Workers’ Compensation: Georgia Theatre Company Transitions to 100% Employee Ownership

It’s the ultimate bonus: Georgia Theatre Company (GTC), the 18th-largest theater circuit in North America, has rewarded the diligence and dedication of its roughly 700 employees by making them the owners of the company. This apparently unprecedented action by a movie-exhibition chain is made possible by the creation of an employee stock ownership plan (ESOP), a process under which eligible workers become stockholders, at no cost to them, while the management structure remains intact.

GTC president Bo Chambliss reveals that company founder and chairman William J. Stembler is “getting to the point where he has been trying to retire and really wants to take a step back. So he had a number of options. You could sell the company, bring in private equity, or try to take it public, and the fourth option was converting to an ESOP.”

“This is something that construction companies and entities that really don’t have a whole lot of assets do—they’re about as good as their next five years of contracts,” says Stembler. “We’re a little different breed, but it sure does look like it was a good solution for my family, and also a nice, rewarding thing to do to give the employees a chance to participate in all this fun that I’ve had.”

“The benefit of an ESOP,” Chambliss says, “is that you get to keep your current management team in place and you get to keep all of your employees in place. From an employee standpoint, it’s seamless—they don’t even know that it’s happening immediately. And the benefit to Bill and his family is they get paid the value of the company. Bill is a very, very loyal person—he has always taken care of his employees. Selling out to one of the big three or four or bringing in a private equity [firm] he knew was not the best thing for his employees. So when the idea of an ESOP was brought up, he thought it was a fantastic idea, and assuming the money was around the same, he was all in.”

“I have run a bit more conservative group of theaters than the rest of the world of motion picture exhibition,” notes Stembler, a third-generation exhibitor whose family has been in the business since the 1920s. “Our debt was low and our leases were not nearly as high a percentage of our sales as most public circuits. And so I had equity that could be used to borrow money to, in effect, buy the shareholders out for part of what they had. The way the structure works, you borrow money from a bank or a third party, and then the shareholders take a note behind that party for the balance of the money that’s due them. Then the company earns its way out over a number of years.”

“A lot of people when they get to be Bill’s age, they have their wealth tied up in this illiquid asset, the stock of the company. It could be worth a lot of money, but they don’t have any cash to show for it,” says Aegis Fiduciary Services founder and CEO Robert Lesser, the trustee who represented the interests of the future shareholders of GTC and continues to monitor the company’s activities on their behalf. “The ESOP is a way for the sellers to get liquidity because they’re cashing out, and it’s a windfall for the employees because they’re getting stock without having to pay for it. And that doesn’t even take into consideration all the amazing tax benefits to all parties as a result of the ESOP.”

As the trustee, Lesser was hired to negotiate the terms of the stock transaction “in the best interest of the [employee] participants. The ESOP trustee is prohibited by law to pay more than fair market value for the shares.”

Stembler may have taken a slight financial hit because of those restrictions, but Lesser believes he was genuinely motivated by an impulse to reward his employees. “If you think about it, it’s an extra form of compensation. It rewards the people for all the work they’ve done in the past to make the company what it is today and incentivizes them to work harder so that the company will grow and become worth more. So when a participant actually retires, their stock will be meaningful enough that it may very well be all the retirement savings that they ever need.”

Lesser continues, “Unlike a 401(k) plan where you buy stocks of other companies and really don’t have any influence over their financial performance, when you work at a company where you own stock, you actually have a great amount of influence over the value of the stock. Everybody might all decide to be more productive, because the more productive they are, the higher the company’s earnings are going to be, which means everyone’s account balance would be worth more.”

Stembler is already seeing an impact from the company’s new structuring. “The four key executives that are really running things had a budget meeting a couple of weeks ago, and I noticed that now that it’s in their hands versus my family’s assets, they are looking for places to cut. We’re probably not going to buy any more pro football tickets or things like that, because the employees are working for themselves and they realize this. It was gratifying to me to see all of my preaching … I found a way to get it through to everybody that it’s really easy to spend other people’s money.”

