CARMIKE CINEMAS INC, 8-K/A, 1999-02-08

CARMIKE CINEMAS INC
8-K/A, 1999-02-08
MOTION PICTURE THEATERS

Previous: CARMIKE CINEMAS INC, SC 13G/A, 1999-02-08

Next: VANGUARD QUANTITATIVE PORTFOLIOS INC, 485APOS, 1999-02-08

<PAGE> 1

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): JANUARY 11, 1999

CARMIKE CINEMAS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 0-14993 58-1469127
(State or other jurisdiction (Commission File Number) (IRS Employer Identification
of incorporation) No.)
</TABLE>

<TABLE>
<S> <C>
1301 FIRST AVENUE, COLUMBUS GEORGIA 31901
(Address of principal executive offices) (Zip Code)
</TABLE>

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

(Former name or former address, if changed since last report)

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
This Amendment No. 1 on Form 8-K/A is an amendment and restatement of the
Form 8-K dated January 11, 1999 of Carmike Cinemas, Inc. (the "Company" or
"Carmike").

ITEM 5. OTHER EVENTS

2
<PAGE> 3

SUMMARY

The words "Company", "Carmike", "we", "our", "ours", and "us" refer only to
Carmike Cinemas, Inc. and not to any of our subsidiaries. Information in this
Report as to the number of theatres and screens operated by us and average
screens per theatre as of December 31, 1998 is net of theatres scheduled to be
closed pursuant to our recently announced restructuring plan. See "-- Recent
Developments -- Restructuring and Impairment Charges".

THE COMPANY

The Company is the largest motion picture exhibitor in the United States in
terms of number of theatres operated and is the third largest in terms of the
number of screens operated. As of December 31, 1998, the Company operated 468
theatres with an aggregate of 2,658 screens located in 36 states. The Company's
theatres are located in small to mid-sized communities ranging in population
size from approximately 7,700 to 456,000. As of December 31, 1998, management
believes that the Company was the sole exhibitor in approximately 65% of its
film licensing zones and was the leading exhibitor in approximately 83% of its
film licensing zones. The Company believes that by focusing on these secondary
markets, it can reduce its exposure to competition for customers and film
product. Over the past five years, the Company has grown annual revenues and
EBITDA at an annual compound rate of 21.7% and 22.1%, respectively. For the
twelve months ended September 30, 1998, the Company had revenues, EBITDA and
Adjusted EBITDA of $473.9 million, $87.2 million and $90.6 million,
respectively. See "-- Summary Financial Data".

Management believes the Company is among the most profitable operators in
the industry. For the twelve months ended September 30, 1998, the Company's
EBITDA margin was 18.4%, which management believes is significantly higher than
the industry average. Over the past five years, the Company's film exhibition
costs have averaged 53.4% of admissions revenues and its concession costs have
averaged 14.4% of concessions revenues. Management believes that its film
exhibition and concession costs are among the lowest in the industry and can be
attributed to the Company's size and dominant position in most of its markets.
Management also believes that its selling, general and administrative costs are
among the lowest in the industry, at 1.5% of revenues for the twelve months
ended September 30, 1998.

The Company has grown substantially over the past several years. With 2,720
screens at the end of 1997, the Company has almost tripled its number of screens
from 979 in 1990. During the same period, the Company also nearly tripled its
attendance, from 26.2 million in 1990 to 75.3 million in 1997. Over the past
five years, concessions revenue per patron has grown 4.1% per year, while
margins on concessions sales have averaged 85.6%.

The Company focuses on developing and operating multi-screen theatres.
Nearly all of the Company's 2,658 screens as of December 31, 1998 were located
in multi-screen theatres, with a Company average of 5.7 screens per theatre. The
Company's theatres are sized to reflect the demographics and competitive
landscape of the communities in which the Company operates. The Company's
smaller markets have fewer screens per theatre, while the Company's mid-sized
markets have theatres with a higher average screen count per theatre. In 1998,
the Company built 16 new theatres with an average of 11.4 screens per theatre.
The Company is in the process of expanding and improving its theatre base,
adding new stadium seating auditoriums to certain existing theatres and
retrofitting certain existing theatres with stadium seating and digital stereo
surround sound. The Company intends to open 22 new theatres with an aggregate of
334 screens and an average of 15.2 screens per theatre in 1999. In addition, in
1999 the Company intends to add 48 stadium seating auditoriums to existing
theatres and to retrofit approximately 83 existing auditoriums with stadium
seating and digital stereo surround sound.

<PAGE> 4

BUSINESS STRATEGY

OPERATING STRATEGY. The Company believes that the following are the key
elements of its operating strategy:

CONCENTRATION IN SECONDARY MARKETS. The Company primarily operates in
secondary markets which are underscreened or served by older theatres and offer
less intense competition for both customers and film product. The Company's
theatres are located in small to mid-sized communities ranging in size from
Silsbee, Texas (population approximately 7,700) to Nashville, Tennessee
(population approximately 456,000). These communities generally offer lower real
estate prices and build-out costs and do not require as high a screen count per
theatre as larger markets.

SOLE OR LEADING EXHIBITOR. The majority of the Company's theatres are
located in markets in which the Company is the sole or leading exhibitor within
a particular film licensing zone. A film licensing zone is a geographic area,
established by film distributors, where they allocate a given film to only one
theatre. The Company currently serves approximately 360 film licensing zones
located in 36 states. As of December 31, 1998, management believes that the
Company is the sole exhibitor in approximately 65% of its film licensing zones,
and is the leading exhibitor (operating 50% or more of the screens in a given
zone) in approximately 83% of its film licensing zones. The Company believes
that its position as the sole or leading exhibitor in a film licensing zone
provides it with negotiating leverage among film producers and studios and
contributes to its strong relationship with motion picture distributors.

HIGHLY EFFICIENT, LOW COST OPERATIONS. The Company focuses on centralized,
tight cost control measures to drive its operating margins, which management
believes are among the highest in the movie exhibition industry. Management's
focus on cost control extends from theatre development through operation of the
Company's theatres. Management believes that it is able to reduce construction
and operating costs by designing prototype theatres adaptable to a variety of
locations and by actively supervising all aspects of construction. In addition,
through the use of detailed daily management reports, the Company closely
monitors theatre-level costs.

EMPHASIS ON CUSTOMER SATISFACTION AND QUALITY CONTROL. The Company
emphasizes customer satisfaction by providing convenient locations, comfortable
seating, spacious lobbies and concession areas and a wide variety of film
selections. The Company's theatre complexes feature clean, modern auditoriums
with high quality projection and sound systems. As of December 31, 1998, 37% of
the Company's auditoriums were equipped with digital stereo surround sound. The
Company has added stadium seating to certain of its existing theatres and plans
to include stadium seating in all of its new theatres. As of December 31, 1998,
after giving effect to the Company's 1999 construction, expansion and
retrofitting program, approximately 25.4% of the Company's auditoriums will
feature stadium seating. The Company believes that all of these features serve
to enhance its customers' movie-going experience and help build customer
loyalty. In addition, the Company promotes customer loyalty though specialized
marketing programs for its theatres and feature films. The Company has
implemented an incentive bonus program for theatre-level management which
provides for bonuses based upon reports of quality of service, presentation and
cleanliness at individual theatres.

CENTRALIZED COST CONTROL AND THEATRE MANAGEMENT THROUGH PROPRIETARY
MANAGEMENT INFORMATION SYSTEM. The Company's proprietary computer system, I.Q.
Zero, which is installed in all of its theatres, allows the Company to
centralize most theatre-level administrative functions at its corporate
headquarters, creating significant operating leverage. I.Q. Zero allows
corporate management to monitor ticket and concessions sales and box office and
concession staffing on a daily basis. The Company's integrated management
information system, centered around I.Q. Zero, also coordinates payroll, tracks
theatre invoices and generates operating reports analyzing film performance and
theatre profitability. Accordingly, there is active communication between the
theatres and corporate headquarters, which allows senior management to react to
vital profit and

<PAGE> 5

staffing information on a daily basis and perform the majority of the
theatre-level administrative functions, thereby enabling the theatre manager to
focus on the day-to-day operations of the theatre. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Year 2000".

