<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended August 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 333-1742
AMC, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 58-2201031
(State or other jurisdiction of incorporation or organization) (IRS Employer
Identification No.)
240 PEACHTREE ST., N.W. SUITE 2200, ATLANTA, GA. 30303
(Address of principal executive offices) (Zip Code)
</TABLE>
(404) 220-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X NO
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES NO
--- ---
Number of shares outstanding of the registrant's voting $1 par value common
stock, as of November 18, 1996: 61,962,751 shares.
Neither the Company's common stock nor its Fixed Rate Class A Secured Notes due
July 31, 2000 have a trading market.
Documents incorporated by reference: None.
<PAGE> 2
Form 10-K
AMC, Inc.
FISCAL YEAR ENDED AUGUST 31, 1996
Table of Contents
Page No.
<TABLE>
<S> <C> <C>
Table of Contents 2
Part I
Item 1 - Business 3
Item 2 - Properties 5
Item 3 - Legal Proceedings 6
Item 4 - Submission of Matters to a Vote of Security Holders 6
Part II
Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters 6
Item 6 - Selected Financial Data 7
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 8 - Financial Statements and Supplementary Data 15
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 16
Part III
Item 10 - Directors and Executive Officers of the Registrant 16
Item 11 - Executive Compensation 17
Item 12 - Security Ownership of Certain Beneficial Owners
and Management 19
Item 13 - Certain Relationships and Related Transactions 20
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 24
Signatures 27
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
AMC, Inc. (the Company or AMC) was formed in 1995 in conjunction with the debt
restructuring of Mr. John C. Portman, Jr. (Mr. Portman) and a group of
affiliated entities (collectively, the Portman Companies). As a result of
these transactions, the initial assets of AMC included the Atlanta Merchandise
Mart (the Merchandise Mart), the Atlanta Apparel Mart (the Apparel Mart), the
Atlanta Gift Mart (the Gift Mart; the Merchandise Mart, the Apparel Mart and
the Gift Mart hereinafter collectively, the Marts), and the assets of the
Atlanta Market Center Management Company, Inc. (AMCMC) which operated the
Marts. The Marts serve as wholesale trade facilities. Prior to the formation
of AMC, Mr. Portman and the Portman Companies had been involved in designing,
developing, operating and owning office buildings, hotels, trade marts, and
trade shows throughout the world for more than 40 years.
DESCRIPTION OF BUSINESS
The Company's primary business is the operation of the Marts and the management
of trade shows in conjunction with such Marts, which historically has generated
more than 90% of the Company's revenue. Additionally, the Company manages
trade shows on behalf of third parties at other locations. The Company's owned
trade shows are held at the Marts.
Trade marts offer Manufacturers showrooms and also conduct periodic industry
specific trade shows (also known as markets). The Company acts as an
intermediary to bring together a critical mass of manufacturers and retailers.
The Marts allow wholesalers, principally manufacturers and their
representatives (collectively, Manufacturers), to offer their goods to a broad
range of retailers at a single location.
Each of the Marts focuses on a specific industry. The Apparel Mart, with
approximately 1.3 million rentable square feet, is a wholesale buying facility
for purchasers of women's, children's and men's apparel, jewelry and fashion
accessories. The Gift Mart houses approximately 1.0 million square feet of
giftware. The Merchandise Mart, which has approximately 1.9 million rentable
square feet, houses a variety of gift, home furnishings and decorative
accessories. The assets of the Marts are principally comprised of the Mart
buildings and improvements thereto and interests in the land upon which they
are located.
In order to participate in trade shows at the Marts, Manufacturers either lease
showrooms for terms that average approximately three years (referred to as
permanent space) or rent an exhibit booth for a particular trade show. By
committing to permanent space, in addition to having the availability of a year
round sales facility, a Manufacturer has the ability to construct significant
tenant improvements and is assured of a specific location and the ability to
participate in the trade shows held at the Mart during the term of its lease.
Some of the Manufacturers only use such leased space during trade shows.
The Company's principal executive offices are located at 240 Peachtree Street,
N.W., Suite 2200, Atlanta, Georgia 30303, and its telephone number is (404)
220-3000.
3
<PAGE> 4
RECENT DEVELOPMENTS
The Company is currently creating a holiday and floral center in the
Merchandise Mart by securing leases from new tenants and relocating tenants
from the Gift Mart. The Company believes that the creation of this center will
provide additional cross-merchandising opportunities. The Company estimates
that the development will involve expenditures of approximately $6.0 million
through August 31, 1997 in order to rebuild three floors of the Merchandise
Mart and to build pedestrian bridges between the Gift Mart and the Merchandise
Mart. As of August 31, 1996, the Company has incurred approximately $1.0
million related to the development of the holiday and floral center.
Management currently is evaluating its strategy regarding the International
Sports Plaza (ISP) due to its continued low occupancy levels. The ISP, which
offers athletic and sports clothing, footwear and equipment, is allotted
207,000 rentable square feet in the Apparel Mart and is currently 45.9%
occupied. In light of the low occupancy, the Company is considering whether
the ISP has a long term profit potential and is reviewing its options for
continuing this business in the future.
SEASONALITY
The number of trade shows or markets in a particular industry is keyed to the
major sales seasons for such industry. A majority of the Company's trade shows
occur from January through September of each calendar year. Accordingly, the
Company experiences periodic fluctuations in its trade show revenues, with the
lowest revenues occurring in the period from October through December of each
calendar year. Other revenues of the Company, such as parking and advertising
sales, fluctuate periodically with trade show revenues, as these revenues are
significantly impacted by the timing and number of trade shows.
COMPETITION
The Company's Marts and trade shows compete with a variety of other trade marts
and trade shows throughout the United States. In addition, new or additional
trade marts or trade shows may be organized by existing competitors or new
market entrants which may adversely impact the Company's operations.
Existing competitors to the Apparel Mart include the New York garment district
and regional marts located in Dallas, Chicago, San Francisco and Miami.
Existing competitors to the Gift Mart include regional marts located in New
York, Dallas, Chicago, San Francisco and Los Angeles, as well as trade shows
owned or managed by a large competitor in New York, Boston, Washington, D.C.,
Chicago, and San Francisco. Existing competitors to the Merchandise Mart
include High Point, North Carolina and the Surfaces show in the area rug
industry; mill showrooms and a semi-annual trade show in New York in the home
textile industry; and High Point, North Carolina and trade marts in Dallas and
San Francisco in the home accents and furniture industries.
The Company believes the primary basis on which trade marts compete is the cost
of transportation to a trade mart, availability and cost of local
accommodations, transportation, food and other services, and critical mass of
merchandise. Because of its location in Atlanta with its favorable air
transportation, infrastructure, accommodations and services, the convenience
and efficiencies of the Marts, and the breadth of its product line in a
concentrated area and emphasis on cross-merchandising, the Company believes it
distinguishes itself from, and is well positioned to compete against, other
marts and trade shows in each of its industries.
The Company also faces some indirect competition from Manufacturers who engage
in direct retail sales. Developments in telecommunication could establish
additional direct contact between Manufacturers and buyers.
4
<PAGE> 5
EMPLOYEES
The Company had approximately 240 full-time employees on August 31, 1996. In
addition, the Company hires temporary employees as needed to support its
operations during peak trade shows. No material segment of the Company's
employees are represented by a union or similar organization. The Company
believes its employee relations are good.
ITEM 2. PROPERTIES
The Company owns or ground leases the parcels of land on which its three Marts
are located and owns a small parcel of unimproved land in downtown Atlanta,
Georgia (the Unimproved Land). The Marts, which are wholly-owned by the
Company, are adjacent to one another and are connected by aerial walkways.
Through its subsidiary, EC Holdings, the Company also owns small minority
interests in two mixed use complexes in the financial district of San
Francisco, California, Embarcadero Center (EC) and Embarcadero Center West
(ECW).
Periodically, the Company redesignates space as rentable, non-rentable,
permanent or temporary.
Apparel Mart
The Apparel Mart, which was opened in 1979 and expanded in 1989, is a 15-story
building located on an approximately 3.6 acre site. The property is comprised
of eleven separate tracts of land, approximately 65% of which is ground leased
to the Company. The facility has approximately 1.1 million rentable square
feet currently devoted to permanent space, and approximately 156,000 rentable
square feet currently devoted to temporary exhibit space. Additionally, the
building has a 15-story atrium, a penthouse theater that seats approximately
1,000, a restaurant and on-site parking, all of which the Company owns. As of
August 31, 1996, approximately 59% of the showroom space was leased.
Additional rental of exhibit space occurs during the Company's trade shows.
The Apparel Mart is subject to a deed to secure debt, which secures the
obligations of the Company under a revolving line of credit (the Revolver), and
a deed to secure debt, which secures the Company's corporate bonds payable (the
Notes).
Merchandise Mart
The Merchandise Mart, which was opened in 1961 and expanded in 1967 and 1986,
is located on an approximately 2.3 acre site. The property is comprised of
eight parcels, seven of which represent 0.6 acre and are ground leased by the
Company. The remaining 1.7 acre parcel is owned by the Company. The 23-story
building has approximately 1.4 million rentable square feet currently devoted
to permanent space and approximately 525,000 rentable square feet currently
devoted to temporary exhibit space. As of August 31, 1996, the permanent space
in the Merchandise Mart was approximately 51% leased. Additional rental of
exhibit space occurs during the Company's trade shows. The executive offices
of the Company are located in the Merchandise Mart. The Merchandise Mart is
subject to a deed to secure debt, which secures the obligations of the Company
under the Revolver, and a deed to secure debt, which secures the obligations of
the Company under the Notes.
Gift Mart
The Gift Mart, which was opened in January 1992, is a 18-story building located
on an approximately 1.8 acre site. The Company owns this property, which is
subject to a deed to secure debt, which secures the Company's obligations under
a mortgage loan (the Gift Mart Financing). The 18-story building contains
approximately 1.0 million rentable square feet, which is all permanent space,
and a five-level parking garage. As of August 31, 1996, approximately 96% of
such space was leased.
5
<PAGE> 6
Other Properties
The Company indirectly owns small minority interests in two mixed use complexes
in San Francisco's financial district. EC, in which the Company owns an
approximately 3.4% interest, is comprised of four office buildings, a retail
mall and a hotel. The adjacent ECW, in which the Company owns an approximately
6.7% interest, is comprised of two office buildings and a hotel. Pursuant to
the limited partnership agreements for EC and ECW, the general partners of such
partnerships can make capital calls from time to time. The general partner of
EC recently has made such a capital call, pursuant to which the Company would
be required to contribute additional capital to maintain its current equity
interest in the limited partnership. The Company has not responded to this
capital call and may not make capital contributions to this limited
partnership. Accordingly, the Company's interest in EC will decrease to
reflect the increased capital of other partners therein. Management currently
intends to sell its interests in both these partnerships. Any net proceeds
from such sales must be used to amortize the Company's Class A Elevated
Antecedent Debt Notes (the Antecedent Debt Bonds). The stock of the Company's
subsidiary that owns the interests in EC and ECW has been pledged as security
for the Antecedent Debt Bonds.
The Company also owns the Unimproved Land, an approximately 0.3 acre tract of
land in downtown Atlanta. The land currently is used for surface parking,
which generates sufficient net income to cover its operating costs. The
Company intends to actively market the land for sale; however, if the property
were sold, any net proceeds must be used to amortize the Antecedent Debt Bonds.
The Unimproved Land is subject to a first priority deed to secure debt, which
secures the Antecedent Debt Bonds.
Leases
The leases for tracts of land that are a part of the Apparel Mart site have
terms expiring from February 2066 to August 2071. The leases for tracts of
land that are a part of the Merchandise Mart site have terms expiring in June
2061. Under the terms of these leases, the Company may assign, sublet or
encumber its leasehold interests in such properties. The only event of default
is the failure of the Company to pay when due rent, taxes, assessments or other
charges required to be paid to the lessor or to pay insurance premiums for
insurance policies required to be maintained by the Company pursuant to the
terms of each lease. If the Company fails to cure such default within 90 days
of receiving a notice of default, the lessor may take possession of the
property.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to certain claims in the ordinary course of business.
