Carmike Cinemas, Inc.



1301 First Avenue
Columbus, Georgia 31901-2109
U.S.A.

Telephone: (706) 576-3400
Fax: (706) 576-2812
Web site: http://www.carmike.com

Public Company
Incorporated:
1982
Employees: 7,821
Sales: $494.5 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: CKEC
NAIC: 512131 Motion Picture Theaters (except Drive-Ins)

Carmike Cinemas, Inc., is one of the largest movie theater chains by number of screens and theaters operated in the United States. The company operates 2,450 motion picture screens in 310 theaters in 37 states. During 2004, more than 63 million customers watched a movie on a Carmike screen. The company's theaters are located mainly in smaller cities, where they are frequently the only movie venues in town. In fact, more than 80 percent of its theaters are found in cities with populations fewer than 100,000. Aggressive expansion in the movie industry during the 1990s eventually led to problems for Carmike and its competitors. In August 2000, the company filed for Chapter 11 bankruptcy. It completed its reorganization in 2002 and has begun expanding slowly. In 2005, Carmike purchased George Kerasotes Corporation (GKC Theatres) in a $66 million deal.

Getting Started in 1982

Carmike's swift rise to prominence among movie exhibitors was the work of the Patrick family, a clan with a history in the theater business. Company Chairman Carl Patrick, Sr., was an executive with Martin Theaters, a Columbus, Georgia-based chain owned by another family. In 1969 Martin was purchased by Atlanta tycoon J.B. Fuqua, and it became part of Fuqua Industries. Although Patrick initially wanted his two sons, Michael and Carl, Jr., to stay away from the movie theater industry, Michael had other ideas.

While still a student at Georgia State University, Michael Patrick worked at the Rialto Theater in Atlanta, taking tickets and making popcorn. Shortly after that he accepted a job with Martin. Eventually, Carl, Sr., became president of Fuqua Industries, while Michael worked his way up to head of the company's movie theater division. When Fuqua decided to shed the division in 1982, the father and son team took hold of the theater chain in a leveraged management buyout. They then named the new company Carmike, a combination of the first names of brothers Carl, Jr. (who became a director, but remained uninvolved in company operations) and Michael.

With Carl, Sr., as chairman and chief executive, and Michael running the company's operations as president, Carmike embarked on a program of expansion at a time when many theater chains were holding back, fearful that movie-going was giving way to home video and cable television. In 1983 Carmike acquired Video Independent Theatres, Inc., adding 85 screens to the 265-screen base with which it had emerged from the Martin buyout. The company grew by building new theaters as well, adding 27 screens in 1982 and 18 in 1983 through its own construction projects. Carmike's strategy was clear from the outset. Patrick sought out smaller cities that he believed were underserved by movie theaters. Upon finding a good candidate, he then either purchased and expanded the existing theater or built a new multi-screen facility, often adjacent to the local mall. Using this method, Carmike expanded quickly throughout the South.

Carmike's management has credited a great deal of the company's success to I.Q. Zero, its unique computer system. Early on, Patrick realized that the small markets in which he was operating would not allow him much slack in controlling operating costs. To address this problem, he commissioned some Columbus, Georgia, friends to create a hardware and software package that would allow Carmike management to monitor the expenses and revenue of each Carmike theater to the most minute detail. The result was I.Q. Zero, a system unlike any other that existed in the industry. At the end of each business day, I.Q. Zero sent box office, concessions, and other types of information to company headquarters in Columbus. Using I.Q. Zero, the company could access sales figures for a particular size of a particular brand of candy at one theater in Tennessee with the touch of a button. I.Q. Zero was also capable of alerting theater managers when their sales per person ratio has fallen below acceptable levels as determined by top management. By providing this kind of information, I.Q. Zero helped Carmike keep a tight rein on costs by substituting technology for management personnel wherever possible.