GROWTH STRATEGY. The Company believes that the following are the key
elements of its growth strategy:

BUILD STATE-OF-THE-ART MULTIPLEX THEATRES. The Company believes that there
are substantial opportunities to build new multiplex theatres in secondary
markets that are currently underscreened or served by older theatres. The
Company actively targets markets having a population size ranging from 75,000 to
250,000, which can support the development of multiplex theatres. The Company
has designed a prototype multiplex theatre which has been tailored to the
demographics of a particular location, resulting in construction and operating
cost savings. The Company intends to open 22 new theatres with an aggregate of
334 screens and an average of 15.2 screens per theatre in 1999. The Company's
new multiplex theatres feature state-of-the-art technology in projection,
digital stereo surround sound and stadium seating. Management believes that the
Company's multiplex theatres promote increased attendance and maximize operating
efficiencies through reduced labor costs and improved utilization of theatre
capacity. Multiplex theatres enable the Company to present a variety of films
appealing to several segments of the movie-going public while serving customers
from common support facilities (such as the box office, concession areas,
restrooms and lobby). This strategy increases attendance, utilization of theatre
capacity and operating efficiencies (relating to theatre staffing, performance
scheduling and space and equipment utilization), and thereby improves revenues
and profitability. Staggered scheduling of starting times minimizes staffing
requirements for crowd control, box office and concession services while
reducing congestion at the concession area.

ADDITION OF NEW SCREENS AND RETROFITTING OF EXISTING THEATRES. To enhance
profitability and to maintain competitiveness at existing theatres, the Company
continues to add screens and retrofit its existing theatres, which encompasses
the addition of stadium seating to certain existing theatres. The Company
believes that through the addition of screens and the renovation and
retrofitting of its facilities it can leverage the favorable real estate
locations of certain of its theatres and thereby improve its operating margins
at those theatres. In 1998, the Company retrofitted 114 auditoriums and added 16
auditoriums to existing theatres. As of December 31, 1998, the Company had 14
new screens under construction at two existing theatres and anticipates that it
will add a total of 48 stadium seating auditoriums to certain existing theatres
and retrofit approximately 83 existing auditoriums with stadium seating and
digital stereo surround sound during 1999.

DRIVE REVENUE GROWTH AND PROFITABILITY THROUGH CONCESSIONS SALES. In 1997,
27.6% of the Company's sales were derived from concessions, which averaged a
margin of 85.5%. The Company's concessions strategy emphasizes quick and
efficient service built around a limited menu primarily focused on higher margin
items such as popcorn, candy and soft drinks. The Company actively seeks to
promote concessions sales through the design and appearance of its concession
stands, the training of its employees to cross-sell products, the introduction
of promotional programs such as "super-size value deals" and the selective
introduction of new products, such as bottled water, coffee and ice cream, at
certain locations.

DEVELOP ADDITIONAL REVENUE STREAMS. The Company actively engages in
efforts to develop revenue streams in addition to admissions and concessions
revenues. Certain of the Company's theatres include electronic video games
located adjacent to or in the lobby, and on-screen advertising is provided on a
number of the Company's screens, each of which provides additional revenues to
the Company. Since 1997, the Company has opened five family entertainment
centers under the name Hollywood Connection, including three which were
developed pursuant to a joint venture with Wal-Mart, and which feature multiplex
theatres and other forms of

<PAGE> 6

entertainment. The Company is currently evaluating this concept and is also
exploring alternate revenue sources such as advertising and marketing programs
on beverage and popcorn containers.

SELECTIVE ACQUISITION OF THEATRES. While management believes that a
significant portion of its future growth will come through the development of
new theatres, the Company will continue to consider strategic acquisitions of
complementary theatres or theatre companies. In addition, the Company may enter
into joint ventures, which could serve as a platform for further expansion. The
Company currently has no letters of intent or other written agreements for any
specific acquisitions or joint ventures.

RECENT DEVELOPMENTS

RESTRUCTURING AND IMPAIRMENT CHARGES

As a result, the Company has identified a group of theatres in certain
markets that do not fit its operating and growth strategies. In the fourth
quarter of 1998, the Company's Board of Directors approved a restructuring plan
involving the closure or disposition of these theatres. Under the restructuring
plan, such theatres are scheduled to be closed during 1999. Related to these
theatre closures, the Company will recognize a restructuring charge of
approximately $34.9 million in the fourth quarter of 1998 which will be reserved
for future cash expenditures. These theatres represented approximately 4.2% of
the Company's total screens as of December 31, 1998, and generated approximately
$3.4 million of negative EBITDA for the twelve months ended September 30, 1998.

Additionally in the fourth quarter of 1998, the Company identified
impairments of asset values for certain of its theatres. As a result, the
Company also expects to recognize a non-cash impairment charge of approximately
$37.0 million to $39.0 million in the fourth quarter of 1998 to reduce the
carrying value of approximately 145 theatres with approximately 610 screens.

The restructuring and impairment charges to be recognized in the fourth
quarter of 1998 aggregated approximately $71.9 million to $73.9 million.

ANTICIPATED FOURTH QUARTER AND FULL-YEAR 1998 RESULTS

Although the Company has not closed its books for the fourth quarter ended
December 31, 1998 or completed its annual audit process, the Company anticipates
revenues for the fourth quarter to be approximately $119.1 million, up from
$111.3 million for the same period in 1997. Fourth quarter 1998 EBITDA,
excluding the restructuring and impairment charges, is expected to be
approximately $20.0 million to $21.3 million, compared with EBITDA of $18.9
million for the fourth quarter of 1997.

For the full year ended December 31, 1998, the Company expects revenues to
be approximately $481.6 million, up from $458.6 million in 1997. Full-year
EBITDA, excluding the restructuring and impairment charges, is expected to be
approximately $88.5 million to $89.8 million in 1998, compared with EBITDA of
$89.1 million in 1997. Full-year EBITDA, adjusted for the elimination of the
negative EBITDA associated with the theatres identified to be closed in the
restructuring plan, excluding the restructuring and impairment charges, is
expected to be approximately $91.9 million to $93.2 million in 1998.

6
<PAGE> 7

The Company has not yet finalized its financial statements for the fourth
quarter of 1998, and as such, estimated and adjusted results of operations for
such periods may be revised, and accordingly, you are cautioned not to place
undue reliance on the results presented above. See "Risk Factors".

AMENDED CREDIT FACILITY

The Company is in the process of amending and restating its $275.0 million
revolving credit facility (as so amended and restated, the "Amended and Restated
Revolving Credit Facility") with a consortium of banks which provides for
borrowings for working capital, acquisitions and other general corporate
purposes. The Amended and Restated Revolving Credit Facility will allow for the
issuance, pursuant to separate documentation, of a new $75.0 million Term Loan B
Facility (the "Term Loan B"), the proceeds of which will be applied to repay
revolving credit borrowings. In addition, the Company expects the Amended and
Restated Revolving Credit Facility to have an increased interest rate on
borrowings thereunder, revised and additional financial covenants and, following
the application of the proceeds of the Term Loan B, a reduction of the
Amended and Restated Revolving Credit Facility to $200.0 million. Further, the
Company expects the Amended and Restated Revolving Credit Facility and the Term
Loan B to be secured by substantially all of the tangible and intangible
personal property of the Company and its subsidiaries. The Company's ability to
borrow up to $275.0 million under the Amended and Restated Revolving Credit
Facility will be unaffected in the period prior to the funding of the Term Loan
B. The Term Loan B is not expected to be drawn until February 1999. There can be
no assurance that the documents related to the Term Loan B and the Amended and
Restated Revolving Credit Facility will contain or be amended to reflect the
terms described above. In connection with the amendment and restatement of the
revolving credit facility, the Company is also amending and restating its Master
Lease with Movieplex Realty Leasing, L.L.C. to amend certain covenants contained
therein and to provide for guarantees and security interests comparable to those
in favor of the Amended and Restated Revolving Credit Facility and the Term
Loan B.

7
<PAGE> 8

SUMMARY FINANCIAL DATA

The following tables present summary historical consolidated financial data
about us. You should read this information together with "Selected Historical
Consolidated Financial and Other Data", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Condensed
Consolidated Financial Statements and Notes thereto included in the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 1998.

The following fiscal year data were derived from our audited consolidated
financial statements:

- our summary historical consolidated statement of income data for the
fiscal years ended December 31, 1993, December 31, 1994, December 31,
1995, December 31, 1996 and December 31, 1997; and

- our summary historical consolidated balance sheet data as of December 31,
1993, December 31, 1994, December 31, 1995, December 31, 1996 and
December 31, 1997.

In addition, the following data were derived from our unaudited
consolidated financial statements:

- our consolidated statement of income data for the latest trailing twelve
months ("LTM") ended September 30, 1998;

- our summary historical consolidated statement of income data for the nine
months ended September 30, 1997 and September 30, 1998; and

- our summary historical consolidated balance sheet data as of September
30, 1997 and September 30, 1998.

