes
    
    
    (27.4
    )
    
    
    (10.8
    )
    
    
    6.4Income tax expense (benefit)
    
    
    
    
    
    
    (2.9
    )
    
    
    (15.3
    )Net income (loss)
    
    
    (27.4)
    %
    
    
    (7.9)
    %
    
    
    21.8
    %Other information:Film exhibition costs as a % of admissions revenue (1)
    
    
    54.9
    %
    
    
    55.2
    %
    
    
    54.3
    %Concession costs as a % of concession revenue (2)
    
    
    14.8
    %
    
    
    12.7
    %
    
    
    12.2
    %
 30




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(1)
    
    Film exhibition costs include advertising expenses net of co-op
reimbursements.  (2)
    
    Concession costs of $20.2 million, $19.2 million and $18.0 million for
the years 2001, 2002 and 2003, respectively, and concession revenue of
$135.8 million, $151.8 million and $147.2 million for the years 2001, 2002
and 2003, respectively. Year Ended December 31, 2002 Compared to Year Ended December 31, 2003 Revenues. Total revenues decreased 2.6% from $506.5 million for the year
ended December 31, 2002 to $493.1 million for the year ended December 31, 2003
as a result of decreased attendance driving down admissions and concessions
revenues, partially offset by increased ticket prices. Admissions decreased
3.1% from $342.8 million in 2002 to $332.1 million in 2003 due to a 4.0%
decrease in overall attendance and a 0.6% increase in average ticket price.
Concessions and other revenue decreased 1.5% from $163.7 million in 2002 to
$161.0 million in 2003 due to (1) the attendance decrease, (2) a 0.9% increase
in concession sales per patron and (3) a $2.1 million increase in other
revenues. Other revenues consist of game machine revenue, screen advertising,
family entertainment center revenue and other miscellaneous items. For the year ended December 31, 2002, our attendance per average screen
was 30,784, our average admission price was $4.90, and our average concession
sale per patron was $2.17. For the year ended December 31, 2003, our
attendance per average screen was 29,835, our average admission price was
$4.93, and our average concession sale per patron was $2.19. As a result of
the decrease in attendance, our revenues per average screen decreased 1.7% from
$222,735 to $218,956. We operated 308 theatres with 2,262 screens at December 31, 2002 and 299
theatres with 2,253 screens at December 31, 2003. Cost of operations. Total theatre operating costs, including film
exhibition costs, concession costs and other theatre operating costs, decreased
2.9% from $391.3 million to $380.1 million. As a percentage of total revenues,
cost of operations decreased from 77.3% to 77.1%. This was the result of
improvement in concession cost of sales and improved operating leverage driven
primarily by cost control measures and by an increase in other revenues of
approximately $2.1 million over 2002. Film exhibition costs decreased 4.7%
from $189.3 to $180.4 due to a decrease in admission sales offset by improved
film rental arrangements. General and administrative expenses.General and administrative expenses
increased 2.0% from $15.0 million to $15.3 million. This increase resulted
primarily from an increase in non-cash deferred compensation charges from $3.6
million to $6.0 million, offset by cost control measures. As a percentage of
total revenues, general and administrative costs increased from 3.0% to 3.1%. Depreciation and amortization expenses. Depreciation and amortization
expenses decreased 1.2% from $32.1 million to $31.7 million as a result of our
having fewer screens in operation. The impairment charge of $132.2 million in
2001 resulted in depreciation and amortization expenses for 2002 being
approximately $13.6 million lower than they otherwise would have been. 31




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Gain on sales of property and equipment.Gains on sales of property and
equipment increased from $0.7 million in 2002 to $3.0 million in 2003 due to
the sale of 12 theatres and four parcels of land in 2003. Impairment Charge.The company recognized a non-cash impairment charge on
long-lived assets in 2003 of $1.1 million due to changes in fundamental
conditions in three of our markets, which were effected by competition. There
was no comparable charge in 2002. Interest expense. Total interest for the year 2003 decreased from $102.8
million to $39.8 million. At emergence from chapter 11 on January 31, 2002,
all past interest was required to be recognized. Excluding bankruptcy related
items, interest for 2002 would have been approximately $47.5 million. The
reduction in interest expense relates to scheduled amortization as well as
mandatory prepayments as defined in our credit agreements. Income tax expense (benefit). During the quarter ended December 31, 2003,
we determined the available positive evidence carried more weight than the
historical negative evidence and concluded it was more likely than not that the
net deferred tax assets would be realized in future periods. Therefore, the
$79.9 million valuation allowance was released creating an income tax benefit
for 2003. The positive evidence management considered included operating
income for 2002 and 2003, our subsequent stock offering and refinancing,
resulting in significant prospective interest expense reduction, and
anticipated operating income and cash flows for future periods in sufficient
amounts to realize the net deferred tax assets. We recognized an income tax
benefit of $75.3 million in 2003. Additionally, we will pay approximately $500
thousand in alternative minimum taxes for the year ended December 31, 2003.
The income tax benefit recorded in 2002 is the result of the Job Creation and
Worker Assistance Act of 2002, which allowed for additional carryback of net
operating losses resulting in a cash refund of approximately $14.7 million. As
is customary, the Internal Revenue Service reviews refunds of this size. This
review was completed on November 25, 2003 with no adjustments made by the
Internal Revenue Service. The new provision also temporarily suspends the 90%
limitation found in Internal Revenue Code Section 56(d)(1) on the use of net
operating loss carrybacks arising in tax years ending in 2001 and 2002 for
alternative minimum tax purposes. Reorganization costs. We incurred reorganization costs of $20.5 million
in 2002, including $8.0 million of professional fees and $8.9 million in
non-cash transactions related to the extinguishment of pre-bankruptcy debt and
other items totaling $3.6 million. Reorganization costs for 2003 consisted of
a credit of $4.8 million as a result of changes in estimates on liabilities
subject to compromise, partially offset by $0.7 million of professional and
other expenses. Year Ended December 31, 2001 Compared to Year Ended December 31, 2002 Revenues. Total revenues increased 11.0% from $457.0 million for the year
ended December 31, 2001 to $506.5 million for the year ended December 31, 2002
as a result of increased attendance driving up admissions and concessions
revenues, partially offset by the reduced number of screens. Admissions
increased 9.9% from $311.8 million in 2001 to $342.8 million in 2002 due to an
8.3% increase in overall attendance and a 1.5% increase in average ticket
price. 32




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##### Table of Contents



Concessions and other revenue increased 13.2% from $145.1 million in 2001
to $164.3 million in 2002 due to (1) the attendance increase, (2) a 3.2%
increase in concession sales per patron and (3) a $3.3 million increase in
other revenues. For the year ended December 31, 2001, our attendance per average screen
was 27,083, our average admission price was $4.83 and our average concession
sale per patron was $2.10. For the year ended December 31, 2002, our
attendance per average screen was 30,781, our average admission price was
$4.90, and our average concession sale per patron was $2.17. As a result of
these increases, our revenues per average screen increased 16.5% from $191,513
to $223,038. We operated 323 theatres with 2,333 screens at December 31, 2001 and 308
theatres with 2,262 screens at December 31, 2002. Cost of operations. Total theatre operating costs, including film
exhibition costs, concession costs and other theatre operating costs, increased
4.8% from $373.4 million to $391.3 million. As a percentage of total revenues,
cost of operations decreased from 81.7% to 77.2%. This was the result of
improvement in concession cost of sales and improved operating leverage driven
primarily by higher attendance and by an increase in other revenues of
approximately $3.3 million over 2001. Film exhibition costs increased 10.6%
from $171.2 million to $189.3 million due to an increase in admission sales. General and administrative expenses.General and administrative expenses
increased 70.5% from $8.8 million to $15.0 million. This increase resulted
primarily from non-cash deferred compensation charges of $3.6 million as
described in Notes 1 and 12 of the notes to annual audited consolidated
financial statements and the write-off of $552,000 of professional fees
relating to our proposed equity offering that was suspended due to the decline
in general market conditions. As a percentage of total revenues, general and
administrative costs increased from 1.9% to 3.0%. Depreciation and amortization expenses. Depreciation and amortization
expenses decreased 23.9% from $42.2 million to $32.1 million as a result of our
having fewer screens in operation. Impairment charges of $21.2 million in 2000
resulted in depreciation and amortization expenses for 2001 being approximately
$1.2 million lower than they otherwise would have been. The impairment charge
of $132.2 million in 2001 resulted in depreciation and amortization expenses
for 2002 being approximately $13.6 million lower than they otherwise would have
been. Additionally, the adoption of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets, halted the
amortization of goodwill, which was approximately $1.5 million in 2001. Interest expense. Total interest for the year 2002 increased to $102.8
million from $6.1 million in 2001. For the year ended 2002, interest expense
included $55.3 million of contractual interest related to prior periods which
was not recorded until approval of the reorganization plan in accordance with
SOP 90-7. 33




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Income tax expense. We recognized no income tax expense or benefit in
2001. The income tax benefit recorded in 2002 is the result of the Job Creation
and Worker Assistance Act of 2002, which allowed for additional carryback of
net operating losses resulting in a cash refund of approximately $14.7 million.
As is customary, the Internal Revenue Service reviews refunds of this size.
This review was completed on November 25, 2003 with no adjustments made by the
Internal Revenue Service Reorganization costs. We incurred reorganization costs of $19.5 million
during 2001, including $8.2 million of professional fees and $16.4 million of
asset impairments directly related to actions taken under the reorganization
including, among other things, lease rejections. These costs have been offset
by $3.1 million of interest income and gains on asset sales and $2.0 million in
other expenses subsequent to the date we filed for bankruptcy under chapter 11.
We also incurred reorganization costs of $20.5 million in 2002, including $8.0
million for professional fees and $8.9 million in non-cash transactions related
to the extinguishment of pre-bankruptcy debt, as well as other items totaling
$3.6 million. Liquidity and Capital Resources Recent Developments On February 4, 2004 we completed a public offering of 4,850,000 shares of
our common stock (3,000,000 of which were issued and sold by us and 1,850,000
of which were sold by selling stockholders; an additional 675,000 shares were
sold by certain selling stockholders on February 11, 2004 pursuant to an
underwriters over-allotment option), priced at $32.00 per share. Net proceeds
to us, after discounts and estimated expenses, were $89.2 million. In
addition, we also completed a private offering of 7.500% senior subordinated
notes due 2014 to institutional investors for net proceeds, after discounts and
estimated expenses, of $143.9 million and new senior secured credit facilities
consisting of a $50 million revolving credit facility and a $100 million
five-year term loan. We used the proceeds from the common stock offering, the new senior
subordinated notes and the new term loan credit facility, as well as existing
cash, to repay the outstanding balance under the post-bankruptcy term loan
credit agreement, tender for or redeem our existing 10 3/8% senior subordinated
notes, repay a portion of our long-term trade payables and pay related
transaction fees and expenses. See Material Credit Agreements and Covenant
Compliance below for further discussion of our debt. 34




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##### Table of Contents



Below is an adjusted presentation of selected balance sheet items had
these transactions occurred as of December 31, 2003. As Reported
    
    As AdjustedCash and cash equivalents
    
    $
    41,236
    
    
    $
    31,489Total assets
    
    
    604,320
    
    
    
    607,352Current liabilities
    
    
    73,676
    
    
    
    73,176Long-term debt (net)
    
    
    323,050
    
    
    
    250,000Capital leases (net)
    
    
    51,478
    
    
    
    51,478Long-term trade payables (net)
    
    
    7,988
    
    
    
    Liabilities subject to compromise
    
    
    21,521
    
    
    
    21,521Stockholders equity
    
    
    126,607
    
    
    
    211,177Total liabilities and stockholders equity
    
    $
    604,320
    
    
    $
    607,352
 General Our revenues are collected in cash and credit card payments. Because we
receive our revenues in cash prior to the payment of related expenses, we have
an operating float which partially finances our operations. We had a working
capital deficit of $38.1 million as of December 31, 2002 compared to a working
capital deficit of $17.7 million at December 31, 2003. The change in working
capital as of December 31, 2003 reflects a reduction in cash related to
payments made to long-term debt under our reorganization plan and a
reclassification of recoverable construction allowances from current to
long-term, offset by the effect of Financial Accounting Standard No. 6
Classification of Short-Term Obligations Expected to be Refinanced. We had a working capital deficit of $54.7 million at December 31, 2001
compared to a working capital deficit of $38.1 million as of December 31, 2002.
The working capital deficit as of December 31, 2002 reflects cash settlements
required at emergence from chapter 11, as well as, mandatory payments defined
in the plan of reorganization. The deficit was funded through anticipated
operating cash flows as well as the ability to draw from our new revolving
credit agreement. At February 4, 2004, we had available borrowing capacity of
$50 million under our new revolving credit agreement. As of December 31, 2003
we had approximately $41.2 million in cash and cash equivalents on hand. We amended our post-bankruptcy term loan credit agreement and our
post-bankruptcy revolving credit agreement in October of 2003. Pursuant to our
amended post-bankruptcy credit agreements, our capital expenditures were
limited to $25 million in each of 2004, 2005 and 2006; provided, however, that
unused capital expenditures for a given year would have been applied to
increase the capital expenditure limit for the following year. For the year
ended December 31, 2003, we made capital expenditures of approximately $18.8
million. As discussed below under Material Credit Agreements and Covenant
Compliance we refinanced our post-bankruptcy credit facilities subsequent to
December 31, 2003. Our new revolving credit agreement limits our annual
capital expenditures to $35 million per year, plus any unused portion 35




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may be carried over to the succeeding year. We anticipate using the
maximum amount allowed for the foreseeable future. Net cash provided by operating activities was $15.6 million for the year
ended December 31, 2002 compared to net cash provided by operating activities
of $51.8 million for the year ended December 31, 2003. This change is due to
increased profit from operations related primarily to lower interest expenses,
offset by changes in accounts payable, payments to general unsecured creditors
and other reorganization items. Net cash used in investing activities was
$14.5 million for the year ended December 31, 2002 compared to net cash used in
investing activities of $12.1 million for the year ended December 31, 2003.
For the year ended December 31, 2002 net cash used in financing activities was
$41.7 million compared to $51.9 million for the year ended December 31, 2003. Net cash provided by operating activities was $49.4 million for the twelve
months ended December 31, 2001, compared to net cash provided by operating
activities of $15.6 million for the twelve months ended December 31, 2002. The
decrease in cash flow from operating activities was primarily due to cash
requirements, primarily interest, payable at emergence from bankruptcy and
changes in certain operating assets and liabilities. Net cash used in
investing activities was $1.0 million for the year ended December 31, 2001 as
compared to $14.5 million in 2002. This increase in cash used in investing
activities was primarily due to emergence from chapter 11, which allowed us to
increase capital spending. For the year ended December 31, 2001 cash used in
financing activities was $6.8 million compared to $41.7 million in 2002. The
increase in cash used in financing activities was primarily due to scheduled
and mandatory payment requirements of our long-term debt agreements. Our liquidity needs are funded by operating cash flow, sales of surplus
assets, availability under our new credit agreements and short term float. The
exhibition industry is very seasonal with the studios normally releasing their
premiere film product during the holiday season or 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 film product, any time during the calendar year, will have the most
dramatic impact on our cash needs. Our ability to service our indebtedness will require a significant amount
of cash. Our ability to generate this cash will depend largely on future
operations. Based upon our current level of operations, we believe that cash
flow from operations, available cash, sales of surplus assets and borrowings
under our new credit agreements will be adequate to meet our liquidity needs
for the next twelve months. However, the possibility exists that, if our
liquidity needs are not met and we are unable to service our indebtedness, we
could come into technical default under any of our debt instruments, causing
the agents or trustees for those instruments to declare all payments due
immediately or, in the case of the senior debt, to issue a payment blockage to
the more junior debt. A similar situation contributed to the circumstances
that led us to file our voluntary petition for relief under chapter 11 in

August 2000, as described in Our Reorganization. We cannot make assurances that our business will continue to generate
significant cash flow to fund our liquidity needs. We are dependent to a large
degree on the publics acceptance of the films released by the studios. We are
also subject to a high degree of competition and low 36




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##### Table of Contents



barriers of entry into our industry. In the future, we may need to
refinance all or a portion of our indebtedness on or before maturity. We
cannot make assurances that we will be able to refinance any of our
indebtedness or raise additional capital through other means, on commercially
reasonable terms or at all. If we have insufficient cash flow to fund our
liquidity needs and are unable to refinance our indebtedness or raise
additional capital, we could come into technical default under our debt
instruments as described above. In addition, we may be unable to pursue growth
opportunities in new and existing markets and to fund our capital expenditure
needs. Material Credit Agreements and Covenant Compliance As described below, our credit and leasing facilities contain certain
restrictive provisions which, among other things, limit additional
indebtedness, limit capital expenditures, limit the payment of dividends and
other defined restricted payments, require that certain debt to capitalization
ratios be maintained and require minimum levels of defined cash flows. Upon
our emergence from bankruptcy our indebtedness consisted of (1) a term loan
credit agreement, the post-bankruptcy term loan credit agreement; (2) a
revolving credit agreement, the post-bankruptcy revolving credit agreement; and
(3) 10 3/8% senior subordinated notes. In a series of transactions completed
on February 4, 2004, we replaced the post bankruptcy term loan credit
agreement, the post-bankruptcy revolving credit agreement and the 10 3/8%
senior subordinated notes with the indebtedness described below. New Financing Transactions On February 4, 2004, we completed an offering of $150 million of 7.500%
senior subordinated notes due 2014 to institutional investors and entered into
new senior secured credit facilities consisting of a $50 million revolving
credit facility and a $100 million five-year term loan. We used the proceeds
from the new senior subordinated notes, the new credit facilities and excess
cash to refinance our post-bankruptcy term loan, tender for or redeem our 10
3/8% senior subordinated notes, repaid a portion of our long-term trade
payables and paid related transaction fees and expenses. Under the indenture
that governs the notes and the agreements related to the new senior secured
credit facilities, we will continue to be subject to customary covenants.
However, these covenants do not currently prohibit us from paying dividends. A
description of the new credit facilities and the new notes is provided below. New Revolving Credit Facility On February 4, 2004, we entered into a new revolving credit facility with
Goldman Sachs Credit Partners L.P. as sole lead arranger, sole book runner and
sole syndication agent and Wells Fargo Foothill, Inc. as administrative agent
and collateral agent. The revolving credit facility provides for borrowings of
up to $50.0 million. The interest rate for borrowings under the new revolving
credit facility is set from time to time at our option (subject to certain
conditions set forth in the new revolving credit facility) at either: (1) a
specified base rate plus 2.25% or (2) LIBOR plus 3.25% per annum. The final
maturity date of the facility is August 4, 2008. 37