Growth Continuing in the Mid-1980s

The company's growth spurt continued unchecked through the middle of the 1980s. Although no existing theater chains were acquired in 1984 or 1985, Carmike built 55 new screens of its own during those two years. The year 1986 was especially eventful for Carmike. That year, the company acquired Essantee Theatres, Inc., adding 209 screens to its growing empire. In addition, 54 new screens were constructed. The Patricks took Carmike public in October 1986, with an initial over-the-counter stock offering, although the Patrick family retained about three-fourths of the company's voting stock. In the mid-1990s, the family held roughly 59 percent of the company's stock.

The company also met with some challenges, however, in 1986. Like many of its competitors, Carmike split markets in order to keep the upper hand in negotiations with movie studios for the rights to show new pictures. When this practice was ultimately deemed illegal, Carmike ended up paying a $325,000 fine for an antitrust violation. In spite of the scrutiny of regulators, Carmike carried on with its strategy of finding smaller-sized cities in which it could have a virtual monopoly on first run movies; the company was able to attain that status in some 60 percent of the markets in which it operated. The other key element in Carmike's approach was to show movies with the broadest possible appeal, carefully avoiding anything that could be construed as an art film.

By 1987 Carmike was earning $3 million on revenue of $84 million. The company continued to add screens by the dozen, and by 1988 the chain consisted of 670 screens in 216 movie theaters in 135 cities, still mostly located in the South, where it had become the biggest movie exhibitor in the region. Nationally, Carmike was fifth largest in terms of number of screens by this time. While the four theater chains that remained larger—General Cinema, United Artists Theatre Circuit, Cineplex Odeon, and AMC Entertainment—continued to butt heads with each other over the movie-going dollars generated by America's major population centers, Carmike sailed along by itself, opening multiscreen complexes in smaller markets, of which there seemed to be an endless supply.

Carmike brought another existing chain, the 116-screen Consolidated Theaters, Inc., into the fold in 1989, while adding another 35 screens of its own construction. Patrick also took his first vacation since launching the company. The company continued to prosper, with revenues approaching the $100 million mark, by bringing Hollywood's biggest, most mainstream movies into the sleepy towns of middle America. Because it maintained monopoly or near-monopoly positions in most of its markets, Carmike was able to negotiate better rates from movie distributors than could many of its competitors. Patrick was in a position, according to the Wall Street Journal 's Anita Sharpe, to tell Hollywood, "Either you play Carmike Cinemas or Blockbuster Video." The company found savings in other areas as well. Its small town costs for constructing new theaters ran less than half of what such projects cost in prime suburban locations. Although ticket prices were lower at Carmike Cinemas than in big market theaters, Carmike's high-tech systems allowed it to expand the chain without adding large numbers of home office employees.

Gaining Market Share in the 1990s

As the 1990s began, Carmike's approach still ran contrary to that of its major competitors: While they were trying to become "leaner and meaner," Carmike was still looking for new turf. Consequently, the 154 existing screens the company acquired in 1990 came from two of its biggest rivals, Cineplex Odeon and United Artists. On top of that, 24 new screens were constructed. With nearly 1,000 total screens in about 175 different markets, Carmike was established as a major force in the movie theater industry. Meanwhile, Hollywood studios were emphasizing the kinds of films that Carmike's customers favored—action movies featuring big-name stars. The Rambo-type movies went over especially well at the many Carmike theaters located near military facilities.

Over the next couple of years, Carmike picked up additional screens cast off by the likes of American Multi Cinema (AMC). Its biggest single leap in size came in 1991 with the addition of 353 screens in the form of a joint venture with Excellence Theaters. Carmike bought out its partners in that project two years later. By 1992 the company was operating 1,400 movie screens—twice the number it had in its possession only three years earlier—and posting revenues of $172 million. After buying out its joint venture partners in the Westwynn Theatres chain (formerly called Excellence) in 1993, Carmike was probably the third largest movie chain in the country, trailing only United Artists and AMC. The company also absorbed Manos Enterprises, a chain with 80 movie screens. That year, the company's revenue jumped to $242 million. As the chain continued to expand, Patrick and his team found ways to wring even more savings out of the I.Q. Zero system. The system took over yet more tasks formerly performed by humans, allowing management to reduce corporate overhead costs to a mere 2.5 percent of operating revenues, down from the 4 percent level the company had maintained for several years.