We believe that such unaudited consolidated financial statements include
all adjustments (consisting of only normal recurring adjustments) necessary for
a fair presentation of our consolidated results of operations and financial
condition for such periods. You should be cautioned that results of operations
for the nine months ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the entire fiscal year ended December 31,
1998. The pro forma financial data have been derived from our historical
financial statements and give pro forma effect to a subordinated debt
transaction, the private placement of 550,000 shares of the Company's 5.5%
Series A Senior Cumulative Convertible Exchangeable Preferred Stock in November,
1998 (the "Preferred Stock Placement") for aggregate consideration of $55.0
million, borrowings under the Term Loan B, the use of the proceeds of each of
the foregoing, the Amended and Restated Revolving Credit Facility and the
restructuring and impairment charges as though such transactions had occurred at
the beginning of the applicable period or as of the applicable date. See "--
Recent Developments".

8
<PAGE> 9

<TABLE>
<CAPTION>
FOR THE FOR THE LTM
FISCAL YEAR ENDED NINE MONTHS ENDED ENDED
--------------------------------------------------------- ------------------------ -----------
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, SEPT. 30 SEPT. 30, SEPT. 30,
1993(1) 1994 1995 1996 1997 1997 1998 1998
--------- --------- --------- --------- --------- ---------- ----------- -----------
(IN MILLIONS EXCEPT PERCENTAGES, RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other theatre operating
costs.................... $ 86.5 $ 119.0 $ 143.7 $ 164.1 $ 175.1 $ 132.4 $ 141.8 $ 184.5
General and
administrative........... 4.7 5.1 5.5 6.0 6.4 4.7 5.3 7.0
Depreciation and
amortization............. 16.2 22.5 27.2 28.4 33.4 24.2 27.9 37.1
Impairment of long-lived
assets................... -- -- -- 45.4 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
207.7 282.4 327.0 418.2 402.9 301.3 322.2 423.8
------- ------- ------- ------- ------- ------- ------- -------
Operating Income........... 34.1 45.2 37.7 8.5 55.7 46.0 40.4 50.1
Interest expense............. 14.3 17.0 16.0 20.3 23.1 16.8 19.6 25.9
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes...................... 19.8 28.2 21.7 (11.8) 32.6 29.2 20.8 24.2
Income tax expense
(benefit).................. 7.9 11.2 8.7 (4.5) 12.4 11.1 7.9 9.2
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ $ 11.9 $ 17.0 $ 13.0 $ (7.3) $ 20.2 $ 18.1 $ 12.9 $ 15.0
======= ======= ======= ======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
Capital expenditures....... $ 44.7 $ 80.1 $ 122.5 $ 94.0 $ 137.8 $ 121.6 $ 107.8 $ 124.1
Cash flows provided by
(used in):
Operating activities..... 26.2 47.3 42.9 54.4 63.1 36.7 37.4 63.8
Investing activities..... (56.8) (64.6) (123.4) (98.2) (135.6) (117.9) (103.4) (121.1)
Financing activities..... 24.4 24.5 74.0 38.0 83.5 76.3 55.3 62.5
EBITDA(2).................. 50.3 67.8 64.9 37.0 89.1 70.2 68.3 87.2
EBITDAR(3)................. 72.8 100.0 103.9 83.8 138.8 107.8 107.5 138.5
EBITDA margin(4)........... 20.8% 20.7% 17.8% 8.7% 19.4% 20.2% 18.8% 18.4%
EBITDAR margin(5).......... 30.1% 30.5% 28.5% 19.6% 30.3% 31.0% 29.6% 29.2%
Ratio of total debt(6) to
EBITDA................... 3.8x 2.3x 3.6x 7.3x 4.0x 4.9x 4.7x 4.7x
Ratio of EBITDA to interest
expense(7)............... 3.4x 3.9x 3.9x 1.7x 3.4x 3.7x 3.0x 2.9x
Ratio of EBITDAR to
interest expense(7) plus
rent expense(8).......... 2.0x 2.0x 1.9x 1.2x 1.8x 1.9x 1.7x 1.7x
Ratio of earnings to fixed
charges(9)............... 1.9x 2.0x 1.7x --(9) 1.8x 2.0x 1.6x 1.5x
Pro forma ratio of earnings
to fixed
charges(9)(10)........... -- -- -- -- 1.7x -- 1.6x 1.5x
PRO FORMA FINANCIAL DATA
(10):
Adjusted EBITDA(11)........ -- -- -- -- -- -- -- 90.6
Pro forma ratio of total
debt(6) to EBITDA........ -- -- -- -- -- -- -- 4.3x
Pro forma ratio of EBITDA
to interest
expense(7)(12)........... -- -- -- -- -- -- -- 2.9x
Pro forma ratio of EBITDAR
to interest
expense(7)(12) and rent
expense(8)............... -- -- -- -- -- -- -- 1.7x
Pro forma ratio of total
debt(6) to Adjusted
EBITDA(7)................ -- -- -- -- -- -- -- 4.2x
Pro forma ratio of Adjusted
EBITDA to interest
expense(7)(12)........... -- -- -- -- -- -- -- 3.0x
OPERATING DATA:
Theatre locations(13)...... 409 445 519 519 520 525 501 501
Screens(13)................ 1,701 1,942 2,383 2,518 2,720 2,699 2,745 2,745
Average screens per
location................. 4.2 4.4 4.6 4.9 5.2 5.1 5.5 5.5
</TABLE>

9
<PAGE> 10

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------------
ACTUAL AS ADJUSTED (10)(14)
------ --------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 5.8 $ 5.8
Property and equipment, net............................... 578.3 549.4
Total assets.............................................. 687.6 680.5
Total long-term obligations, including current
maturities.............................................. 413.5 376.9
Total shareholders' equity................................ 216.2 218.2
</TABLE>

- ---------------

(1) Excludes the cumulative effect of $0.3 million from the adoption of FASB
Statement No. 109.

(2) We use EBITDA (income before interest expense, income taxes, depreciation
and amortization) in analyzing our ability to meet our future debt service,
capital expenditures, rentals and working capital requirements. However,
EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principles ("GAAP"), and you should not
consider it as an indicator of operating performance or alternatives to
cash flow (as measured by GAAP) as a measure of liquidity.

(3) EBITDAR represents EBITDA before rent expense (see (8) below). While
EBITDAR is not intended to represent cash flow from operations as defined
by GAAP and should not be considered as an indicator of operating
performance or an alternative to cash flow (as measured by GAAP), it is
included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital
expenditures, rental and working capital requirements.

(4) Defined as EBITDA as a percentage of total revenue.

(5) Defined as EBITDAR as a percentage of total revenue.

(6) Includes capital lease obligations.

(7) As used in these ratios, "interest expense" means interest expense recorded
during the related period excluding interest income and amortization of
deferred financing fees and including capitalized interest.

(8) Rent expense includes minimum rents and percentage rents (as per lease
agreements) and deferred rents.

(9) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include net income (loss)
before income taxes and fixed charges (adjusted for interest capitalized
during the period). For the year ended December 31, 1996, earnings before
fixed charges were insufficient to cover fixed charges by approximately
$11.7 million. "Fixed charges" include interest, whether expensed or
capitalized, amortization of debt expenses and the portion of rental
expense that is representative of the interest factor in these rentals.

(10) Gives effect to the consummation of a subordinated debt transaction, the
Preferred Stock Placement, borrowings under the Term Loan B, the use of the
proceeds of each of the foregoing, the Amended and Restated Revolving
Credit Facility and the restructuring and

10
<PAGE> 11

impairment charges as though such transactions had occurred at the
beginning of the applicable period or as of the applicable date.

(11) Adjusted EBITDA is defined as EBITDA without any reduction for the negative
EBITDA of $3.4 million generated by the theatres scheduled to be closed
during 1999. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview".

(12) Includes interest on subordinated debt securities, the Amended and Restated
Revolving Credit Facility and the Term Loan B, each at an assumed weighted
average interest rate.

(13) Theatre locations and screens are stated as of the end of the respective
periods.

(14) The pro forma impact of the impairment charge on the as adjusted "property
and equipment, net" was calculated assuming a charge of approximately $28.9
million. The pro forma impact of the restructuring and impairment charges
on the as adjusted shareholders' equity was calculated assuming aggregate
charges, after income taxes, of approximately $45.0 million.