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The new revolving credit facility contains covenants which, among other
things, restrict our ability, and that of our restricted subsidiaries, to:  
    
    pay dividends or make any other restricted payments;
    
    create liens on our assets;
    
    make certain investments;
    
    consolidate, merge or otherwise transfer all or any substantial part
of our assets;
    
    enter into transactions with our affiliates; and
    
    engage in any sale-leaseback, synthetic lease or similar transaction
involving any of our assets. Our new revolving credit facility generally prohibits us from incurring
any additional indebtedness or materially amending the terms of any agreement
relating to existing indebtedness without lender approval. In addition, our new
revolving credit facility places certain restrictions on our ability to make
capital expenditures. The new revolving credit facility also contains financial
covenants that require us to maintain specified ratios of funded debt to
adjusted EBITDA and adjusted EBITDA to interest expense. The terms governing
each of these ratios are defined in the new revolving credit facility. Our failure to comply with any of these covenants, including compliance
with the financial ratios, is an event of default under the new revolving
credit facility, in which case, the agent may, and if requested by the lenders
holding a certain minimum percentage of the commitments shall, terminate the
new revolving credit facility with respect to additional advances and may
declare all or any portion of the obligations due and payable. As of the date
we entered into this facility, we believe we were in compliance with all our
financial covenants. Other events of default under the new revolving credit
facility include:  
    
    our failure to pay principal or interest on the loans when due and
payable, or our failure to pay certain expenses;
    
    the occurrence of a change of control, as defined in the agreement;
or
    
    a breach or default by us or our subsidiaries under, or the
termination of, the indenture relating to the notes. Borrowings under the new revolving credit facility are secured by first
priority security interests in substantially all of our tangible and intangible
assets, including the capital stock of our subsidiaries. All of our
subsidiaries guaranteed our obligations under the new revolving credit
facility. 38




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##### Table of Contents



New Term Loan Facility On February 4, 2004, we entered into a new term loan facility with Goldman
Sachs Credit Partners L.P. as sole lead arranger, sole book runner and sole
syndication agent and National City Bank as administrative agent and collateral
agent. The new term loan facility provides for borrowings of $100.0 million,
which were drawn on the closing of the facility. The interest rate for the
borrowings under the new term loan facility is equal to, at our option, (1) a
specified base rate plus 2.25% or (2) LIBOR plus 3.25%. The final maturity
date of the loan is February 4, 2009. The new term loan facility contains certain negative covenants which among
other things, restrict our ability to:  
    
    incur additional debt;
    
    pay dividends or distributions on, or redeem or repurchase, our
capital stock;
    
    make investments;
    
    engage in transactions with affiliates;
    
    create liens on assets;
    
    transfer or sell assets;
    
    guarantee debt;
    
    restrict dividend payments to us; and
    
    consolidate, merge or transfer all or substantially all of our assets
and the assets of our subsidiaries. The lenders under the new term loan facility have a second priority
security interest in substantially all our tangible and intangible assets,
including the capital stock of our subsidiaries. All of the security interests
and liens that secure the new term loan facility are junior and subordinate to
the liens and security interests of the collateral agent under the new
revolving facility. Our subsidiaries guaranteed our obligations under the new
term loan facility. We may voluntarily pre-pay the term loan, in whole or in part, at (1)
103.0% of the amount repaid if such repayment occurs on or prior to the first
anniversary of the closing of the new term loan facility; (2) 102.0% of the
amount repaid if such repayment occurs after the first anniversary but before
the second anniversary; (3) 101.0% of the amount repaid if such repayment
occurs after the second anniversary but before the third anniversary and (4)
100% of the amount repaid if such repayment occurs after the third anniversary. 39




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New Senior Subordinated Notes On February 4, 2004, we completed an offering of $150 million in aggregate
principal amount of 7.500% senior subordinated notes due February 15, 2014 to
institutional investors. The indenture contains covenants, which, among other things, restrict our
ability to:  
    
    make restricted payments;
    
    consolidate, merge or otherwise transfer all or substantially all of
our assets;
    
    incur additional indebtedness;
    
    issue certain types of stock; and
    
    enter into transactions with affiliates. In addition, under the terms of the indenture governing the new notes, we
are prohibited from incurring any subordinated debt that is senior in any
respect in right of payment to the new notes. We intend to register the notes
with the Securities and Exchange Commission in 2004. Upon a change of control, as defined in the indenture, subject to certain
exceptions, we are required to offer to repurchase from each holder all or any
part of each holders notes at a purchase price of 101% of the aggregate
principal amount thereof plus accrued and unpaid interest to the date of
purchase. The indenture contains customary events of default for agreements of that
type, including payment defaults, covenant defaults and bankruptcy defaults. If
any event of default under the new indenture occurs and is continuing, then the
trustee or the holders of at least 25% in principal amount of the then
outstanding notes may declare all the notes to be due and payable immediately. Our subsidiaries have guaranteed the notes that are junior and
subordinated to the subsidiary guarantees of our senior debt on the same basis
as the notes are junior and subordinated to the senior debt. Interest at 7.500%
per annum from the issue date to maturity is payable on the notes each February
15 and August 15. The notes are redeemable at our option under certain
conditions. Contractual Obligations As of February 4, 2004, we refinanced our long-term debt obligations. Had
this occurred as of December 31, 2003, our long-term debt obligations,
obligations to general unsecured creditors pursuant to the plan of
reorganization and future minimum payments under capital leases and operating
leases with terms over one year and the agreement with our chief executive
officer (except as indicated) would have been as follows: 40




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Payments Due by Period (in thousands)One Year
    
    
    
    
    
    
    
    
    
    After 5or Less
    
    2-3 Years
    
    4-5 Years
    
    Years
    
    TotalTerm loan credit agreement (1)
    
    $
    
    
    
    $
    
    
    
    $
    100,000
    
    
    $
    
    
    
    $
    100,000Revolving credit agreement (2)
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    50,0007.500% senior subordinated notes (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    150,000General unsecured creditors (4)
    
    
    
    
    
    
    
    
    
    
    21,521
    
    
    
    
    
    
    
    21,521Industrial revenue bond
    
    
    707
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    707Capital lease obligations
    
    
    7,867
    
    
    
    15,646
    
    
    
    15,667
    
    
    
    89,958
    
    
    
    129,138Operating leases
    
    
    40,187
    
    
    
    80,983
    
    
    
    73,916
    
    
    
    317,565
    
    
    
    512,651Employment agreement with Chief
Executive Officer (5)
    
    
    850
    
    
    
    1,700
    
    
    
    850
    
    
    
    
    
    
    
    3,400Total
contractual cash obligations (6)
    
    $
    49,611
    
    
    $
    98,329
    
    
    $
    261,954
    
    
    $
    557,523
    
    
    $
    967,417
  (1)
    
    The term loan has a maturity date of February 4, 2009.(2)
    
    The revolving credit agreement has a maturity date of August 4, 2008.
This presentation assumes the full $50 million commitment is outstanding
and payable.(3)
    
    The maturity date for the 7.500% senior subordinated notes is February
15, 2014.(4)
    
    Our general unsecured creditors are due semi-annual payments of $2.5
million plus interest with a maturity
of January 31, 2007.(5)
    
    The employment agreement with our Chief Executive Officer provides for
compensation of $850,000 per year for five years commencing January 31,
2002. The above table does not include bonus payments of up
to 50% of his base salary if certain performance goals are achieved.(6)
    
    Had we not refinanced our long-term debt obligations, our
total contractual obligations would have been as follows: One Year or Less
    
    2-3 Years
    
    4-5 Years
    
    After 5 years
    
    Total$
    49,611
    
    
    $
    98,329
    
    
    
    $330,690
    
    
    $
    561,838
    
    
    $
    1,040,468
 Off-Balance Sheet Arrangements As of December 31, 2003, we did not have any off-balance sheet financing
transactions or arrangements other than disclosed in the table above. MoviePlex Lease To secure our master lease in 2002, we granted MoviePlex an express
contract lien, in addition to MoviePlexs statutory lien as landlord, on and a
security interest in all equipment, inventory, fixtures and other personal
property which is located on the leased premises or used in connection
therewith and upon all proceeds thereof. A default under the new master lease includes our failure to pay rent or
perform under certain conditions, our being adjudged bankrupt or the judicial
seizure of our assets, or the occurrence of a change of control of Carmike.
Under the new master lease, a change of control is any event, transaction or
occurrence as a result of which (1) our stockholders cease to own and control
all of the economic and voting rights associated with ownership of at least 30%
of our outstanding capital stock of all classes on a fully diluted basis, or
(2) we cease to own and control all of the economic and voting rights
associated with all of the outstanding capital stock of any of our subsidiaries
(except that a particular qualified buyer transaction is not a change of
control under the new master lease). 41




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The new master lease has been collaterally assigned to Wachovia Bank,
National Association, in its capacity as agent under the reimbursement
agreement dated as of November 20, 1997, as amended, among MoviePlex, certain
lenders and Wachovia Bank, as agent, pursuant to a mortgage and an assignment
of rents as to each of six properties, to secure MoviePlexs obligations to
such lenders under the reimbursement agreement. At the end of the new master
lease term, or if the lease is terminated by reason of our default, the
furniture, fixtures and equipment located in the theatres will become the
property of the lenders. In addition, the lenders have released their liens on
the other assets that secured the MoviePlex obligations. Asset Impairments In 2001 and 2003, we identified impairments of asset values for certain
theatres and a joint venture investment in three movie theatre-entertainment
complexes which we reflected as operating expenses in our consolidated
financial statements. Based on our analysis, no such charges were required in
2002. The table below sets out certain information concerning these
impairments: (in millions except number of theatres and screens)
    
    2001
    
    2003Annual impairment charge included in operations
    
    $
    132.2
    
    
    $
    1.1Impairment charge included in reorganization costs
    
    
    16.4
    
    
    
    Total impairment charge
    
    
    148.6
    
    
    
    1.1Reduction in carrying values
    
    
    235.1
    
    
    
    3.0Reduction in accumulated depreciation and
amortization expenses
    
    $
    (86.5
    )
    
    $
    (1.9
    )Number of theatres affected
    
    
    287
    
    
    
    4Number of screens affected
    
    
    2,126
    
    
    
    27
 The impairment charge in 2003 was primarily caused by reductions in
estimated theatre cash flows due to the impact of new or increased competition
on certain older, auditorium-style theatres, negative evaluation of the
operating results produced from theatres previously converted to discount
theatres, or our inability to improve a marginal theatres operating results to
a level that would support the carrying value of the long-lived assets. The impairment charge recognized in 2001 was significantly larger than in
prior years due to the write-off of leasehold improvements on theatres for
which we rejected leases, the impact of closing owned theatres, the diminished
value of our entertainment centers and the write-down of surplus equipment
removed from closed or rejected theatres. Additionally, in 2001 we included
impairment charges related to equipment of $34.1 million, based on our reduced
capital building program for the future as well as the excess supply of
equipment in inventory. We had approximately $23.4 million of goodwill recorded at December 31,
2003 and 2002. The goodwill values arose from our acquisitions during the
period from 1982 through 1997. The Company considers all of its consolidated
operations as a reporting unit for SFAS No. 142. See note 4 of notes to
audited annual consolidated financial statements. 42




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Critical Accounting Policies The preparation of our financial statements requires our management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the period. On an on-going basis, we evaluate our estimates and
judgments, including those related to leasing transactions, depreciation of
property and equipment, income taxes, litigation and other contingencies and,
in particular, those related to impairment of long-lived assets including
goodwill. We base our estimates and judgments on historical experience and on
various other factors that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions and conditions and such difference could be material. All critical
accounting estimates have been discussed with our audit committee. We believe the following critical accounting policies, among others,
affect our more significant judgments and estimates used in the preparation of
our consolidated financial statements in accordance with accounting principles
generally accepted in the United States. Property and Equipment Property and equipment are carried at cost, net of accumulated
depreciation, or cost adjusted for recognized impairments. Assets held for
disposal are reported at the lower of the assets carrying amount or its fair
value less costs to sell. Amortization of assets recorded under capital leases
is included with depreciation expense in the accompanying consolidated
statements of operations. Although we use accelerated methods of depreciation
for income tax purposes, for financial reporting purposes, we compute
depreciation on a straight-line basis as follows: Building and improvements
    
    20-30 yearsLeasehold improvements*
    
    15-30 yearsLeasehold interests*
    
    15-30 yearsEquipment
    
    5-15 years
   *
    
    Number of years is based on the terms of the applicable lease Impairment of Property and Equipment, Including Goodwill Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets(SFAS No. 142). In
general, SFAS No. 142 requires that we assess the fair value of the net assets
underlying our acquisition related goodwill on a business by business basis.
We consider all of our consolidated operations to be our reporting unit for
SFAS No. 142 purposes. We evaluate goodwill impairment by comparing discounted
cash flows against carrying values. Where that fair value is less than the
related carrying value, we have reduced the amount of the goodwill. These
reductions were made retroactive to January 1, 2002. SFAS No. 142 also requires
that we discontinue the amortization of our acquisition related goodwill. As
of December 31, 2003, our financial statements included acquisition related
goodwill of $23.4 million, net of previous amortization. 43




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We account for our property and equipment in accordance with the Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(SFAS No. 144). We review our property and
equipment for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. We periodically
review and monitor our internal management reports and the competition in our
markets for indicators of impairment. We consider a trend of operating results
that are not in line with managements expectations to be the primary indicator
of potential impairment. An additional impairment indicator used by management
is the existence of competition in a market, either from third parties or from
our own expansion. For purposes of SFAS No. 144, assets are evaluated for
impairment at the theatre level except when multiple theatres are located in
the same geographic area. Management believes this is the lowest level for
which there are identifiable cash flows. We deem there to be an impairment if a
forecast of undiscounted future operating cash flows directly related to the
theatre or market, including estimated disposal value if any, is less than its
carrying amount. If there is a determination of an impairment, the loss is
measured as the amount by which the carrying amount of the theatre or market
exceeds its fair value. Fair value is based on managements estimates which are
based on using the best information available, including prices for similar
theatres or the results of valuation techniques such as discounting estimated
future cash flows. Considerable judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly from
such estimates. See Asset Impairments above for additional information regarding the
effects on the 2003 and 2001 consolidated financial statements. Bankruptcy Matters As debtors-in-possession, we had the right, subject to bankruptcy court
approval and certain other limitations, to assume or reject executory contracts
and unexpired leases during our reorganization. Any damages resulting from
rejection of executory contracts or unexpired leases were treated as general
unsecured claims in our reorganization. During our reorganization, we received
approval from the bankruptcy court to reject theatre leases on 136 of our
theatre locations. We estimate that our aggregate liability at December 31,
2003 for general unsecured creditors is approximately $29.5 million, which
includes our estimated liability for damages resulting from the rejection of
executory contracts and unexpired leases which we have not already paid. As of
December 31, 2003, total accrued interest on those claims was $3.7 million. Of
these claims, $21.5 million are disputed. As such, we cannot presently
determine with certainty the ultimate liability that may result; however, the
bankruptcy court still maintains jurisdiction over certain matters related to
the implementation of the plan of reorganization, including the unresolved
disputed claims. We have made our best estimate of such liability given the
facts available at this time. If we are unable to resolve these claims with the
unsecured creditors we may petition the bankruptcy court to resolve them. Leases We operate most of our theatres under non-cancelable operating lease
agreements. These leases generally provide for the payment of fixed monthly
rentals, property taxes, common area 44




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maintenance, insurance and repairs. Certain of these leases provide for
escalating lease payments over the terms of the leases. Moreover, certain
leases also include contingent rental fees based on a percentage of sales. At
our option, we can renew a substantial portion of our theatre leases, at the
then fair rental rate, for various periods with the maximum renewal period
generally totaling 10-20 years. For financial statement purposes, the total
amount of base rentals over the terms of the leases is charged to expense on
the straight-line method over the initial lease terms. Rental expense in excess
of lease payments is recorded as a deferred rental liability and is amortized
to rental expense over the remaining term of the lease. Percentage Rent Several leases have a contingent component called percentage rent.
Percentage rent is based on a percentage of defined revenue factors over a
fixed breakpoint for the lease year as described within the lease. We accrue
for this contingent liability monthly based on the trailing twelve months
activity of the affected theatre. Payment of this liability is defined within
the lease and the accrual is reconciled at the end of the lease year. Income Taxes We use the liability method of accounting for income taxes, which requires
recognition of temporary differences between financial statement and income tax
basis of assets and liabilities, measured by enacted tax rates. In 2000 we established a valuation allowance in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. We periodically review the adequacy of the valuation
allowance and recognize the benefits of deferred tax assets only as
reassessment indicates that it is more likely than not that the deferred tax
assets will be realized. For the year ended December 31, 2003, we determined
that it is more likely than not that the deferred tax assets will be realized
in the future. Accordingly, the valuation of approximately $79.9 million was
released and a deferred tax asset of $73.9 million was recognized. Impact of Recently Issued Accounting Standards 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
currently effective for all new variable interest entities created or acquired
after February 1, 2003. For variable interest entities created or acquired
prior to February 1, 2003, the provisions of FIN 46 must be applied for the
first interim or annual period ending after March 15, 2004. We currently
believe adoption of FIN 46 will not have a material effect on our results of
operations and financial condition. 45




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In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity
(SFAS No. 150). SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. With the exception of certain measurement
criteria deferred indefinitely by the FASB, SFAS No. 150 was effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
was effective at the beginning of the first interim period beginning after June
15, 2003. We do not currently have any such instruments and therefore the
adoption of SFAS No. 150 did not have an impact on our financial condition,
results of operations or cash flows. Information About Forward-Looking Statements This annual report contains forward-looking statements within the meaning
of the federal securities laws. In addition, we, or our executive officers on
our behalf, may from time to time make forward-looking statements in reports
and other documents we file with the SEC or in connection with oral statements
made to the press, potential investors or others. Statements that are not
historical facts, including statements about our beliefs and expectations, are
forward-looking statements. Forward-looking statements include statements
preceded by, followed by or that include the words, believes, expects,
anticipates, plans, estimates or similar expressions. These statements
include, among others, statements regarding our strategies, sources of
liquidity, and the opening of new theatres during 2004. Forward-looking statements are only predictions and are not guarantees of
performance. These statements are based on beliefs and assumptions of our
management, which in turn are based on currently available information.
Important assumptions relating to the forward-looking statements include, among
others, assumptions regarding expected pricing levels, competitive conditions
and general economic conditions. These assumptions could prove inaccurate.
The forward-looking statements also involve risks and uncertainties, which
could cause actual results to differ materially from those contained in any
forward-looking statement. Many of these factors are beyond our ability to
control or predict. Such factors include, but are not limited to, the
following:  
    
    the availability of suitable motion pictures for exhibition in our markets;
    
    competition in our markets;
    
    competition with other forms of entertainment;
    
    the effect of our leverage on our financial condition; and
    
    other factors, including the risk factors discussed on pages 14
through 22 in this annual report. We believe these forward-looking statements are reasonable; however, undue
reliance should not be placed on any forward-looking statements, which are
based on current expectations. Further, forward-looking statements speak only
as of the date they are made, and we undertake no obligation to update publicly
any of them in light of new information or future events. 46




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are exposed to various market risks. We have floating rate debt
instruments and, therefore, are subject to the market risk related to changes
in interest rates. Interest paid on our debt is largely subject to changes in interest rates
in the market. Our new revolving credit agreement and our new five-year term
loan credit agreement are based on a structure that is priced over an index or
LIBOR rate option. An increase of 1% in interest rates would increase the
interest expense on our $100 million term loan credit agreement, $1 million on
an annual basis. If our $50 million revolving credit agreement was fully drawn
a 1% increase in interest rates would increase interest expenses $500,000 on an
annual basis. The interest rate on our 7.500% senior subordinated notes is
fixed and changes in interest rates will have no effect on annual interest
expense. A substantial number of our theatre leases have increases contingent on
Consumer Price Index (CPI) changes. A 1.0% change in CPI would not have a
material effect on rent expense. 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Consolidated Financial Statements for the year ended December 31, 2003. Report of PricewaterhouseCoopers LLP, Independent Auditors
    