The Company is not involved in any legal proceedings which it believes could
have a material adverse effect upon its financial condition or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's issued and outstanding common stock is not actively traded and
there is not an established public trading market for such shares. As of
August 31, 1996, there were approximately 28 shareholders of the Company's
common stock. There were no dividends declared on the Company's common stock
during the period from October 2, 1995 through August 31, 1996. The Company's
debt agreements restrict dividend payments and it has no intention of paying
dividends in the foreseeable future.
6
<PAGE> 7
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data relating
to the consolidated results of the Company as of and for each of the periods
shown. Such financial information is qualified by and should be read in
conjunction with the detailed information and financial statements and the
notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
PERIOD FROM OCTOBER PERIOD FROM OCTOBER PERIOD FROM JANUARY
2, 1995 THROUGH 1, 1994 THROUGH 1, 1995 THROUGH
AUGUST 31, 1996 AUGUST 31, 1995 OCTOBER 1, 1995
--------------- --------------- ---------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 62,767 $ 61,082 $ 53,300
Operating expenses, exclusive
of depreciation and
amortization 37,165 35,336 27,721
Depreciation and
amortization 11,515 12,774 9,559
---------- --------- ---------
Operating income 14,087 12,972 16,020
Interest expense 7,780 30,241 25,560
Other expenses (income) (4,396) (383) (346)
Income tax expense 3,402 -- --
---------- --------- ---------
Income (loss) before
extraordinary item $ 7,301 $ (16,886) $ (9,194)
========== ========= =========
Income (loss) before
extraordinary item per
share - primary $ .12 $ (a) $ (a)
========== ========= =========
Income (loss) before
extraordinary item per
share - fully diluted $ .10 $ (a) $ (a)
========== ========= =========
<CAPTION>
DECEMBER 31
AUGUST 31, OCTOBER 1, -----------
1996 1995 1994
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $ 235,222 $ 214,133 $ 213,675
Corporate notes/mortgage
loans payable 325,968 354,505 407,532
Long-term advances from
affiliate ---------- --------- 12,048
Deficit $ (103,187) $(152,165) $(231,015)
========== ========= =========
<CAPTION>
PERIOD FROM OCTOBER PERIOD FROM OCTOBER PERIOD FROM JANUARY
2, 1995 THROUGH 1, 1994 THROUGH 1,1995 THROUGH
AUGUST 31, 1996 AUGUST 31, 1995 OCTOBER 1, 1995
------------------ ------------------ ------------------
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
OTHER:
Distributions to stockholders/
partners $ -- $ 990 $ 103
========== ========= =========
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues $ 63,189 $ 63,177 $ 61,930 $ 54,040 $ 54,055
Operating expenses, exclusive
of depreciation and
amortization 36,681 35,205 34,777 28,379 29,076
Depreciation and
amortization 13,511 14,472 12,811 8,023 8,063
--------- --------- --------- --------- ---------
Operating income 12,997 13,500 14,342 17,638 16,916
Interest expense 25,946 24,018 28,840 23,903 32,935
Other expenses (income) 373 (310) (415) 2,381 727
Income tax expense -- -- -- -- --
--------- --------- --------- --------- ---------
Income (loss) before
extraordinary item $ (13,322) (10,208) $ (14,083) $ (8,646) $ (16,746)
========= ========= ========= ========= =========
Income (loss) before
extraordinary item per
share - primary $ (a) $ (a) $ (a) $ (a) $ (a)
========= ========= ========= ========= =========
Income (loss) before
extraordinary item per
share - fully diluted $ (a) $ (a) $ (a) $ (a) $ (a)
========= ========= ========= ========= =========
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1993 1992 1991 1990
---- ---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $ 219,903 $ 236,739 $ 241,925 $ 204,313
Corporate notes/mortgage
loans payable 410,541 414,094 399,440 347,906
Long-term advances from
affiliate 12,048 12,048 12,048 12,048
Deficit $(220,210) $(207,966) $(191,024) $(177,795)
========= ========= ========= =========
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
OTHER:
Distributions to stockholders/
partners $ 1,077 $ 1,694 $ 2,526 $ 1,087 $ --
========= ========= ========= ========= =========
</TABLE>
(a) Not applicable
7
<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
AMC, Inc. was formed effective October 2, 1995 with a fiscal year end of August
31. For purposes of discussion of the results of operations of AMC, Inc. and
subsidiaries from its formation through August 31, 1996, comparative unaudited
amounts for the Atlanta Market Center Companies (predecessor companies) for the
comparable period from October 1, 1994 through August 31, 1995, have been set
forth below. The fiscal year for the Atlanta Market Center Companies ended on
December 31. The following discussion is also based on the historical combined
financial statements of the Atlanta Market Center Companies as of and for the
periods ended October 1, 1995 and December 31, 1994. The following discussion
should be read in conjunction with the financial statements and notes thereto
appearing elsewhere in this document. References herein to the Company mean
AMC, Inc. after October 2, 1995 and the Atlanta Market Center Companies prior
thereto.
Effective October 2, 1995, Mr. Portman and The Portman Companies entered into a
series of agreements with their lenders to restructure their existing
indebtedness. Under the terms of these agreements, the net assets of the
Atlanta Market Center Companies were contributed to AMC, Inc., which had been
formed principally for such purpose. In exchange for the existing debt reduced
by certain amounts forgiven by the lenders, the creditors of Mr. Portman and
certain affiliates, including the creditors of the Company, received
approximately 82.5% of the equity interest in the Company, the Notes, the AMM
Escrow Bonds, and the Antecedent Debt Bonds.
This restructuring has been accounted for as a troubled debt restructuring in
accordance with Statement of Financial Accounting Standards No. 15, "Accounting
by Debtors and Creditors for Troubled Debt Restructurings" (SFAS 15). As a
result of this troubled debt restructuring in which the existing debt exceeded
the fair value of the equity interests issued and the total future principal
and interest payments called for under the Notes, the Notes have initially been
recorded at an amount equal to the total future cash payments, including
interest, specified by their terms in accordance with SFAS 15. All future cash
payments will be accounted for as a reduction of the carrying amount of the
Notes, and no interest expense will be recognized on the Notes.
RESULTS OF OPERATIONS
General
The Company's principal sources of revenues are rental revenues from the lease
of showroom and exhibition space in the Marts and trade show revenues, which
relate to specific shows staged for related industries. The Company leases
showroom space over terms ranging from one to five years with rent payable
monthly over the term of the lease. In addition, the Company rents exhibition
space during markets thereby affording non-tenant Manufacturers an opportunity
to exhibit merchandise during a specific trade show. Because of the troubled
debt restructuring accounted for under SFAS 15, the Company's operations for
all periods after October 2, 1995 will reflect lower interest expense because
interest on the Notes is charged against the carrying value of the Notes and no
interest expense is recognized.
The number of trade shows or markets in a particular industry is keyed to the
major sales seasons for such industry. A majority of the Company's trade shows
occur from January through September of each calendar year. Accordingly, the
Company experiences periodic fluctuations in its trade show revenues, with the
lowest revenues occurring in the period from October through December of each
calendar year. Other revenues of the Company, such as parking and advertising
sales, fluctuate periodically with trade show revenues as these revenues are
significantly impacted by the timing and number of trade shows.
Certain indirect operating expenses, such as marketing and administrative
expenses, are incurred in advance of the ultimate receipt of revenues related to
such marketing efforts, particularly in the case of trade shows. Accordingly,
the relationship of operating income to revenues will vary from period to period
based on the timing of trade shows and the Company's general marketing efforts.
8
<PAGE> 9
The Company provides for losses on tenant receivables that are more than 60
days delinquent. Such policy has resulted in bad debt expense that has been
determined to be generally reflective of experienced losses. The Company does
continue to pursue collection of such receivables once reserved and does not
write them off until collection efforts indicate write-off is appropriate.
Since rents are due no later than the beginning of each month and accrued
accordingly, all rental receivables at a period-end are past due. This
ultimately results in larger aggregate allowances as a percentage of total
receivables. There are no individually significant tenant receivables for
which there is an allowance at any of the reporting period-ends, nor are there
any trends, events, or conditions resulting in the allowance which management
expects will materially impact future operating results, liquidity, or capital
resources.
9
<PAGE> 10
Period from October 2, 1995 through August 31, 1996 compared to the period from
October 1, 1994 through August 31, 1995
AMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 2, 1995 THROUGH AUGUST 31, 1996
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
COMBINED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 1, 1994 THROUGH AUGUST 31, 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
REVENUES: (unaudited)
<S> <C> <C>
Rental 43,915,842 42,207,641
Trade Shows 14,844,458 14,868,779
Other 4,006,791 4,005,404
---------- -----------
Total Revenues 62,767,091 61,081,824
OPERATING EXPENSES:
Building Operations 9,256,018 8,874,230
Trade Shows 3,144,999 2,631,840
Marketing 3,768,517 3,877,241
General & Administrative 15,922,176 14,842,301
Bad Debt 932,909 874,965
Property Taxes 4,140,775 4,235,606
Depreciation and amortization 11,514,878 12,774,137
---------- -----------
Total Operating Expenses 48,680,272 48,110,320
---------- -----------
Operating Income 14,086,819 12,971,504
OTHER INCOME (EXPENSES):
Interest Expense (7,780,170) (30,240,988)
Interest Income 545,747 416,108
Earnings from investment in affiliate 88,738 89,985
Proceeds from insurance claim 883,881 147,216
Income, net resulting from one-time event 3,316,512 0
Other (439,329) (270,459)
---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 10,702,198 (16,886,634)
Income Tax Expense 3,401,600 0
---------- -----------
NET INCOME (LOSS) 7,300,598 (16,886,634)
========== ===========
</TABLE>
10
<PAGE> 11
Rental revenues increased approximately $1,708,000 during the period ended
August 31, 1996, as compared to the period ended August 31, 1995. Rental
revenues in the Gift Mart increased approximately $1,590,000 mainly due to an
increase in rental rates. Rental revenues decreased approximately $490,000 in
the Merchandise Mart, reflecting a decrease in occupancy which lowered revenues
by approximately $2,702,000, partially offset by an increase in rental rates
which increased revenues by approximately $1,582,000. Rental revenues in the
Apparel Mart increased approximately $607,000, reflecting an increase of
approximately $84,000 due to increased rental rates and an increase of
approximately $523,000 due to increased occupancy.
Trade show revenues remained relatively stable during the period ended August
31, 1996, as compared to the period ended August 31, 1995. Increased revenues
related to the January Gift Show were offset by decreases in other shows, most
notably, the July Gift Show.
Other revenue remained relatively stable during the period ended August 31,
1996, as compared to the period ended August 31, 1995. Decreases in publishing
revenues associated with the directory produced for the January and July gift
shows and in security services revenues were partially offset by increases in
parking revenues and management fees on independent trade shows.
Building operations expense increased approximately $382,000 during the period
ended August 31, 1996, as compared to the period ended August 31, 1995. This
increase was due to increases in cleaning, insurance, and repairs and
maintenance, partially offset by a decrease in utilities expense.
Trade show expenses increased approximately $513,000 during the period ended
August 31, 1996, as compared to the period ended August 31, 1995. This
increase was due to increases in costs associated with the gift and apparel
shows.
Marketing expenses decreased approximately $109,000 during the period ended
August 31, 1996, as compared to the period ended August 31, 1995, primarily due
to a decrease in publishing expense.
General and administrative expenses increased approximately $1,080,000 during
the period ended August 31, 1996, as compared to the period ended August 31,
1995, primarily due to an increase in salaries and benefits during 1996.
Bad debt expense increased approximately $58,000 during the period ended August
31, 1996, as compared to the period ended August 31, 1995, due to the increase
in billings during 1996.
Property tax expense decreased approximately $95,000 during the period ended
August 31, 1996, as compared to the period ended August 31, 1995, primarily due
to a lower assessed value of the Atlanta Merchandise Mart in calendar 1995
compared to calendar 1994.
Depreciation and amortization expense decreased approximately $1,259,000 during
the period ended August 31, 1996, as compared to the period ended August 31,
1995, due to certain improvements becoming fully depreciated during 1995.
The resulting operating income was approximately $14,087,000 during the period
ended August 31, 1996, as compared to $12,972,000 for the period ended August
31, 1995. This increase in operating income was the result of increased
permanent space revenue.