11
<PAGE> 12

RISK FACTORS

This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act including,
in particular, the statements about our plans, strategies, and prospects under
the headings "Summary" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations". Although we believe that our plans,
intentions and expectations reflected in or suggested by such forward-looking
statements are reasonable, we can give no assurance that such plans, intentions
or expectations will be achieved. Important factors that could cause actual
results to differ materially from the forward-looking statements we make in this
Report are set forth below and elsewhere in this Report. All forward-looking
statements attributable to the Company or persons acting on our behalf are
expressly qualified in their entirety by the following cautionary statements.

SUBSTANTIAL LEVERAGE

Our substantial indebtedness could adversely affect the financial health of
the Company and prevent us from fulfilling our obligations under any of our
indebtedness. We have now and will continue to have a significant amount of
indebtedness. The following chart shows certain important credit statistics and
is presented assuming we had completed a subordinated debt transaction, the
Preferred Stock Placement, borrowings under the Term Loan B, the use of the
proceeds of each of the foregoing, the Amended and Restated Revolving Credit
Facility and the restructuring and impairment charges as of the dates or at the
beginning of the periods specified below and applied the proceeds as intended
(in thousands, except ratio):

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------
<S> <C>
Total debt.................................................. $376,942
Shareholders' equity........................................ $218,239
Debt to equity ratio........................................ 1.73x
</TABLE>

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------ -------------------
<S> <C> <C>
Ratio of earnings to fixed charges............... 1.7x 1.6x
</TABLE>

Our substantial indebtedness could have important consequences. For
example, it could:

- make it more difficult for us to satisfy our obligations with respect to
our indebtedness;

- increase our vulnerability to general adverse economic and industry
conditions;

- limit our ability to fund future working capital, capital expenditures
for theatre construction, expansion, renovation or acquisition, and other
general corporate requirements;

- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, and other general corporate purposes;

- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;

- place us at a competitive disadvantage compared to our competitors that
have less debt; and

- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
And, failing to comply with those covenants could result in an event of
default which, if not cured or waived, could have a material adverse
effect on us.

12
<PAGE> 13

ADDITIONAL BORROWINGS AVAILABLE

Despite current indebtedness levels, we and our subsidiaries may still be
able to incur substantially more debt. This could further exacerbate the risks
described above. We and our subsidiaries may be able to incur substantial
additional indebtedness in the future. The terms of the agreements governing our
indebtedness do not fully prohibit us or our subsidiaries from doing so.
Assuming completion of a subordinated debt transaction, the Preferred Stock
Placement, borrowings under the Term Loan B, the use of proceeds of each of the
foregoing and the Amended and Restated Revolving Credit Facility on September
30, 1998, our Amended and Restated Revolving Credit Facility would permit
additional borrowings of senior debt of up to approximately $140.2 million. If
new debt is added to our and our subsidiaries' current debt levels, the related
risks that we and they now face could intensify.

ABILITY TO SERVICE DEBT

To service our indebtedness, we will require a significant amount of cash.
Our ability to generate cash depends on many factors beyond our control. Our
ability to make scheduled payments of principal of, or to pay the interest on,
or to refinance our indebtedness, or to fund planned capital expenditures for
theatre construction, expansion and renovation or theatre acquisition will
depend on our future performance. Our future performance is, to a certain
extent, subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. Based upon our current
level of operations and anticipated increases in revenues and cash flow as a
result of our theatre construction, expansion and renovation program, and the
scheduled closing of certain underperforming theatres, we believe that cash flow
from operations and available cash, together with available borrowings under our
Amended and Restated Revolving Credit Facility, lease financing arrangements
and/or sales of additional debt or equity securities, will be adequate to meet
our future liquidity needs for at least the next two years.

We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated revenue growth and
operating improvements will be realized or that future capital will be available
to us from the sale of debt or equity securities, additional bank financings,
other long-term debt or lease financings in an amount sufficient to enable us to
pay our indebtedness or to fund our other liquidity needs. We may need to
refinance all or a portion of our indebtedness on or before maturity. We cannot
assure you 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.

EXPANSION PLANS

We have in the past expanded our operations through theatre acquisitions
and new theatre openings. We intend to continue pursuing an expansion strategy
by:

- developing new theatres;

- expanding our existing theatres; and

- selectively acquiring existing theatres and theatre circuits.

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 law considerations. Desirable sites for new theatres may be
unavailable or expensive, and the market locations for new theatres 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 management's

13
<PAGE> 14

expectations. Additionally, there is a risk that we may not be able to manage
growth as effectively as we have in the past if we expand our existing
operations.

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 make acquisitions on terms we consider
acceptable.

IMPAIRMENT OF ASSETS

The opening of large multiplexes and theatres with stadium seating by the
Company and certain of its competitors has tended to, and is expected to
continue to, draw audiences away from certain older theatres, including theatres
operated by the Company. In addition, demographic changes and competitive
pressures can lead to the impairment of a theatre. The Company reviews for
impairment of long-lived assets and goodwill related to those assets to be held
and used in the business whenever events or changes in circumstances indicate
that the carrying amount of an asset or a group of assets may not be
recoverable. The Company also periodically reviews and monitors its internal
management reports and the competition in its markets for indicators of
impairment of individual theatres. In the fourth quarter of 1998, the Company
identified impairments of asset values for certain of its theatres. As a result,
the Company expects to recognize a non-cash impairment charge of approximately
$37.0 million to $39.0 million in the fourth quarter of 1998 to reduce the
carrying value of approximately 145 theatres with approximately 610 screens. The
Company also recorded an impairment charge, effective January 1, 1996, upon its
adoption of FASB Statement No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". There can be no assurance
that the Company will not take additional charges in the future related to the
impairment of assets.

FUTURE CAPITAL REQUIREMENTS

Our industry is undergoing a transition as newer theatres with stadium
seating are attracting moviegoers away from older theatres. As of December 31,
1998 we have 152 screens under construction, and we expect to add an aggregate
of 382 screens during 1999. The Company anticipates that all of the theatres
scheduled to be added in 1999 will provide stadium seating. We anticipate that
our construction, expansion and renovation program will require capital
expenditures of approximately $129.0 million, net of lease financings, in 1999,
and approximately $75.0 million, net of lease financings, in 2000.

Like others in our industry, we have been required to recognize charges
associated with the write-down and closing of underperforming theatres primarily
as a result of the emergence of new competition in the marketplace. 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. We currently plan to close 28 theatres in 1999 having
an aggregate of 116 screens. The theatres scheduled to be closed generated
negative EBITDA of $3.4 million during the twelve months ended September 30,
1998. The opening of new multiplexes by our competitors will likely continue to
draw audiences away from our older theatres unless we continue to make
significant capital expenditures. The Company has budgeted for 1999
approximately $6.2 million to retrofit approximately 83 screens to strengthen
our market position in certain markets. We will lose revenue from those theatres
while they are being renovated. As of December 31, 1998, after giving effect to
the Company's construction, expansion and retrofitting program, approximately
25.4% of our auditoriums will feature stadium seating. Further advances in
theatre design may also require the Company to make substantial capital
expenditures in the future, or to close older theatres that cannot be
economically renovated, to compete with new developments in theatre design.

14
<PAGE> 15

We believe that we will be able to satisfy our currently anticipated
capital needs for theatre construction, expansion and renovation and possible
acquisitions for at least the next two years by cash flow from operations and
available cash, together with borrowings under our Amended and Restated
Revolving Credit Facility, additional sales of debt or equity securities, and
additional bank financings and other forms of long-term debt. We may also enter
into sales and leasebacks of theatre properties to supplement our current
sources of capital. However, we cannot assure you that our business will
generate sufficient cash flow from operations, that the Company will satisfy the
requirements for borrowing under the Amended and Restated Revolving Credit
Facility, that currently anticipated revenue growth and operating improvements
will be realized or that future capital will be available to us to enable us to
fund our capital expenditure needs.

DEPENDENCE UPON MOTION PICTURE PRODUCTION AND PERFORMANCE

Our business depends on the availability of suitable motion pictures for
screening in our theatres and the appeal of such motion pictures in our theatre
markets. We mainly license first-run motion pictures. Our results of operations
will vary from period to period based upon the quantity and quality of the
motion pictures we show in our theatres. For example, in the first quarter of
1998, the Company benefited from the unexpectedly long run and success of
"Titanic", while in the second quarter of 1998 the Company's results were
adversely impacted by the disappointing performance of certain "event" films. A
disruption in the production of motion pictures, lack of motion pictures or poor
performance of motion pictures in theatres could adversely affect our business
and results of operations. See "Summary -- Recent Developments".