    
    F-1Report of Ernst & Young LLP, Independent Auditors
    
    
    F-2Consolidated Balance Sheets
    
    
    F-3Consolidated Statements of Operations
    
    
    F-5Consolidated Statements of Cash Flows
    
    
    F-6Consolidated Statements of Stockholders Equity
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9
 47




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Report Of Independent Auditors To The Board of Directors and Shareholders of Carmike Cinemas, Inc.: In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Carmike Cinemas, Inc and its subsidiaries at December 31, 2003, and
the results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, based on our audit, the financial
statement schedule as of and for the year ended December 31, 2003 listed in the
index appearing under Item 15(a)(2), presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and schedule are
the responsibility of the Companys management; our responsibility is to
express an opinion on these financial statements and schedule based on our
audit. We conducted our audit of these statements in accordance with auditing
standards generally accepted in the United States of America, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion. As discussed in Note 1 to the consolidated financial statements, in 2002 the
Company ceased amortization of goodwill in accordance with Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.  /s/  PricewaterhouseCoopers
LLP  March 18, 2004 F-1




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Report Of Independent Auditors Board of Directors and Shareholders
Carmike Cinemas, Inc. We have audited the accompanying consolidated balance sheets of Carmike
Cinemas, Inc. and subsidiaries as of December 31, 2002 and the related
consolidated statements of operations, shareholders equity and cash flows
for each of the two years in the period ended December 31, 2002. Our audits
also included the financial statement schedule listed in the index at Item
15(a). These financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Carmike Cinemas, Inc. and subsidiaries at December 31, 2002 and
the consolidated results of its operations and cash flows for each of the
two years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the financial statements taken as a whole, presents fairly in
all material respects the information set forth therein. As discussed in Note 4 to the consolidated financial statements, in 2002 the
Company ceased amortization of goodwill in accordance with Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets.  /s/  Ernst
& Young LLP Atlanta, Georgia
March 3, 2003 F-2




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS
CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands, except for share data) December 31,2003
    
    2002AssetsCurrent assets:Cash and cash equivalents
    
    $
    41,236
    
    
    $
    53,491Accounts and notes receivable
    
    
    2,061
    
    
    
    1,574Inventories
    
    
    1,577
    
    
    
    2,308Recoverable construction allowances
    
    
    355
    
    
    
    Prepaid expenses
    
    
    10,714
    
    
    
    9,367Total current assets
    
    
    55,943
    
    
    
    66,740Other assets:Investment in and advances to partnerships
    
    
    6,952
    
    
    
    6,542Deferred income tax asset
    
    
    73,852
    
    
    
    Other
    
    
    23,388
    
    
    
    20,923Total other assets
    
    
    104,192
    
    
    
    27,465Property and equipment:Land
    
    
    44,561
    
    
    
    48,213Building and improvements
    
    
    151,761
    
    
    
    158,352Leasehold improvements
    
    
    237,769
    
    
    
    222,827Leasehold interest
    
    
    5,841
    
    
    
    5,841Equipment
    
    
    185,413
    
    
    
    183,171Total property and equipment
    
    
    625,345
    
    
    
    618,404Accumulated depreciation
    
    
    (204,514
    )
    
    
    (179,236
    )Property and equipment, net of accumulated
depreciation
    
    
    420,831
    
    
    
    439,168Goodwill, net of accumulated amortization
    
    
    23,354
    
    
    
    23,354Total assets
    
    $
    604,320
    
    
    $
    556,727
 See accompanying notes. F-3




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December 31,2003
    
    2002Liabilities and stockholders equity:Current liabilities:Accounts payable
    
    $
    27,362
    
    
    $
    31,946Accrued expenses
    
    
    44,412
    
    
    
    45,820Current maturities of long-term indebtedness and capital
lease obligations
    
    
    1,902
    
    
    
    27,051Total current liabilities
    
    
    73,676
    
    
    
    104,817Long-term liabilities:Long-term debt, less current maturities
    
    
    323,050
    
    
    
    339,044Capital lease obligations, less current maturities
    
    
    51,478
    
    
    
    52,673Long-term trade payables, less current maturities
    
    
    7,988
    
    
    
    7,693Deferred income taxes
    
    
    
    
    
    
    1,927382,516
    
    
    
    401,337Liabilities Subject to Compromise
    
    
    21,521
    
    
    
    37,367Stockholders equity:Preferred Stock, $1.00 par value, authorized 1,000,000
shares,
none outstanding at December 31, 2003
    
    
    
    
    
    
    Common Stock, $0.03 par value, authorized 20,000,000
shares,
issued and outstanding 9,148,012 shares and 9,088,512
shares at
December 31, 2003 and 2002, respectively.
    
    
    275
    
    
    
    273Paid-in capital
    
    
    214,270
    
    
    
    208,249Retained deficit
    
    
    (87,938
    )
    
    
    (195,316
    )126,607
    
    
    
    13,206Total liabilities and stockholders equity
    
    $
    604,320
    
    
    $
    556,727
 See accompanying notes. F-4




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##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS
CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands, except per share data) Years Ended December 31,2003
    
    2002
    
    2001Revenues:Admissions
    
    $
    332,070
    
    
    $
    342,839
    
    
    $
    311,818Concessions and other
    
    
    161,015
    
    
    
    163,668
    
    
    
    145,132493,085
    
    
    
    506,507
    
    
    
    456,950Costs and expenses:Film exhibition costs
    
    
    180,403
    
    
    
    189,265
    
    
    
    171,207Concession costs
    
    
    17,985
    
    
    
    19,233
    
    
    
    20,184Other theatre operating costs
    
    
    181,678
    
    
    
    182,841
    
    
    
    182,054General and administrative expenses
    
    
    15,335
    
    
    
    14,983
    
    
    
    8,846Depreciation and amortization expenses
    
    
    31,744
    
    
    
    32,079
    
    
    
    42,153Gain on sales of property and equipment
    
    
    (3,023
    )
    
    
    (681
    )
    
    
    Impairment charge
    
    
    1,148
    
    
    
    
    
    
    
    132,207425,270
    
    
    
    437,720
    
    
    
    556,651Operating income (loss)
    
    
    67,815
    
    
    
    68,787
    
    
    
    (99,701
    )Interest expense (Contractual interest was $40,505,
$47,468 and $44,651 for the years ended December
31, 2003, 2002 and 2001, respectively )
    
    
    39,825
    
    
    
    102,773
    
    
    
    6,138Net income (loss) before reorganization costs and
income taxes
    
    
    27,990
    
    
    
    (33,986
    )
    
    
    (105,839
    )Reorganization costs
    
    
    (4,109
    )
    
    
    20,547
    
    
    
    19,548Net income (loss) before income taxes
    
    
    32,099
    
    
    
    (54,533
    )
    
    
    (125,387
    )Income tax expense (benefit)
    
    
    (75,279
    )
    
    
    (14,706
    )
    
    
    Net income (loss) available for common stockholders
    
    $
    107,378
    
    
    $
    (39,827
    )
    
    $
    (125,387
    )Weighted average shares outstanding:Basic
    
    
    8,991
    
    
    
    9,195
    
    
    
    11,344Diluted
    
    
    9,448
    
    
    
    9,195
    
    
    
    11,344Income (loss) per common share:Basic
    
    $
    11.94
    
    
    $
    (4.33
    )
    
    $
    (11.05
    )Diluted
    
    $
    11.37
    
    
    $
    (4.33
    )
    
    $
    (11.05
    )
 See accompanying notes. F-5




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands) Years Ended December 31,2003
    
    2002
    
    2001Operating activitiesNet income (loss)
    
    $
    107,378
    
    
    $
    (39,827
    )
    
    $
    (125,387
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    31,744
    
    
    
    32,079
    
    
    
    42,153Impairment charge
    
    
    1,148
    
    
    
    
    
    
    
    132,207Deferred income taxes
    
    
    (75,279
    )
    
    
    
    
    
    
    Non-cash deferred compensation
    
    
    6,023
    
    
    
    3,614
    
    
    
    Non-cash reorganization items
    
    
    (5,940
    )
    
    
    13,528
    
    
    
    9,064Gain on sales of property and equipment
    
    
    (3,023
    )
    
    
    (681
    )
    
    
    Changes in operating assets and liabilities:Accounts and notes receivable and inventories
    
    
    468
    
    
    
    (427
    )
    
    
    3,544Prepaid expenses and other assets
    
    
    (4,254
    )
    
    
    10,702
    
    
    
    (7,313
    )Accounts payable
    
    
    (4,584
    )
    
    
    5,420
    
    
    
    3,193Accrued expenses and other liabilities
    
    
    (1,871
    )
    
    
    (8,849
    )
    
    
    (8,040
    )Net cash provided by operating activities
    
    
    51,810
    
    
    
    15,559
    
    
    
    49,421Investing activitiesPurchases of property and equipment
    
    
    (18,838
    )
    
    
    (18,023
    )
    
    
    (9,191
    )Proceeds from sale of property and equipment
    
    
    6,722
    
    
    
    3,475
    
    
    
    8,197Net cash used in investing activities
    
    
    (12,116
    )
    
    
    (14,548
    )
    
    
    (994
    )Financing activitiesDebt:Additional borrowing, net of debt issuance costs
    
    
    
    
    
    
    21,705
    
    
    
    Repayments of long-term debt (including prepayment
penalties)
    
    
    (50,754
    )
    
    
    (64,061
    )
    
    
    (10,432
    )Repayments of capital lease obligations
    
    
    (1,195
    )
    
    
    (1,965
    )
    
    
    (1,547
    )Recoverable construction allowances under capital
leases
    
    
    
    
    
    
    2,614
    
    
    
    5,217Net cash used in financing activities
    
    
    (51,949
    )
    
    
    (41,707
    )
    
    
    (6,762
    )Increase (decrease) in cash and cash equivalents
    
    
    (12,255
    )
    
    
    (40,696
    )
    
    
    41,665Cash and cash equivalents at beginning of year
    
    
    53,491
    
    
    
    94,187
    
    
    
    52,522Cash and cash equivalents at end of year
    
    $
    41,236
    
    
    $
    53,491
    
    
    $
    94,187
 See accompanying notes. F-6




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##### Table of Contents



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
CARMIKE CINEMAS, INC. and SUBSIDIARIES
(in thousands) Series A CumulativeConvertible Exchangeable
    
    Class A CommonPreferred Stock
    
    StockShares
    
    Amount
    
    Shares
    
    AmountBalance at January 1, 2001
    
    
    550
    
    
    $
    550
    
    
    
    10,018
    
    
    $
    301Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2001
    
    
    550
    
    
    
    550
    
    
    
    10,018
    
    
    
    301Emergence from bankruptcy
    
    
    (550
    )
    
    
    (550
    )
    
    
    (10,018
    )
    
    
    (301
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2003
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 F-7




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##### Table of Contents



Class B CommonStock
    
    Treasury Stock
    
    New Common StockPaid-in
    
    RetainedShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Earnings
    
    Total1,371
    
    
    $
    41
    
    
    
    (45
    )
    
    $
    (441
    )
    
    
    
    
    
    $
    
    
    
    $
    158,771
    
    
    $
    (30,102
    )
    
    $
    129,120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (125,387
    )
    
    
    (125,387
    )1,371
    
    
    
    41
    
    
    
    (45
    )
    
    
    (441
    )
    
    
    
    
    
    
    
    
    
    
    158,771
    
    
    
    (155,489
    )
    
    
    3,733(1,371
    )
    
    
    (41
    )
    
    
    45
    
    
    
    441
    
    
    
    8,991
    
    
    
    270
    
    
    
    45,866
    
    
    
    
    
    
    
    45,685
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,827
    )
    
    
    (39,827
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97
    
    
    
    3
    
    
    
    3,612
    
    
    
    
    
    
    
    3,615
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,088
    
    
    
    273
    
    
    
    208,249
    
    
    
    (195,316
    )
    
    
    13,206
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,378
    
    
    
    107,378
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    2
    
    
    
    6,021
    
    
    
    
    
    
    
    6,023
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    9,150
    
    
    $
    275
    
    
    $
    214,270
    
    
    $
    (87,938
    )
    
    $
    126,607


See accompanying notes.

F-8



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CARMIKE CINEMAS, INC. and SUBSIDIARIES
December 31, 2003 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation On August 8, 2000 (the Petition Date), Carmike and its subsidiaries, Eastwynn
Theatres, Inc. (Eastwynn), Wooden Nickel Pub, Inc. (Wooden Nickel) and
Military Services, Inc. (Military Services) (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, (i) that
pre-petition liabilities that are subject to compromise be segregated in the
Companys consolidated balance sheet as liabilities subject to compromise and
(ii) the identification of all transactions and events that are directly
associated with the reorganization of the Company in the Consolidated
Statements of Operations. Description of Business The primary business of the Company is the operation of motion picture theatres
which generate revenues principally through admissions and concessions sales.
The Company considers itself to be in a single segment. Substantially all
revenues are received in cash and are recognized as income at the point of
sale. Ten major distributors in the motion picture industry produced films
which accounted for approximately 99.8%, 97.7% and 97.3% of the Companys
admission revenues in 2003, 2002 and 2001, respectively. Principles of Consolidation The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
certain estimates and assumptions that affect the reported amounts in the
financial statements and accompanying notes. Actual results could differ from
those estimates and such difference could be material. Cash and Cash Equivalents Cash equivalents are highly liquid investments with original maturities of
three months or less at the date of purchase and consist primarily of money
market accounts and deposits. Deposits with banks are federally insured in
limited amounts. Debt Issuance Costs Upon emergence from Chapter 11, all of the debt issuance costs relating to the
pre-petition debt were written off to reorganization costs. The debt issuance
costs relating to the new debt was capitalized and are being amortized to
interest expense over the term of the related debt. F-9




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##### Table of Contents



Inventories Inventories, principally concessions and theatre supplies, are stated at the
lower of cost (first-in, first-out method) or market. Investments in Unconsolidated Affiliates Our investments in privately held entities are accounted for under either the
cost, equity, or consolidation method, whichever is appropriate for the
particular investment. The appropriate method is determined by our ability to
exercise significant influence over the investee, through either quantity of
voting stock or other means. We regularly review our investments for
impairment issues and propriety of current accounting treatment. The primary
method we use to determine whether or not impairment exists is to compare the
valuation of our investment with the underlying value of the entity in which we
have an investment. We can determine the underlying value of the entity based
on a number of factors, including the execution of business strategy and the
steps that it has and is taking in the execution of that strategy, and the
entitys subsequent financing activity. If we determine that impairment exists,
we would recognize the loss in Other income (expense) in accordance with SFAS
115, Accounting for Certain Investments in Debt and Equity Securities. Investments in which we maintain a 20% to 50% interest, or otherwise have the
ability to exercise significant influence, are accounted for under the equity
method. Investments in which we have less than a 20% interest and over which
we do not have the ability to exercise significant influence are carried at the
lower of cost or estimated realizable value. We monitor both equity and cost
basis investments for other than temporary declines in value and make
reductions in carrying values when appropriate. Property and Equipment Property and equipment are carried at cost or cost adjusted for recognized
impairments. Assets held for disposal are reported at the lower of the assets
carrying amount or its fair value less costs to sell. Amortization of assets
recorded under capital leases is included with depreciation expense in the
accompanying consolidated statements of operations. The Company uses
accelerated methods of depreciation for income tax purposes. For financial
reporting purposes, depreciation is computed on a straight-line basis as
follows: Building and improvements
    
    20-30 yearsLeasehold improvements*
    
    15-30 yearsLeasehold interests*
    
    15-30 yearsEquipment
    
    5-15 years
   *
    
    Number of years is based on the term of the applicable lease Depreciation expense for the years ended December 31, 2003, 2002 and 2001 were
$31.7 million, $32.1 million and $42.2 million, respectively. Goodwill The Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets(SFAS No. 142), effective January 1,
2002. Accordingly, the amortization of goodwill ceased as of January 1, 2002.
Goodwill represents the excess of purchase price over the fair value of net
tangible assets acquired. SFAS No. 142 required F-10




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##### Table of Contents



companies with goodwill to complete an initial impairment test by June 30,
2002. The Company considers all of its consolidated operations as a reporting
unit for SFAS No. 142. We evaluate goodwill impairment by comparing discounted
cash flows against carrying values. In the fourth quarter of 2003, the Company
completed its annual review of its goodwill for impairment as of December 31,
2003, and did not identify an asset impairment as a result of the review. The
Company will continue to review its goodwill annually for impairment. Adoption of the non-amortization provisions of SFAS No. 142 as of January 1,
2001 would have reduced net loss for the year ended December 31, 2001 by $ 1.5
million, or $0.13 per diluted share per period. Assets Held for Sale Certain assets have been identified for disposition, a portion of which is
undeveloped land. The value of these assets are reported as other assets
pending the completion of their sale and are held at the lower of their
carrying amount or fair value less costs to sell. Recoverable Construction Allowances Under certain circumstances with our landlords, theatres being developed have
defined reimbursements due the Company from the landlord. These reimbursements
relate to an estimated value of the building to the landlord, after completion
of the property. The recoverable allowances are recorded as a receivable in
accordance with the lease agreement. Impairment of Property and Equipment The Company accounts for its property and equipment in accordance with the
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets(SFAS No. 144). The Company
reviews its property and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company annually reviews and monitors its internal management
reports and the competition in its markets for indicators of impairment. The Company considers a trend of operating results that are not in agreement
with managements expectations to be its primary indicator of potential
impairment. An additional impairment indicator used by management is the
existence of competition in a market, either from third parties or from the
Companys own expansion. For purposes of SFAS No. 144, property and equipment
are evaluated for impairment at the theatre level except when multiple theatres
are located in the same geographical area. The Company deems a theatre or
market to be impaired if a forecast of undiscounted future operating cash flows
directly related to the theatre or market, including estimated disposal value
if any, is less than its carrying amount. If a theatre or market is determined
to be impaired, the loss is measured as the amount by which the carrying amount
of the theatres within the market exceeds its fair value. Fair value is based
on managements estimates, which are based on using the best information
available, including prices for similar theatres or the results of valuation
techniques such as discounting estimated future cash flows. Considerable
judgment is necessary to estimate discounted future cash flows. Accordingly,
actual results could vary significantly from such estimates. F-11