Interest expense decreased approximately $22,461,000 during the period ended
August 31, 1996, as compared to the period ended August 31, 1995. This
decrease in interest expense was due to the fact that, subsequent to the
formation of the Company, interest on the Company's Notes is charged against
the carrying value of the Notes and no interest expense is recognized on the
Notes.
11
<PAGE> 12
The Company received $883,881 during the period from October 2, 1995 through
August 31, 1996, and the predecessor companies received $147,216 during the
period from January 1, 1995 through October 1, 1995 from the cash settlement
of an insurance claim relating to litigation under which Portman and certain
affiliates were defendants. The insurance claim was filed by Portman and
affiliates prior to the formation of the Company. When the claim was settled,
by agreement, $125,000 was paid to the predecessor companies and a balance
of $850,000 was held as security for an appeal bond issued in conjunction with
the litigation. The rights to the proceeds of the insurance claim were
assigned to the Company upon its formation. Due to the uncertainty surrounding
the outcome of the litigation the Insurance Claim Receivable was fully
reserved as of October 2, 1995. During 1996, the court ruled in favor of the
defendants, the appeal bond was cancelled and the insurance claim plus accrued
interest were paid to the Company.
Olympic Related Income is the revenues net of direct costs of business
undertaken by the Company specifically related to the 1996 Centennial Olympic
Games. This net revenue is non-recurring in nature.
Income tax expense was $3,401,600 for the period ended August 31, 1996. No
income tax expense was recognized during the period ended August 31, 1995, due
to the fact that prior to the formation of the Company, the predecessor
companies were partnerships or S corporations, and any liability for income
taxes was that of the partners and stockholders and not that of the Company.
Net income was approximately $7,301,000 for the period ended August 31, 1996,
as compared to a net loss of approximately $16,887,000 for the period ended
August 31, 1995. This increase in net income is due to the fact that interest
expense relating to the Company's Notes is charged against the carrying value
of the Notes and no interest expense is recognized on such Notes, which
increase is partially offset by increased income tax expense.
1995 Period (Nine-Month Period) Compared To Year Ended December 31, 1994
(Twelve-Month Period)
Rental revenues for the 1995 Period were approximately 65.6% of total revenues,
compared to approximately 69.9% of total revenues for the year ended December
31, 1994. This decrease in the percentage of total revenue is due to the fact
that the majority of the Company's trade shows for the year had occurred as of
September 30 and only nine months of rental revenue had been earned as of this
date. Trade show revenues were approximately $14.9 million, or approximately
28.0% of total revenues, for the 1995 Period, as compared to approximately
$15.1 million, or approximately 23.9% of total revenues, for the year ended
December 31, 1994. This decrease was due to tradeshows held in October 1994.
Other revenues increased to approximately 6.4% of total revenues for the 1995
Period, compared to approximately 6.2% of total revenues for the year ended
December 31, 1994, primarily reflecting increases in advertising sales from
market publications, parking and fees associated with third party management
contracts.
Building operations expense was approximately 13.9% of total revenues during
the 1995 Period as compared to approximately 14.6% during 1994. This slight
decrease was due to decreased utilities cost during the 1995 Period.
Trade shows expense remained relatively stable at approximately 4.4% of total
revenues during the 1995 Period as compared to approximately 4.8% during 1994.
Marketing expense was approximately 6.0% of total revenues during the 1995
Period as compared to approximately 4.5% of total revenues during the year
ended December 31, 1994. This increase was due to an increase in publishing
costs.
General and administrative expenses decreased from approximately 23.2% of
revenues during 1994 to approximately 21.5% of total revenues during the 1995
Period due to certain bonus payments made in 1994 not being applicable during
the 1995 Period.
Bad debt expense was approximately 1.3% of total revenues during the 1995
Period as compared to 1.9% during 1994. This decrease was due to the success
of increased collection efforts during the 1995 Period. Included in bad debt
expense in the 1995 Period was approximately $130,000 related to a receivable
from Portman Apparel Associates, L.P., an affiliate of the Company.
Property tax expense was approximately 5.0% of total revenues during the 1995
Period as compared to approximately 9.2% during 1994 due to a lower assessed
value of the Mart buildings during the 1995 Period.
12
<PAGE> 13
Depreciation and amortization expense decreased from approximately 21.4% of
total revenues during 1994 to approximately 17.9% during the 1995 Period due to
the fact that certain tenant improvement costs became fully depreciated during
1994.
Operating income was approximately 30.1% of total revenues for the 1995 Period
compared to approximately 20.6% for 1994 for the reasons described above.
Interest expense as a percentage of total revenues was approximately 48.0% for
the 1995 Period compared to approximately 41.1% for the year ended December 31,
1994, primarily reflecting increases in interest rates during the 1995 Period.
The weighted average interest rate increased from 6.16% in 1994 to 8.12% in the
1995 Period. Average debt outstanding was approximately $421.9 million during
the 1995 Period, compared to $421.7 million for the year ended December 31,
1994.
The earnings from investment in affiliates of approximately $0.09 million in
the 1995 Period represents earnings from the Company's investment in Portman
Lightfair. The loss from investment in affiliates of approximately $0.5
million in 1994 represents a loss from a 25% interest in a joint venture formed
in 1994 to develop and produce a special event, which was partially offset by
earnings received from Portman Lightfair.
The loss before extraordinary item was approximately $9.2 million for the 1995
Period, compared to approximately $13.3 million in 1994 for the reasons
described above. Immediately prior to the formation of the Company, an
extraordinary gain from the debt restructuring of approximately $68.0 million
was realized, resulting in net earnings for the period of approximately $58.8
million, as compared to a loss of approximately $13.3 million for 1994.
Liquidity and Capital Resources
The Company's primary sources of cash are internally generated funds and
borrowings under the Revolver. The availability of cash flows generated by the
Gift Mart are limited by the terms of the Gift Mart financing. Cash flow from
operations less payments under an income tax sharing agreement less capital
improvements of the Gift Mart must be used to repay principal outstanding on
the Gift Mart financing and cannot be used to fund operations or capital
improvements of other properties of the Company. Principal payments on the
Gift Mart financing totaled approximately $4.3 million for the period from
October 2, 1995 through August 31, 1996, $3.2 million for the period from
January 1, 1995 through October 1, 1995, and $5.1 million for the year ended
December 31, 1994.
Borrowings on the Revolver of up to $10 million may be used solely to fund
operations and capital improvements and for acquisition and start-up costs for
new trade shows in an amount not to exceed $2.5 million. At November 20, 1996
the Company had $6.4 million available under the Revolver.
Cash flows from operations were approximately $17.9 million during the period
from October 2, 1995 through August 31, 1996, $12.4 million for the period from
January 1, 1995 through October 1, 1995, and $16.3 million for the year ended
December 31, 1994. Cash flows from operations have been positive for the past
several years, despite the net losses of the Company, primarily due to the fact
that net income is negatively impacted by depreciation expense, which is a
non-cash charge to earnings and also, all interest expense incurred over the
past three years had not been paid. Under the terms of the Notes and the Gift
Mart financing, the Company is required to use certain portions of the cash
flows to repay its indebtedness. The terms of such debt also limit the
Company's ability to incur additional debt or to create additional liens.
Accordingly, such provisions may limit the Company's ability to make required
capital improvements.
Significant capital expenditures were incurred over the past several years and
ongoing capital expenditures will be necessary to adequately maintain the
Company's properties. Total capital expenditures were $8.7 million for the
period from October 2, 1995 through August 31, 1996, $6.2 million for the
period from January 1, 1995 through October 1, 1995, and $12.0 million for the
year ended December 31, 1994. Prior to the formation of the Company, these
capital expenditures were funded through cash flows from operations and
borrowings from commercial banks
13
<PAGE> 14
and affiliated entities. Management expects that capital expenditures,
including tenant improvements, of approximately $9.0 million to $10.0 million
will be needed to improve and maintain the buildings during the year ending
August 31, 1997. There can be no assurance, however, that changes in the
competitive environment, governmental regulations, or unforeseen loss or damage
will not cause capital expenditures to exceed management's estimate.
Debt repayments totaled $14.5 million for the period from October 2, 1995
through August 31, 1996, $3.2 million for the period from January 1, 1995
through October 1, 1995, and $8.3 million for the year ended December 31, 1994.
During 1997, the Company will be required to repay approximately $.5 million
of the principal amount under the AMM Escrow Bonds. Principal payments to
reduce the indebtedness under the Gift Mart financing and the Notes will be
determined based upon cash flows of the Gift Mart and of the Company,
respectively.
Management expects that cash flows from operations and borrowings under the
Revolver will be sufficient to fund planned capital expenditures during the
1997 fiscal year and interest and principal payments on the Company's
indebtedness. Over the longer term, management anticipates that internally
generated funds will be sufficient to fund required capital expenditures and
scheduled debt service prior to the maturity date of the Gift Mart financing,
provided the Company can maintain its operating revenues and expenses at
current levels. There can be no assurance the Company can maintain current
revenue levels which are affected by changing economic conditions in the
specific industries represented at its Marts and trade shows. In addition,
there can be no assurance that the overall level of capital expenditures will
not increase as the Marts age. In the event that internally generated funds
and borrowings under the Revolver are insufficient, the Company would be
required to seek financing; however, the Company's ability to do so is limited
under the terms of the Revolver.
The remaining principal balance on the Gift Mart financing is due on July 31,
1998, with an option to extend the maturity date for one year, if specified
performance levels are achieved. The Company's Notes are due and payable on
July 31, 2000. The Company will not generate sufficient cash to repay such
indebtedness and intends to refinance both of these debt obligations at
maturity by extending their maturity dates or securing other financing. There
can be no assurance that the Company will be able to extend the maturity dates
of any of its indebtedness or secure alternative financing to fund the
repayment thereof.
Inflation
The Company deals with the effects of inflation by adjusting rental rates on
new leases and renewal leases. In times of higher inflation, the Company's
operating results are negatively impacted due to the fact that most lease terms
are from one to five years while the term of most service contracts is one year
or less.
Recently Issued Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121) which
is effective for fiscal years beginning after December 15, 1995. This
statement requires that long-lived assets that are to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of any such asset may not be recoverable. In
the event that facts and circumstances indicate that the carrying value of
long-lived assets may be impaired, an evaluation of their recoverability would
be performed and any resulting impairment loss recorded. The implementation of
SFAS 121 is not expected to materially impact the Company's financial position
or results of operations because the Company periodically evaluates its
commercial property and other assets for impairment using independent
appraisals, cash flow analyses, and other relevant information. The Company
has not experienced any significant impairment losses.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" which is effective for
fiscal years beginning after December 15, 1995. This standard defines a fair
value-based method of measuring employee stock options or similar equity
instruments. In lieu of recording the value of such options as compensation
expense, companies may provide pro forma disclosures quantifying the
14
<PAGE> 15
difference between compensation cost included in net income as prescribed by
current accounting standards and the related cost measured by such fair
value-based method. The Company currently does not have any stock-based
employee compensation plans. The Company will provide disclosure in its
financial statements after the effective date of the standard relating to its
outstanding warrants to the extent applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements follow immediately and are listed in Item 14 of Part IV of
the report.
(This space left blank intentionally)
15
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AMC, Inc.:
We have audited the accompanying consolidated balance sheet of AMC, Inc. and
subsidiaries (Company) as of August 31, 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
period from October 2, 1995 through August 31, 1996, and the combined balance
sheet of the Atlanta Market Center Companies (Predecessor) as of October 1,
1995, and the related combined statements of operations, equity (deficit), and
cash flows for the period from January 1, 1995 through October 1, 1995 and for
the year ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 1, AMC, Inc. was formed and organized effective October 2,
1995 principally to own and operate the businesses of certain affiliated
companies as part of a restructuring of the existing indebtedness of such
companies. The assets and liabilities of the Company have been recorded at their
historical cost. Included in stockholders' deficit are accumulated net losses of
the Predecessor of approximately $51,116,000.
