AMC Entertainment Inc.

founded: 1920 as durwood theatres variant name: amc theatres

Contact Information:

headquarters: 106 west 14th street
kansas city, mo 64121-9615 phone: (816)221-4000 fax: (816)480-4625 toll free: (877)amc-4450 email: [email protected] url: http://www.amctheatres.com

OVERVIEW

AMC Entertainment Inc., the owner and developer of movie theatres and real estate, is one of the major forces and leaders in the theatrical exhibition industry. The company is also involved in selling and producing on-screen advertising for theatres. The organization made its greatest impact when it introduced the concept of the "megaplex" theatre in 1995. A megaplex is defined as a facility with 14 or more screens. Some AMC theatres have up to 24 screens.

At the end of fiscal year 2001, AMC operated 177 theatres with 2,836 screens in 21 states and the District of Columbia, Canada, France, Hong Kong, Japan, Portugal, Spain, and Sweden.

COMPANY FINANCES

For the fiscal year 2001, AMC had revenues of $1.3 billion. AMC's primary revenues are generated from box office admissions and concessions sales. For the fiscal year 2001, admissions accounted for 67 percent of its revenues, while concession sales accounted for 28 percent. The rest of AMC's revenues are generated by advertising, video games located in theatre lobbies, and the rental of theatre auditoriums. At the end of 2001, AMC had $596.5 million of debt, $57.7 million in capital and financing lease obligations, and $153.7 million in cash and equivalents.

ANALYSTS' OPINIONS

In the last part of the twentieth century and the early part of the twenty-first century, movie theatre companies experienced considerable financial pressure due to over-building and heavy debts. The biggest problem was too many screens, which created a situation where screen growth outpaced attendance. Since 1995, screen growth grew at an annual rate of 7.8 percent, while attendance grew only 3.8 percent. The situation created too much competition. Screen reduction appeared to be the only answer. AMC competitors like Loews Cineplex experienced significant financial trouble. The situation caused financial analysts to predict that AMC Entertainment could benefit from the financial troubles of other companies. However, AMC Entertainment was not unmarked by the situation. In 2001, it announced that it would be closing 300 of its older theatres due to increasing competition from other megaplexes.

HISTORY

AMC's beginnings go back to 1920 and a man named Edward Durwood. At the time, Durwood and his brothers were operating tent shows in the Midwest. Seeking a more settled lifestyle, Durwood acquired the lease to a motion-picture theatre in Kansas City, Missouri. Edward's son, Stanley H. Durwood, eventually came into the business and constantly brought new ideas into the company. He would help AMC Entertainment become the third-largest movie theatre company in the country.

A Harvard graduate, Stanley Durwood joined the company when it comprised a small chain of moviehouses and drive-in theatres after World War II. When he became president of Durwood Theatres in 1960 (as AMC was called back then), he started developing the concept of the multiple-screen theatre, which would become AMC's trademark. In 1963, using pre-existing theatre space, he developed the first-ever multiplex, which was a two-screen theatre with 700 seats, located in a Kansas City shopping center. In 1966, he introduced the first-ever four-plex and, three years later, he introduced the six-plex. At the time, the company had expanded beyond Kansas City and into Arizona, California, Nebraska, and Texas. Now owning 68 screens, the company was incorporated as American Multi-Cinema, Inc.

FAST FACTS: About AMC Entertainment Inc.

Ownership: A charitable trust created after the death of former CEO Stanley Durwood owns 17 percent of AMC Entertainment but controls 66 percent of the voting power.

Ticker Symbol: AEN

Officers: Peter Brown, Chmn., Pres., and CEO, 62, 2000 base salary $970,000; Richard Fay, Pres., AMC Film Marketing, 51, 2000 base salary $430,000; Philip Singleton, EVP, Pres., and COO, 2000 base salary $651,000

Employees: 14,320

Principal Subsidiary Companies: AMC Entertainment Inc. (AMCE) is a holding company with principal subsidiaries that include American Multi-Cinema, Inc. (AMC); AMC Theatres of Canada (a division of AMC Entertainment International, Inc.); AMC Entertainment International, Inc.; National Cinema Network, Inc.; and AMC Realty, Inc. The company's North American theatrical exhibition business is conducted through AMC and AMC Theatres of Canada. The company develops theatres outside North America through AMC Entertainment International, Inc. and its subsidiaries. The company engages in advertising services through National Cinema Network, Inc. (NCN).

Chief Competitors: AMC's main competitors are other major theatre chains including Regal Cinemas, Inc.; Loews Cineplex Entertainment Corp.; Cinemark USA, Inc.; United Artists Theatre Company; Carmike Cinemas; National Amusements, Inc.; Edwards Theatres Circuit, Inc.; GC Companies, Inc.; and Hoyts Cinemas Corporation. However, significant competition comes from other forms of so-called "out of home" entertainment including concerts, amusement parks, and sports events. In recent years, the industry has been facing increasing competition from the home entertainment market, including cable and satellite television, pay-per-view, and home video technology (videotape and DVD).

