Among the four leading movie-theater companies with public shareholders, one might avoid bankruptcy court. AMC Entertainment Inc. looks like one of the few North American exhibitors that might squeak through the current industry crisis.

Two other public companies Carmike Cinemas Inc. and GC Cos. have sought the protection of bankruptcy court since August. A third, Loews Cineplex Entertainment Corp., has said it's considering bankruptcy if it fails to reach a new accord with its bankers. Loews Cineplex is operating with a waiver of compliance that is set to expire Jan. 26.

AMC's survival is tinged with irony, as the Kansas City, Mo.-based company led the frenzied construction of megaplex theaters, which largely accounts for the current woes. Since AMC opened its first megaplex in May 1995, the company has embarked on a building program costing more than $1.3 billion, and others followed.

Now the industry is awash in debt and struggling to unload older theaters that were eclipsed by megaplexes. In mid-1999, former Credit Suisse First Boston analyst Daniel O'Neill ranked AMC as the most leveraged of the four large publicly traded exhibitors in North America. But in November, AMC management told shareholders that four competitors with publicly held debt are now more leveraged.

AMC said only Cinemark USA Inc., a closely held competitor based in Plano, Texas, has a lower ratio of debt to operating cash flow.

Raising ticket prices

AMC was the first to pull in some reins.

"We had a 'first-mover' advantage," says AMC Chairman and Chief Executive Peter C. Brown, 42, who was promoted to the top job following the death of AMC's controlling shareholder, Stanley Durwood, in July 1999.

Brown raised ticket prices and cut $20 million from AMC's overhead by consolidating three divisions into its corporate headquarters. He trimmed the capital spending budget by about $50 million for the current fiscal year and next. And AMC appears to have had greater success than most of its competitors in selling or closing its older multiplex theaters.

Since March 1996, AMC has disposed of 800 screens. In the case of 329 screens, AMC bought out the leases for a cash outlay of $32 million over the five-year period, Brown said in a telephone interview earlier this month.

In contrast, GC, owner of General Cinema Theatres, disposed of just 300 screens over the 10-year period ended December 1998, when it announced it would spend almost $40 million to get out of unwanted theater leases.

But that still wasn't enough. Citing a decline in theater attendance and persistent problems in terminating leases, GC filed a voluntary petition for bankruptcy in Delaware on Oct. 11.

Rejecting leases

In bankruptcy court, theater companies can try to reject unwanted leases. According to a Moody's research report published this month, Carmike expects to get court approval to reject leases on more than 500 screens, almost a quarter of its total.

Landlords are likely to contest some of the rejections or seek payment from Harcourt General Inc., which spun off GC to shareholders in 1993 and had guaranteed long-term leases. Harcourt said in October it would record a one-time charge of $100 million to cover lease liabilities arising from the bankruptcy.

Many industry executives and investors are relieved that the shakeout has begun. By AMC's estimate, the number of screens in the U.S. shrank by 500 in the first nine months of last year, to about 39,000. Brown said he is hopeful that that number will decline to 32,000 next year, returning the industry to pre-1997 levels.

But some aspects of the movie exhibition business may never return to yesteryear. Theater operators are paying a much higher share of their box-office revenue to film distributors than they did in the late 1980s. AMC paid about 48 percent in film rental, on average, from 1984 to 1989. After the megaplex boom began in 1995, film rentals and advertising costs for AMC increased each year, reaching 55 percent of box-office revenue in the year ended April 1.

Why? Hollywood has been able to hold theater operators to old formulas for film rental, which favor the studios when a film's theater run is swift. Megaplex operators, eager to fill their 14-plus screens with the hottest movies, now routinely show the same feature on multiple screens to capture the biggest audiences on opening weekends. As a result, movies fade quickly from first-run theaters.

But in the unpredictable movie business, theater operators are less worried about the split than the box-office revenue. A few weeks of lackluster business can play havoc with companies skating perilously close to non-compliance with debt covenants.

Call AMC what you will: "a leader, a survivor or a consolidator," says Brown. "We think we're very well positioned."

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