In our opinion, the aforementioned consolidated financial statements of the
Company present fairly, in all material respects, the financial position of AMC,
Inc. and subsidiaries as of August 31, 1996, and the results of their operations
and their cash flows for the period from October 2, 1995 through August 31,
1996, in conformity with generally accepted accounting principles. Further, in
our opinion, the aforementioned combined financial statements of the Predecessor
present fairly, in all material respects, the financial position of the Atlanta
Market Center Companies as of October 1, 1995, and the results of their
operations and their cash flows for the period from January 1, 1995 through
October 1, 1995 and for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
November 1, 1996
F - 1
<PAGE> 17
AMC, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
August 31, 1996
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Combined Balance Sheet
October 1, 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 1,052,082 1,407,511
Restricted cash (note 8) 2,623,528 2,541,154
Restricted escrow deposits (note 7) 739,779 4,443,256
Current maturities of notes receivable (notes 6 and 7) 1,050,632 --
Receivables:
Tenants 5,931,489 3,746,094
Affiliate (note 3) 369,753 1,368,867
Other 42,721 43,703
------------ -----------
6,343,963 5,158,664
Less allowance for doubtful receivables 2,205,797 2,647,816
------------ -----------
Net receivables 4,138,166 2,510,848
------------ -----------
Insurance claim receivable, net (note 17) -- --
Prepaid property taxes 313,613 1,049,884
Deferred income taxes (note 11) 1,819,528 --
Other assets 894,612 182,192
------------ -----------
Total current assets 12,631,940 12,134,845
------------ -----------
Commercial property, at cost (notes 5, 7, and 8) 321,708,239 313,001,013
Less accumulated depreciation 123,305,557 112,112,403
------------ -----------
Net commercial property 198,402,682 200,888,610
------------ -----------
Notes receivable, less current maturities (notes 6 and 7) 2,157,042 --
Investment in affiliates (notes 4 and 7) 50,663 33,796
Deferred income taxes (note 11) 20,368,611 --
Other assets (note 8) 1,610,598 1,075,328
------------ -----------
$235,221,536 214,132,579
============ ===========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F - 2
<PAGE> 18
<TABLE>
<CAPTION>
Liabilities and Stockholders'/Partners' Deficit 1996 1995
----------------------------------------------- ---- ----
<S> <C> <C>
Current liabilities:
Current installments of corporate notes payable (note 7):
Mart Bonds interest payments $ 12,000,000 --
AMM Escrow Bonds 512,703 --
------------ -----------
Total current installments of corporate notes payable 12,512,703 --
------------ -----------
Accounts payable:
Trade and other 6,253,639 4,612,927
Affiliates (note 3) 30,000 203,633
------------ -----------
Total accounts payable 6,283,639 4,816,560
------------ -----------
Accrued interest payable 698,617 2,334,922
Deferred revenue 2,226,144 2,346,019
Accrued loan extension fees (note 8) 268,205 --
------------ -----------
Total current liabilities 21,989,308 9,497,501
------------ -----------
Corporate notes payable, excluding current installments (note 7):
Mart Bonds (face amount of $160,000,000) 203,200,000 --
Antecedent Debt Bonds 7,303,273 --
------------ -----------
Total corporate notes payable, excluding
current installments 210,503,273 --
------------ -----------
Mortgage loans payable (notes 7 and 8) 102,951,830 354,505,464
Security deposits 2,427,838 2,294,461
Accrued loan extension fees, excluding current
installments (note 8) 536,410 --
------------ -----------
Total liabilities 338,408,659 366,297,426
------------ -----------
Stockholders'/partners' equity (deficit):
Company common stock - $1 par value; 100,000,000
shares authorized; 61,962,751 shares issued and
outstanding 61,962,751 --
Predecessor common stock - $1 par value; 50,000
shares authorized; 1,500 shares issued and outstanding -- 1,500
Capital deficit (172,450,472) (152,166,347)
Retained earnings 7,300,598 --
------------ -----------
Total stockholders'/partners' deficit (note 12) (103,187,123) (152,164,847)
Commitments and contingencies (notes 3, 9, 12, 14, and 15)
------------ -----------
$235,221,536 214,132,579
============ ===========
</TABLE>
F - 3
<PAGE> 19
AMC, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
For the Period from October 2, 1995 through August 31, 1996
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Combined Statements of Operations
For the Period from January 1, 1995 through
October 1, 1995
and for the Year ended December 31, 1994
<TABLE>
<CAPTION>
October 2, 1995 January 1, 1995
through through
August 31, 1996 October 1, 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Revenues:
Rental (note 13) $ 43,915,842 34,943,066 44,178,561
Trade shows 14,844,458 14,921,358 15,079,515
Other revenues 4,006,791 3,435,821 3,930,924
------------ ----------- -----------
Total revenues 62,767,091 53,300,245 63,189,000
------------ ----------- -----------
Operating expenses:
Building operations (note 14) 9,256,018 7,384,004 9,195,747
Trade shows 3,144,999 2,353,269 3,008,621
Marketing 3,768,517 3,197,998 2,819,862
General and administrative 15,922,176 11,471,439 14,679,881
Bad debt expense 932,909 667,830 1,182,613
Property taxes 4,140,775 2,646,181 5,794,346
Depreciation and amortization 11,514,878 9,559,359 13,511,079
------------ ----------- -----------
Total operating expenses 48,680,272 37,280,080 50,192,149
------------ ----------- -----------
Operating income 14,086,819 16,020,165 12,996,851
------------ ----------- -----------
Other (income) expenses:
Interest expense - affiliated indebtedness (note 3) -- 1,433,437 1,467,365
Interest expense - other indebtedness (notes 7 and 8) 7,780,170 24,126,266 24,478,396
Interest income (note 6) (545,747) (350,049) (493,010)
(Earnings) loss from investment in affiliates (note 4) (88,738) (89,985) 457,362
Proceeds from insurance claim (note 17) (883,881) (147,216) --
Income, net resulting from one-time event (note 18) (3,316,512) -- --
Other 439,329 241,511 408,840
------------ ----------- -----------
Total other expenses, net 3,384,621 25,213,964 26,318,953
------------ ----------- -----------
Income (loss) before income taxes
and extraordinary item 10,702,198 (9,193,799) (13,322,102)
Deferred income tax expense (note 11) 3,401,600 -- --
------------ ----------- -----------
Income (loss) before extraordinary item 7,300,598 (9,193,799) (13,322,102)
Extraordinary item - gain on debt restructuring
(notes 1 and 7) -- 67,995,635 --
------------ ----------- -----------
Net income (loss) $ 7,300,598 58,801,836 (13,322,102)
============ =========== ===========
Net income per share - primary (note 1(i)) $ .12
============
Net income per share - fully diluted (note 1(i)) $ .10
============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F - 4
<PAGE> 20
AMC, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
For the Period from October 2, 1995 through August 31, 1996
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Combined Statements of Equity (Deficit)
For the Period from January 1, 1995 through October 1, 1995
and for the Year ended December 31, 1994
<TABLE>
<CAPTION>
Common Capital Retained
stock deficit earnings Total
----- ------- -------- -----
<S> <C> <C> <C> <C>
Predecessor balance at December 31, 1993 $ 1,500 (220,211,199) -- (220,209,699)
Net loss -- (13,322,102) -- (13,322,102)
Contributions (note 3) -- 3,863,618 -- 3,863,618
Interest on capital contribution receivable from partner (note 3) -- (270,204) -- (270,204)
Distributions to stockholder (note 3) -- (1,077,031) -- (1,077,031)
------------ ------------ --------- ------------
Predecessor balance at December 31, 1994 1,500 (231,016,918) -- (231,015,418)
Net income -- 58,801,836 -- 58,801,836
Contribution of capital through forgiveness of debt (note 3) -- 20,125,663 -- 20,125,663
Contributions (note 3) -- 103,534 -- 103,534
Interest on capital contribution receivable from partner (note 3) -- (77,566) -- (77,566)
Distributions to stockholder -- (102,896) -- (102,896)
------------ ------------ --------- ------------
Predecessor balance at October 1, 1995 1,500 (152,166,347) -- (152,164,847)
Net equity resulting from the restructure of debt and the
formation of the Company (notes 1 and 12) (1,500) 41,665,059 -- 41,663,559
------------ ------------ --------- ------------
Balance at October 2, 1995 -- (110,501,288) -- (110,501,288)
Issuance of the Company's common stock on November 17, 1995
(note 12) 62,173,153 (62,173,153) -- --
Contribution of capital through principal repayment on AMM
Escrow Bonds -- 13,567 -- 13,567
Receipt and retirement of treasury stock (210,402) 210,402 -- --
Net income -- -- 7,300,598 7,300,598
------------ ------------ --------- ------------
Balance at August 31, 1996 $ 61,962,751 (172,450,472) 7,300,598 (103,187,123)
============ ============ ========= ============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F - 5
<PAGE> 21
AMC, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Period from October 2, 1995 through August 31, 1996
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Combined Statements of Cash Flows
For the Period from January 1, 1995 through October 1, 1995
and for the Year ended December 31, 1994
<TABLE>
<CAPTION>
October 2, 1995 January 1, 1995
through through
August 31, 1996 October 1, 1995 1994
--------------- --------------- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 7,300,598 58,801,836 (13,322,102)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Extraordinary item - gain on debt restructuring -- (67,995,635) --
Amortization of protected interest rate agreement 143,542 587,067 1,067,248
Depreciation and other amortization 11,954,207 9,769,445 13,821,265
(Earnings) loss on investment in affiliates (88,738) (89,985) 457,362
Deferred income tax expense 3,401,600 -- --
(Increase) decrease in net receivables (1,543,404) (417,498) 883,057
Increase in prepaid expenses
and other assets (439,132) (878,135) (378,589)
(Decrease) increase in accounts payable,
security deposits, and other accrued expenses (1,085,365) 1,321,622 1,720,014
(Decrease) increase in accrued interest payable (1,636,305) 8,548,149 6,963,433
Increase in unpaid interest added to mortgage
loan payable -- 6,471,907 5,321,236
(Decrease) increase in deferred revenue (119,875) (3,687,698) 48,916
Increase in accrued interest on contribution
receivable from partner -- (77,566) (270,204)
------------ ----------- -----------
Net cash provided by operating activities 17,887,128 12,353,509 16,311,636
------------ ----------- -----------
Cash flows from investing activities:
(Increase) decrease in restricted cash (82,374) (338,776) 455,044
Principal repayments of notes receivable 994,852 -- --
Investment in joint venture -- -- (559,516)
Additions to commercial property (8,707,226) (6,177,088) (12,030,716)
(Increase) decrease in cash management advances
to affiliate -- (34,541) 799,893
------------ ----------- -----------
Net cash used in investing activities (7,794,748) (6,550,405) (11,335,295)
------------ ----------- -----------
</TABLE>
(Continued)
F - 6
<PAGE> 22
AMC, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
October 2, 1995 January 1, 1995
through through
August 31, 1996 October 1, 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Partner contributions $ -- 103,534 3,863,618
Principal repayments of mortgage loan (4,330,179) (3,232,357) (8,330,199)
Proceeds from mortgage loan -- 306,732 --
Principal payments of AMM Escrow Bonds (1,143,304) -- --
Mart Bond interest payments (9,000,000) -- --
Decrease (increase) in restricted escrow deposits, net
of deposits used to reduce the mortgage loan payable 4,025,674 (2,723,366) (506,696)
Distributions to stockholder -- -- (998,144)
------------ ----------- -----------
Net cash used in financing activities (10,447,809) (5,545,457) (5,971,421)
------------ ----------- -----------
Net increase (decrease) in cash (355,429) 257,647 (995,080)
Cash at beginning of period 1,407,511 1,149,864 2,144,944
------------ ----------- -----------
Cash at end of period $ 1,052,082 1,407,511 1,149,864
============ =========== ===========
Supplemental disclosure of cash flow information -
cash paid during the year for interest $ 9,272,933 9,952,580 12,593,844
============ =========== ===========
Supplemental disclosure of noncash investing and financing activities:
Decrease in working capital advances to affiliate
through repayment of working capital notes
payable $ -- -- 1,145,386
============ =========== ===========
Contribution of capital through forgiveness of interest-bearing advances
from affiliate, inclusive of accrued interest of $8,077,663
(note 3) $ -- 20,125,663 --
============ =========== ===========
Net equity resulting from debt restructuring
and formation of AMC, Inc. (note 12) $ 41,663,559 -- --
============ =========== ===========
Principal repayment on AMM Escrow Bonds
through contribution from stockholder $ 13,567 -- --
============ =========== ===========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F - 7
<PAGE> 23
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
August 31, 1996 and October 1, 1995
(1) Organization, Business, and Basis of Presentation
The accompanying financial statements reflect the consolidated accounts
of AMC, Inc. and subsidiaries (the "Company") for the period beginning on
October 2, 1995 and the combined accounts of the Atlanta Market Center
Companies (the "Predecessor") for earlier periods reported. The Company
was incorporated as a Georgia corporation on September 29, 1995 and
organized effective October 2, 1995. The Company was formed to own and
manage trade marts, trade shows, special events, and consumer shows and
activities reasonably related thereto. The principal assets of the
Company are the Atlanta Apparel Mart, the Atlanta Merchandise Mart, and
the Atlanta Gift Mart buildings containing permanent showroom and
exhibition space. The Company has a fiscal year end of August 31.