AMC established another milestone in 1987, when it opened the Century City multiplex in west Los Angeles. The site included the features that would become AMC signatures: large screens, free parking, and large, comfortable seats equipped with cup holders in the arm-rests. Similar multiplex centers soon followed in its wake, in places like the Universal Citywalk in Pasadena, California, and the Third Street Promenade in Santa Monica, California.

In May 1995, AMC opened its first megaplex. Located in Dallas, Texas, it was called the AMC Grand 24 and, as its name implied, it housed 24 screens. Megaplexes like the Grand were characterized not just for their number of screens—they came to be known for the comfort they provided, as they were a vast improvement over multiplex theatres, which were small, cramped, and often dirty. Also, multiplexes tended to be low-key as far as design was concerned. AMC adorned its megaplexes with a colorful array of neon lights and elaborate decorative touches. Most importantly, the viewing experience was vastly improved, as sound quality and picture quality were significantly upgraded via new technology. Not only were the floor designs larger, but so were the screens; reportedly, each screen cost as much as $1 million.

Customer comfort was also a major concern when AMC enlarged the scope of the movie theatre. The small, cramped seats of the multiplex were replaced with large chairs that featured retractable armrests and cupholders. These chairs were arranged in a tiered "stadium seating" structure that ensured that no one's view of the screen would be obstructed. This tiered seating arrangement was once common in the large "movie palaces" of the 1920s and 1930s.

In 1996, AMC opened the largest megaplex in the United States at the 200-store Ontario Mills Mall in Ontario, California. It boasted 30 screens and 5,700 seats. This theatre helped advanced the concept of the location-based entertainment complex, or the LBE, as it is known in the industry. The concept of LBE is designed to turn the megaplex into the attractive center of what is essentially a mall-sized entertainment theme park. In the Ontario mall, the AMC megaplex is surrounded by a huge acarde, an IMAX theatre, Dreamworks, Sega, and indoor attractions like a zoo and rides.

It didn't take long for AMC's advancements to translate into financial success. By 1997, eight of North America's 20 top-grossing theatres bore the AMC trademark. Today, more than 60 percent of AMC Theatres are megaplexes that house at least 14 different movie screens.

STRATEGY

AMC's corporate strategy involves achieving continued success by focusing on business fundamentals, which includes maximizing revenues and managing overhead costs and capital expenditures. This aim is reflected in its strategic plan, which includes three stated elements: maximizing the performance of its existing operations by focusing on the fundamentals of its business; growing and improving its theatre portfolio through strategic acquisitions, selective new builds, and the continued disposition of older, underperforming theatres; and enhancing and extending its business and brands.

The most fundamental element of AMC's strategy is customer comfort and pleasure. From its very beginning, AMC has made designing the most pleasurable movie-going experience the main focus of its strategy. This simple strategy would seem to be a given for any organization intent on succeeding in the industry. However, inspired by the vision of its founder, Edward Dur-wood, AMC implements specific elements and innovations to achieve its aims. The company is always on the lookout for new opportunities that will enable it to enhance the movie-going experience.

INFLUENCES

AMC has been at the forefront of improving the public's night at the movies. Other companies have followed its lead, as AMC has initiated nearly every industry improvement, including theatre design, cupholder armrests, computerized box offices, automated projection booths, state-of-the-art presentations, and stadium-style seating. AMC also created the MovieWatcher club, the first frequent moviegoer reward program, which now has more than 2 million members. Essentially, AMC helped revolutionize the movie-going experience and the theatrical exhibition industry. In doing so, it became one of the most successful companies in the history of the industry.

Perhaps AMC's most influential innovation came in 1995, when it introduced the industry to the megaplex concept. With the construction and design of The Grand 24 in Dallas, it set an industry standard. Other theatres are upgrading their facilities to include stadium-style seating, and they endeavor to provide the top-of-the-line amenities that have become one of the hallmarks of AMC's style.

CURRENT TRENDS

The driving force behind all of the company's innovations has been improving the movie-going experience for the public. AMC desired to change the way the world watches movies, and it succeeded. It continues to seek innovations. In 2000, AMC announced that it would enter into a joint venture to create MovieTickets.com, an Internet ticket seller and source of movie information. The venture includes CBS, Famous Players, Hollywood.com, Marcus Theatres, and National Amusements.

Also, AMC plans to build an entertainment district in downtown Kansas City, Missouri, which will transform a decaying 12-block area into one of the Midwest's most exciting attractions. The $454 million project, to be known as the Power & Light District, will include a 30-screen AMC megaplex, restaurants, live concert and theatre venues, retail shops, and new office buildings and hotels.

Other stated future plans include enhancing and extending its brands and business. Examples of new products and marketing strategies include installation of digital projection technology and streamlining the delivery of in-theatre advertising.