Company Perspectives:

At Carmike, we strive to keep it simple and provide our patrons with a superior out-of-home experience.

By the middle of 1993, Carmike had established a presence in 23 states in the South, Southwest, and Midwest. The company's 388 theaters contained a total of 1,560 screens. Again in 1994, Carmike picked up screens from other chains, built theaters of its own, and had a record year in just about every category. During 1994 the company acquired 178 screens from Cinema World, bought another 48 screens from General Cinema, and built five new complexes holding 43 screens. Carmike also added 15 new screens to complexes already in operation. Part of the financing for all of this growth came from a public offering of $58 million worth of newly issued common stock, after which the Patricks still held the majority of voting interest in the company.

Buoyed by its five new acquisitions between the beginning of 1994 and the middle of 1995, Carmike narrowed the size gap between itself and industry leader United Artists considerably. By July 1995, the company had 2,223 screens in its empire, less than 100 screens fewer than the number operated by United Artists.

Meanwhile, Carmike's success in getting middle America to come to the movies made Patrick something of a guru among Hollywood executives. Top managers at entertainment companies such as Disney, Twentieth Century Fox, and Time Warner frequently turned to Patrick for projections about how certain films would do at the box office. Mogul Ted Turner consulted Patrick before his Turner Broadcasting System bought production companies New Line Cinema and Castle Rock Entertainment. By knowing the tastes of his small-town audience, Patrick was occasionally even able to make hits out of movies that were poorly received in big cities.

Many movie industry analysts considered Carmike the best-managed theater chain in the country for several years. The company's ability to churn out profits year after year while its competitors struggled to streamline and stem their losses seemed to support this opinion. Like all theater chains, however, Carmike was at the mercy of Hollywood. If the studios do not make movies that people want to see, the exhibitors suffered along with the producers. Carmike had clearly shown, though, that it was among the best at bringing in customers, regardless of the competition posed by VCRs, cable television, and high school football, and in spite of Hollywood's occasional inability to supply quality products. As long as people in small towns continue going to the movies, Carmike planned to build and buy theaters to serve that market.

Overcoming Challenges in the Late 1990s and Beyond

Expansion continued for Carmike during the latter half of the 1990s. In 1996, a vintage movie house opened its doors in Lexington, Kentucky. Carmike partnered with Wal-Mart Stores, Inc. the following year to launch Hollywood Connection movie centers. The centers featured multiplex movie theaters, skating rinks, miniature golf, and arcades. During 1998, the company focused on upgrading and building nearly 300 screens with stadium seating.

During this time period, Carmike and its competitors aggressively pursued growth. This eventually caught up with the industry and by 2000, many companies found themselves with too many screens and not enough customers. An August 2000 Wall Street Journal article explained the situation, claiming, "The rise of the so-called megaplex theaters, state-of-the-art facilities that sometimes have more than 20 screens at one location, quickly made the industry's older multiplexes obsolete. But even as theater chains scramble to close those older facilities, in many areas they have built too many of the new complexes." To make matters worse for Carmike, many of its large competitors were moving into the smaller markets it once dominated. During 1998 and 1999, the company posted losses of $31 million and $22 million, respectively, due in part to costs related to expansion.

As its financial position worsened, Carmike was forced to file for Chapter 11 bankruptcy protection in August 2000. During its reorganization, the company shuttered its unprofitable locations, restructured $650 million in debt, and got its financial situation back on track. Its reorganization plan was approved in January 2002.

With the bankruptcy behind it, Carmike cautiously moved forward with its growth plans. During 2004, the company opened three new theaters. It made a $66 million play for the George Kerasotes Corporation (GKC Theatres) in 2005. The deal added 30 theaters and 263 screens to its arsenal.