Chambliss notes, “We don’t have a lot of turnover in our home office or really at the general manager level at the theaters. But I think this will encourage the assistant managers and hourly staff to want to come work for the company and to remain working for the company. With today’s lower unemployment environment, it’s hard to find good young employees who want to work behind a cash register at a concession stand. I do believe this is going to be something that will help us get more attractive people working for us at a younger age.”

Founded in 1992 (after earlier incarnations), Georgia Theatre Company currently has 263 screens in 25 locations in four states. Seven of those venues have converted to recliner seating, “and there are probably another four to five that could be identified for possible conversion,” Stembler says. “The other half of the circuit is in markets of under 100,000 that are small-town, and those communities are generally tickled pink just to have a nice theater that’s well run. But obviously as you get into more competitive cities like Atlanta, it’s recliners or you’re at a tremendous disadvantage in the coming years.” 

Most of GTC’s investments in recent years have gone into those recliner conversions, but “we did build a new theater two years ago in north Georgia and we built a huge theater, our most successful, in Augusta five years ago. Bo Chambliss and Mike Warner, our CFO, have come up with a proposal for a community a couple of hundred miles from where we operate, where the family is in a position they want to sell out and it’s going to require a complete rehab of the theater. We are looking at that acquisition and made an offer. In addition, we have at least one other site that we’d like to build, but they don’t have the other retail wrapped up in the general area that we’d like to put the theater in. That one’s awaiting the real estate developer to have some success with the big-box retailers.”

As he hands over more responsibility to son-in-law Bo Chambliss and his executive team, Stembler remains optimistic about the future of movie theaters. “I love to talk about that. I was president of the major downtown Atlanta Rotary club 30 years ago, and I had to give a talk to 300 people that were executives in the Atlanta area. I had just read the book Megatrends by John Naisbitt. He was talking about where society was going, about high-tech, high-touch—that people still wanted to communicate and be together. In the book he quoted an Arthur D. Little study from the mid-’70s that said in 10 years there would be half the number of theaters in the country, and the sales would be reduced by 25 percent. And in those 10 years in the mid-’70s and mid-’80s, the grosses doubled. So forecasting is very difficult in this business.

“I was born in 1946, the worst time of the business because of the advent of TV after World War II. And I had to listen to my father and my grandfather for the first 10 or some years of my life talking about the decline. The business went from something like 4 billion admissions to 800 million between ’46 and ’57. Then today, we’re between a billion two and a billion four or five. So it’s actually somewhere in the late ’50s, early ’60s that it bottomed out. And then it’s had modest growth, perhaps not keeping up with population growth, but sales meanwhile have steadily increased. Even this last year was the second-best year domestically and the best ever worldwide.”

Though he says that he worries about closing theatrical windows like everyone else in the theatrical business, “I like to believe that because of the world market, which is now over 70 percent of the gross sales of the Hollywood companies, likely they’re going to want to keep the model pretty much like it is. I’m pleased that Bob Iger and Disney have told us what they’re going to be releasing in theaters in the next nine years at Christmas. I just read Iger’s book, which was interesting. As I see it, he’s not ready to give up on us. They’re creating content and they’re building product to sell at their parks.”

Stembler doesn’t see dramatic growth on the horizon, “but I think there are natural markets that we serve, which includes grandparents taking their grandchildren to the show, and the young dating crowd. My children take their children to the movies all the time. I think it will still be there unless they take the product away from us.”

The veteran exhibitor calls his years in the theater business “a fun legacy.” After law school, he tried working for the Securities and Exchange Commission for a couple of years and was miserable. “I said, I’ve gotta do something that’s fun. And that’s what I’ve gotten to do for over 50 years.”

Stembler cites other circuits like Marcus Theatres and Harkins Theatres as part of a proud exhibition tradition, the “family specialized little business. … A lot of the high-tech people don’t want to touch it, but we love it and we believe in it. And so far, so good.”

His decision to give his business to his employees keeps that tradition alive. “One advantage of selling to an ESOP is that your culture gets to go on, versus when you go elsewhere—it all changes and you don’t have the same joy of watching the business.”

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