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##### Table of Contents



Income Taxes The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes(SFAS No. 109).
Under SFAS No. 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rate and laws that will be
in effect when the differences are expected to reverse. Deferred tax assets
are reduced by a valuation allowance if it is more likely than not that some
portion or all of the deferred tax asset will not be realized. For the year
ended December 31, 2003, the Company determined that it is more likely than not
that certain deferred tax assets will be realized in the future and
accordingly, it was appropriate to release the valuation allowance and
recognize a tax benefit of $75.3 million. Advertising The company expenses advertising costs when incurred. Stock Based Compensation Stock-based Compensation Plans.In December 2002, the FASB issued SFAS No.
148, Accounting for Stock Based Compensation-Transition and Disclosure(SFAS
No. 148). SFAS
No. 148 provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123, Accounting for Stock-based Compensation(SFAS No. 123), to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. SFAS No. 148 is effective for
financial statements for fiscal years ending after December 15, 2002 and for
interim periods beginning after December 15, 2002. At December 31, 2003, the Company had three stock based compensation plans.
The plans are: (i) the Carmike Cinemas, Inc. 2002 Stock Plan (the 2002 Stock
Plan), (ii) the Carmike Cinemas, Inc. Non-Employee Directors Long-Term Stock
Incentive Plan (the Directors Incentive Plan) and (iii) the Carmike Cinemas,
Inc. Employee and Consultant Long-Term Stock Incentive Plan (the Employee
Incentive Plan). There are 1,000,000 shares of Common Stock reserved for
issuance under the 2002 Stock Plan. The Board of Directors has approved the
grant of 780,000 shares under the 2002 Stock Plan to Michael W. Patrick, the
Companys Chief Executive Officer. Pursuant to Mr. Patricks employment
agreement, these shares will be delivered over a three year period beginning in
2005. In May 2002, the stock option committee (which administered the 2002
Stock Plan prior to August 2002) approved grants of the remaining 220,000
shares to a group of seven other members of the Companys senior management
(198,750 of which may still be earned and/or vested). These shares are to be
earned over a three year period, commencing with the year ended December 31,
2002, with the shares being earned as the executive achieves specific
performance goals set for the executive to be achieved during each of these
years. In some instances the executive may earn partial amounts of his or her
stock grant based on graded levels of performance. Shares earned each year
will vest and be receivable approximately two years after the calendar year in
which they were earned, provided, with certain exceptions, the executive
remains an employee of the Company. One of the seven grants to senior
executives includes a grant of 35,000 shares to P. Lamar Fields, a former F-12




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##### Table of Contents



employee of the Company. Pursuant to an agreement with Mr. Fields, the Company
will deliver to Mr. Fields the 17,000 shares earned in connection with his
performance in 2002. These 17,000 shares shall vest on January 31, 2005. All
such shares under the 2002 Stock Plan have a zero cost to the grantee. The
seven grants to senior management and the former employee are expensed using
variable accounting and the grant to Mr. Patrick is expensed using fixed
accounting. The Board of Directors has reserved 75,000 shares of Common Stock for issuance
under the Directors Incentive Plan. In connection with the adoption of the
Directors Incentive Plan, the Board of Directors authorized option grants to
two independent directors, Alan J. Hirschfield and Roland C. Smith. Upon
stockholder approval of the Directors Incentive Plan on August 14, 2002, Mr.
Hirschfield and Mr. Smith each received options to purchase 5,000 shares of
Common Stock at an exercise price of $19.95 per share which were fully vested
on the date of grant. In addition, on June 2, 2003, S. David Passman III, an
independent director, received options to purchase 5,000 shares of Common Stock
at an exercise price of $21.40 per share which were fully vested on the date of
grant. The Board of Directors has also reserved 500,000 shares of Common Stock
for issuance under the Employee Incentive Plan. On March 7, 2003, the
Compensation Committee approved the grant of options to purchase an aggregate
of 150,000 shares with an exercise price of $21.79 to three members of the
Companys senior management and on December 18, 2003 approved the grant of
options to purchase an aggregate of 180,000 shares with an exercise price of
$35.63 to six of the Companys executive officers under the Employee Incentive
Plan. Half of the shares granted on March 7, 2003 will vest on December 31,
2005 and the other half will vest on December 31, 2006. Of the shares granted
on December 18, 2003, one-third will vest on December 31, 2005, one-third will
vest on December 31, 2006 and one-third will vest on December 31, 2007. The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees(APB
No. 25). Reflected in the 2002 and 2003 Statement of Operations is $3.6
million and $6.0 million, respectively, of stock-based employee compensation
cost related to the stock grants ($2.9 million and $2.9 million, respectively,
from fixed accounting and $0.7 million and $3.1 million, respectively, from
variable accounting.) The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Companys employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
managements opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. For SFAS No.
123 purposes, the fair value of each option grant and stock based award has
been estimated as of the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions: F-13




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##### Table of Contents



2003
    
    2002
    
    2001*Expected life (years)
    
    
    9.0
    
    
    
    9.0
    
    
    
    N/ARisk-free interest rate
    
    
    4.34
    %
    
    
    4.19
    %
    
    
    N/ADividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    N/AExpected volatility
    
    
    0.40
    
    
    
    0.40
    
    
    
    N/A
   *
    
    No options were granted in 2001 The estimated fair value of the options granted during 2003 was $12.12 per
share. Had compensation cost been determined consistent with SFAS No. 123,
utilizing the assumptions detailed above, the Companys pro forma net income
(loss) and pro forma basic income (loss) per share would have increased
(decreased) to the following amounts (in thousands, except share data): 2003
    
    2002
    
    2001Net income (loss):As reported
    
    $
    107,378
    
    
    $
    (39,827
    )
    
    $
    (125,387
    )Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects
    
    
    (418
    )
    
    
    (416
    )
    
    
    Pro forma
 for SFAS No. 123
    
    
    106,960
    
    
    
    (40,243
    )
    
    
    (125,387
    )Basic net earnings (loss) per share:As reported
    
    $
    11.94
    
    
    $
    (4.33
    )
    
    $
    (11.05
    )Pro forma
 for SFAS No. 123
    
    
    11.90
    
    
    
    (4.37
    )
    
    
    (11.05
    )Diluted net earnings (loss) per share:As reported
    
    $
    11.37
    
    
    $
    (4.33
    )
    
    $
    (11.05
    )Pro forma
 for SFAS No. 123
    
    
    11.32
    
    
    
    (4.37
    )
    
    
    (11.05
    )
 Earnings per Share Earnings per share is presented in conformity with Statement of Financial
Accounting Standards No. 128, Earnings Per Share(SFAS No. 128), for all
periods presented. In accordance with SFAS No. 128, basic net loss per common
share has been computed using the weighted-average number of shares of common
stock outstanding during the period. Diluted earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding
plus common stock equivalents for each period. Options to purchase shares of
common stock were not included in the computed diluted earnings per share for
all periods presented because the effect would be antidilutive. Shares
potentially issuable in connection with the 5.5% Series A Senior Cumulative
Convertible Exchangeable Preferred Stock (the Preferred Stock) were not
included in the diluted earnings per share calculation in 2001 and 2000 as
their effect would be antidilutive. Stock grants to acquire shares of Common
Stock under the 2002 Stock Plan were not included in 2002 as their effect would
be antidilutive. F-14




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##### Table of Contents



For Year Ended December 31,(in 000s except per share data)
    
    2003
    
    2002
    
    2001Weighted average shares outstanding
    
    
    9,150
    
    
    
    9,292
    
    
    
    11,344Less restrictive stock issued
    
    
    (159
    )
    
    
    (97
    )
    
    
    8,991
    
    
    
    9,195
    
    
    
    11,344Dilutive Shares:Restricted stock
    
    
    66
    
    
    
    
    
    
    
    Stock grants
    
    
    378
    
    
    
    
    
    
    
    Stock options
    
    
    13
    
    
    
    
    
    
    
    9,448
    
    
    
    9,195
    
    
    
    11,344Earnings per share:Basic
    
    $
    11.94
    
    
    $
    (4.33
    )
    
    $
    (11.05
    )Diluted
    
    $
    11.37
    
    
    $
    (4.33
    )
    
    $
    (11.05
    )
 Leases The Company has various non-cancelable operating lease agreements. The theatre
leases generally provide for the payment of fixed monthly rentals, property
taxes, common area maintenance, insurance and repairs. Certain of these leases
provide for escalating lease payments over the terms of the leases. Moreover,
certain leases also include contingent rental fees based on a percentage of
sales. The Company, at its option, can renew a substantial portion of its
theatre leases, at the then fair rental rate, for various periods with the
maximum renewal period generally totaling 15-20 years. For financial statement
purposes, the total amount of base rentals over the term of the leases is
charged to expense on the straight-line method over the lease terms. Rental
expense in excess of lease payments is recorded as a deferred rental liability. Derivatives The Company recognizes all derivative financial instruments, such as interest
rate swap contracts, in the consolidated financial statements at fair value.
Changes in the fair value of derivative financial instruments are either
periodically recorded in income or in stockholders equity as a component of
comprehensive income depending on whether the derivative financial instrument
qualifies for hedge accounting, and if so, whether it qualifies as a fair value
hedge or cash flow hedge. If an interest rate swap agreement is terminated,
any resulting gain or loss would be deferred and amortized to interest expense
over the remaining life of the hedged debt instrument. In the event of early
extinguishment of a designated debt obligation, any realized or unrealized gain
or loss from the swap would be recognized to income coincident with the
extinguishment. See Note 3  Liabilities Subject to Compromise, for a
discussion of the interest rate swaps terminated at the Petition Date. As of
December 31, 2003 the Company had no derivative financial instruments. Benefit Plans The Company has a non-qualified deferred compensation plan for certain of its
executive officers. Under this plan, the Company contributes ten percent of the
employees taxable compensation to a secular trust designated for the employee.
The Company also has a benefit plan for certain non-executive employees, of
which contributions to the plans are at the discretion of the Companys
executive management. Contributions related to these plans are not material to
the Companys operations. F-15




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##### Table of Contents



Reclassifications Certain amounts in the accompanying consolidated financial statements have been
reclassified to conform to the current years presentation. Recent Accounting Pronouncements 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 currently
effective for all new variable interest entities created or acquired after
February 1, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period ending after March 15, 2004. The Company believes
adoption of FIN 46 will not have a material effect on our results of operations
and financial condition. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity(SFAS No.
150). SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. With the exception of certain measurement criteria deferred
indefinitely by the FASB, SFAS No. 150 was effective for financial instruments
entered into or modified after May 31, 2003 and otherwise was effective at the
beginning of the first interim period beginning after June 15, 2003. We do not
currently have any such instruments and therefore the adoption of SFAS No. 150
did not have an impact on our financial condition, results of operations or
cash flows. NOTE
2 - PROCEEDINGS UNDER CHAPTER 11 In the Chapter 11 Cases, discussed in Note 1, substantially all unsecured and
partially secured liabilities as of the Petition Date were subject to
compromise or other treatment until a plan of reorganization was confirmed by
the bankruptcy court. Generally, actions to enforce or otherwise effect
repayment of all pre-chapter 11 liabilities as well as all pending litigation
against the Company were stayed while the Company continued their business
operations as debtors-in-possession. The Company could not pay pre-petition debts without prior bankruptcy court
approval during the Chapter 11 Cases. Immediately after the commencement of
the Chapter 11 Cases, the Company sought and obtained several orders from the
bankruptcy court which were intended to stabilize its business and enable the
Company to continue operations as debtors-in-possession. The most significant
of these orders: (i) permitted the Company to operate its consolidated cash
management system during the Chapter 11 Cases in substantially the same manner
as it was operated prior to the commencement of the Chapter 11 Cases; (ii)
authorized payment of pre-petition wages, vacation pay and employee benefits
and reimbursement of employee business expenses; (iii) authorized payment of
pre-petition sales and use taxes owed by the Company; (iv) authorized the
Company to pay up to $2.3 million of pre-petition obligations to critical
vendors, common carriers and workers compensation insurance to aid the Company
in maintaining F-16




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##### Table of Contents



operation
of its theatres and approximately $37 million to film distributors;
and (v) authorized debt service payments for the loan related to Industrial
Revenue Bonds issued by the Downtown Development Authority of Columbus,
Georgia. As debtors-in-possession, the Company had the right during the reorganization
period, subject to bankruptcy court approval and certain other limitations, to
assume or reject executory contracts and unexpired leases. In this context, assumption means that the Company agrees to perform
its obligations and cure all existing defaults under the contract or lease,
and rejection means that the Company is relieved from its obligations to
perform further under the contract or lease but is subject to a claim for
damages for the breach thereof. Any damages resulting from rejection of
executory contracts and unexpired leases were treated as general unsecured
claims in the Chapter 11 Cases. During the Chapter 11 Cases, the Company
received approval from the bankruptcy court to reject theatre leases relating
to 136 theatre locations. The Company estimated the ultimate liability that
may result from rejecting leases and reported it as Liabilities Subject to
Compromise in the balance sheet. However, the ultimate liability may differ
from such estimates based on settlements of claims that have or may be filed in
the future. As a result of the Chapter 11 Cases, no principal or interest payments were
made on unsecured pre-petition debt. On October 27, 2000, the Company received
bankruptcy court approval to make debt service payments for the loan related to
Industrial Revenue Bonds issued by the Downtown Development Authority of
Columbus, Georgia. The Company reached an agreement with its creditor
constituencies that provides for the payment of cash collateral and adequate
protection, as those terms are defined in the Bankruptcy Code. The Company
made payments to the secured lenders in the amount of $8,272,821 on March 5,
2001 and made payments of $500,000 per month as adequate protection payments.
All of these payments are treated as principal payments under the creditor
agreement. Additionally, after the Petition Date, the Company could not declare dividends
for its Preferred Stock. Preferred Stock dividends of $7.0 million and $2.3
million were in arrears at December 31, 2001 and 2000. The terms of the
Preferred Stock agreement provided, with respect to dividend arrearages, that
the dividend accrual rate increases to 8.5%. In view of the Company having
ceased making scheduled dividend payments on the Preferred Stock after the
Petition Date, the holders of the Preferred Stock designated two additional
directors to the Companys Board of Directors. Also, during the Chapter 11
Cases, the Company reached an agreement to restructure its master lease
facility with MoviePlex Realty Leasing, L.L.C. (MoviePlex) and entered into
the Second Amended and Restated Master Lease, dated as of September 1, 2001
(the New Master Lease). Under the New Master Lease, Carmike has entered into
a new 15-year lease for the six MoviePlex properties with an option to extend
the term for an additional five years. The Original MoviePlex Lease was
terminated and prepetition defaults of $493,680 under the Original MoviePlex
Lease were paid. The initial first twelve months base rent for the six
theatres is an aggregate of $5.4 million per annum ($450,000 per month),
subject to periodic increases thereafter and certain additional rent
obligations such as percentage rent. All past due rent, additional rent, and/or other sums due to MoviePlex under
the terms of the New Master Lease bear interest from the date which is five
days from the date the amounts were due until paid by Carmike at the rate of 2%
above the published prime rate of Wachovia Bank, F-17




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##### Table of Contents



N.A. Under the New Master Lease, Carmike pays all real estate taxes with
respect to the leased premises. When the plan of reorganization became effective on January 31, 2002, Carmike
filed with the Secretary of State for the State of Delaware the Amended and
Restated Certificate of Incorporation, which cancelled all then existing Class
A and Class B Common Stock and Preferred Stock of the Company and established
authorized capital stock of twenty million (20,000,000) shares of reorganized
Carmike Common Stock, par value $.03 per share, and one million (1,000,000)
shares of reorganized Carmike Preferred Stock, par value $1.00 per share. The
Company currently has only 12,088,512 shares of reorganized Carmike Common
Stock outstanding. Material features of the plan of reorganization were:  
    
    The plan of reorganization provided for the issuance or reservation
for future issuance of ten million (10,000,000) shares of reorganized
Carmike Common Stock in the aggregate.
    
    The holders of Carmikes cancelled Class A and Class B Common Stock
received in the aggregate 22.2% (2,211,261) of the ten million
(10,000,000) shares of reorganized Carmike Common Stock.
    
    The holders of Carmikes cancelled Series A Preferred Stock
received in the aggregate 41.2% (4,120,000) of the ten million
(10,000,000) shares of reorganized Carmike Common Stock.
    
    Certain holders of $45,685,000 in aggregate principal amount of the
cancelled 9 3/8% Senior Subordinated Notes due 2009 issued by Carmike
prior to the Chapter 11 Cases (the Original Senior Subordinated
Notes) received in the aggregate 26.6% (2,660,001) of the ten million
(10,000,000) shares of reorganized Carmike Common Stock.
    
    Carmike reserved one million (1,000,000) shares of the reorganized
Carmike Common Stock for issuance under the 2002 Stock Plan. Under the
2002 Stock Plan, 780,000 have been authorized for issuance to Michael
W. Patrick pursuant to his new employment agreement as Chief Executive
Officer of the Company, and 220,000 shares have been authorized for
issuance to seven other members of senior management.
    
    The holders of Bank Claims in the Chapter 11 Cases received New
Bank Debt and cash in the amount of approximately $35 million plus
accrued and unpaid post-petition interest on the Bank Claims from
January 15, 2002 to the Reorganization Date. Bank Claims consisted
of claims of certain banks arising under: (i) the Amended and Restated
Credit Agreement, dated as of January 29, 1999, and amended as of March
31, 2000 and (ii) the Term Loan Credit Agreement dated as of February
25, 1999, as amended as of July 13, 1999, and further amended as of
March 31, 2000, and certain related documents. New Bank
Debt consists
of borrowings of approximately $254 million and bears interest, at the
greater of: (a) at the option of Carmike, (i) a specified base rate
plus 3.5% or (ii) LIBOR plus 4.5%; or (b) 7.75% per annum. F-18




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##### Table of Contents




    
    Carmike issued $154,315,000 of its former 10 3/8% Senior
Subordinated Notes due 2009 in exchange for $154,315,000 aggregate
principal amount of the claims in the Chapter 11 Cases concerning the
Original Senior Subordinated Notes.
    
    Leases covering 136 of Carmikes underperforming theatres were
rejected. Lease terminations and settlement agreements are being
negotiated for the resolution of lease termination claims, and the
restructuring of lease obligations.
    