Prior to October 2, 1995, the assets and businesses owned by the Company
were included in various partnerships and corporations controlled by John
C. Portman, Jr. (Portman). Included in the Predecessor are the Atlanta
Apparel Mart (AAM) -- (a limited partnership); Atlanta Merchandise Mart,
L.P. (AMM) -- (a limited partnership); Atlanta Gift Mart, L.P. (AGM) --
(a limited partnership); and Atlanta Market Center Management Company,
Inc. (AMCMC) -- (an S Corporation).
Portman was a general partner in each of the partnerships and the sole
stockholder of AMCMC. Other partnership interests in AAM, AMM, and AGM
were owned by Portman or by Portman affiliates. AAM, AMM, and AGM are
collectively referred to as "the Marts."
In addition to the Marts and AMCMC, included in the Predecessor was
Portman's indirect ownership interest in Lightfair International
Associates (see note 4) and EC Holdings, Inc. Lightfair International
Associates is a New York general partnership which manages an annual
trade show featuring commercial lighting products and services for
professionals involved in design, planning, maintenance, and/or
construction industries. EC Holdings, Inc. consists of two mixed-use
complexes in San Francisco's financial district, Embarcadero Center and
Embarcadero Center West. Embarcadero Center is comprised of two office
buildings and a hotel.
Also included in the Predecessor was Pisa Associates, L.P. (Pisa) which
owned and maintained a 14,460-square-foot parcel of unimproved property,
used for surface parking, located near the Marts in Atlanta, Georgia.
In 1991, Portman, Portman Properties (a proprietorship of Portman), and
certain other affiliates, including those owning the assets and
businesses discussed above, restructured substantially all of their then
existing indebtedness under an Override and Collateral Pool Agreement
(OCPA). Portman and certain affiliates subsequently defaulted on several
provisions of the OCPA.
(Continued)
F - 8
<PAGE> 24
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
Effective October 2, 1995 (the "Formation Date"), the OCPA was terminated
and existing indebtedness of Portman and affiliates was further
restructured through a series of agreements with the applicable creditors
whereby AMC, Inc. would be formed to hold Portman's mart-related and
certain other assets. In exchange for certain net assets, with a deficit
book value for accounting purposes, contributed to the Company by Portman
Holdings, L.P. (a partnership indirectly controlled by Portman), Portman
Holdings, L.P. received 17.56% (10,880,302 shares) of the equity interest
in AMC, Inc., which for accounting purposes is regarded as a distribution
to Portman of approximately $10,880,000. The net assets contributed by
Portman Holdings, L.P. for the shares of common stock it received had
been contributed to Portman Holdings, L.P. by CGS Associates, L.P., a
partnership in which Portman owned no interest but which was wholly owned
by family members, employees, and former employees of Portman.
On the Formation Date there were five classes of creditors (Classes A
through E) under the OCPA holding claims against Portman personally. In
addition, each of the Atlanta Apparel Mart, the Atlanta Merchandise Mart,
and the Atlanta Gift Mart were encumbered by separate mortgage loans. As
part of the OCPA termination, certain of this debt was forgiven and the
remainder was restructured, resulting in an extraordinary gain of
approximately $68.0 million for AAM and AMM. The debt was restructured as
follows:
- Class A Claims: On the Formation Date, there were two types of
Class A claims under the OCPA. One type, in the aggregate amount of
$2,706,639 held by the lending syndicate that held the mortgage
loan on the Atlanta Merchandise Mart, was paid down to $1,656,007,
which balance was modified to become the Fixed Rate Class A AMM
Escrow Notes due July 31, 1997 in the principal amount of
$1,656,007 (the "AMM Escrow Bonds"). Those bonds were issued
directly to the thirteen banks comprising the lending syndicate
which held the mortgage loan on the Atlanta Merchandise Mart. The
other type of Class A claim, in the aggregate amount of $8,033,600
held by eight separate banks in varying amounts (being the banks
which agreed to fund new working capital to Portman when the OCPA
was put in place), was modified to become the Class A Elevated
Antecedent Debt Notes due July 31, 2000 in the principal amount of
$8,033,600 (the "Antecedent Debt Bonds").
- Class B, C, and D Claims: On the Formation Date, the Class B, C,
and D claims under the OCPA, which represented personal obligations
of Portman, were determined to aggregate $280,329,854. These claims
were extinguished in exchange for the transfer by Portman of
interests in certain assets which had previously secured such
claims. Such interests, which had a deficit book value for
accounting purposes, were then contributed to AMC, Inc. by the
claimants for approximately 29,203,000 shares of common stock of
the Company. Because the transfer was in satisfaction of personal
obligations, the issuance of shares to the claimants is regarded as
a distribution to Portman of approximately $29,203,000 for
accounting purposes.
- Class E Claims: On the Formation Date, the Class E claims under
the OCPA aggregated $8,483,953. These claims were extinguished for
no further consideration.
(Continued)
F - 9
<PAGE> 25
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
- Atlanta Apparel Mart Financing: On the Formation Date, the then
existing Atlanta Apparel Mart mortgage financing was held by a
lending syndicate comprised of seven banks and had an outstanding
balance of approximately $162,000,000. On the Formation Date,
approximately $72,000,000 of this debt (while still an obligation
of AAM) was forgiven and the balance of approximately $90,000,000
was transferred to the Company and modified to become $80,000,000
in principal amount of the private placement notes issued directly
to the individual members of the lending syndicate. In addition,
the members of the lending syndicate received an aggregate of
approximately 10,790,000 shares of common stock of the Company, as
well as warrants to purchase an additional approximately 8,409,000
shares (see note 12).
- Atlanta Merchandise Mart Financing: On the Formation Date, the then
existing Atlanta Merchandise Mart mortgage financing was held by a
lending syndicate comprised of thirteen banks or other financial
institutions and had an outstanding balance of approximately
$153,000,000. On the Formation Date, approximately $60,000,000 of
this debt (while still an obligation of AMM) was forgiven. A
portion of this debt in the amount of $2,706,639 constituted a
Class A claim, which was dealt with as described above. The balance
of approximately $91,000,000 was transferred to the Company and
modified to become the remaining $80,000,000 in principal amount of
the private placement notes issued directly to the individual
members of the lending syndicate. In addition, the members of the
lending syndicate received an aggregate of approximately 11,300,000
shares of common stock of the Company, as well as warrants to
purchase an additional approximately 8,807,000 shares (see note
12).
- AGM Financing: On the Formation Date, the then existing Atlanta
Gift Mart mortgage financing was held by a lending syndicate
comprised of five banks and had an outstanding balance of
$107,282,009. On the Formation Date, this financing was modified to
extend the term, to increase the interest rate, and to reflect
numerous other changes from the original loan documentation (see
note 8).
AMC, Inc. common shares were issued and the debt restructuring was
finalized on November 17, 1995; however, effective control of the net
assets of the predecessor entities was transferred to the Company on
October 2, 1995, from which date the risks and rewards of ownership were
those of the shareholders of AMC, Inc. Because the measurement date for
determining the restructured debt and related amounts forgiven was
October 2, 1995 and because the risks and rewards of ownership were
transferred to the AMC, Inc. shareholders effective October 2, 1995, the
impact of recording the debt restructuring on its effective date rather
than the date upon which such restructuring was finalized is not material
to the Company's consolidated financial statements.
This restructuring has been accounted for as a troubled debt
restructuring in accordance with Statement of Financial Accounting
Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt
Restructurings" (SFAS 15). Accordingly, the assets and liabilities of the
Company have been recorded at their historical cost, and stockholders'
deficit represents the excess of liabilities over assets. Included in
stockholders' deficit are accumulated net losses of and total partners'
excess withdrawals from the Predecessor of approximately $51,116,000 and
$101,049,000, respectively.
(Continued)
F - 10
<PAGE> 26
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
The accompanying consolidated financial statements of the Company include
the accounts of AMC, Inc. and its wholly owned subsidiaries: GMGP, Inc.;
Gift Mart Limited Partner, Inc.; LFGP, Inc.; and EC Holdings, Inc.
All significant intercompany accounts and transactions have been
eliminated in the consolidated and combined financial statements.
(2) Summary of Significant Accounting Policies
(a) Method of Accounting
The accompanying financial statements have been prepared on the
accrual basis of accounting. Certain reclassifications have been
made to the 1995 and 1994 combined financial statements to conform
to the presentation in the 1996 consolidated financial statements.
(b) Restricted Escrow Deposits
Restricted escrow deposits represent deposits for the payment of
property taxes, insurance, and ground lease payments that are
required by the Company's lenders.
(c) Receivables
The Company's receivables primarily relate to billings to tenants
who lease space in the mart buildings and billings to affiliates
for reimbursable expenses. The Company generally provides for
losses on tenant receivables that are more than 60 days delinquent.
Provisions for losses on affiliate receivables are recorded based
on specific analysis of the affiliate's ability to pay.
(d) Commercial Property
Commercial property is carried at cost and is depreciated using
straight-line and accelerated methods over the estimated useful
lives of the assets as follows:
Buildings and improvements 15 to 40 years
Tenant improvements 3 to 5 years
Furniture, fixtures, and equipment 5 to 7 years
Management evaluates its commercial property and other assets for
impairment. In making such evaluation, management uses independent
appraisals, cash flow analyses, and other relevant information to
determine if the carrying value of the assets are recoverable. For
any asset for which the carrying value is not considered to be
recoverable, an impairment loss would be recognized by a write-down
of the asset to its fair value. The Company has not experienced any
significant impairment losses.
(e) Trade Show Revenue and Expense
Trade show revenues are generally collected in advance and
initially recorded as deferred revenue. Trade show revenues are
recognized in the month the related show occurs. Direct costs of
trade shows are deferred as prepaid expense and recognized in the
month the related trade show occurs.
(Continued)
F - 11
<PAGE> 27
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
(f) Leasing Commissions and Management Fees
The Company recognizes leasing and management fee income in
accordance with the terms of its management agreements. The Company
has entered into management agreements with certain affiliates:
Portman Apparel Associates, L.P.; CGS Associates, L.P.; AMC
Orlando, Inc.; AMC Tampa, Inc.; and an unrelated party, Inforum
Associates.
Under the terms of the agreements with Portman Apparel Associates,
L.P.; AMC Tampa, Inc.; and AMC Orlando, Inc., the Company earns a
management fee equal to 3% of the managed company's gross revenue,
as defined. Under the terms of the agreement with CGS Associates,
L.P., the Company earns a management fee equal to 1.5% of gross
revenues, as defined, through December 31, 1995 and earns a
management fee equal to 3% of gross revenues, as defined,
thereafter. The Company earns a procurement fee during the initial
term of the leases procured for Portman Apparel Associates, L.P.
equal to the first month's base rent. In addition, the Company
earns a lease commission of 5% of all rent collected thereafter
during the initial term of the lease. For renewals and extensions,
leasing commissions equal to 3% of all rent collected are earned
during the renewal or extension period. In the event a tenant
leases additional space, commissions are earned as if a new lease
were being executed for the additional space leased. Procurement
fees are paid when the first month's rent is collected; additional
lease commissions are paid monthly during the lease term.
Procurement fees and additional lease commissions are recognized as
revenue when received. The Company only receives leasing
commissions determined in accordance with the foregoing from
Portman Apparel Associates, L.P. if such leasing commissions exceed
leasing costs, as defined. Otherwise, the Company receives an
amount equal to the leasing costs.