DEPENDENCE ON RELATIONSHIPS WITH MOTION PICTURE DISTRIBUTORS

Our business depends to a significant degree on maintaining good relations
with the major film distributors that license films to our theatres. While there
are numerous motion picture distributors, that provide quality first-run movies
to the motion picture exhibition industry, the following nine distributors
accounted for approximately 92% of the Company's admission revenues for the nine
months ended September 30, 1998 -- Buena Vista, Dreamworks, Fox, New Line
Cinema, Paramount, Sony, United Artists, Universal and Warner Brothers. No
single distributor dominates the market. A 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.

GOVERNMENT REGULATION

Like others in our industry, we are subject to certain federal, state and
local laws and regulations which limit the manner in which we may conduct our
business. 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. As a result of these laws and cases, we cannot ensure a supply of motion
pictures by entering into long term arrangements with major distributors.
Instead, we must compete for film licenses on a film by film and theatre by
theatre basis.

The Americans with Disabilities Act (the "ADA") 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 customers with disabilities. The ADA may require that certain
modifications be made to existing theatres in order to make such theatres
accessible to certain theatre patrons and employees who are disabled. The ADA
requires that theatres be constructed to permit persons with disabilities full
use of a theatre and its facilities and reasonable access to work stations. The
Company is aware of several recent lawsuits that have been filed against other
exhibitors by disabled moviegoers alleging that certain

15
<PAGE> 16

stadium seating designs violated the ADA. We have established a program to
review and evaluate our theatres and to make changes that may be required by
law. Although we believe that the cost of complying with the ADA will not
adversely affect our business and results of operations, we cannot predict the
extent to which the ADA or any future laws or regulations regarding the needs of
the disabled will impact our operations.

SEASONALITY

Our business is generally seasonal, with higher revenues generated during
the summer and holiday seasons. While motion picture distributors have begun to
release major motion pictures evenly throughout the year, the most marketable
motion pictures are usually released during the summer and the year-end holiday
periods. 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.
Moreover, to the extent that certain "event" films are distributed more widely
than in the past, the Company's margins may be hurt as a result of the higher
film licensing fees payable during the early period of a film's run. For the
year ended December 31, 1997, the percentages of our admissions revenue by
quarter were as follows: first quarter 24.2%; second quarter 23.7%; third
quarter 27.8%; and fourth quarter 24.3%.

DEPENDENCE UPON SENIOR MANAGEMENT

We believe that our success is due to our experienced management team. We
depend in large part on the continued contribution of our senior management,
including Michael W. Patrick, the Company's President. Losing the services of
one or more members of our senior management could adversely affect our business
and results of operations. We have an employment agreement with Michael W.
Patrick which is automatically renewed each year and we maintain key man life
insurance covering him.

COMPETITION

The opening of large multiplexes and theatres with stadium seating by the
Company and certain of its competitors has tended to, and is expected to
continue to, draw audiences away from certain older theatres, including theatres
operated by the Company. In addition, demographic changes and competitive
pressures can lead to the impairment of a theatre. In addition to competition
from other motion picture exhibitors, we face competition from other forms of
entertainment. We face varying degrees of competition with respect to licensing
films, attracting customers, obtaining new theatre sites and acquiring theatre
circuits. There have been a number of recent consolidations in the movie theatre
industry, and the impact of such consolidations could have an adverse effect on
our business. Even where we are the only exhibitor in a film licensing zone, we
may still experience competition for moviegoers from theatres in a neighboring
zone. In addition, our theatres compete with a number of other types of motion
picture delivery systems, such as pay television, pay-per-view, satellite and
home video systems. While the impact of such delivery systems on the motion
picture industry is difficult to determine precisely, there is a risk that they
will adversely affect attendance at motion pictures shown in theatres. Movie
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.

RISKS ASSOCIATED WITH THE YEAR 2000

Like others in our industry, we face certain risks associated with the Year
2000 issue. The Year 2000 issue refers generally to the data structure problems
that will prevent systems from

16
<PAGE> 17

properly recognizing dates after the year 1999. We have implemented a Year 2000
compliance program designed to ensure that our computer systems and applications
will function properly beyond 1999. In light of our compliance efforts, we do
not believe that the Year 2000 issue will adversely affect our business and
results of operations. However, we cannot assure you that our systems will be
Year 2000 compliant prior to December 31, 1999, or that the failure of any such
system will not adversely affect our business and results of operations. To the
extent the Year 2000 problem adversely affects the business and results of
operations of third parties with whom we have important relationships, such as
vendors, suppliers and financial institutions, the Year 2000 problem could also
adversely affect our business and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000".

17
<PAGE> 18

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The selected consolidated financial data set forth below were derived from
the consolidated financial statements of the Company. The selected historical
consolidated financial data of the Company as of and for each of the fiscal
years ended December 31, 1993, December 31, 1994, December 31, 1995, December
31, 1996 and December 31, 1997 are derived from the audited consolidated
financial statements of the Company. The selected consolidated financial data
set forth below as of and for each of the nine months ended September 30, 1997
and September 30, 1998 were derived from the unaudited consolidated financial
statements of the Company, which, in the opinion of management, include all
adjustments (consisting only of normally recurring adjustments) necessary for
fair presentation of the Company's consolidated results of operations and
financial condition for such periods. The operating results for the respective
nine months ended September 30, 1997 and September 30, 1998 are not necessarily
indicative of results to be expected for the full fiscal year. This information
should be read in conjunction with "Summary -- Recent Developments" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
AND
FOR THE FISCAL YEAR ENDED AND AT FISCAL YEAR END AT PERIOD END
---------------------------------------------------- ---------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, SEPT. 30, SEPT. 30,
1993(1) 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
(IN MILLIONS EXCEPT PERCENTAGES, RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Admissions............................ $ 167.3 $ 232.1 $ 253.7 $ 296.6 $ 319.2 $ 241.5 $ 248.8
Concessions and other................. 74.5 95.5 111.0 130.1 139.4 105.8 113.8
-------- -------- -------- -------- -------- -------- --------
Total Revenues.................... 241.8 327.6 364.7 426.7 458.6 347.3 362.6
Costs and expenses:
Film exhibition costs................. 90.9 123.6 135.6 157.0 169.7 126.2 132.1
Concession costs...................... 9.4 12.2 15.0 17.3 18.3 13.8 15.1
Other theatre operating costs......... 86.5 119.0 143.7 164.1 175.1 132.4 141.8
General and administrative............ 4.7 5.1 5.5 6.0 6.4 4.7 5.3
Depreciation and amortization......... 16.2 22.5 27.2 28.4 33.4 24.2 27.9
Impairment of long-lived assets....... -- -- -- 45.4 -- -- --
-------- -------- -------- -------- -------- -------- --------
207.7 282.4 327.0 418.2 402.9 301.3 322.2
-------- -------- -------- -------- -------- -------- --------
Operating Income.................... 34.1 45.2 37.7 8.5 55.7 46.0 40.4
Interest expense........................ 14.3 17.0 16.0 20.3 23.1 16.8 19.6
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes....... 19.8 28.2 21.7 (11.8) 32.6 29.2 20.8
Income tax expense (benefit)............ 7.9 11.2 8.7 (4.5) 12.4 11.1 7.9
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....................... $ 11.9 $ 17.0 $ 13.0 $ (7.3) $ 20.2 $ 18.1 $ 12.9
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 10,649 $ 17,872 $ 11,345 $ 5,569 $ 16,545 $ 613 $ 5,843
Property and equipment, net............. 249,550 293,971 371,851 387,915 497,056 480,531 578,275
Total assets............................ 327,024 377,598 478,012 489,383 619,997 592,735 687,563
Total long-term obligations, including
current maturities.................... 188,843 153,325 230,510 268,279 360,739 346,736 413,529
Total shareholders' equity.............. 93,856 171,956 185,094 177,930 202,872 200,820 216,204
</TABLE>

18
<PAGE> 19

- ---------------

(1) Excludes the cumulative effect of $0.3 million from the adoption of FASB
Statement No. 109.

(2) Theatre locations and screens are stated as of the end of the respective
periods.

19
<PAGE> 20

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

OVERVIEW

The following discussion of the Company's financial condition and operating
results should be read in conjunction with "Selected Historical Consolidated
Financial and Other Data" and the Company's Consolidated Financial Statements
and Notes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1997 (the "1997 Form 10-K").