During 2005, weak box office sales continued to plague the industry. As a result, Carmike saw its competitors grow larger through merger activity. In June, AMC Entertainment and Loews Cineplex Entertainment announced a merger that would create a movie theater powerhouse with 450 theaters in 30 states and 13 countries. Regal Entertainment Group, a combination of Regal Cinemas, United Artists, and Edwards Theatres, remained the largest chain with 580 theaters and more than 6,600 screens in 40 states.

Carmike's strategy for the future was to develop its Carmike-plex, which featured stadium seating and digital sound. It planned to develop these theaters in markets with populations of 50,000 to 100,000—a market deemed too small for a megaplex. It also continued to rely on its I.Q. 2000 information technology system. Similar to its I.Q. Zero system, the I.Q. 2000 was used to control costs and streamline administrative functions. Although Carmike had experienced some troubles in the past, management was confident the company was positioned for success in the years to come.

Key Dates:

1982:
Carl Patrick, Sr., and his son, Michael Patrick, acquire Martin Theaters in a leveraged buyout; the company is renamed Carmike.
1983:
Carmike acquires Video Independent Theatres Inc.
1986:
Essantee Theatres Inc. is acquired; Carmike goes public.
1989:
The company acquires Consolidated Theaters Inc.
1991:
A joint venture with Excellence Theaters leads to the addition of 353 screens.
1995:
By now, the company has 2,223 screens in its empire, less than 100 screens fewer than the number operated by United Artists.
2000:
Carmike files for Chapter 11 bankruptcy.
2002:
The company emerges from Chapter 11.
2005:
GKC Theatres is acquired.

Principal Subsidiaries

Wooden Nickel Pub, Inc.; Eastwynn Theatres Inc.; Military Services Inc.; Conway Theatres LLC.

Principal Competitors

AMC Entertainment Inc.; Cinemark Inc.; Regal Entertainment Group.

Further Reading

Barrett, William P., "A Wal-Mart for the Movies," Forbes, August 22, 1988, pp. 60–61.

Blickstein, Jay, "Small-Town Dixie Chain on Exhib Fast Track," Variety, March 30, 1992, p. 51.

"Box Office Bonanza," Forbes, March 27, 1993, p. 19.

Brach, Abby, "Carmike Cinemas Experiences Success in Smaller Markets," Columbus Ledger-Enquirer, December 14, 1998.

Burke, Brad, "Carmike Cinemas to Buy GKC," Peoria Journal Star, May 3, 2005.

Byrne, Harlan, "Carmike Cinemas: Jurassic Park Could Help It Have a Dino-Mite Year," Barron's, June 28, 1993, pp. 39–40.

Clarke, Sara K., "Movie Chain Merger Is Sign of Times," Star-Ledger, June 26, 2005.

Hawkins, Chuck, "The Movie Mogul Who Thinks Small," Business Week, July 2, 1990, p. 37.

Levy, Harlan J., "Tons of Screens, Not Enough Viewers," New York Times, March 11, 2001.

Marr, Merissa, "Movie-Theater Chains Are Wary Amid Recovery," Wall Street Journal, May 17, 2004, p. C3.

"Now Playing, Carmike," Forbes, March 27, 1995, pp. 160–61.

Orwall, Bruce, "Carmike Cinemas Files for Chapter 11 in Wake of Growth of 'Megaplex' Theaters," Wall Street Journal, August 9, 2000, p. B7.

Pendleton, Jennifer, "Chain Sees Possibilities in Midst of Recession," Variety, March 30, 1992, p. 51.

Reingold, Jennifer, "Carmike Cinemas: It Always Plays in Peoria," Financial World, March 14, 1995, pp. 20–22.

Sharpe, Anita, "Last Picture Show," Wall Street Journal, July 12, 1995.

—Robert R. Jacobson
—update: Christina M. Stansell



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Nov 10, 2011 @ 9:21 pm
In the complicated world we live in, it's good to find simple soluotins.

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