Under the terms of the agreement with Inforum Associates, the
Company manages the Convention Facilities and Food Service
Contractor of the Inforum facility and receives as a management fee
40% of the Combined Net Cash Flow (as defined) of the Convention
Facilities and Food Service operations.
The Company or Predecessor earned approximately $1,053,000,
$584,000, and $783,000 in leasing commissions and management fees
for the 335-day period ended August 31, 1996, the 274-day period
ended October 1, 1995, and the year ended December 31, 1994,
respectively.
(g) Marketing Costs
The Company incurs costs for various marketing and advertising
efforts. All costs related to marketing and advertising are
expensed in the period incurred or if directly related to specific
trade shows are expensed in the month the related show occurs.
(Continued)
F - 12
<PAGE> 28
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
(h) Income Taxes
The Company accounts for income taxes using an asset and liability
approach in accordance with Statement of Financial Accounting
Standards No. 109 (SFAS 109). Under SFAS 109, deferred income taxes
are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. Additionally, the
effect on deferred taxes of a change in tax rates is recognized in
earnings in the period that includes the enactment date.
For the Predecessor, no provision has been made for income taxes
because any liability for income taxes is that of the partners and
shareholders of the predecessor companies.
(i) Income Per Share
Weighted average shares outstanding for the period from October 2,
1995 through August 31, 1996 were approximately 62,000,000. Primary
net income per share has been calculated assuming no common stock
equivalents resulting from outstanding warrants since such warrants
are exercisable only upon certain conditions and such conditions
have not yet occurred (note 12). As a result of total warrants
exceeding 20% of current outstanding shares, fully diluted net
income per share has been calculated assuming 16,736,548 additional
shares issuable and outstanding and assuming an earnings increase
of approximately $762,000 for the period from October 2, 1995
through 1996. Such assumed earnings increases have been determined
using a tax-effected interest rate of 5.0%, applied to the proceeds
that would have been received from the additional 16,736,548 shares
assumed to be issued.
(j) Use of Estimates
Management uses estimates and assumptions relating to the reporting
of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could
differ from these estimates.
(Continued)
F - 13
<PAGE> 29
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
(k) Recently Issued Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" ("SFAS 121"), which is effective for fiscal
years beginning after December 15, 1995. This statement requires
that long-lived assets that are to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of any such asset may not be
recoverable. In the event that facts and circumstances indicate
that the carrying value of long-lived assets may be impaired, an
evaluation of their recoverability would be performed and any
resulting impairment loss recorded. The implementation of SFAS 121
is not expected to materially impact the Company's financial
position or results of operations because the Company periodically
evaluates its commercial property and other assets for impairment
using independent appraisals, cash flow analyses, and other
relevant information. The Company has not experienced any
significant impairment losses.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," which is effective for fiscal years
beginning after December 15, 1995. This standard defines a fair
value-based method of measuring employee stock options or similar
equity instruments. In lieu of recording the value of such options
as compensation expense, companies may provide pro forma
disclosures quantifying the difference between compensation cost
included in net income as prescribed by current accounting
standards and the related cost measures by such fair value-based
method. The Company currently does not have any stock-based
employee compensation plans. The Company will provide disclosure in
its financial statements after the effective date of the standard
relating to its outstanding warrants to the extent applicable.
(Continued)
F - 14
<PAGE> 30
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
(3) Transactions with Affiliates
Transactions with affiliates are summarized as follows:
(a) Accounts Receivable
Accounts receivable from affiliates primarily represent
management fees, cash management advances, and reimbursable
expenses and are summarized as follows:
<TABLE>
<CAPTION>
August 31, October 1,
1996 1995
---- ----
<S> <C> <C>
CGS Associates, L.P. $ 103,247 63,914
Portman Holdings, L.P. 7,183 -
Portman Apparel Associates, L.P. - 514,658
Race Events Joint Venture - 183,841
John Portman & Associates - 14,898
AMC Orlando, Inc. 54,705 25,753
AMC Tampa, Inc. 55,729 7,998
Lightfair International Associates 49,553 23,925
OCPA cash management advances - 236,593
Other 99,336 297,287
------------- ---------
369,753 1,368,867
Less allowance for doubtful affiliate receivables - 772,535
------------- ---------
Net affiliate receivables $ 369,753 596,332
============= =========
</TABLE>
The OCPA cash management advances relate to amounts advanced from
AMCMC to Portman Properties under the OCPA and are
noninterest-bearing. Under the provisions of the OCPA, these
advances, net of outstanding checks, were distributed to Portman,
AMCMC's sole stockholder, from time to time and charged to
equity. AMCMC made total distributions in the amount of $998,144
in 1994. As of August 31, 1996, these advances had been
collected.
During 1996, the Company wrote off approximately $904,000 of
receivables from Portman Apparel Associates, L.P.; Race Events
Joint Venture; and other affiliates, as these accounts were
determined to be uncollectible. As approximately $670,000 of
these amounts had been reserved at October 1, 1995, an additional
approximate $234,000 has been recorded as bad debt expense in the
1996 consolidated financial statements.
(Continued)
F - 15
<PAGE> 31
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
(b) Accounts Payable to and Interest-Bearing Advances from Affiliates
Accounts payable to affiliates represent certain reimbursable
expenses or noninterest-bearing advances and are summarized as
follows:
<TABLE>
<CAPTION>
August 31, October 1,
1996 1995
------------ -------
<S> <C> <C>
Portman Holdings, L.P. $ - 173,633
Other 30,000 30,000
------------ -------
$ 30,000 203,633
============ =======
</TABLE>
During 1995 and 1994, the Predecessor had interest-bearing
advances from Portman Properties that bore interest at the prime
rate plus 1%. Interest expense recorded on those affiliate
advances approximated $1,433,000 and $1,467,000 for the 274-day
period ended October 1, 1995 and for the year ended December 31,
1994, respectively. These interest-bearing advances and related
accrued interest were forgiven during 1995 resulting in a
contribution of capital of $20,125,663.
(c) Contributions from Affiliate
With the development of the Atlanta Gift Mart in 1990, the
Atlanta Merchandise Mart discontinued leasing space to gift
industry tenants. Due to the significant impact of this event on
AMM's cash flow, AMM's lenders required escrow deposits by AMM,
guaranteed by Portman, which were to be paid by AGM as
compensation to AMM for the lost revenue from the displaced gift
industry tenants and to reimburse AMM for marketing and
associated costs to renovate space for new tenants.
The Escrow Agreements provided for an initial deposit of
$15,331,000, which was funded from the AGM construction loan. Of
this amount, $3,911,271 was distributed to Portman on December
29, 1989 and was recorded as a capital contribution receivable
from partner. The remainder was funded during 1990 and treated as
a capital contribution from Portman to AMM. The $3,911,271,
initially distributed to Portman, was contributed to an affiliate
by Portman. The outstanding amount of the capital contribution
receivable, plus accrued interest at 8.5%, has been included as a
component of the Predecessor's capital deficit. Interest income
earned related to this capital contribution receivable was
$77,566 and $270,204 for the 274-day period ended October 1, 1995
and for the year ended December 31, 1994, respectively. During
1995 and 1994, Portman made contributions to AMM amounting to
$61,069 and $2,670,636, respectively, which reduced the total
capital contribution receivable to $2,706,638 as of the Formation
Date.
(Continued)
F - 16
<PAGE> 32
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
(d) Other
Effective October 2, 1995, the Company has entered into various
service agreements with Portman Holdings, L.P. and other
affiliates, summarized as follows:
- Telephone Service and Human Resource Service Agreements --
The Company is to provide services which include telephone
maintenance, equipment, and consulting services and human
resource services based on rates as defined in the
agreements. These agreements have an initial term of one year
with an automatic extension of an additional year if not
terminated prior to November 13, 1996. These agreements can
be terminated by either party after notice is given, as
defined in the agreements.
- Computer Service Agreement -- The Company is to provide
computer services, including access and maintenance of
hardware and software at a monthly rate of $7,100, subject to
increases and additional costs in certain circumstances. This
agreement has an initial term of one year with an automatic
extension of an additional year if not terminated prior to
November 13, 1996. This agreement can be terminated by either
party on six months' written notice.
- Risk Management Agreement -- Portman Holdings, L.P.
will provide risk management services for a monthly fee of
$8,500 plus reimbursable costs. Additionally, Portman
Holdings, L.P. will receive 50% of all claims management fees
reimbursed to the Company by insurance companies. This
agreement expires December 31, 1996 and is subject to annual
renewal.
- Financial and Strategic Planning Agreement -- Portman
Holdings, L.P. will provide financial and strategic planning
services for a monthly fee of $10,000. This agreement expires
December 31, 1996 and is subject to annual renewal.
Other service agreements between the Company and Portman
Holdings, L.P. not identified above are either based on defined
hourly rates for services performed or are not significant.
(4) Investment in Affiliates
The Company, through its wholly owned subsidiary LFGP, Inc., owns an
approximate 50% general partnership interest in a limited partnership,
Portman Lightfair Associates, L.P. (PLALP). The primary asset of PLALP is
its one-third ownership interest in Lightfair International Associates, a
New York general partnership. The Company's and Predecessor's investment
in PLALP and PLALP's investment in Lightfair International Associates are
accounted for using the equity method of accounting. The carrying value
of this investment is $50,663 and $33,796 at August 31, 1996 and October
1, 1995, respectively.
Earnings of $88,738, $89,985, and $102,154 for the 335-day period ended
August 31, 1996, the 274-day period ended October 1, 1995, and the year
ended December 31, 1994, respectively, related to the Company's or
Predecessor's indirect investment in Lightfair International Associates
are included in (earnings) loss from investment in affiliates in the
accompanying consolidated and combined statements of operations.
(Continued)
F - 17
<PAGE> 33
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
The Company, through its wholly owned subsidiary EC Holdings, Inc., also
owns an interest in two mixed use complexes in San Francisco's financial
district. Embarcadero Center, in which the Company owns approximately
3.4% interest, is comprised of four office buildings, a retail mall, and
a hotel. The adjacent Embarcadero Center West, in which the Company owns
approximately 6.7% interest, is comprised of two office buildings and a
hotel. These investments are known collectively as EC Holdings and are
accounted for using the equity method of accounting. At August 31, 1996
and October 1, 1995, these investments have no carrying value.
In March 1994, AMCMC entered into a joint venture agreement with two
affiliates. AMCMC was a 25% joint venturer. The joint venture was formed
for the purpose of developing and producing an interactive fan event for
racing fans. The joint venture incurred significant losses during the ten
months ended December 31, 1994. Accordingly, AMCMC's loss from this joint
venture of $559,516 is included in (earnings) loss from investment in
affiliates in the accompanying combined statement of operations for the
year ended December 31, 1994. The Company or Predecessor have received no
distributions from the investment in the joint venture.
(5) Commercial Property
A summary of commercial property follows:
<TABLE>
<CAPTION>
August 31, October 1,
1996 1995
---- ----
<S> <C> <C>
Land $ 19,338,993 19,338,993
Buildings and improvements 248,882,626 242,184,657
Tenant improvements 31,252,570 29,544,197
Furniture, fixtures, and equipment 21,069,400 19,481,933
Construction in progress 1,164,650 2,451,233
---------------- -----------
$ 321,708,239 313,001,013
================ ===========
</TABLE>
Construction in progress primarily relates to building and tenant
improvements under construction.
(6) Notes Receivable
Effective October 2, 1995, Portman redeemed his entire ownership interest
in two affiliated companies (AMC Orlando, Inc. and AMC Tampa, Inc.) in
exchange for a total of $1,050,632 in cash and $4,202,526 in notes
receivable. The notes receivable were contributed by Portman to the
Company and are pledged as collateral to the AMM Escrow Bonds described
in note 7. These notes receivable mature on October 2, 1999, and are
summarized as follows at August 31, 1996:
<TABLE>
<S> <C>
Receivable from:
AMC Orlando, Inc. $ 2,817,232
AMC Tampa, Inc. 390,442
--------------
$ 3,207,674
==============
</TABLE>
(Continued)
F - 18
<PAGE> 34
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
The notes bear interest at 7.5% per annum and require payment of interest
quarterly. The principal amounts are payable in equal aggregate
semiannual payments of $525,316 over the term of the notes. Interest
income of $239,524 related to these notes is included in interest income
in the accompanying consolidated statement of operations for the 335-day
period ended August 31, 1996. AMC Tampa, Inc. has advised the Company
that it may have difficulty meeting its interest and principal repayment
obligations under its note payable to the Company and, to date, has not
made all required principal and interest payments. In the opinion of
management, nonpayment by AMC Tampa, Inc. would have an insignificant
effect upon the Company's consolidated financial position and results of
operations.