The Company's revenues are generated primarily from admissions and
concessions sales, which constituted approximately 69.6% and 27.6% of 1997
revenues, respectively. Additional revenues are generated by electronic video
games located adjacent to or in the lobbies of certain of the Company's theatres
and by on-screen advertisements shown prior to feature films and revenues from
the Company's family entertainment centers. Admissions revenues are directly
related to attendance, which is primarily affected by the quality and commercial
appeal of the films released by the distributors and, to a lesser extent, by the
comfort and quality of the theatre, ticket price, and competition in the markets
the Company serves. Concessions revenues are largely dependent on attendance
levels and the effectiveness of theatre staffing, training and the type and
quality of products offered.

The Company's principal operating costs are film rentals, cost of
concessions and theatre operating expenses such as lease rentals, payroll,
utilities, advertising costs and insurance. Film rental costs are related to the
popularity of a film and the length of time since the film's release and
generally decline as a percentage of admissions revenues the longer a film has
been released.

Admissions and concessions revenues are subject to fluctuations, often
seasonal, which affect all motion picture exhibitors. These fluctuations are the
result of the distribution practice of the major motion picture studios, which
have historically concentrated the release of the most marketable films during
the summer and year-end holiday seasons. Additionally, the unexpected emergence
of a hit film can have a significant impact on the results of a particular
quarter.

Since being introduced in movie theatres in 1995, stadium seating has
become an increasingly popular feature for new theatres. The opening of large
multiplexes and theatres with stadium seating by the Company and certain of its
competitors has tended to, and is projected to continue to, draw audiences away
from certain older theatre locations that the Company owns. The Company believes
that exhibitors having stadium seating in their theatres have a competitive
advantage over exhibitors having theatres without this feature within a given
market. The Company's development plans include stadium seating auditoriums for
multiplexes in the Company's mid-sized markets, and the retrofitting of certain
existing theatres with stadium seating and other improvements. See "Risk Factors
- -- Competition" and "-- Liquidity and Capital Resources".

RECENT DEVELOPMENTS

In order to increase its existing theatre count and to upgrade its existing
theatre base, the Company intends to open 22 new theatres with an aggregate of
334 screens and an average screen count of 15.2 screens per theatre, add 48
stadium seating auditoriums to existing theatres and retrofit approximately 83
existing auditoriums with stadium seating and digital stereo surround sound in
1999. The Company has budgeted approximately $129.0 million, net of lease
financings, to implement this construction, expansion and renovation program in
1999 and expects that capital expenditures for theatre construction, expansion
and renovation will be approximately $75.0 million, net of lease financings,
in 2000.

20
<PAGE> 21
In connection with this construction, expansion and renovation program, the
Company issued preferred stock in the Preferred Stock Placement and expects to
incur the Term Loan B and to repay borrowings under its Amended and Restated
Revolving Credit Facility in order to increase future borrowing capacity. In
connection with the planned redemption of three series of the Company's senior
notes held by certain institutional investors (the "Senior Notes") and the
amendment to the Amended and Restated Revolving Credit Facility, the Company
expects to recognize an extraordinary charge of approximately $10.9 million
($6.6 million after income taxes) in the first quarter of 1999 to reflect the
repayment premiums associated with the retirement of the Senior Notes and the
write-off of deferred financing costs associated with debt to be retired.

In addition, the Company has identified a group of theatres in certain
markets that do not fit its operating and growth strategies. In the fourth
quarter of 1998, the Company's Board of Directors approved a restructuring plan
involving the closure or disposition of these theatres. Under the restructuring
plan, such theatres are scheduled to be closed during 1999. Related to these
theatre closures, the Company will recognize a restructuring charge of
approximately $34.9 million in the fourth quarter of 1998 which will be reserved
for future cash expenditures. These theatres represented approximately 4.2% of
the Company's total screens as of December 31, 1998, and generated approximately
$3.4 million of negative EBITDA for the twelve months ended September 30, 1998.

The restructuring and impairment charges to be recognized in the fourth
quarter of 1998 aggregated approximately $71.9 million to $73.9 million.

For the full year ended December 31, 1998, the Company expects revenues to
be approximately $481.6 million, up from $458.6 million in 1997. Full-year
EBITDA, net of the restructuring and impairment charges, is expected to be
approximately $88.5 million to $89.8 million in 1998, compared with EBITDA of
$89.1 million in 1997. Full-year EBITDA, adjusted for the elimination of the
negative EBITDA associated with the theatres identified to be closed in the
restructuring plan, excluding the restructuring and impairment charges, is
expected to be approximately $91.9 million to $93.2 million in 1998.

The Company is in the process of amending and restating its revolving
credit facility. In addition, the Company will enter into the $75.0 million Term
Loan B, the proceeds of which will be applied to repay revolving credit
borrowings. The Company expects the Amended and Restated Revolving Credit
Facility to have maximum available borrowings reduced from $275.0 million to
$200.0 million following the application of the proceeds of the Term Loan B, an
increased interest rate on borrowings thereunder and revised and additional
financial covenants. The Company's ability to borrow under the Amended and
Restated Revolving Credit Facility will be unaffected in the period prior to the
funding of the Term Loan B. The Term Loan B is not expected to be drawn until
February 1999. There can be no assurance that the documents

21
<PAGE> 22
related to the Term Loan B and the Amended and Restated Revolving Credit
Facility will contain or be amended to reflect the terms described above. In
connection with the amendment and restatement of the revolving credit facility,
the Company is also amending and restating its Master Lease with Movieplex
Realty Leasing, L.L.C. to provide for security interests and guarantees and to
amend certain covenants contained therein.

RESULTS OF OPERATIONS

The following table sets forth for the fiscal periods indicated the
percentage of total revenues represented by certain items reflected in the
Company's consolidated statements of income:

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE FISCAL YEAR ENDED ENDED
-------------------------------------------------------- ----------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, SEPT. 30, SEPT. 30,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Admissions..................... 69.2% 70.9% 69.6% 69.5% 69.6% 69.5% 68.6%
Concessions and other.......... 30.8 29.1 30.4 30.5 30.4 30.5 31.4
----- ----- ----- ----- ----- ----- -----
Total Revenues.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Film exhibition costs(1)....... 37.6 37.7 37.2 36.8 37.0 36.3 36.4
Concession costs............... 3.9 3.7 4.1 4.0 4.0 4.0 4.2
Other theatre operating
costs........................ 35.8 36.3 39.4 38.5 38.2 38.1 39.1
General and administrative..... 1.9 1.6 1.5 1.4 1.4 1.4 1.5
Depreciation and
amortization................. 6.7 6.9 7.5 6.7 7.3 7.0 7.7
Impairment of
long-lived assets............ -- -- -- 10.7 -- -- --
----- ----- ----- ----- ----- ----- -----
85.9 86.2 89.7 98.0 87.9 86.8 88.9
----- ----- ----- ----- ----- ----- -----
Operating Income........ 14.1 13.8 10.3 2.0 12.1 13.2 11.1
Interest expense................. 5.9 5.2 4.4 4.8 5.0 4.8 5.4
----- ----- ----- ----- ----- ----- -----
Income (loss) before income
taxes.......................... 8.2 8.6 5.9 (2.8) 7.1 8.4 5.7
Income tax expense (benefit)..... 3.3 3.4 2.4 (1.0) 2.7 3.2 2.2
----- ----- ----- ----- ----- ----- -----
Net income (loss)................ 4.9% 5.2% 3.5% (1.7)% 4.4% 5.2% 3.5%
===== ===== ===== ===== ===== ===== =====
Other Information:
Film exhibition costs as a % of
admissions revenue(1)........ 54.3% 53.2% 53.5% 52.9% 53.1% 52.2% 53.1%
Concession costs as a % of
concessions.................. 14.3% 14.0% 14.6% 14.4% 14.5% 14.4% 14.5%
</TABLE>

- ---------------

(1) Film exhibition costs include advertising expenses net of co-op
reimbursements.

Comparison of Nine Months Ended September 30, 1998 and September 30, 1997

Total revenues for the nine months ended September 30, 1998 increased 4.4%
to $362.6 million from $347.3 million for the nine months ended September 30,
1997. This increase consists of a $7.3 million increase in admissions and a $8.0
million increase in concessions and other. These increases are due primarily to
the additional revenues generated by the increase in the number of screens in
operation, increases in admission prices, and an increase in the average
concessions sale per patron, partially offset by the loss in revenues at
theatres closed during the period for renovation. Attendance per average screen
was 21,412 compared to 21,780 for the nine months ended September 30, 1997. For
the nine months ended September 30, 1998, the Company's average admission price
was $4.25, its average concessions sale per patron was $1.78 and revenue per
average screen was $132,612. For the nine months ended September 30, 1997, the
Company's average admission price was $4.23, its average concessions sale per
patron was $1.67 and revenue per average screen was $132,444.

