AMC atones for its loans

Stock rocked by disclosures

It wasn’t quite like yelling “fire” in a crowded theater, but almost.

AMC Entertainment revealed Monday that it “forgave” two loans to top execs, wiped out interest charges and also covered their tax exposure. The total tab: $19.25 million.

Besides this, AMC also posted a bigger than expected first quarter loss. The combined result was that shares fell as much as 30% within hours.

“Sheer idiocy,” one top analyst said of the company’s action.

The Kansas City, Mo.-based company originally disclosed the board’s May loan forgiveness in a 10K document filed with the Securities & Exchange Commission about a month ago. But the disclosure went largely unnoticed until it hit AMC’s bottom line.

The board forgave a $5.6 million loan to CEO Peter Brown and a nearly $3 million loan to chief operating officer Phil Singleton, and also wiped out any interest charges since the 1998 lendings. The directors additionally covered the execs’ tax exposure on the loan foregiveness, bringing AMC’s charge for the actions to $19.25 million.

The actions come at a time when corporate loans to company execs have fallen into broad disrepute on Wall Street, and AMC watchers were left almost apoplectic over the moves.

UBS Warburg analyst Christopher Dixon, who labeled the loan-foregiveness package “sheer idiocy,” said AMC could have had a good-news fiscal quarter without the actions.

“You had a company that hit their operating numbers, effectively affirming their overall strength (and) they then go out and forgive executive loans,” Dixon fumed. “You could not find a more tone-deaf management compensation committee and board. They basically took all of the cash-flow growth they had for the first time in 10 months and put it into management’s pocket.”

As a result of the action, AMC posted an $10.3 million loss for the three-month period through June. That was an improvement from a loss of $14.3 million in the same period of the preceding fiscal year, as AMC participated in an industrywide surge in box office and concession revenue fueled by robust moviegoing.

AMC’s fiscal first-quarter revenue rose 19% to $461.6 million on a pro forma basis accounting for changes in operations since a year ago. Its after-tax cash flow more than doubled to $39.6 million from a year-earlier $17.5 million.

Black eye

But the improved results won’t be remembered from this period, merely the loan-forgiveness charge, Dixon predicted. AMC will have to post at least two additional periods of attractive financial results before investors’ confidence in the company will return fully, he estimated.

AMC shares closed down $2.35, 21%, at $8.80 on Monday.

The stock has lost 27% since Jan. 2, though there was a sign Monday the worst may be over barring more negative news. Salomon Smith Barney analyst Jill Krutick raised her rating on the AMC to “buy” from “outperform.”

Krutick cut a target share price on the stock to $15 from $17, however.

Brown and Singleton used the 1998 loans to buy, respectively, 375,000 and 250,000 shares of AMC common stock. The execs have agreed to hold onto the stock for another 18 months.

AMC spokesman Rick King said the board voted to grant Brown and Singleton the loan-foregiveness packages in addition to annual salaries and bonuses to reward superior job performance. And in relative terms, AMC has been considered one of the better-performing exhibs in recent years.

The company managed to avoid Chapter 11 reorganization, even as a dozen other major circuits filed for such bankruptcy proceedings over the past two years. And its capital reserves are considered strong, thanks to last year’s $250 million infusion by New York investment firm Apollo Management, which holds a majority equity position in the company and a minority voting interest.

Brown vowed on the heels of the Apollo investment to grow the circuit through acquisitions, and soon after AMC secured agreements to buy Northeast-dominant General Cinemas and New Orleans-based regional exhib Gulf States theaters.

The acquisitions brought AMC’s screen count to roughly 3,600. The company ranks as the second-biggest U.S. movie chain, after 5,900-screen Regal Entertainment.

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