(7) Corporate Notes Payable
At October 1, 1995 mortgage loans payable that were restructured and a
portion subsequently exchanged for corporate notes payable as described
in (e) below are summarized as follows:
<TABLE>
<S> <C>
AMM(a) $ 141,687,296
AAM(b) 162,108,691
-------------------
303,795,987
Reduction to reflect AAM and AMM debt
restructuring (see note 1) 56,572,532
-------------------
$ 247,223,455
===================
</TABLE>
(a) On December 21, 1988, AMM closed a mortgage loan (AMM Mortgage
Loan) from a bank in the amount of $152,500,000. Of this amount,
$147,800,000 was disbursed to AMM as of December 31, 1990. The
purpose of this loan was to retire two then existing mortgage
loans and provide additional working capital for the partners.
This loan was restructured effective September 6, 1991 with an
extension in maturity date from December 20, 1991 to December
31, 1995.
The loan was secured by a first mortgage on the land, building,
and improvements of AMM. The loan had been partially guaranteed
by Portman in the amount of approximately $7,900,000, subject to
increases or decreases in certain limited instances.
The terms of the AMM Mortgage Loan called for interest to accrue
at a floating rate equal to the prime rate or LIBOR plus 1.25%.
The loan agreement provided that any undisbursed portions of the
loan were available on a revolving basis to cover interest and
capital items not covered by net operating revenues. In turn,
Excess Project Cash Flow (as defined) was required to be applied
as a loan prepayment on a quarterly basis.
The loan agreement also contained certain covenants with regard
to restrictions on additional indebtedness and required the
achievement of certain performance standards. At October 1,
1995, events of default had occurred on this loan payable
regarding certain performance standards and required payments of
interest.
(Continued)
F - 19
<PAGE> 35
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
AMM entered into various protected interest rate agreements
related to the AMM Mortgage Loan as required by the loan
agreement. These agreements provided for the reimbursement of
interest incurred when the reference interest rate provided for
in the agreement (generally one month LIBOR) exceeded certain
guaranteed interest rates. The protected interest rate
agreements entered into during 1991 had effective terms from
January 1993 to January 1996. The guaranteed interest rates were
tied to notional amounts totaling $140,000,000 and varied from
7.4% to 9.0% from January 1993 to January 1996. Effective with
the debt restructuring as discussed below, the remaining
unamortized costs relating to these agreements were written off.
A portion of this debt was forgiven by the lenders effective
October 2, 1995. As a result of such partial forgiveness
accounted for in accordance with SFAS 15, accrued interest of
$11,423,103 has been eliminated and the principal amount of the
AMM Mortgage Loan has been reduced by $17,820,659, resulting in
a gain on restructuring of debt as more fully described in (d)
below.
(b) On February 17, 1987, AAM closed a mortgage loan (AAM Mortgage
Loan) from a bank in the amount of $140,000,000. The purpose of
this loan was to retire the then existing debt and provide
construction financing for the expansion of the Atlanta Apparel
Mart. This loan was restructured effective September 6, 1991
with an extension in maturity date from December 28, 1991 to
December 31, 1995. The loan was secured by all real and personal
property of AAM as well as an assignment of AAM's interest in
the tenant leases, and a partial guaranty of payment by Portman.
The terms of the AAM Mortgage Loan called for interest to accrue
at a floating rate equal to the prime rate plus 0.25% or, at the
election of AAM, at a rate equal to LIBOR plus 1.5% or a
certificate of deposit rate plus 1.5%, as defined in the loan
agreement. The terms of the AAM Mortgage Loan called for unpaid
interest to become part of the principal amount on a monthly
basis and to thereafter accrue interest. The agreement also
contained certain covenants with regard to restrictions on
additional indebtedness and required the achievement of certain
performance standards. At October 1, 1995 events of default had
occurred on the AAM Mortgage Loan regarding certain performance
standards.
A portion of this debt was forgiven by the lenders effective
October 2, 1995. As a result of such partial forgiveness
accounted for in accordance with SFAS 15, the principal amount
of the AMM Mortgage Loan has been reduced by $38,751,873,
resulting in a gain on restructuring of debt as more fully
described in (d) below.
(c) Restricted escrow deposits at August 31, 1996 and October 1,
1995 represent deposits for the payment of property taxes,
insurance, and ground lease rentals that are required by the
lenders on the aforementioned mortgage loans and the AGM
mortgage loan discussed in note 8.
(Continued)
F - 20
<PAGE> 36
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
(d) The components of the extraordinary gain on debt restructuring
as discussed in (a) and (b) above are summarized as follows:
<TABLE>
<CAPTION>
AMM AAM Total
--- --- -----
<S> <C> <C> <C>
Outstanding mortgage loan
payable and related accrued
interest immediately preceding
debt restructuring $ 153,110,399 162,108,691 315,219,090
Extraordinary gain on debt
restructuring (29,243,762) (38,751,873) (67,995,635)
---------------- ----------- -----------
Carrying value of debt after
restructuring $ 123,866,637 123,356,818 247,223,455
================ =========== ===========
</TABLE>
(e) Effective October 2, 1995, the Company issued notes payable
("the Mart Bonds") in the face amount of $160,000,000 and an
equity interest in AMC, Inc. (see note 12) to the lenders of the
AMM Mortgage Loan and the AAM Mortgage Loan in modification of
existing indebtedness to the lenders as a part of the
aforementioned troubled debt restructuring. The Mart Bonds earn
interest at the rate of 7.5% per annum until July 31, 1997 and
9.0% per annum thereafter through maturity on July 31, 2000.
Interest only is payable quarterly in arrears. Over the term of
the Mart Bonds, 50% of net cash flows (as defined) in excess of
$10,000,000 must be paid as principal reductions on the Mart
Bonds within 120 days after the end of each fiscal year.
Additionally, net proceeds from any future refinancing of the
mortgage loan discussed in note 8, after repayment of the
Antecedent Debt Bonds discussed below, must be used to reduce
principal on the Mart Bonds. The remaining principal is due at
maturity. The Mart Bonds are secured by a deed to secure debt on
both the Atlanta Apparel Mart and the Atlanta Merchandise Mart
properties and a pledge of related assets, subject to the first
lien discussed in note 9.
The Mart Bonds were recorded at an amount equal to the total
future cash payments, including interest, specified by their
terms in accordance with SFAS 15. All future cash payments will
be accounted for as a reduction of the carrying amount of the
Mart Bonds, and no interest expense will be recognized on the
Mart Bonds.
Covenants in the Mart Bond agreements (1) restrict the payment
of dividends or other distributions to stockholders of the
Company as well as redemption by the Company of any of its
common stock; (2) restrict the incurrence of additional debt;
(3) restrict the acquisition of additional assets unless certain
net worth requirements and debt coverage ratios are maintained;
(4) place restrictions on affiliate transactions, mergers, and
sale of assets; and (5) allow for acceleration of the maturity
of the Mart Bonds upon a default under other debt agreements. In
addition, the Mart Bonds become immediately redeemable at 101%
of par upon certain changes in ownership or management of the
Company as defined.
(Continued)
F - 21
<PAGE> 37
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
(f) Effective October 2, 1995, the Company also issued corporate
notes payable in the amount of $1,656,007 ("the AMM Escrow
Bonds") to certain lenders. The AMM Escrow Bonds bear interest
at 8.5% per annum beginning November 1, 1995 and mature on July
31, 1997. Interest on the AMM Escrow Bonds is payable quarterly
with the first payment on January 31, 1996. Principal is payable
semiannually, each January 31 and July 31, in amounts equal to
the aggregate principal installments due under the notes
receivable described in note 6. Additional principal payments
are due in the amount of any prepayments received on the notes
receivable and any excess interest earned on the notes
receivable over the interest paid on the AMM Escrow Bonds plus
any distributions received by the Company relating to its
investment in PLALP. The notes receivable described in note 6
and the investment in PLALP described in note 4 are pledged as
security against the AMM Escrow Bonds.
(g) Additionally, effective October 2, 1995, the Company issued
corporate notes payable in the amount of $8,033,600 ("the
Antecedent Debt Bonds") to certain other creditors, of which
$730,327 in principal amount were issued to Atlanta Gift Mart,
L.P., a second-tier subsidiary of the Company, and pledged to
one of Atlanta Gift Mart, L.P.'s lenders of the mortgage loan
discussed in note 8. The Antecedent Debt Bonds are
noninterest-bearing and mature on July 31, 2000. The Antecedent
Debt Bonds are secured by the Company's investment in EC
Holdings, Inc., the common stock of the Company's wholly owned
subsidiaries, GMGP, Inc. and Gift Mart Limited Partner, Inc.
(which own the partnership interests of Atlanta Gift Mart,
L.P.), Portman's direct and indirect limited partnership
interest in JPA Shanghai Associates, Ltd., and unimproved land
owned by the Company. Under certain conditions as defined in the
bond agreements, such as the failure of the Company to liquidate
the above-mentioned assets, the Antecedent Debt Bondholders are
entitled to direct that the trustee for the bonds foreclose upon
the aforementioned collateral (with the exception of the common
stock of GMGP, Inc. and Gift Mart Limited Partner, Inc.) at any
time after October 2, 1997 relating to EC Holdings, Inc. and the
undeveloped land and after October 2, 1998 for the limited
partnership interest in JPA Shanghai Associates, Ltd., but only
if the bondholders have first exercised their rights to
foreclose on the properties held by EC Holdings, Inc. and the
unimproved land.
(Continued)
F - 22
<PAGE> 38
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
(8) Mortgage Loan Payable
At August 31, 1996 and October 1, 1995, the Company or Predecessor had a
mortgage loan payable in the amount of $102,951,830 and $107,282,009,
respectively, secured by a first mortgage on the land, building, and
improvements of the Atlanta Gift Mart, L.P., along with the Atlanta Gift
Mart, L.P.'s interest as lessor in all existing and future leases of the
property. The mortgage loan payable arose from a previous construction
loan payable. This loan was restructured effective August 23, 1991 with
an extension in maturity date to December 30, 1994 and further extended
to December 30, 1995 during 1994. Effective October 2, 1995, the
construction loan was again restructured with an extension in maturity
date to July 31, 1998. In connection therewith, the Company incurred an
extension fee equal to 1% of the principal balance outstanding at October
2, 1995, payable in four equal annual installments. In addition, the
mortgage loan payable may be extended for one additional year if certain
performance levels are achieved. The extended loan bears interest at a
floating rate equal to the prime rate plus 1% or LIBOR plus 2% or the
Interbank Offered Rate plus 2% at the option of Atlanta Gift Mart, L.P.
At August 31, 1996 and October 1, 1995, the weighted average interest
rate on the mortgage loan balance outstanding approximated 7.84% and
7.73%, respectively. Over the term of the mortgage loan, net cash flows
of Atlanta Gift Mart, L.P., as defined, plus payments received by Atlanta
Gift Mart, L.P. on the $730,327 in Antecedent Debt Bonds it holds, must
be applied to reduce the outstanding principal balance of the mortgage
loan. The mortgage loan is partially guaranteed by Portman.
Effective October 2, 1995, the Atlanta Gift Mart, L.P. entered into a
Rate Cap Transaction Agreement (Rate Cap Agreement), which defines a
guaranteed rate for the payment of interest on the mortgage loan. This
protected interest rate agreement has an effective term from November 1,
1995 to September 1, 1998. The cost of the Rate Cap Agreement was
$397,500, is included in other assets at August 31, 1996, and is being
amortized to interest expense over the term of the agreement.