Cost of theatre operations (film exhibition costs, concession costs and
other theatre operating costs) for the nine months ended September 30, 1998
increased 6.1% from $272.3 million for the nine months ended September 30, 1997
to $289.0 million, due to the increased number of screens in operation, plus a
higher level of film exhibition costs paid due to films that

22
<PAGE> 23

did not play for an extended period of time during the period and a slight
increase in concession costs. As a percentage of total revenues, cost of
operations increased from 78.4% of total revenues to 79.7% of total revenues in
the nine months ended September 30, 1998 for the reasons enumerated above.

General and administrative costs for the nine months ended September 30,
1998 increased to 1.5% of total revenues from 1.4% of total revenues for the
nine months ended September 30, 1997.

Depreciation and amortization for the nine months ended September 30, 1998
increased from $24.2 million to $27.8 million due to additional depreciation and
amortization from the Company's acquisitions and expansions in 1997 and 1998.

Interest expense for the nine months ended September 30, 1998 increased to
$19.6 million from $16.8 million for the nine months ended September 30, 1997
due to the increase in the average amount of outstanding debt.

Comparison of Years ended December 31, 1997 and December 31, 1996

Total revenues for the year ended December 31, 1997 increased 7.5% to
$458.6 million from $426.7 million. This increase consists of a $22.6 million
increase in admissions and a $9.3 million increase in concessions and other.
Overall attendance increased 1.5% due to the additional screens in operation
acquired in 1997 and 1996 (see Note C of Notes to Consolidated Financial
Statements in the 1997 Form 10-K). Attendance per average screen declined 5.0%
during the year ended December 31, 1997 compared to the year ended December 31,
1996. Revenue per average screen was $173,449 for 1997 compared to $172,345 for
1996. Average admission prices increased 6.0% to $4.24 from $4.00 and the
average concessions sales per person increased 3.7% to $1.68 from $1.62. Also
included in concessions and other were a higher level of gains on sales of
assets and additional income from the Company's new family entertainment center,
The Hollywood Connection.

Cost of theatre operations increased 7.3% to $363.1 million from $338.4
million due to the increased number of screens in operation and the increase in
attendance. As a percentage of revenues, cost of theatre operations decreased
from 79.3% to 79.2%.

General and administrative costs increased 6.6% to $6.4 million from $6.0
million reflecting additional general and administrative costs incurred in
connection with the additional screens added in 1996 and 1997. As a percentage
of total revenues, general and administrative costs remained the same at 1.4%.

Depreciation and amortization increased 17.7% to $33.4 million from $28.4
million as a result of the increased screens in operation. This amount has also
been reduced from the impact of adopting Statement No. 121 (see Note B of Notes
to Consolidated Financial Statements in the 1997 Form 10-K).

Interest expense increased 14.1% to $23.1 million from $20.3 million for
the year ended December 31, 1996. This increase reflects a higher average amount
of debt outstanding for the year ended December 31, 1997. The increase in the
Company's debt during 1997 resulted from capital expenditures incurred in
connection with theatre acquisitions and expansions. The Company's average cost
of debt in 1997 declined to 7.0% from 7.9% in 1996.

Comparison of Years Ended December 31, 1996 and December 31, 1995

Total revenues for the year ended December 31, 1996 increased 17.0% to
$426.7 million from $364.7 million for the year ended December 31, 1995. This
increase consists of a $42.9 million increase in admissions and a $19.0 million
increase in concessions and other. Overall attendance increased 15.1% due to the
additional screens in operation which were acquired in 1995 and 1996 (See Note C
of Notes to Consolidated Financial Statements in the 1997 Form 10-K). Attendance
per average screen was essentially the same for 1996 as 1995. Average

23
<PAGE> 24

admission prices increased 2.3% to $4.00 from $3.91 and average concessions
sales per person increased 2.5% from $1.58 to $1.62.

Cost of theatre operations increased 15.0% to $338.4 million from $ 294.2
million due to the increased number of screens in operation and the increase in
attendance. As a percentage of revenues, cost of theatre operations decreased
from 80.7% of total revenues to 79.3%. This percentage decrease is due primarily
to a lower level of salaries at the Company.

General and administrative costs increased 8.7% from $5.5 million in 1995
to $6.0 million in 1996 reflecting additional general and administrative costs
incurred to properly integrate the new screens acquired in 1995 and 1996. As a
percentage of total revenues, general and administrative costs decreased from
1.5% to 1.4%.

Depreciation and amortization increased 4.4% to $28.4 million as a result
of the increased screens in operation which were acquired in 1995 and 1996 (see
Note C of Notes to Consolidated Financial Statements in the 1997 Form 10-K)
combined with the additional screens added through internal construction. This
amount has also been reduced from the impact of adopting Statement No. 121 (see
Note B of Notes to Consolidated Financial Statements in the 1997 Form 10-K). As
a percentage of total revenues, depreciation and amortization decreased from
7.5% of total revenues to 6.7% of total revenues.

Interest expense increased 26.6% to $20.3 million from $16.0 million in
1995. This increase reflects a higher average amount of debt outstanding for
1996.

The Company adopted FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", as of January
1, 1996 (see Note B of Notes to Consolidated Financial Statements in the 1997
Form 10-K). The initial non-cash charge upon the Company's adoption of Statement
No. 121 was approximately $45.4 million ($28.2 million after income taxes, or
$2.52 per diluted share) to reduce the carrying value of 138 theatres,
constituting approximately 26% of the Company's theatres. This charge resulted
from the evaluation of asset impairment on an individual theatre level rather
than on a market level, which had been the Company's previous accounting policy
for evaluating and measuring impairment. As noted above, the write-down of
assets under FASB Statement No. 121 resulted in a reduction in depreciation and
amortization expense in the year ended December 31, 1996.

The Company grouped its theatres into corporations in 1995 to achieve
business and tax efficiencies. As a result of these changes, management costs
are more appropriately allocated among the operations and the Company's
effective tax rate declined from approximately 40% to approximately 38%.

LIQUIDITY AND CAPITAL RESOURCES

The Company's revenues are collected in cash, principally through
admissions and theatre concessions. Because its revenues are received in cash
prior to the payment of related expenses, the Company has an operating "float"
which partially finances its operations.

On October 17, 1997, the Company entered into its current revolving credit
facility and the Company is in the process of amending and restating such
revolving credit facility. In addition, the Company will enter into the $75.0
million Term Loan B, the proceeds of which will be applied to repay revolving
credit borrowings. In addition, the Company expects the Amended and Restated
Revolving Credit Facility to have maximum available borrowings reduced from
$275.0 million to $200.0 million following the application of the proceeds of
the Term Loan B to repay amounts outstanding thereunder, an increased interest
rate on borrowings thereunder and revised and additional financial covenants.
The Company's ability to borrow under the Amended and Restated Revolving Credit
Facility will be unaffected in the period prior to the funding of the Term Loan
B. The Term Loan B is not expected to be drawn until February 1999. There can be
no assurance that the documents related to the Term Loan B and the Amended and
Restated

24
<PAGE> 25

Revolving Credit Facility will contain or be amended to reflect the terms
described above. See "-- Recent Developments".

On August 3, 1998, Wachovia Bank of Georgia, N.A. provided the Company a
$50.0 million Loan Facility, which was subsequently amended to reduce the
maximum borrowing amount to $25.0 million. As amended, the Loan Facility matures
on January 31, 1999 and will be terminated on such date. As of September 30,
1998, $16.5 million was outstanding under this facility.

The Company also obtains liquidity through its theatre leasing
arrangements. The cost of constructing a new theatre is reduced substantially if
the Company leases the real estate and improvements rather than purchasing them.
As of December 31, 1998, the Company had 49 ground leases and 322 ground and
improvement leases, excluding theatres scheduled to be closed in 1999. Minimum
annual rent payments on these theatres totaled $53.1 million in 1998 and are
expected to increase in 1999. The Company is a party to a master lease facility
(the "Master Lease") with Movieplex Realty Leasing, L.L.C., which provides up to
$75.0 million for financing the development of multiplex theatres, of which
approximately $52.8 million was available as of December 31, 1998. Theatres
leased pursuant to the Master Lease have lease terms of 16 years. The Company is
amending and restating the Master Lease to provide for security interests and
guarantees and to amend certain covenants contained therein.