    General unsecured creditors will receive payments in the aggregate
of approximately $53.8 million with an annual interest rate of 9.4% in
resolution of their allowed claims in Carmikes reorganization,
including claims for damages resulting from the rejection of executory
contracts and unexpired leases. Of these claims, $21.5 million are
disputed as of December 31, 2003. As such, the Companys ultimate
liability for these claims is uncertain and is subject to bankruptcy
court resolution. The Company has paid, adjusted by stipulation or
changed estimates, as of December 31, 2003, approximately $32.3 million
of these claims. On
the effective date of the reorganization, the Company entered into a term loan credit
agreement (the Post-Bankruptcy Credit Agreement), which governed the terms of
the post-bankruptcy Bank Debt. The Companys subsidiaries guaranteed the
Companys obligations under the Post-Bankruptcy Credit Agreement. The lenders
under the Post-Bankruptcy Credit Agreement had (i) a second priority, perfected
lien on owned real property and, to the extent landlord approval was obtained
or not required, leased real property of the Company and its subsidiaries; (ii)
a second priority, perfected security interest in the equity interests of
Company subsidiaries or 50% owned entities; and (iii) a second priority,
security interest in substantially all personal property and specified small
receivables owned by the Company and its subsidiaries. All of the security
interests and liens that secured the post-bankruptcy Bank Debt under the
Post-Bankruptcy Credit Agreement were junior and subordinate to the liens and
security interests of the collateral agent under the Post-Bankruptcy Revolving
Credit Agreement described below. The final maturity date of the post-bankruptcy Bank Debt under the
Post-Bankruptcy Credit Agreement was January 31, 2007. As of December 31,
2003, the principal payments for the Post-Bankruptcy Credit Agreement would
have been as follows (in thousands): June 30, 2004
    
    
    15,000December 31, 2004
    
    
    15,000June 30, 2005
    
    
    20,000December 31, 2005
    
    
    20,000June 30, 2006
    
    
    20,000January 31, 2007
    
    
    78,735$
    168,735
 In addition, the Post-Bankruptcy Credit Agreement contained covenants that
required the Company, among other things, to meet certain financial ratios and
prohibited the Company from taking certain actions and entering into certain
transactions. There were also provisions in the Post-Bankruptcy Credit
Agreement as to when the Company could prepay portions of the loans. F-19




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##### Table of Contents



Also on the effective date of the reorganization, the Company closed on a
revolving credit agreement (the Post-Bankruptcy Revolving Credit Agreement)
totaling $50 million. The proceeds of advances under the Post-Bankruptcy
Revolving Credit Agreement were used to provide working capital financing to
the Company and its subsidiaries and for funds for other general corporate
purposes of the Company. The Company, on the Reorganization Date, borrowed $20
million of the Post-Bankruptcy Revolving Credit Agreement in partial repayment
of its obligations owing to the banks under the Post-Bankruptcy Credit
Agreement. As of December 31, 2003, the Company has repaid the borrowed $20
million and has no outstanding balance under the Post-Bankruptcy Revolving
Credit Agreement. The interest rate for borrowings under the Post-Bankruptcy Revolving Credit
Agreement was set from time to time at the Companys option (subject to certain
conditions set forth in the Post-Bankruptcy Revolving Credit Agreement) at
either: (i) a specified base rate plus 1.75% per annum or (ii) an adjusted
LIBOR Rate plus 3.25% per annum, based on the aggregate Revolving Credit
Advances (as defined in the Post-Bankruptcy Revolving Credit Agreement)
outstanding from time to time. Borrowings under the Post-Bankruptcy Revolving
Credit Agreement were secured by first priority security interests in
substantially all tangible or intangible property of the Company (but does not
include certain equipment or real estate constituting premises subject to the
master leasing agreement with MoviePlex Realty Leasing, L.L.C.). The
Post-Bankruptcy Revolving Credit Agreement contained covenants that, among
other things, prohibited the Company from taking certain actions and entering
into certain transactions. There were also provisions in the Post-Bankruptcy
Revolving Credit Agreement as to when the Company could prepay portions of the
loans. In addition, on the effective date of the reorganization and pursuant to the
plan of reorganization, the Company issued $154,315,000 of its former 10 3/8%
Senior Subordinated Notes due 2009, in exchange for $154,315,000 aggregate
principal amount of the Original Senior Subordinated Note Claims in the
Companys Chapter 11 Cases relating to the Companys Original Senior
Subordinated Notes due 2009. The remaining $45,685,000 in aggregate principal
amount of the Original Senior Subordinated Notes were exchanged under the plan
of reorganization for shares of reorganized Carmike Common Stock, as previously
described. The 10 3/8% Senior Subordinated Notes were issued pursuant to an
Indenture, dated as of January 31, 2002, among the Company, the subsidiary
guarantors named therein and Wilmington Trust Company, as Trustee (the
Indenture). The Companys subsidiary guaranteed the 10 3/8% Senior
Subordinated Notes were junior and subordinated on the same basis as the New
Senior Subordinated Notes are junior and subordinated to the Companys
post-bankruptcy Senior Debt (as defined in the Indenture and included the debt
described above under the Post-Bankruptcy Credit Agreement and Post-Bankruptcy
Revolving Credit Agreement). Interest at 10 3/8% per annum from the issue date
to maturity was payable on the former Senior Subordinated Notes each February 1
and August 1, beginning February 1, 2002. The 10 3/8% Senior Subordinated Notes
were redeemable at the Companys option under certain conditions after February
1, 2004. Further, the Indenture contained covenants that, among other things,
restricted the Company in connection with the incurrence of additional
indebtedness not including the debt incurred under the Post-Bankruptcy Credit
Agreement and Post-Bankruptcy Revolving Credit Agreement as described
below,
asset sales, changes of control and transactions with affiliates. F-20




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##### Table of Contents



The reorganization value of the assets of the Company immediately before the
effective date of the reorganization was greater than the total of all
post-petition liabilities and allowed claims and the plan of reorganization
does not result in a change in ownership as defined by Statement of Position
90-7; accordingly, the Company will continue to recognize its results on the
historical basis of accounting. Reorganization costs for the periods ended December 31, 2003, 2002 and 2001,
respectively, are as follows (in thousands): December 31,2003
    
    2002
    
    2001Write-off of origination fees
    
    $
    
    
    
    $
    8,994
    
    
    $
    Professional fees
    
    
    282
    
    
    
    8,049
    
    
    
    8,210Asset impairments
    
    
    
    
    
    
    
    
    
    
    16,419Gains on sale of assets
    
    
    
    
    
    
    (15
    )
    
    
    (871
    )Retention payments
    
    
    
    
    
    
    
    
    
    
    902Interest income
    
    
    
    
    
    
    (92
    )
    
    
    (2,240
    )Theatre disposition expenses
    
    
    
    
    
    
    592
    
    
    
    Change in estimates on claims
    
    
    (4,754
    )
    
    
    
    
    
    
    Other
    
    
    363
    
    
    
    3,019
    
    
    
    (2,872
    )Total reorganization costs
    
    $
    (4,109
    )
    
    $
    20,547
    
    
    $
    19,548
 Cash used in reorganization activities for 2003, 2002 and 2001 are as follows
(in thousands): 2003
    
    2002
    
    2001Professional fees
    
    $
    (282
    )
    
    $
    (8,773
    )
    
    $
    (7,927
    )Retention payments
    
    
    
    
    
    
    (283
    )
    
    
    (619
    )Proceeds from sale of assets
    
    
    
    
    
    
    15
    
    
    
    8,197Payment of pre-petition liabilities
    
    
    (11,885
    )
    
    
    (8,528
    )
    
    
    (15,534
    )Interest income
    
    
    
    
    
    
    107
    
    
    
    2,240Other
    
    
    
    
    
    
    (1,486
    )
    
    
    (886
    )$
    (12,167
    )
    
    $
    (18,948
    )
    
    $
    (14,529
    )
 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 December 31, 2003 and 2002 are as follows (in
thousands): F-21




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##### Table of Contents



December 31,2003
    
    2002Disputed unsecured claims
    
    $
    20,424
    
    
    $
    36,075Disputed priority claims
    
    
    1,097
    
    
    
    1,292$
    21,521
    
    
    $
    37,367
 NOTE
4 - IMPAIRMENT OF PROPERTY AND EQUIPMENT Impairment charges for the years ended December 31, 2003, 2002 and 2001,
respectively, are as follows (in thousands): 2003
    
    2002
    
    2001Impairment of property and equipment
    
    $
    1,148
    
    
    $
    
    
    
    $
    127,718Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    20,908Total impairments
    
    
    1,148
    
    
    
    
    
    
    
    148,626Amounts classified as reorganization
    
    
    
    
    
    
    
    
    
    
    (16,419
    )Impairment charge
    
    $
    1,148
    
    
    $
    
    
    
    $
    132,207
 The impairment charge in 2003 was primarily attributable to changes in
competition in three of our markets. These changes caused a decrease in
profitability in four theatres, which operate 27 screens, to a point below the
carrying value of the long-lived assets. There was no impairment of long-lived assets during the year ended December 31,
2002.
During the course of the Chapter 11 proceedings, the Company had the
opportunity to reject leases on unprofitable leased theatres, to reassess the
longer term value in keeping some of its owned theatres operating and to remove
equipment taken from leased and owned theatres. During the fourth quarter of
2001 the Company had sufficient information to assess the impact of lease
rejections, the closure of owned theatres, the future viability of our
entertainment centers and the effect of surplus equipment. As a result of
these reviews, in the fourth quarter of 2001, Carmike identified impairment of
asset values for 287 theatres and 2,126 screens (the 2001 Impairment Charge).
The 2001 Impairment Charge was significant and included a provision for the
total impairment of carrying value on 136 leased theatres that were rejected
during the Chapter 11 Cases, the impairment of our two entertainment centers,
the impairment of equipment removed from leased and owned theatres and the
inclusion of equipment in the valuation analysis for the theatres remaining in
the Companys portfolio. This inclusion of equipment resulted in a change in
estimate, which accounted for approximately $34.1 million of the 2001
Impairment Charge. The Company recognized an impairment charge of $132.2
million (approximately $11.65 per diluted share) plus $16.4 million charged to
reorganization. These impairment charges reduced the carrying value of
property and equipment by $127.7 million (cost of $214.2 million less
accumulated depreciation and amortization of $86.5 million) and goodwill by
approximately $20.9 million. F-22




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##### Table of Contents



NOTE
5 - INVESTMENTS IN UNCONSOLIDATED AFFILIATES The Company is a partner in joint ventures that operate motion picture
theatres. The Companys equity in the income or (loss) of these ventures, prior
to impairment charges, was approximately $1,191,000, $950,000 and $(699,000) in
2003, 2002 and 2001, respectively. These amounts are included as Concessions
and other in the accompanying consolidated statements of operations. The Company was a partner in another joint venture that operated three
entertainment center/movie theatre complexes, which closed by December 31,
2000. The Company reflected on the 2001 Statement of Operations a loss of $1.2
million from joint venture operations. NOTE
6 - OTHER ASSETS The Company has approximately $9.0 million in surplus long-term real estate
assets held for sale as of December 31, 2003. The carrying values of these
assets are reviewed annually as to relative market conditions and are adjusted
in accordance with SFAS No. 144. Disposition of these assets is contingent on
current market conditions and we cannot be assured that they will be sold at a
value equal to or greater than the current carrying value. Other assets are as
follows: December 31,2003
    
    2002Assets held for sale
    
    $
    8,932
    
    
    $
    7,945Loan/lease origination fees
    
    
    2,248
    
    
    
    2,342Deposits and binders
    
    
    3,440
    
    
    
    1,849Long-term recoverable construction allowances
    
    
    8,742
    
    
    
    8,742Notes receivable less short-term maturity
    
    
    26
    
    
    
    45$
    23,388
    
    
    $
    20,923
 NOTE
7 - PROPERTY AND EQUIPMENT The Company did not obtain any property or equipment under capital leases
during 2003 or 2002. The following amounts related to capital lease assets are
included in property and equipment (in thousands): December 31,2003
    
    2002Buildings and improvements
    
    $
    43,147
    
    
    $
    43,147Less accumulated amortization
    
    
    (11,799
    )
    
    
    (10,242
    )$
    31,348
    
    
    $
    32,905
 F-23




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##### Table of Contents



NOTE
8 - CAPITALIZED INTEREST AND CASH PAID FOR INTEREST The Company capitalized interest in connection with its construction of
long-lived assets. Interest incurred and interest capitalized are as follows
(in thousands): Interest
    
    InterestYears ended December 31,
    
    Expensed
    
    Paid
    
    Interest Capitalized2003
    
    $
    39,825
    
    
    $
    41,563
    
    
    $
    6972002
    
    
    102,773
    
    
    
    104,411
    
    
    
    2922001
    
    
    6,138
    
    
    
    6,138
    
    
    
    
 NOTE
9 - ACCRUED EXPENSES Accrued expenses include the following (in thousands): December 31,2003
    
    2002Deferred revenues
    
    $
    8,682
    
    
    $
    12,007Deferred and other accrued rents
    
    
    8,891
    
    
    
    7,889Property taxes
    
    
    5,596
    
    
    
    4,968Accrued interest
    
    
    10,403
    
    
    
    9,969Accrued salaries
    
    
    4,117
    
    
    
    4,878Sales tax
    
    
    2,867
    
    
    
    2,723Other accruals
    
    
    3,856
    
    
    
    3,386$
    44,412
    
    
    $
    45,820
 NOTE
10 - DEBT Debt consisted of the following (in thousands): December 31,2003
    
    2002Revolving credit facility
    
    $
    
    
    
    $
    Post-bankruptcy term loan
    
    
    168,735
    
    
    
    209,72910 3/8% senior subordinated notes
    
    
    154,315
    
    
    
    154,315Industrial revenue bonds; payable
in equal installments through May
2006, with interest rates ranging
from 5 -3/4% to 7%
    
    
    707
    
    
    
    1,080323,757
    
    
    
    365,124Current maturities
    
    
    (707
    )
    
    
    (26,080
    )$
    323,050
    
    
    $
    339,044
 See Note 2  Proceedings Under Chapter 11 for further discussion of debt. F-24




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##### Table of Contents



New Financing Transactions On February 4, 2004, the Company completed an offering of $150 million of
7.500% senior
subordinated notes due 2014 to institutional investors and entered into new
senior secured credit facilities consisting of a $50 million revolving credit
facility and a $100 million five-year term loan. The Company used the proceeds
from the new senior subordinated notes, the new credit facilities and excess
cash to refinance its post-bankruptcy term loan, tender for or redeem its 10
3/8% senior subordinated notes, repaid a portion of its long-term trade
payables and paid related transaction fees and expenses. Under the indenture
that governs the notes and the agreements related to the new senior secured
credit facilities, the Company will continue to be subject to customary
covenants. However, these covenants do not currently prohibit the Company from
paying dividends. A description of the new credit facilities and the new notes
is provided below. New Revolving Credit Facility On February 4, 2004, we entered into a new revolving credit facility with
Goldman Sachs Credit Partners L.P. as sole lead arranger, sole book runner and
sole syndication agent and Wells Fargo Foothill, Inc. as administrative agent
and collateral agent. The revolving credit facility provides for borrowings of
up to $50.0 million. The interest rate for borrowings under the new revolving
credit facility is set from time to time at our option (subject to certain
conditions set forth in the new revolving credit facility) at either: (1) a
specified base rate plus 2.25% or (2) LIBOR plus 3.25% per annum. The final
maturity date of the facility is August 4, 2008. The new revolving credit facility contains covenants which, among other things,
restrict our ability, and that of our restricted subsidiaries, to:  
    
    pay dividends or make any other restricted payments;
    
    create liens on our assets;
    
    make certain investments;
    
    consolidate, merge or otherwise transfer all or any substantial part
of our assets;
    
    enter into transactions with our affiliates; and
    
    engage in any sale-leaseback, synthetic lease or similar transaction
involving any of our assets. Our new revolving credit facility generally prohibits us from incurring any
additional indebtedness or materially amending the terms of any agreement
relating to existing indebtedness without lender approval. In addition, our new
revolving credit facility places certain restrictions on our ability to make
capital expenditures. The new revolving credit facility also contains financial
covenants that require us to maintain specified ratios of funded debt to
adjusted EBITDA and adjusted EBITDA to interest expense. The terms governing
each of these ratios are defined in the new revolving credit facility. Our failure to comply with any of these covenants, including compliance with
the financial ratios, is an event of default under the new revolving credit
facility, in which case, the agent may, and if requested by the lenders holding
a certain minimum percentage of the commitments F-25




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##### Table of Contents



shall, terminate the new
revolving credit facility with respect to additional advances and may declare
all or any portion of the obligations due and payable. Other events of default
under the new revolving credit facility include:  
    
    our failure to pay principal or interest on the loans when due and
payable, or our failure to pay certain expenses;
    
    the occurrence of a change of control, as defined in the agreement;
or
    
    a breach or default by us or our subsidiaries under, or the
termination of, the indenture relating to the notes. Borrowings under the new revolving credit facility are secured by first
priority security interests in substantially all of our tangible and intangible
assets, including the capital stock of our subsidiaries. All of our
subsidiaries guaranteed our obligations under the new revolving credit
facility. New Term Loan Facility On February 4, 2004, we entered into a new term loan facility with Goldman
Sachs Credit Partners L.P. as sole lead arranger, sole book runner and sole
syndication agent and National City Bank as administrative agent and collateral
agent. The new term loan facility provides for borrowings of $100.0 million,
which were drawn on the closing of the facility. The interest rate for the
borrowings under the new term loan facility is equal to, at our option, (1) a
specified base rate plus 2.25% or (2) LIBOR plus 3.25%. The final maturity
date of the loan is February 4, 2009. The new term loan facility contains certain negative covenants which among
other things, restrict our ability to:  
    
    incur additional debt;
    
    pay dividends or distributions on, or redeem or repurchase, our
capital stock;
    
    make investments;
    
    engage in transactions with affiliates;
    
    create liens on assets;
    
    transfer or sell assets;
    
    guarantee debt;
    
    restrict dividend payments to us; and
    
    consolidate, merge or transfer all or substantially all of our assets
and the assets of our subsidiaries. F-26




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##### Table of Contents



The lenders under the new term loan facility have a second priority security
interest in substantially all our tangible and intangible assets, including the
capital stock of our subsidiaries.
All of the security interests and liens that secure the new term loan facility
are junior and subordinate to the liens and security interests of the
collateral agent under the new revolving facility. Our subsidiaries guaranteed
our obligations under the new term loan facility. We may voluntarily pre-pay the term loan, in whole or in part, at (1) 103.0% of
the amount repaid if such repayment occurs on or prior to the first anniversary
of the closing of the new term loan facility; (2) 102.0% of the amount repaid
if such repayment occurs after the first anniversary but before the second
anniversary; (3) 101.0% of the amount repaid if such repayment occurs after the
second anniversary but before the third anniversary and (4) 100% of the amount
repaid if such repayment occurs after the third anniversary. New Senior Subordinated Notes On February 4, 2004, we completed an offering of $150 million in aggregate
principal amount of 7.500% senior subordinated notes due February 15, 2014 to
institutional investors. The indenture contains covenants, which, among other things, restrict our
ability to:  
    
    make restricted payments;
    
    consolidate, merge or otherwise transfer all or substantially all of
our assets;
    
    incur additional indebtedness;
    
    issue certain types of stock; and
    
    enter into transactions with affiliates. In addition, under the terms of the indenture governing the new notes, we are
prohibited from incurring any subordinated debt that is senior in any respect
in right of payment to the new notes. We intend to register the notes with the
Securities and Exchange Commission in 2004. Upon a change of control, as defined in the indenture, subject to certain
exceptions, we are required to offer to repurchase from each holder all or any
part of each holders notes at a purchase price of 101% of the aggregate
principal amount thereof plus accrued and unpaid interest to the date of
purchase. The indenture contains customary events of default for agreements of that type,
including payment defaults, covenant defaults and bankruptcy defaults. If any
event of default under the new indenture occurs and is continuing, then the
trustee or the holders of at least 25% in principal amount of the then
outstanding notes may declare all the notes to be due and payable immediately. Our subsidiaries have guaranteed the notes that are junior and subordinated to
the subsidiary guarantees of our senior debt on the same basis as the notes are
junior and subordinated to the senior debt. Interest at 7.500% per annum from
the issue date to maturity is payable on the notes each February 15 and August
15. The notes are redeemable at our option under certain conditions. F-27




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##### Table of Contents



Had the refinancing described above occurred as of December 31, 2003, our
long-term debt obligations and obligations to general unsecured creditors
pursuant to the plan of reorganization
would have been as follows: After 5One Year
    
    2 Years
    
    3 Years
    
    4 Years
    
    5 Years
    
    Years
    
    TotalTerm loan credit agreement (2)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    100,000
    
    
    $
    
    
    
    $
    100,000Revolving credit agreement (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    50,0007.500% senior subordinated notes (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    150,000General unsecured creditors (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,521
    
    
    
    
    
    
    
    
    
    
    