PRODUCTS

Essentially, AMC's primary product is a movie-going experience that is enjoyable and comfortable. AMC says the key characteristics that differentiate them from the competition include its "modern theatre circuit," in which it seeks to continually upgrade the quality of its theatre circuit by adding new screens through new theatres and the acquisition and expansion of older theatres. From April 1995 through March 2001, it opened 90 new theatres with 1,902 screens and added 86 screens to existing theatres, acquired 4 theatres with 29 screens and closed or disposed of 146 theatres with 879 screens.

Another key characteristic is its megaplex theatre format, defined as a theatre with 14 or more screens. A component of the format is the provision of amenities that enhance the moviegoing experience, including stadium seating that provides unobstructed viewing, enhanced seat design, and state-of-the art technology. It also includes increasing of film choice and film starting times to accommodate the tastes and convenience of the public. In this fashion, AMC feels it has raised the standards expected by moviegoers.

For its movies, AMC predominantly licenses first-run motion pictures from distributors. It licenses the entertainment on a film-by-film and theatre-by-theatre basis. When obtaining licenses, AMC considers several factors, including theatre location, competition, season of the year, and motion picture content.

AMC's theatres also provide appealing concession counters that provide quick service. Items include popcorn, soft drinks, candy, hot dogs, and other food products. One popular item is the "combo-meal," which offers a pre-selection of concession products. The company offers different varieties of concession item at different theatres based on preferences of geographic regions. AMC has developed the idea of strategic placement of concession stands to heighten their visibility and to reduce long lines.

CHRONOLOGY: Key Dates for AMC Entertainment Inc.

1920:

Company is founded by Edward Durwood in Kansas City, Missouri

1960:

Stanley Durwood becomes president of Durwood Theatres and starts developing the concept of the multiple-screen theatre

1963:

Durwood Theatres introduces the first multiplex theatre, in Kansas City

1966:

Durwood Theatres introduces the first four-plex theatre

1969:

Company expands into Arizona and California and incorporates as American Multi-Cinema Inc.

1987:

AMC opens the Century City multiplex in west Los Angeles

1995:

AMC opens its first megaplex, in Dallas, Texas

1996:

AMC opens the largest megaplex in the United States, at the Ontario Mills Mall in Ontario, California

2000:

AMC announces a joint venture to create MovieTickets.com

AMC also applies strategic placement when selecting theatre locations. It endeavors to place its theatres in large urban and suburban markets, and in areas that include retail stores, restaurants and other activities that complement the movie-going experience. Approximately 74 percent of its U.S. screens are located in areas that are among the 25 largest "designated market areas."

CORPORATE CITIZENSHIP

AMC provides resources and opportunities for customers, employees, and surrounding communities. On a national level, AMC helps raise money for non-profit organizations through events like special grand openings and in-theatre fund-raisers and through a children's reading program called "Read for the Stars." It also helps raise awareness and money for many local and regional non-profit organizations.

GLOBAL PRESENCE

Besides its U.S. locations, AMC has theatres in Canada, France, Hong Kong, Japan, Portugal, Spain, and Sweden. The international circuit currently includes a total of 128 screens in 7 theatres. AMC has implemented an international expansion program and plans on providing more theatres in overseas locations.

NEW YORK'S MOVIE MECCA

AMC Entertainment, the pioneer of the megaplex, helped take the concept to a new level. In 1999, AMC opened its Empire 25 in Manhattan. When the Loews Cineplex opened across the street with 13 theatres, it created the largest concentration of movie screens in New York City, with 38 screens and 8,100 seats.

EMPLOYMENT

AMC offers a professional management training program. This program combines classroom style training with hands-on training in all aspects of theatre operations. For its employees, AMC provides a comprehensive benefits package that includes health, dental, vision, life insurance, and disability coverage. It also provides flexible spending accounts, a pension plan, a 401 (k) retirement plan, incentive programs, paid vacations, educational assistance programs, and complimentary passes. Jobs within the organization include theatre manager and staff positions including concessionist, usher, cashier, and projectionist.

SOURCES OF INFORMATION

Bibliography

hoover's online. "amc entertainment," 2002. available at http://www.hoovers.com.

industry channel. "industry environment." us business reporter, 5 march 2001. available at http://www.activemedia-guide.com/entertainment_industry.htm.

mann, jennifer. "star 50 profile: amc entertainment, inc." the kansas city star, 14 may 2001. avaiable at http://www.kcstar.com.

"movietickets.com announces agreement with yahoo!," 2 october 2001. available at http://www.investor.amctheatres.com.

yahoo! market guide. "profile-amc entertainment." yahoo finance, 28 march 2002. available at http://biz.yahoo.com/p/a/aen.html.

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. amc entertainment inc.'s primary sics are:

6719 offices of other holding companies

7832 motion picture theaters, except drive-in

also investigate companies by their north american industry classification system codes, also known as naics codes. amc entertainment inc.'s primary naics codes are:

512131 motion picture theaters, except drive-in

551112 offices of other holding companies