The Amended and Restated Revolving Credit Facility, the Loan Facility and
the Master Lease contain certain restrictive provisions which, among other
things, limit additional indebtedness of the Company, limit the payment of
dividends and other defined restricted payments, require that certain debt to
capitalization ratios be maintained and require minimum levels of cash flows.
The Term Loan B will contain similar provisions. The Company entered into
amendments effective September 29, 1998 or September 30, 1998, as the case may
be, with respect to each of its then existing financing arrangements in order to
gain relief from certain of the financial covenants contained therein. Following
these amendments, the Company was in compliance with all of the terms of its
financing arrangements.

The Company's capital expenditures arise principally in connection with the
development of new theatres, renovation and expansion of existing theatres and
theatre acquisitions. During the first nine months of 1998, such capital
expenditures totaled $107.8 million, and are expected to be $146.7 million for
the year, in each case excluding lease financings. The Company estimates that
capital expenditures for 1999 will be approximately $129.0 million, net of any
lease financings. The Company expects to build 22 new theatres having an
aggregate of 334 screens, add 48 stadium seating auditoriums to existing
theatres, and retrofit approximately 83 existing auditoriums in 1999. The
Company estimates that the average cost of a new 16-screen multiplex will be
approximately $9.0 million ($4.0 million if the land and improvements are leased
rather than owned). The Company intends to enter into leasing arrangements
whenever possible in order to minimize capital requirements. The Company expects
that capital expenditures for theatre construction, expansion and renovation
will be approximately $75.0 million, net of lease financings, for 2000.

The Company believes that its currently anticipated capital needs for
theatre construction, expansion and renovation and possible acquisitions for at
least the next two years will be satisfied by the cash and cash equivalents and
short-term investments on hand, borrowings under the Amended and Restated
Revolving Credit Facility, additional sale of debt and/or equity securities,
additional bank financings and other forms of long-term debt and internally
generated cash flow. Additionally, the Company may supplement its current
sources of capital through sales and leasebacks of theatre properties where
market conditions for such transactions are favorable. On December 31, 1998,
after giving effect to a subordinated debt transaction, borrowings under the
Term Loan B, the use of proceeds of each of the foregoing and the Amended and
Restated Revolving Credit Facility, the Company would have had approximately
$18.8 million in cash and short-term investments on hand and approximately
$147.7 million would have been available under the Amended and Restated
Revolving Credit Facility.

25
<PAGE> 26

Cash from operating activities was $37.4 million for the nine months ended
September 30, 1998, compared to $36.7 million for the nine months ended
September 30, 1997. Net cash used in investing activities was $103.4 million for
the nine months ended September 30, 1998 as compared to $117.9 million for the
nine months ended September 30, 1997. This decrease in cash used in investing
activities was primarily due to the decreased level of capital expenditures. For
the nine months ended September 30, 1998 and 1997, cash provided by financing
activities was $55.3 million and $76.3 million, respectively. The decrease in
cash provided by financing activities was due to a decreased level of net
borrowings under the Company's then existing revolving credit line combined with
the repayment of a subordinated note that matured in June, 1998.

Our ability to make scheduled payments of principal of, or to pay the
interest on, or to refinance our indebtedness, or to fund planned capital
expenditures for theatre construction, expansion, renovation or acquisition will
depend on our future performance. Our future performance is, to a certain
extent, subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. Based upon our current
level of operations and anticipated increases in revenues and cash flow as a
result of our theatre construction, expansion and renovation program, and the
scheduled closing of certain underperforming theatres, we believe that cash flow
from operations and available cash, together with available borrowings under the
Amended and Restated Revolving Credit Facility, lease financing arrangements
and/or sales of additional debt or equity securities, will be adequate to meet
our future liquidity needs for at least the next two years.

We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated revenue growth and
operating improvements will be realized or that future capital will be available
to us from the sale of debt or equity securities, additional bank financings,
other long-term debt or lease financings in an amount sufficient to enable us to
pay our indebtedness, or to fund our other liquidity needs. We may need to
refinance all or a portion of our indebtedness on or before maturity. We cannot
assure you 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. See "Risk Factors".

SEASONALITY AND INFLATION

The major film distributors generally release those films which they
anticipate to be the most successful during the summer and holiday seasons.
Consequently, the Company has historically generated higher revenues during such
periods.

The Company adjusts its prices periodically and will continue to do so as
competitive conditions permit. In general, management believes that inflation
has not had a significant impact on the operations of the Company in any of the
periods discussed above.

YEAR 2000

The Year 2000 issue refers generally to the data structure problem that may
prevent systems from properly recognizing dates after the year 1999. The Year
2000 issue affects information technology ("IT") systems, such as computer
programs and various types of electronic equipment that process date information
by using only two digits rather than four digits to define the applicable year,
and thus may recognize a date using "00" as the year 1900 rather than the year
2000. The issue also affects some non-IT systems, such as devices which rely on
a microcontroller to process date information. The Year 2000 issue could result
in system failures or miscalculations, causing disruptions of a company's
operations. Moreover, even if a company's systems are Year 2000 compliant, a
problem may exist to the extent that the data that such systems process is not.

26
<PAGE> 27

The Company's State of Readiness

The Company has implemented a Year 2000 compliance program designed to
ensure that the Company's computer systems and applications will function
properly beyond 1999. The Company's Year 2000 compliance program has three
phases: (1) identification, (2) remediation (including modification, upgrading
and replacement) and (3) testing. The Company's Year 2000 compliance program is
an ongoing process involving continual evaluation and may be subject to a change
in response to new developments.

The Company has three material internal IT systems: (1) its accounting
system, (2) its proprietary I.Q. Zero point-of-sale system and (3) a film system
through which the Company manages the booking of the films shown in its
theatres. The Company has completed the identification, remediation and testing
phases with respect to its accounting system. Although the Company has completed
the identification and remediation phases with respect to its I.Q. Zero and film
systems, the testing phase will not be completed until first quarter 1999. The
Company has conducted a survey of its theatres and has not identified any non-IT
systems the failure of which to be Year 2000 compliant would have a material
adverse effect on the Company's business, operating results or financial
condition. The Company has surveyed its material vendors and suppliers
(including concession, technical and film suppliers) and the financial
institutions with whom it has material relationships. Based on such survey, the
Company is not aware of any material third-party Year 2000 risks.

Costs to Address the Company's Year 2000 Issues

The Company estimates that the cost of remediation of problems related to
Year 2000 issues will be less than $50,000. This cost includes the cost of
upgrading its film system.

The Company's Contingency Plan

If the Company's internal IT systems are not Year 2000 compliant on a
timely basis, the Company plans to operate such systems manually until any Year
2000 issues are remediated. Such remediation may result in loss of data and
information and increased costs of operations. In addition, if the I.Q. Zero
system failed to operate properly due to Year 2000 problems, local management
staff may not be able to focus their attention on their customers and theatre
needs. The Company expects to maintain close contact with the third parties with
whom the Company has material relationships, such as vendors, suppliers and
financial institutions, during the period immediately before and after January
1, 1999 to ensure that such third parties' Year 2000 issues do not affect the
Company's operations.

The Risks of the Company's Year 2000 Issues

In light of its compliance efforts, the Company does not believe that the
Year 2000 issue will materially adversely affect operations or results of
operations, and does not expect implementation to have a material impact on the
Company's financial statements. However, there can be no assurance that the
Company's systems will be Year 2000 compliant prior to December 31, 1999, or
that the failure of any such system will not have a material adverse effect on
the Company's business, operating results and financial condition. To the extent
the Year 2000 problem has a material adverse effect on the business, operations
or financial condition of third parties with whom the Company has material
relationships, such as vendors, suppliers and financial institutions, the Year
2000 problem could also have a material adverse effect on the Company's
business, results of operations and financial condition.

27
<PAGE> 28

ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

<TABLE>
<CAPTION>
ITEM
NUMBER DESCRIPTION
- ------ -----------
<C> <C> <S>
99 -- Press release dated January 11, 1999 (previously filed as Exhibit
99 to the Form 8-K dated January 11, 1999).

</TABLE>
<PAGE> 29

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

CARMIKE CINEMAS, INC.
Registrant

/s/ JOHN O.BARWICK, III
--------------------------------------
John O. Barwick, III
Senior Vice President-Finance

DATED: FEBRUARY 8, 1999
<PAGE> 30

EXHIBIT INDEX

<TABLE>
<CAPTION>
ITEM
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
99 Press release dated January 11, 1999 (previously filed).
</TABLE>