    21,521Industrial revenue bond
    
    
    707
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    707Total contractual cash obligations
    
    $
    707
    
    
    $
    
    
    
    $
    
    
    
    $
    21,521
    
    
    $
    150,000
    
    
    $
    150,000
    
    
    $
    322,228
  (1)
    
    Payments are reflected in accordance with SFAS No. 6 as discussed in Item
7, Liquidity and Capital Resources under the section General.(2)
    
    The term loan has a maturity date of February 4, 2009.(3)
    
    The revolving credit agreement has a maturity date of August 4, 2008.
This presentation assumes the full $50 million commitment is outstanding
and payable.(4)
    
    The maturity date for the 7.500% senior subordinated notes is February
15, 2014.(5)
    
    Our general unsecured creditors are due semi-annual payments of $2.5
million plus interest with a maturity
of January 31, 2007. NOTE 11 - INCOME TAXES As of December 31, 2003 and 2002, the Company had net deferred tax assets of
approximately $73.8 million and $79.9 million, respectively. The net deferred
tax asset as of December 31, 2002 was fully offset by a valuation allowance.
For the period ended December 31, 2003, the Company determined that it is more
likely than not that certain deferred tax assets will be realized in the future
and accordingly, it was appropriate to release the valuation allowance and
recognize a tax benefit of $75.3 million. The positive evidence management
considered included operating income for 2002 and 2003, its subsequent stock
offering and refinancing resulting in significant prospective interest expense
reduction and anticipated operating income and cash flows for future periods in
sufficient amounts to realize the net deferred tax assets. The income tax benefit recorded in 2002 is the result of the Job Creation and
Worker Assistance Act of 2002, which allowed for additional carryback of net
operating losses resulting in a cash refund of approximately $14.7 million. As
is customary, the Internal Revenue Service reviews refunds of this size. This
review was completed on November 25, 2003 with no adjustments made by the
Internal Revenue Service. The new provision also temporarily suspends the 90%
limitation found in Internal Revenue Code Section 56(d)(1) on the use of net
operating loss carrybacks arising in tax years ending in 2001 and 2002 for
alternative minimum tax purposes. For the year ended December 31, 2003, the
Company will pay approximately $500 thousand in alternative minimum taxes. F-28




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##### Table of Contents



The provision for income tax expense (benefit) is summarized as follows (in
thousands): December 31,2003
    
    2002
    
    2001Current:Federal
    
    $
    500
    
    
    $
    (14,706
    )
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    Deferred:Federal
    
    
    (75,779
    )
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    Total provision
    
    $
    (75,279
    )
    
    $
    (14,706
    )
    
    $
    
 The consolidated income tax provision was different from the amount computed
using the U.S. statutory income tax rate for the following reasons (in
thousands): December 31,2003
    
    2002
    
    2001Pre-tax book income (loss)
    
    $
    32,096
    
    
    $
    (39,827
    )
    
    $
    (125,387
    )Federal tax expense (benefit)
    
    
    11,234
    
    
    
    (13,541
    )
    
    
    (42,631
    )State tax expense (benefit)
    
    
    802
    
    
    
    (876
    )
    
    
    (2,758
    )Permanent items
    
    
    (4,556
    )
    
    
    2,972
    
    
    
    3,666Other
    
    
    (2,869
    )
    
    
    (9
    )
    
    
    (469
    )Increase/(decrease) in valuation allowance
    
    
    (79,890
    )
    
    
    (3,252
    )
    
    
    42,192Total tax expense (benefit)
    
    $
    (75,279
    )
    
    $
    (14,706
    )
    
    $
    
 Significant components of the Companys deferred tax assets (liabilities) and
valuation reserves are as follows (in thousands): December 31,2003
    
    2002Alternative minimum tax credit carryforwards
    
    $
    500
    
    
    $
    Net operating loss carryforwards
    
    
    33,917
    
    
    
    41,991Tax basis of property, equipment and intangible
assets over book basis
    
    
    23,945
    
    
    
    29,376Deferred compensation
    
    
    3,627
    
    
    
    1,308Deferred rent
    
    
    1,557
    
    
    
    1,265Disputed claims
    
    
    8,070
    
    
    
    3,616Other
    
    
    1,233
    
    
    
    1,202Compensation accruals
    
    
    1,003
    
    
    
    1,13273,852
    
    
    
    79,890Valuation allowance
    
    
    
    
    
    
    (79,890
    )Other deferred tax liabilities
    
    
    
    
    
    
    (1,927
    )$
    73,852
    
    
    $
    (1,927
    )
 F-29




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##### Table of Contents



After the 2003 estimated taxable income and taking into account the net
operating loss carryback claim filed in the first quarter of 2002, the Company
utilized approximately $25.0 million for 2003 and has approximately $90.4
million of federal and state operating loss carryforwards with
which to offset our future taxable income. The federal and state operating
loss carryforwards begin to expire in the year 2020. In addition, the Company
has an alternative minimum tax credit carryforward of approximately $500,000,
which has an indefinite carryforward life. NOTE
12 - STOCKHOLDERS EQUITY At December 31, 2001, the Companys authorized capital consisted of 22.5
million shares of Class A Common Stock, $.03 par value, 5 million shares of
Class B Common Stock, $.03 par value, and one million shares of the Preferred
Stock, $1.00 par value. Each share of Class A Common Stock entitled the holder
to one vote per share, whereas a share of Class B Common Stock entitled the
holder to ten votes per share. Each share of Class B Common Stock was entitled
to cash dividends, when declared, in an amount equal to 85% of the cash
dividends payable on each share of Class A Common Stock. Class B Common Stock
was convertible at any time by the holder into an equal number of shares of
Class A Common Stock. The Series A Preferred Stock paid quarterly cash dividends at an annual rate of
5.5% and was convertible at the option of the holder, into the Companys Class
A Common Stock at $25.00 per share (subject to anti-dilution adjustments). The
Series A Preferred Stock was not subject to mandatory redemption or sinking
fund provisions but did have involuntary liquidation rights for $55 million.
Each share of the Series A Preferred Stock was convertible into four shares of
the Class A Common Stock. During the course of the Chapter 11 Cases, the
Company could not declare dividends for its Preferred Stock. Dividends of $9.3
million on Preferred Stock were in arrears at December 31, 2001. The terms of
the Preferred Stock agreement provided that the dividend rate increased to 8.5%
for arrearages. Upon emergence from Chapter 11 on January 31, 2002, both Class A and Class B
Common Stock, as well as the Series A Preferred Stock, were cancelled and
shares of New Common Stock were issued. The New Common Stock, $0.03 par value,
consists of 20 million authorized shares, of which approximately 9 million were
outstanding as of December 31, 2003. Of the 20 million authorized shares, one
million shares were reserved for issuance under the 2002 Stock Plan. Additionally, the Company has New Preferred Stock, $1.00 par value, with one
million authorized shares, of which no shares were outstanding as of December
31, 2003. The Company had shares of Class A Common Stock in 2001 and has shares of New
Common Stock in 2002 and 2003 reserved for future issuance as follows (in
thousands): F-30




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##### Table of Contents



December 31,2003
    
    2002
    
    20012002 Stock Plan
    
    
    841
    
    
    
    903
    
    
    
    Directors Incentive Plan
    
    
    60
    
    
    
    65
    
    
    
    Employee Incentive Plan
    
    
    170
    
    
    
    500
    
    
    
    817Conversion rights of Series A Preferred Stock
    
    
    
    
    
    
    
    
    
    
    2,200Conversion rights of Class B Common Stock
    
    
    
    
    
    
    
    
    
    
    1,3711,071
    
    
    
    1,468
    
    
    
    4,388
 See Note 2  Proceedings Under Chapter 11 Stock Plans Upon emergence from Chapter 11, the Companys Board of Directors approved a new
management incentive plan, the Carmike Cinemas, Inc. 2002 Stock Plan. The
Board of Directors has approved the grant of 780,000 shares under the 2002
Stock Plan to Michael W. Patrick, the Companys Chief Executive Officer.
Pursuant to the terms of Mr. Patricks employment agreement dated January 31,
2002 these shares will be delivered in three equal installments on January 31,
2005, 2006 and 2007 unless, prior to the delivery of any such installment, Mr.
Patricks employment is terminated for Cause (as defined in his employment
agreement) or he has violated certain covenants set forth in such employment
agreement. In May 2002, the Companys Stock Option Committee (which
administered the 2002 Stock Plan prior to August 2002) approved grants of the
remaining 220,000 shares to a group of seven other members of senior
management. These shares are to be earned over a three year period, commencing
with the year ended December 31, 2002, with the shares being earned as the
executive achieves specific performance goals set for the executive to be
achieved during each of these years. In some instances the executive may earn
partial amounts of his or her stock grant based on graded levels of
performance. Shares earned each year will vest and be receivable approximately
two years after the calendar year in which they were earned, provided, with
certain exceptions, the executive remains an employee of the Company. One of
the seven grants to senior executives includes a grant of 35,000 shares to P.
Lamar Fields, a former employee of the Company. Pursuant to an agreement with
Mr. Fields, the Company will deliver to Mr. Fields the 17,000 shares earned in
connection with his performance in 2002. These 17,000 shares shall vest on
January 31, 2005. Of the 220,000 shares granted to members of senior
management, 86,250 shares were earned on December 31, 2002 and 14,250 shares
were forfeited. However, the Compensation Committee approved two additional
grants of 5,500 shares to two members of senior management on March 7, 2003,
which shares are deemed to be earned and subject only to vesting requirements.
Therefore, of the original 220,000 shares granted to members of senior
management, 97,250 shares are deemed to have been earned, subject only to
vesting requirements, 3,250 shares have been forfeited and 119,500 shares may
be earned over the next two years. The earned grants for 2003 have not been
determined. During 2003, the Company changed its classification of the
offsetting credit to non-cash compensation expense under the plan from
long-term liabilities to stockholders equity. The Company has included in
stockholders equity, $6.0 million and $3.6 million at December 31, 2003 and
December 31, 2002, respectively, related to the 2002 Stock Plan. F-31




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##### Table of Contents



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.
Additionally, the Board of Directors approved a stock option grant of 5,000
shares in June 2003 for a new director. The option grant price was based on
the fair market value of the stock on the date of the grant. These grants of
15,000 shares in the aggregate, represent the only stock options outstanding
under the Directors Incentive Plan at December 31, 2003. On July 19, 2002, the Board of Directors adopted the Employee Incentive Plan,
which was approved by the stockholders on August 14, 2002. The purpose of the
Employee Incentive Plan is to provide incentives, competitive with those of
similar companies, which will attract, retain and motivate qualified and
experienced persons to serve as employees and consultants of the Company and to
further align such employees and consultants interest with those of the
Companys stockholders. There are a total of 500,000 shares reserved under the
Employee Incentive Plan. The Company granted an aggregate of 150,000 options
pursuant to this plan on March 7, 2003 to three members of senior management.
The exercise price for the 150,000 stock options is $21.79 per share and 75,000
options vest on December 31, 2005 and 75,000 options vest on December 31, 2006,
respectively. On December 18, 2003, the Company granted an aggregate of
180,000 options to six members of management. The exercise price for the
180,000 options is $35.63 and they vest ratably over three years beginning
December 31, 2005 through December 31, 2007. Changes in outstanding stock options were as follows (in thousands, except for
exercise price per share): Exercise Price per Share$ 6.00-
    
    $18.00-
    
    $21.40-
    
    $27.125$5.44
    
    $14.00
    
    $19.95
    
    $21.79
    
    - $35.63
    
    TotalStock options outstanding at January 1, 2001
    
    
    403
    
    
    
    6
    
    
    
    73
    
    
    
    
    
    
    
    335
    
    
    
    817Issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeitures
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (60
    )
    
    
    (70
    )Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock options outstanding at December 31, 2001
    
    
    403
    
    
    
    6
    
    
    
    63
    
    
    
    
    
    
    
    275
    
    
    
    747Cancelled (January 31, 2002)
    
    
    (403
    )
    
    
    (6
    )
    
    
    (63
    )
    
    
    
    
    
    
    (275
    )
    
    
    (747
    )Issued
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Stock options outstanding at December 31, 2002
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155
    
    
    
    180
    
    
    
    335Stock options outstanding at December 31, 2003
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    155
    
    
    
    180
    
    
    
    345
 As of December 31, 2003, 15,000 shares are exercisable. F-32




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##### Table of Contents



NOTE 13 - COMMITMENTS AND
CONTINGENCIES Leases The Company received approval from the bankruptcy court to reject leases
relating to 136 theatre locations over the course of the proceeding. The
Company has recorded a liability in Liabilities Subject to Compromise based on
reasonable estimates of our exposure for these rejections. Future minimum payments under capital leases and operating leases with terms
over one year and which had not been rejected by the Company in the Chapter 11
Cases as of December 31, 2003, are as follows (in thousands): Operating
    
    CapitalLeases
    
    Leases2004
    
    $
    40,187
    
    
    $
    7,8672005
    
    
    41,167
    
    
    
    7,8852006
    
    
    39,816
    
    
    
    7,7612007
    
    
    37,809
    
    
    
    7,8212008
    
    
    36,106
    
    
    
    7,846Thereafter
    
    
    317,565
    
    
    
    89,958Total minimum lease payments
    
    $
    512,650
    
    
    $
    129,138Less amounts representing interest
    
    
    
    
    
    
    (76,465
    )Present value of future minimum lease payments
    
    
    
    
    
    
    52,673Less current maturities
    
    
    
    
    
    
    (1,195
    )Long-term obligations
    
    
    
    
    
    $
    51,478
 Rent expense was approximately $47.2 million, $47.6 million and $51.7 million
for 2003, 2002 and 2001, respectively. In addition, the Company had
approximately $4.0 million, $6.0 million and $3.5 million in contingent rental
payments for 2003, 2002 and 2001, respectively. The Company is committed to an operating lease for a corporate aircraft with
the former Chairman of the Board of Directors and Founder, C.L. Patrick. The
Company pays rent of approximately $191 thousand per year to Mr. Patrick until
the leases expiration in June 2004. Litigation The Company is subject to various claims and lawsuits arising in the ordinary
course of business. In the opinion of management, the ultimate resolution of
these matters will not have a material effect on the consolidated financial
statements of the Company. NOTE 14 - CONDENSED FINANCIAL DATA The Company and its wholly owned subsidiaries have fully, unconditionally, and
jointly and severally guaranteed the Companys obligations under the 7.500%
senior subordinated notes. The Company has several unconsolidated affiliates
that are not guarantors of the 7.500% senior subordinated notes. F-33




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##### Table of Contents



Condensed
consolidating financial data
for the guarantor subsidiaries is as
follows (in thousands): Condensed Consolidating Balance Sheets
As of December 31, 2003 Carmike
    
    GuarantorCinemas, Inc.
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    24,982
    
    
    $
    16,254
    
    
    $
    
    
    
    $
    41,236Accounts and notes receivable
    
    
    1,938
    
    
    
    123
    
    
    
    
    
    
    
    2,061Inventories
    
    
    407
    
    
    
    1,170
    
    
    
    
    
    
    
    1,577Recoverable construction allowances
    
    
    355
    
    
    
    
    
    
    
    
    
    
    
    355Prepaid expenses
    
    
    7,189
    
    
    
    3,525
    
    
    
    
    
    
    
    10,714Total current assets
    
    
    34,871
    
    
    
    21,072
    
    
    
    
    
    
    
    55,943Other assets:Investment in and advances to partnerships
    
    
    4,955
    
    
    
    1,997
    
    
    
    
    
    
    
    6,952Investment in subsidiaries
    
    
    94,028
    
    
    
    
    
    
    
    (94,028
    )
    
    
    Other
    
    
    301,197
    
    
    
    54,876
    
    
    
    (258,833
    )
    
    
    97,240Property and equipment, net
    
    
    94,600
    
    
    
    326,231
    
    
    
    
    
    
    
    421,831Goodwill, net
    
    
    5,914
    
    
    
    17,440
    
    
    
    
    
    
    
    23,354Total assets
    
    $
    535,565
    
    
    $
    421,616
    
    
    $
    (352,861
    )
    
    $
    604,320Liabilities and stockholders equityCurrent liabilities:Account payable
    
    $
    15,400
    
    
    $
    11,962
    
    
    $
    
    
    
    $
    27,362Accrued expenses
    
    
    27,898
    
    
    
    16,514
    
    
    
    
    
    
    
    44,412Current maturities of long-term
indebtedness
and capital lease obligations
    
    
    823
    
    
    
    1,079
    
    
    
    
    
    
    
    1,902Total current liabilities
    
    
    44,121
    
    
    
    29,555
    
    
    
    
    
    
    
    73,676Long-term debt less current maturities
    
    
    323,050
    
    
    
    
    
    
    
    
    
    
    
    323,050Capital lease obligations less current
maturities
    
    
    12,278
    
    
    
    39,200
    
    
    
    
    
    
    
    51,478Long-term trade payables less current
maturities
    
    
    7,988
    
    
    
    
    
    
    
    
    
    
    
    7,988Other
    
    
    
    
    
    
    258,833
    
    
    
    (258,833
    )
    
    
    Liabilities subject to compromise
    
    
    21,521
    
    
    
    
    
    
    
    
    
    
    
    21,521Stockholders equity
    
    
    126,607
    
    
    
    94,028
    
    
    
    (94,028
    )
    
    
    126,607Total liabilities and stockholders equity
    
    $
    535,565
    
    
    $
    421,616
    
    
    $
    (352,861
    )
    
    $
    604,320
 F-34




---



##### Table of Contents



Condensed Consolidating Statements of Operations
For Year Ended December 31, 2003 Carmike
    
    GuarantorCinemas, Inc.
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenuesAdmissions
    
    $
    66,057
    
    
    $
    266,013
    
    
    $
    
    
    
    $
    332,070Concessions and other
    
    
    56,130
    
    
    
    128,957
    
    
    
    (24,072
    )
    
    
    161,015122,187
    
    
    
    394,970
    
    
    
    (24,072
    )
    
    
    493,085Costs and expensesFilm exhibition costs
    
    
    33,665
    
    
    
    146,738
    
    
    
    
    
    
    
    180,403Concession costs
    
    
    3,155
    
    
    
    14,830
    
    
    
    
    
    
    
    17,985Other theatre operating costs
    
    
    40,810
    
    
    
    164,940
    
    
    
    (24,072
    )
    
    
    181,678General and administrative expenses
    
    
    15,344
    
    
    
    (9
    )
    
    
    
    
    
    
    15,335Depreciation and amortization expenses
    
    
    7,409
    
    
    
    24,335
    
    
    
    
    
    
    
    31,744Gain on sales of property and equipment
    
    
    (671
    )
    
    
    (2,352
    )
    
    
    
    
    
    
    (3,023
    )Impairment of long-lived assets
    
    
    
    
    
    
    1,148
    
    
    
    
    
    
    
    1,14899,712
    
    
    
    349,630
    
    
    
    (24,072
    )
    
    
    425,270Operating income
    
    
    22,475
    
    
    
    45,340
    
    
    
    
    
    
    
    67,815Interest expense
    
    
    11,815
    
    
    
    28,010
    
    
    
    
    
    
    
    39,825Net income before reorganization costs
and income taxes
    
    
    10,660
    
    
    
    17,330
    
    
    
    
    
    
    
    27,990Reorganization costs
    
    
    (4,109
    )
    
    
    
    
    
    
    
    
    
    
    (4,109
    )Net income before income taxes
    
    
    14,769
    
    
    
    17,330
    
    
    
    
    
    
    
    32,099Income tax expense (benefit)
    
    
    (31,584
    )
    
    
    (43,695
    )
    
    
    
    
    
    
    (75,279
    )Net income
    
    $
    46,353
    
    
    $
    61,025
    
    
    $
    
    
    
    $
    107,378
 F-35




---



##### Table of Contents



Condensed Consolidating Statements of Cash Flow
For Year Ended December 31, 2003 Carmike
    
    GuarantorCinemas, Inc.
    
    Subsidiaries
    
    ConsolidatedOperating activitiesNet income (loss)
    
    $
    46,353
    
    
    $
    61,025
    
    
    $
    107,378Adjustments to reconcile net income (loss) to
net cash provided by operating activities:Depreciation and amortization
    
    
    7,409
    
    
    
    24,335
    
    
    
    31,744Non-cash deferred compensation
    
    
    6,023
    
    
    
    
    
    
    
    6,023Impairment charge
    
    
    
    
    
    
    1,148
    
    
    
    1,148Income tax benefit
    
    
    (31,584
    )
    
    
    (43,695
    )
    
    
    (75,279
    )Non-cash reorganization items
    
    
    (5,940
    )
    
    
    
    
    
    
    (5,940
    )Gain on sales of property and equipment
    
    
    (671
    )
    
    
    (2,352
    )
    
    
    (3,023
    )Changes in operating assets and liabilities
    
    
    14,525
    
    
    
    (24,766
    )
    
    
    (10,241
    )Net cash provided by operating activities
    
    
    36,115
    
    
    
    15,695
    
    
    
    51,810Investing activitiesPurchases of property and equipment
    
    
    (1,593
    )
    
    
    (17,245
    )
    
    
    (18,838
    )Proceeds from sale of property and equipment
    
    
    1,967
    
    
    
    4,755
    
    
    
    6,722Net cash provided (used) in investing activities
    
    
    374
    
    
    
    (12,490
    )
    
    
    (12,116
    )Financing activitiesAdditional borrowing, net of debt issuance
costs
    
    
    
    
    
    
    
    
    
    
    Repayments of debt
    
    
    (51,296
    )
    
    
    (653
    )
    
    
    (51,949
    )Recoverable construction allowances
    
    
    
    
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (51,296
    )
    
    
    (653
    )
    
    
    (51,949
    )Increase (decrease) in cash and cash equivalents
    
    
    (14,807
    )
    
    
    2,552
    
    
    
    (12,255
    )Cash and cash equivalents at beginning of year
    
    
    39,789
    
    
    
    13,702
    
    
    
    53,491Cash and cash equivalents at end of year
    
    $
    24,982
    
    
    $
    16,254
    
    
    $
    41,236
 F-36




---



##### Table of Contents



Condensed Consolidating Balance Sheets
As of December 31, 2002 Carmike
    
    GuarantorCinemas, Inc.
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    39,789
    
    
    $
    13,702
    
    
    $
    
    
    
    $
    53,491Accounts and notes receivable
    
    
    1,394
    
    
    
    180
    
    
    
    
    
    
    
    1,574Inventories
    
    
    1,358
    
    
    
    1,813
    
    
    
    
    
    
    
    3,171Recoverable construction allowances
    
    
    2,442
    
    
    
    6,300
    
    
    
    
    
    
    
    8,742Prepaid expenses
    
    
    5,989
    
    
    
    3,378
    
    
    
    
    
    
    
    9,367Total current assets
    
    
    50,972
    
    
    
    25,373
    
    
    
    
    
    
    
    76,345Other assets:Investment in and advances to partnerships
    
    
    6,409
    
    
    
    133
    
    
    
    
    
    
    
    6,542Investment in subsidiaries
    
    
    32,856
    
    
    
    
    
    
    
    (32,856
    )
    
    
    Other
    
    
    283,794
    
    
    
    9,264
    
    
    
    (280,877
    )
    
    
    12,181Property and equipment, net
    
    
    100,724
    
    
    
    337,581
    
    
    
    
    
    
    
    438,305Goodwill, net
    
    
    5,914
    
    
    
    17,440
    
    
    
    
    
    
    
    23,354Total assets
    
    $
    480,669
    
    
    $
    389,791
    
    
    $
    (313,733
    )
    
    $
    556,727Liabilities and stockholders equityCurrent liabilities:Account payable
    
    $
    17,411
    
    
    $
    14,535
    
    
    $
    
    
    
    $
    31,946Accrued expenses
    
    
    30,808
    
    
    
    15,012
    
    
    
    
    
    
    
    45,820Current maturities of long-term
indebtedness
and capital lease obligations
    
    
    26,224
    
    
    
    827
    
    
    
    
    
    
    
    27,051Total current liabilities
    
    
    74,443
    
    
    
    30,374
    
    
    
    
    
    
    
    104,817Long-term debt less current maturities
    
    
    339,044
    
    
    
    
    
    
    
    
    
    
    
    339,044Capital lease obligations less current
maturities
    
    
    6,129
    
    
    
    46,544
    
    
    
    
    
    
    
    52,673Long-term trade payables less current
maturities
    
    
    7,693
    
    
    
    
    
    
    
    
    
    
    
    7,693Deferred income taxes
    
    
    2,787
    
    
    
    
    
    
    
    (860
    )
    
    
    1,927Other
    
    
    
    
    
    
    280,017
    
    
    
    (280,017
    )
    
    
    Liabilities subject to compromise
    
    
    37,367
    
    
    
    
    
    
    
    
    
    
    
    37,367Stockholders equity
    
    
    13,206
    
    
    
    32,856
    
    
    
    (32,856
    )
    
    
    13,206Total liabilities and stockholders equity
    
    $
    480,669
    
    
    $
    389,791
    
    
    $
    (313,733
    )
    
    $
    556,727
 F-37




---



##### Table of Contents



Condensed Consolidating Statements of Operations
For Year Ended December 31, 2002 Carmike
    
    GuarantorCinemas, Inc.
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenuesAdmissions
    
    $
    67,621
    
    
    $
    275,218
    
    
    $
    
    
    
    $
    342,839Concessions and other
    
    
    56,136
    
    
    
    131,124
    
    
    
    (23,789
    )
    
    
    163,471123,757
    
    
    
    406,342
    
    
    
    (23,789
    )
    
    
    506,310Costs and expensesFilm exhibition costs
    
    
    36,263
    
    
    
    153,002
    
    
    
    
    
    
    
    189,265Concession costs
    
    
    3,551
    
    
    
    15,682
    
    
    
    
    
    
    
    19,233Other theatre operating costs
    
    
    41,389
    
    
    
    165,241
    
    
    
    (23,789
    )
    
    
    182,841General and administrative expenses
    
    
    14,902
    
    
    
    81
    
    
    
    
    
    
    
    14,983Depreciation and amortization expenses
    
    
    7,091
    
    
    
    24,988
    
    
    
    
    
    
    
    32,079Gain on sales of property and equipment
    
    
    (527
    )
    
    
    (351
    )
    
    
    
    
    
    
    (878
    )Impairment of long-lived assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,669
    
    
    
    358,643
    
    
    
    (23,789
    )
    
    
    437,523Operating income
    
    
    21,088
    
    
    
    47,699
    
    
    
    
    
    
    
    68,787Interest expense
    
    
    52,230
    
    
    
    50,543
    
    
    
    
    
    
    
    102,773Net income before reorganization costs
and income taxes
    
    
    (31,142
    )
    
    
    (2,844
    )

    
    
    
    
    
    
    (33,986
    )Reorganization costs
    
    
    20,030
    
    
    
    517
    
    
    
    
    
    
    
    20,547Net income before income taxes
    
    
    (51,172
    )
    
    
    (3,361
    )
    
    
    
    
    
    
    (54,533
    )Income tax expense (benefit)
    
    
    (14,706
    )
    
    
    
    
    
    
    
    
    
    
    (14,706
    )Net loss
    
    $
    (36,466
    )
    
    $
    (3,361
    )
    
    $
    
    
    
    $
    (39,827
    )
 F-38




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##### Table of Contents



Condensed Consolidating Statements of Cash Flow
For Year Ended December 31, 2002 Carmike
    
    GuarantorCinemas, Inc.
    
    Subsidiaries
    
    ConsolidatedOperating activitiesNet income (loss)
    
    $
    (36,466
    )
    
    $
    (3,361
    )
    
    $
    (39,827
    )Adjustments to reconcile net income (loss) to
net cash provided by operating activities:Depreciation and amortization
    
    
    7,091
    
    
    
    24,988
    
    
    
    32,079Non-cash deferred compensation
    
    
    3,614
    
    
    
    
    
    
    
    3,614Non-cash reorganization items
    
    
    13,528
    
    
    
    
    
    
    
    13,528Gain on sales of property and equipment
    
    
    (330
    )
    
    
    (351
    )
    
    
    (681
    )Changes in operating assets and liabilities
    
    
    20,264
    
    
    
    (13,418
    )
    
    
    6,846Net cash provided by operating activities
    
    
    7,701
    
    
    
    7,858
    
    
    
    15,559Investing activitiesPurchases of property and equipment
    
    
    (2,591
    )
    
    
    (15,432
    )
    
    
    (18,023
    )Proceeds from sale of property and equipment
    
    
    813
    
    
    
    2,662
    
    
    
    3,475Net cash used in investing activities
    
    
    (1,778
    )
    
    
    (12,770
    )
    
    
    (14,548
    )Financing activitiesAdditional borrowing, net of debt issuance
costs
    
    
    15,405
    
    
    
    6,300
    
    
    
    21,705Repayments of debt
    
    
    (65,275
    )
    
    
    (751
    )
    
    
    (66,026
    )Recoverable construction allowances
    
    
    2,768
    
    
    
    (154
    )
    
    
    2,614Net cash used in financing activities
    
    
    (47,102
    )
    
    
    5,395
    
    
    
    (41,707
    )Increase (decrease) in cash and cash equivalents
    
    
    (41,179
    )
    
    
    483
    
    
    
    (40,696
    )Cash and cash equivalents at beginning of year
    
    
    80,968
    
    
    
    13,219
    
    
    
    94,187Cash and cash equivalents at end of year
    
    $
    39,789
    
    
    $
    13,702
    
    
    $
    53,491
 F-39




---



##### Table of Contents



Condensed Consolidating Statements of Operations
For Year Ended December 31, 2001 Carmike
    
    GuarantorCinemas, Inc.
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenuesAdmissions
    
    $
    61,872
    
    
    $
    249,946
    
    
    $
    
    
    
    $
    311,818Concessions and other
    
    
    51,553
    
    
    
    115,027
    
    
    
    (21,448
    )
    
    
    145,132113,425
    
    
    
    364,973
    
    
    
    (21,448
    )
    
    
    456,950Costs and expensesFilm exhibition costs
    
    
    34,445
    
    
    
    136,762
    
    
    
    
    
    
    
    171,207Concession costs
    
    
    3,671
    
    
    
    16,513
    
    
    
    
    
    
    
    20,184Other theatre operating costs
    
    
    63,022
    
    
    
    140,480
    
    
    
    (21,448
    )
    
    
    182,054General and administrative expenses
    
    
    7,285
    
    
    
    1,561
    
    
    
    
    
    
    
    8,846Depreciation and amortization expenses
    
    
    9,583
    
    
    
    32,570
    
    
    
    
    
    
    
    42,153Gain on sales of property and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of long-lived assets
    
    
    27,288
    
    
    
    104,919
    
    
    
    
    
    
    
    132,207145,294
    
    
    
    432,805
    
    
    
    (21,448
    )
    
    
    556,651Operating income
    
    
    (31,869
    )
    
    
    (67,832
    )
    
    
    
    
    
    
    (99,701
    )Interest expense
    
    
    970
    
    
    
    5,168
    
    
    
    
    
    
    
    6,138Net income before reorganization costs
and income taxes
    
    
    (32,839
    )
    
    
    (73,000
    )
    
    
    
    
    
    
    (105,839
    )Reorganization costs
    
    
    (15,780
    )
    
    
    35,328
    
    
    
    
    
    
    
    19,548Net income before income taxes
    
    
    (17,059
    )
    
    
    (108,328
    )
    
    
    
    
    
    
    (125,387
    )Income tax expense (benefit)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (17,059
    )
    
    $
    (108,328
    )
    
    $
    
    
    
    $
    (125,387
    )
 F-40




---



##### Table of Contents



Condensed Consolidating Statements of Cash Flow
For Year Ended December 31, 2001 Carmike
    
    GuarantorCinemas, Inc.
    
    Subsidiaries
    
    ConsolidatedOperating activitiesNet income (loss)
    
    $
    (17,059
    )
    
    $
    (108,328
    )
    
    $
    (125,387
    )Adjustments to reconcile net income (loss) to
net cash provided by operating activities:Depreciation and amortization
    
    
    9,583
    
    
    
    32,570
    
    
    
    42,153Non-cash deferred compensation
    
    
    
    
    
    
    
    
    
    
    Impairment charge
    
    
    27,288
    
    
    
    104,919
    
    
    
    132,207Non-cash reorganization items
    
    
    9,064
    
    
    
    
    
    
    
    9,064Gain on sales of property and equipment
    
    
    
    
    
    
    
    
    
    
    Changes in operating assets and liabilities
    
    
    10,515
    
    
    
    (19,131
    )
    
    
    (8,616
    )Net cash provided by operating activities
    
    
    39,391
    
    
    
    10,030
    
    
    
    49,421Investing activitiesPurchases of property and equipment
    
    
    (1,159
    )
    
    
    (8,032
    )
    
    
    (9,191
    )Proceeds from sale of property and equipment
    
    
    8,197
    
    
    
    
    
    
    
    8,197Net cash used in investing activities
    
    
    7,038
    
    
    
    (8,032
    )
    
    
    (994
    )Financing activitiesAdditional borrowing, net of debt issuance costs
    
    
    
    
    
    
    
    
    
    
    Repayments of debt
    
    
    (10,937
    )
    
    
    (1,042
    )
    
    
    (11,979
    )Recoverable construction allowances
    
    
    8,244
    
    
    
    (3,027
    )
    
    
    5,217Net cash used in financing activities
    
    
    (2,693
    )
    
    
    (4,069
    )
    
    
    (6,762
    )Increase (decrease) in cash and cash equivalents
    
    
    43,736
    
    
    
    (2,071
    )
    
    
    41,665Cash and cash equivalents at beginning of year
    
    
    37,232
    
    
    
    15,290
    
    
    
    52,522Cash and cash equivalents at end of year
    
    $
    80,968
    
    
    $
    13,219
    
    
    $
    94,187
 NOTE 15 - FINANCIAL INSTRUMENTS Concentrations of credit risk Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, investments and
recoverable construction allowances. The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are located in the southeastern
United States and Company policy is designed to limit exposure to any one
institution. The Company performs periodic evaluations of the relative credit
standings of those financial institutions that are considered in the Companys
investment strategy. The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments: Cash and cash equivalents:The carrying amount reported in the balance sheets
for cash and cash equivalents approximates their fair value. F-41




---



##### Table of Contents



Recoverable construction allowances:The carrying amount reported in the
balance sheets for recoverable construction allowances approximates their fair
value. The potentially recoverable amounts are specified in the executed lease
agreements with landlords. Accounts receivable and accounts payable:The carrying amounts reported in the
balance sheets for accounts receivable and accounts payable approximated their
fair value. Accounts receivable are determined based on specified percentages
within film distribution agreements for advertising. Accounts payable are
based on costs incurred not paid in the current period. Long-term debt:The carrying amount of the Companys long-term debt borrowings
are reported at the lower of cost or fair value. Our former 10 3/8% senior
subordinated notes had a fair value of $161.5 million ($154.3 million x
1.04688) based on the tender price. The carrying amount is determined by the
contractual agreement. NOTE 16 - QUARTERLY RESULTS (Unaudited) (In thousands, except for per share data) 1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th Quarter (1)
    
    TotalYear ended December 31, 2003Total revenues
    
    $
    103,214
    
    
    $
    131,022
    
    
    $
    128,227
    
    
    $
    130,622
    
    
    $
    493,085Operating income
    
    
    12,562
    
    
    
    18,606
    
    
    
    18,589
    
    
    
    18,058
    
    
    
    67,815Net income
    
    
    4,562
    
    
    
    13,453
    
    
    
    9,026
    
    
    
    80,337
    
    
    
    107,378Income per common share:Basic
    
    $
    0.50
    
    
    $
    1.50
    
    
    $
    1.00
    
    
    $
    8.94
    
    
    $
    11.94Diluted
    
    $
    0.49
    
    
    $
    1.45
    
    
    $
    0.96
    
    
    $
    8.38
    
    
    $
    11.37Year ended December 31, 2002Total revenues
    
    $
    116,453
    
    
    $
    137,478
    
    
    $
    123,473
    
    
    $
    129,784
    
    
    $
    507,188Operating income
    
    
    15,682
    
    
    
    20,989
    
    
    
    19,191
    
    
    
    12,925
    
    
    
    68,787Net income (loss)
    
    
    (55,950
    )
    
    
    9,514
    
    
    
    8,072
    
    
    
    (1,463
    )
    
    
    (39,827
    )Income (loss) per common share:Basic
    
    $
    (5.70
    )
    
    $
    1.06
    
    
    $
    0.90
    
    
    $
    (0.16
    )
    
    $
    (4.33
    )Diluted
    
    $
    (5.70
    )
    
    $
    1.04
    
    
    $
    0.89
    
    
    $
    (0.16
    )
    
    $
    (4.33
    )
  (1)
    
    In the fourth quarter of 2003, the Company recognized an income tax
benefit of $75.3 million. On
January 31, 2002, we emerged from Chapter 11, which resulted in recognition
of prior period interest of approximately $55 million. Net income (loss) per common share calculations for each of the above quarters
is based on the weighted average number of shares outstanding for each period
and the sum of the quarters may not necessarily equal the net income (loss) per
common share amount for the year. F-42




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Ernst & Young LLP (Ernst & Young) audited Carmikes consolidated
financial statements for the years ended December 31, 2002 and 2001. On April
7, 2003 Carmike determined not to renew the engagement of Ernst & Young, and
appointed PricewaterhouseCoopers LLP (PricewaterhouseCoopers) as its new
independent accountants, effective immediately. This determination followed
Carmikes decision to seek proposals from independent accountants to audit
Carmikes financial statements for the fiscal year ended December 31, 2003.
The decision not to renew the engagement of Ernst & Young and to retain
PricewaterhouseCoopers was approved by Carmikes Audit Committee. Ernst &
Young was dismissed effective as of April 7, 2003. During Carmikes two most recent fiscal years ended December 31, 2002 and
the subsequent interim period through April 7, 2003, there were no
disagreements between Carmike and Ernst & Young on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to Ernst & Youngs satisfaction
would have caused them to make reference to the subject matter of the
disagreement in connection with their reports. None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K occurred within Carmikes two most recent fiscal years and the
subsequent interim period through April 7, 2003. The audit reports of Ernst & Young on the consolidated financial
statements of Carmike and its subsidiaries as of and for the fiscal years ended
December 31, 2002 and 2001 did not contain any adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles. During Carmikes two most recent fiscal years ended December 31, 2002, and
the subsequent interim period through April 7, 2003, Carmike did not consult
with PricewaterhouseCoopers regarding any of the matters or events set forth in
Item 304(a)(2)(i) and (ii) of Regulation S-K. 
 ITEM 9A. CONTROLS AND PROCEDURES. As required by Securities and Exchange Commission rules, we have evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this annual report. This
evaluation was carried out under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer. Based on this evaluation, these officers have concluded that
the design and operation of our disclosure controls and procedures are
effective. There were no changes to our internal control over financial
reporting during the period covered by this annual report that materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting. 48




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Disclosure controls and procedures are our controls and other procedures
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act), is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commissions rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by the Company in
the reports that we file or submit under the Exchange Act are accumulated and
communicated to our management, including our principal executive officer and
principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure. 
 PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding the Board of Directors, its committees and the
selection of director nominees is incorporated by reference from the section
entitled Corporate Governance contained in the Proxy Statement relating to
the 2004 Annual Meeting of Stockholders of Carmike (hereinafter, the 2004
Proxy Statement). Other information regarding the directors of Carmike is incorporated by
reference from the section entitled Election of Directors contained in the
2004 Proxy Statement. Information regarding the executive officers of Carmike is set forth in
Part I of this Report on Form 10-K pursuant to General Instruction G(3) of Form
10-K. Information regarding compliance with Section 16(a) of the Exchange Act is
incorporated by reference from the section entitled Section 16(a) Beneficial
Ownership Reporting Compliance contained in the 2004 Proxy Statement. Carmike adopted the Carmike Cinemas, Inc. Code of Ethics for Senior
Executive and Financial Officers that applies to Carmikes principal executive
officer and senior financial officers, among others, in accordance with Section
406 of the Sarbanes-Oxley Act of 2002 and the rules of the Securities and
Exchange Commission (SEC) promulgated thereunder. The Code of Ethics, is
available on our website, www.carmike.com. In the event that we make changes
in, or provide waivers from, the provisions of the Code of Ethics that the SEC
requires us to disclose, we intend to disclose these events on our website. 
 ITEM 11. EXECUTIVE COMPENSATION. Information regarding executive compensation is incorporated by reference
from the sections entitled Executive Compensation and Other Information and
Compensation, Nominating and Corporate Governance Committee Interlocks and
Insider Participation contained in the 2004 Proxy Statement. 49




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##### Table of Contents



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Certain information required by this item is incorporated by reference
from the sections entitled Security Ownership of Certain Beneficial Holders,
Security Ownership of Management and Compensation Plans contained in the
2004 Proxy Statement. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information regarding certain relationships and related transactions is
incorporated by reference from the section entitled Certain Relationships and
Related Party Transactions contained in the 2004 Proxy Statement. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Information regarding principal accountant fees and services is
incorporated by reference from the section entitled Fees Paid to Independent
Auditors contained in the 2004 Proxy Statement. 
 PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) and (2) Financial Statements and Financial Statement Schedules The following consolidated financial statements of Carmike Cinemas, Inc.
are included in Item 8. Financial Statements And Supplementary Data. Financial Statements: Report of Independent Auditors Consolidated balance sheets  December 31, 2003 and 2002 Consolidated statements of operations  Years ended December 31, 2003, 2002 and 2001 Consolidated statements of cash flows  Years ended December 31, 2003, 2002 and 2001 Consolidated statements of stockholders equity  Years ended December 31, 2003, 2002 and 2001 Notes to Consolidated Financial Statements  December 31, 2003 This report also includes the following Financial Statement Schedule:  50




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##### Table of Contents



All other financial statement schedules are omitted because they are not
applicable or not required under the related instructions, or because the
required information is shown either in the consolidated financial statements
or in the notes thereto. (a)(3) Listing of Exhibits Periodic reports, proxy statements and other information filed by Carmike
with the Commission pursuant to the informational requirements of the Exchange
Act may be inspected and copied at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330. The Commission also
maintains a Web site (http://www.sec.gov) that makes available reports, proxy
statements and other information regarding Carmike. Carmikes SEC file number
reference is Commission File No. 000-14993. ExhibitNumber
    
    Description2.1
    
    Debtors Amended Joint Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code, dated November 14, 2001 (filed as Exhibit 99
to Carmikes Current Report on Form 8-K filed November 19, 2001
and incorporated herein by reference).2.2
    
    Debtors Amended Disclosure Statement pursuant to Section 1125 of
the Bankruptcy Code, dated November 14, 2001 (filed as Exhibit
T-3E1 to Carmikes Form T-3 filed December 11, 2001 and
incorporated herein by reference).3.1
    
    Amended and Restated Certificate of Incorporation of Carmike
Cinemas, Inc. (filed as Exhibit 3.1 to Carmikes Amendment to Form
8-A filed January 31, 2002 and incorporated herein by reference).3.2
    
    Amended and Restated By-Laws of Carmike Cinemas, Inc. (filed as
Exhibit 3.2 to Carmikes Amendment to Form 8-A filed January 31,
2002 and incorporated herein by reference).3.3
    
    Amendment No. 1 to the Amended
and Restated By-Laws of Carmike Cinemas, Inc.
(filed as Exhibit 3.2 to Carmikes Form 10-Q for the quarter ended
June 30, 2003 and incorporated herein by reference).4.1
    
    First Supplemental Indenture, dated as of January 28, 2004, among
Carmike Cinemas, Inc., each of the Guarantors named therein and
Wilmington Trust Company, as Trustee (filed as Exhibit 4.1 to
Carmikes Current Report on Form 8-K filed February 20, 2004 and
incorporated herein by reference).
 51




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##### Table of Contents



ExhibitNumber
    
    Description4.2
    
    Indenture, dated as of February 4, 2004, among Carmike Cinemas,
Inc., each of the Guarantors named therein and Wells Fargo Bank
Minnesota, National Association, as Trustee (filed as Exhibit 4.2
to Carmikes Current Report on Form 8-K filed February 20, 2004
and incorporated herein by reference).4.3
    
    Registration Rights Agreement, dated as of February 4, 2004, among
Carmike Cinemas, Inc., each of the Guarantors named therein and
Goldman, Sachs & Co. (filed as Exhibit 4.3 to Carmikes Current
Report on Form 8-K filed February 20, 2004 and incorporated herein
by reference).4.4
    
    Indenture, dated as of January 31, 2002, among Carmike Cinemas,
Inc., the subsidiary guarantors named therein and Wilmington Trust
Company, as Trustee (filed as Exhibit 4.1 to Carmikes Form 10-K
for the year ended December 31, 2001 and incorporated herein by
reference).4.5
    
    Stockholders Agreement, dated as of January 31, 2002, by and
among Carmike Cinemas, Inc. and certain stockholders (filed as
Exhibit 99.2 to Amendment No. 1 to Schedule 13D of Goldman, Sachs
& Co., et. al., filed February 8, 2002 and incorporated herein by
reference).4.6
    
    Registration Rights Agreement, dated as of January 31, 2002, by
and among Carmike Cinemas, Inc. and certain stockholders (filed as
Exhibit 99.3 to Amendment No. 1 to Schedule 13D of Goldman, Sachs
& Co., et. al., filed February 8, 2002 and incorporated herein by
reference).4.7
    
    First Amendment to Stockholders Agreement, dated as of May 9,
2003, by and among Carmike Cinemas, Inc. and certain stockholders
(filed as Exhibit 4.4 to Carmikes Form S-1/A (Registration No.
333-90028) filed November 18, 2003 and incorporated herein by
reference).4.8
    
    Letter Agreement, dated as of November 17, 2003, by and among
Carmike Cinemas, Inc. and certain stockholders regarding the
Stockholders Agreement dated January 31, 2002, as amended, and the
Registration Rights Agreement dated January 31, 2002 (filed as
Exhibit 4.5 to Carmikes Form S-1/A (Registration No. 333-90028)
filed November 18, 2003 and incorporated herein by reference).10.1
    
    $50,000,000 Senior Secured First Priority Revolving Credit
Facility, dated as of February 4, 2004, among Carmike Cinemas,
Inc., each of the Guarantors named therein, the Lenders party to
the agreement from time to time, Goldman Sachs Credit Partners
L.P., as Syndication Agent, Wells Fargo Foothill, Inc., as
Administrative Agent and Collateral Agent, and CIT Lending
Services Corporation and General Electric Capital Corporation, as
Co-Documentation Agents (filed as Exhibit 10.1 to Carmikes
Current Report on Form 8-K filed February 20, 2004 and
incorporated herein by reference).10.2
    
    $100,000,000 Senior Secured Second Priority Credit Facility, date
as of February 4, 2004, among Carmike Cinemas, Inc., each of the
Guarantors named therein, the Lenders party to the agreement from
time to time,
 52




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ExhibitNumber
    
    DescriptionGoldman Sachs Credit Partners L.P., as Syndication
Agent, and National City Bank, as Administrative Agent and
Collateral Agent (filed as Exhibit 10.2 to Carmikes Current
Report on Form 8-K filed February 20, 2004 and incorporated herein
by reference).10.3
    
    Term Loan Credit Agreement, dated January 31, 2002, among Carmike
Cinemas, Inc., BNY Asset Solutions LLC, as Administrative Agent,
and the various banks or other financial institutions from time to
time parties to the agreement as Lenders (filed as Exhibit 10.1 to
Carmikes Form 10-K for the year ended December 31, 2001 and
incorporated herein by reference).10.4
    
    $50,000,000 Credit Agreement, dated as of January 31, 2002, among
Carmike Cinemas, Inc., Eastwynn Theatres, Inc., General Electric
Capital Corporation, as Agent and Lender, GECC Capital Markets
Group, Inc., as Lead Arranger, the various subsidiaries from time
to time parties to the agreement as credit parties, and the
various banks or other financial institutions from time to time
parties to the agreement as Lenders (filed as Exhibit 10.2 to
Carmikes Form 10-K for the year ended December 31, 2001 and
incorporated herein by reference).10.5
    
    First Amendment to Credit Agreement, dated as of June 21, 2002,
among Carmike Cinemas, Inc., Eastwynn Theatres, Inc., General
Electric Capital Corporation as Agent and Lender, the various
subsidiaries from time to time parties to the agreement as credit
parties and the various banks and other financial institutions
from time to time parties to the agreement as Lenders (filed as
Exhibit 10 to Carmikes Form 10-Q for the quarter ended June 30,
2002 and incorporated herein by reference).10.6
    
    First Amendment to Term Loan Credit Agreement, dated as of October
15, 2003, among Carmike Cinemas, Inc., BNY Asset Solutions LLC, as
Administrative Agent, and the various banks or other financial
institutions from time to time parties to the agreement as Lenders
(filed as Exhibit 10.1 to Carmikes Form 10-Q for the quarter
ended September 30, 2003 and incorporated herein by reference).10.7
    
    Second Amendment to Credit Agreement, dated as of October 15,
2003, among Carmike Cinemas, Inc., Eastwynn Theatres, Inc.,
General Electric Capital Corporation as Agent and Lender, the
various subsidiaries from time to time parties to the agreement as
credit parties and the various banks and other financial
institutions from time to time parties to the agreement as Lenders
(filed as Exhibit 10.2 to Carmikes Form 10-Q for the quarter
ended September 30, 2003 and incorporated herein by reference).10.8
    
    Stock Purchase Agreement, dated as of June 27, 1997, by and
between the stockholders of Morgan Creek Theatres, Inc.;
stockholders of SB Holdings, Inc.; members of RDL Consulting
Limited Liability Company; Morgan Creek Theatres, Inc.; SB
Holdings, Inc.; RDL Consulting Limited Liability Company; First
International Theatres; Carmike Cinemas, Inc. and Eastwynn
Theatres, Inc. (filed as Exhibit 10.2 to Carmikes Form 10-Q
 53




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ExhibitNumber
    
    Description(Registration No. 001-11604) for the quarter ended June 30, 1997
and incorporated herein by reference).10.9*
    
    Carmike Cinemas, Inc. Deferred Compensation Agreement and Trust
Agreement, dated as of January 1, 1990 (filed as Exhibit 10(u) to
Carmikes Form 10-K (Registration No. 000-14993) for the year
ended December 31, 1990 and incorporated herein by reference).10.10
    
    Aircraft Lease, dated July 1, 1983, as amended June 30, 1986, by
and between C.L.P. Equipment and Carmike Cinemas, Inc. (filed as
Exhibit 10(h) to Carmikes Registration Statement on Form S-1
(Registration No. 33-8007) and incorporated herein by reference).10.11
    
    Summary of Extensions of Aircraft Lease Agreement and Equipment
Lease Agreement which are Exhibits 10(e) and 10(k) (filed as
Exhibit 10(o) to Carmikes Form 10-K (Registration No. 000-14993)
for the year ended December 31, 1991 and incorporated herein by
reference).10.12
    
    Second Amended and Restated Master Lease, dated September 1, 2001,
between MoviePlex Realty Leasing, L.L.C. and Carmike Cinemas, Inc.
(filed as Exhibit 10.17 to Carmikes Form 10-K for the year ended
December 31, 2001 and incorporated herein by reference).10.13*
    
    Trust Agreement, dated as of July 16, 1999, between Carmike
Cinemas, Inc., Michael W. Patrick, F. Lee Champion, III and Larry
M. Adams (filed as Exhibit 10.23 to Carmikes Form 10-K for the
year ended December 31, 1999 and incorporated herein by
reference).10.14*
    
    Carmike Cinemas, Inc. Employee Retention and Severance Plan (filed
as Exhibit 10.22 to Carmikes Form 10-K for the year ended
December 31, 2000 and incorporated herein by reference).10.15*
    
    Carmike Cinemas, Inc. 2002 Stock Plan (filed as Exhibit 4.2 to
Carmikes Form S-8 (Registration No. 333-85194) filed March 29,
2002 and incorporated herein by reference).10.16*
    
    Employment Agreement, dated as of January 31, 2002, between
Carmike Cinemas, Inc. and Michael W. Patrick (filed as Exhibit 10
to Carmikes Form 10-Q for the quarter ended March 31, 2002 and
incorporated herein by reference).10.17*
    
    Carmike Cinemas, Inc. Non-Employee Directors Long-Term Stock
Incentive Plan (filed as Appendix C to Carmikes 2002 Definitive
Proxy Statement filed July 24, 2002 and incorporated herein by
reference).10.18*
    
    Carmike Cinemas, Inc. Employee and Consultant Long-Term Stock
Incentive Plan (filed as Appendix D to Carmikes 2002 Definitive
Proxy Statement filed July 24, 2002 and incorporated herein by
reference).
 54




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ExhibitNumber
    
    Description10.19*
    
    Form of Separation Agreement and schedule of officers who have
entered into such agreement (filed as Exhibit 10.1 to Carmikes
Form 10-Q for the quarter ended June 30, 2003 and incorporated
herein by reference).21
    
    List of Subsidiaries.23.1
    
    Consent of PricewaterhouseCoopers LLP.23.2
    
    Consent of Ernst & Young LLP.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.
   *
    
    Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 15(c) of Form 10-K. (b) Reports on Form 8-K None. (c) Exhibits The response to this portion of Item 15 is submitted as a separate section
of this report. (d) Financial Statement Schedules See Item 15(a) (1) and (2). 55




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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: March 30, 2004
    
    By:
    
    /s/ Michael W. PatrickMichael W. PatrickPresident and Chief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated and as of the date indicated above. Signature
    
    Title/s/ Michael W. Patrick
    
    President, Chief ExecutiveOfficer and Chairman of the Board of DirectorsMichael W. Patrick/s/ Martin A. Durant
    
    Senior Vice President-Finance, Treasurerand Chief Financial Officer (Principal Financial Officer)Martin A. Durant/s/ Philip A. Smitley
    
    Assistant Vice President-Controller(Principal Accounting Officer)Philip A. Smitley/s/ Elizabeth Cogan Fascitelli
    
    DirectorElizabeth Cogan Fascitelli/s/ Richard A. Friedman
    
    DirectorRichard A. Friedman/s/ Alan J. Hirschfield
    
    DirectorAlan J. Hirschfield/s/ John W. Jordan, II
    
    DirectorJohn W. Jordan, II/s/ S. David Passman III
    
    DirectorS. David Passman III/s/ Carl L. Patrick, Jr.
    
    DirectorCarl L. Patrick, Jr./s/ Kenneth A. Pontarelli
    
    DirectorKenneth A. Pontarelli/s/ Roland C. Smith
    
    DirectorRoland C. Smith/s/ David W. Zalaznick
    
    DirectorDavid W. Zalaznick




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Schedule II - Valuation and Qualifying Accounts
Carmike Cinemas, Inc. and Subsidiaries
December 31, 2003 (in thousands of dollars) Col. A
    
    Col. B
    
    Col. C
    
    Col. D
    
    Col. EAdditionsBalance at
    
    Charged to
    
    Charged to
    
    
    
    
    
    Balance atBeginning of
    
    Costs and
    
    Other Accounts
    
    Deductions -
    
    EndDescription
    
    Period
    
    Expenses
    
    - Describe
    
    Describe
    
    of PeriodYear Ended December 31, 2000:Reserve for restructuring
charge
    
    $
    28,343
    
    
    $
    (775
    )(1)
    
    $
    (24,683
    )(3)
    
    $
    (2,885
    ) (2)
    
    $
    Valuation reserve for deferred
income tax assets
    
    $
    
    
    
    $
    40,951
    (4)
    
    $
    
    
    
    $
    
    
    
    $
    40,951Year Ended December 31, 2001:Valuation reserve for deferred
income tax assets
    
    $
    40,951
    
    
    $
    42,192
    (5)
    
    $
    
    
    
    $
    
    
    
    $
    83,143Year Ended December 31, 2002:Valuation reserve (benefit) for
deferred income tax assets
    
    $
    83,143
    
    
    $
    (3,253
    )(6)
    
    $
    
    
    
    $
    
    
    
    $
    79,890Year Ended December 31, 2003:Valuation reserve for
deferred income tax assets
    
    $
    79,890
    
    
    $
    (4,611
    )(7)
    
    $
    (75,279
    )(8)
    
    $
    
    
    
    $
    
  (1)
    
    Change in estimate of liabilities to be incurred. See Note 5 of Notes to
Consolidated Financial Statements.(2)
    
    Net payments made during period, including $500,000 payment for early
lease termination in 1999. See Note 5 of Notes to Consolidated Financial
Statements.(3)
    
    Amounts outstanding at the Petition Date have been classified to
Liabilities Subject to Compromise. All theatres covered by the
restructuring charge have been approved by the bankruptcy court for lease
rejection.(4)
    
    Valuation reserve recorded in the year ended December 31, 2000. See Note
11 of notes to audited annual consolidated financial statements.(5)
    
    Valuation reserve recorded in the year ended December 31, 2001. See Note
11 of notes to audited annual consolidated financial statements.(6)
    
    Valuation reserve recorded in the year ended December 31, 2002. See Note
11 of notes to audited annual consolidated financial statements.(7)
    
    Valuation reserve recorded in the year ended December 31, 2003. See Note
11 of notes to audited annual consolidated financial statements.(8)
    
    Full release of valuation reserve as of December 31, 2003. See Note 11
of notes to audited annual consolidated financial statements.