Amortization expense for the 335-day period ended August 31, 1996 was
$143,542. The Rate Cap Agreement provides for the reimbursement of
interest incurred when the reference interest rate provided for in the
agreement exceeds the guaranteed interest rate. The notional amount of
the Rate Cap Agreement is $40,000,000 through January 2, 1996, increases
to $100,000,000 through January 2, 1997, and decreases to $95,000,000 and
$90,000,000 through January 2, 1998 and September 1, 1998, respectively.
A guaranteed interest rate of 9% was tied to these notional amounts.
Certain covenants, among others, under the mortgage loan agreement
require that Atlanta Gift Mart, L.P. maintain specified quarterly levels
of net operating income and obtain approval from its lenders before
making certain capital expenditures or incurring certain operating costs.
The mortgage loan agreement requires that cash of the Atlanta Gift Mart,
L.P. be held by the lender and restricted for payment of operating
expenses and other costs as approved by the lender based on monthly
funding budgets, and interest and principal on the mortgage loan.
At August 31, 1996, approximately $1,318,000 incurred in extending the
mortgage loan payable has been deferred and is included, net of
accumulated amortization, in other assets in the accompanying
consolidated balance sheet. These costs are being amortized over the
remaining term of the mortgage loan payable. Amortization expense for the
335-day period ended August 31, 1996 was $439,329.
(Continued)
F - 23
<PAGE> 39
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
(9) Revolving Line of Credit
At August 31, 1996, the Company had available a revolving line of credit
with a commercial bank in the amount of $10,000,000, of which none was
outstanding. Amounts under the line of credit are available to cover
operating shortfalls, capital improvements, debt service on other
outstanding debt, and certain costs, up to $2,500,000, associated with
acquisition and start-up of new trade shows. The line of credit matures
on October 2, 2000 and bears interest at the prime rate plus 1% or LIBOR
plus 2.15% at the Company's option, payable monthly for prime rate loans
and monthly, quarterly, or semiannually for LIBOR rate loans. In
addition, a commitment fee of .5% per annum on the average daily unused
portion of the line is payable quarterly in arrears. Amounts outstanding
under the line of credit are secured by a first lien on the Atlanta
Apparel Mart and the Atlanta Merchandise Mart properties as well as
related assets.
Covenants in the revolving line of credit agreement (1) restrict the
acquisition of assets in excess of $10,000,000 for any fiscal year unless
certain net worth requirements and debt coverage ratios are maintained;
(2) restrict the payment of dividends or other distributions to
stockholders; (3) restrict the incurrence of additional debt; (4) place
restrictions on affiliate transactions, mergers, and disposal of assets;
and (5) allow for acceleration of the amounts outstanding upon a default
under this agreement or other debt agreements.
(10) Fair Value of Financial Instruments
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," the Company is
required to disclose the fair value of financial instruments for which it
is practicable to estimate the value.
The carrying amounts reported in the accompanying consolidated and
combined balance sheets for restricted escrow deposits, tenant,
affiliate, and other receivables, accounts payable, other accrued
expenses, and the revolving line of credit approximate their fair values.
The Company's notes receivable are from affiliated companies and have
been priced based on agreements between Portman and those affiliates.
Accordingly, the resulting fair value is not separately disclosed as
there is no readily determinable fair value for such transactions between
related parties.
The corporate notes payable resulted from the troubled debt restructuring
discussed in note 1. Accordingly, due to the unique circumstances leading
to the issuance of this debt and since there is no ready market available
for this debt, determination of its fair value is not practicable.
The AAM and AMM mortgage loans payable at October 1, 1995 discussed in
notes 7(a) and 7(b) reflect the troubled debt restructuring discussed in
note 1. Accordingly, due to the unique circumstances leading to the
issuance of this debt and since there is no ready market available for
this debt, determination of its fair value is not practicable.
(Continued)
F - 24
<PAGE> 40
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
The carrying value of the AGM loan at August 31, 1996 and October 1, 1995
discussed in note 8 is a representative approximation of its fair value
as it was restructured and extended as of October 2, 1995, with interest
accruing at variable rates. The carrying value of the related interest
rate protection agreement approximates fair value.
(11) Income Taxes
The Predecessor has not provided for income taxes as of October 1, 1995
or earlier periods, as the partners and shareholders of the predecessor
companies are liable for any income taxes relating to such periods.
The provision for income tax expense, principally Federal, for the period
from October 2, 1995 through August 31, 1996 consists of the following:
<TABLE>
<S> <C>
Current expense $ -
Deferred expense 3,401,600
----------
$3,401,600
==========
</TABLE>
Total income tax expense recognized for the period ended August 31, 1996
differs from the amount computed by applying the U.S. Federal income tax
rate of 34% to pretax income as a result of the following:
<TABLE>
<S> <C>
Computed "expected" income tax expense $3,638,747
Increase (decrease) in income tax expense resulting from:
State income taxes, net of Federal benefit 428,088
Income recognized by Predecessor partners (763,073)
Change in valuation allowance 63,975
Other 33,863
----------
$3,401,600
==========
</TABLE>
At August 31, 1996, the Company has a net operating loss carryforward for
Federal income tax purposes of approximately $1,370,000 which is
available to offset future taxable income, if any, through 2011.
(Continued)
F - 25
<PAGE> 41
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
Differences between accounting rules and tax laws cause differences
between the bases of certain assets and liabilities for financial
reporting purposes and tax purposes. The tax effects of these
differences, to the extent that they are temporary, are recorded as
deferred income tax assets and liabilities under SFAS 109. In connection
with the formation of the Company as of October 2, 1995, the Company
recorded net deferred tax assets of $25,589,739. The tax effects of
temporary differences that give rise to significant portions of the net
deferred income tax assets at August 31, 1996 are presented below:
<TABLE>
<S> <C>
Deferred income tax assets:
Allowance for doubtful accounts $ 838,203
Commercial property 25,929,688
Investment in affiliates 2,142,144
Mart Bonds 21,049,086
Antecedent Debt Bonds 724,618
Net operating loss carryforward 520,492
Other 580,046
--------------
Gross deferred income tax assets 51,784,277
Less valuation allowance 29,045,258
--------------
Deferred income tax assets 22,739,019
Deferred income tax liability - property taxes (550,880)
--------------
Net deferred income tax assets $ 22,188,139
==============
</TABLE>
The valuation allowance for deferred income tax assets as of August 31,
1996 was $29,045,258, an increase of $63,975 from the amount recorded in
connection with formation of the Company. In assessing the realizability
of deferred income tax assets, management considers whether it is more
likely than not that some portion or all of the deferred income tax
assets will not be realized. The ultimate realization of deferred income
tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become
deductible. Management considers projected future taxable income and tax
planning strategies in making this assessment. Based upon the projections
of future taxable income over the periods in which the temporary
differences resulting in the deferred income tax assets are deductible,
management does not believe it is more likely than not that the Company
will realize the benefits of all of these deductible differences. In
particular, the benefit of the largest deferred income tax asset related
to the commercial property will occur over an extended period of time or
upon disposition of the property, if at all. Accordingly, management has
generally recorded a valuation allowance against all deferred income tax
assets other than those relating to the corporate notes payable and
certain other items, for which projections of taxable income to be
recorded during the periods in which the related differences reverse are
sufficient to support their realizability. Projections of taxable income
that have been considered in the determination of the valuation allowance
reflect, during the next three to five years, annual increases in pretax
income over previous historical or projected results in amounts ranging
from approximately 12% to approximately 64%. Actual results could differ
significantly from these estimates and impact the ultimate realization of
the deferred tax assets.
(Continued)
F - 26
<PAGE> 42
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
(12) Stockholders' Deficit
The following is a summary of the components of the beginning
stockholders' deficit of AMC, Inc. as of October 2, 1995:
<TABLE>
<S> <C>
(Deficit) equity of Predecessor companies:
The Atlanta Apparel Mart $ (47,015,555)
Atlanta Merchandise Mart, L.P. (77,141,641)
Atlanta Gift Mart, L.P. (28,955,019)
Atlanta Market Center Management Company, Inc. 516,419
Pisa Associates, L.P. 397,153
Investment in Portman Lightfair Associates, L.P. 33,796
------------------
(152,164,847)
------------------
Equity issued to The Atlanta Apparel Mart and the Atlanta
Merchandise Mart, L.P. lenders in restructuring of
debt (see below) 22,090,121
------------------
Assets of other than Predecessor companies contributed -
notes receivable (see note 6) 4,202,526
------------------
Liabilities of other than Predecessor companies assumed:
Antecedent Debt Bonds (see note 7) (7,303,273)
AMM Escrow Bonds (see note 7) (1,656,007)
------------------
(8,959,280)
------------------
Assets (liabilities) resulting from formation of AMC, Inc.
and termination of the OCPA (see note 1):
Deferred income taxes 25,589,739
Accrued closing and other costs (3,490,436)
Other 2,230,889
------------------
24,330,192
------------------
Stockholders' deficit as of October 2, 1995 $ (110,501,288)
==================
</TABLE>
In connection with the formation of AMC, Inc., all assets contributed and
liabilities assumed have been recorded at historical cost. The deferred
income tax assets resulting from differing financial statement and tax
bases for assets and liabilities contributed to the Company and the
Company's status as a corporation filing under Subchapter C of the
Internal Revenue Code have been recorded as a component of the capital
deficit, as such deferred income tax assets were effectively contributed
in the restructuring.
As part of the troubled debt restructuring discussed in notes 1 and 7,
AMC, Inc. issued 22,090,121 shares of common stock to creditors of The
Atlanta Apparel Mart and the Atlanta Merchandise Mart, L.P. in
replacement of $22,090,121 in principal amount of debt outstanding to
such creditors. The shares of common stock were issued to the creditors
on November 17, 1995.
(Continued)
F - 27
<PAGE> 43
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
In connection with the aforementioned troubled debt restructuring as
discussed in notes 1 and 7, a part of which resulted in the formation of
AMC, Inc. and the issuance of 62,173,153 shares of common stock, $1 par
value per share, to Portman Holdings, L.P. and certain creditors of
Portman and affiliates, the Company has issued warrants to purchase
29,171,178 additional shares of the Company's common stock to Portman and
certain shareholders. The warrants will be exercisable (i) only during
such time as the equity value of the Company (as determined by an
independent valuation) equals or exceeds 150% of its equity value at
formation and (ii) only during the five-year period commencing October 2,
1997. The exercise price for each additional share of the Company's
common stock is $1.
Because the exercisability of the warrants is contingent upon the equity
value of AMC, Inc. exceeding 150% of its value at the time of formation
and at the present time it cannot be assumed that such condition is
likely to occur, the issuance of the warrants has not been recorded in
the Company's financial statements. In the event that such condition is
met in the future or the Company determines it is likely to occur, the
Company will record the cost of the warrants at such time. Such cost will
be the difference between the per share equity value of the Company at
the date this condition is met and the exercise price of $1 per share
multiplied by the number of warrants then outstanding. Such cost will be
amortized as additional interest cost over the remaining terms of the
corporate notes payable or expensed at the time of determination if the
corporate notes payable have matured.
(13) Rental Revenues
The Company is the lessor of showroom and exhibition space in the Atlanta
Merchandise Mart, Atlanta Gift Mart, and Atlanta Apparel Mart.
Approximate annual future rental payments to be received under existing
noncancelable leases for the next five years and thereafter are
summarized below:
<TABLE>
<CAPTION>
Fiscal year ending August 31:
<S> <C>
1997 $ 41,585,000
1998 30,938,000
1999 19,973,000
2000 13,003,000
2001 8,742,000
Thereafter 29,571,000
-------------------
$ 143,812,000
===================
</TABLE>
(Continued)
F - 28
<PAGE> 44
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
(14) Commitments
The Company is obligated under various long-term operating leases,
primarily land leases. Approximate commitments under noncancelable
long-term leases for the next five years and thereafter are summarized
below:
<TABLE>
<CAPTION>
Fiscal year ending August 31:
<S> <C>
1997 $ 476,000
1998 476,000
1999 476,000
2000 279,000
2001 259,000
Thereafter 22,369,000
-------------
$ 24,335,000
=============
</TABLE>
Total rental expense for the 335-day period ended August 31, 1996, the
274-day period ended October 1, 1995, and the year ended December 31,
1994 was approximately $463,000, $373,000, and $440,000, respectively.
(15) Contingencies
The Company and certain affiliates are defendants in various matters of
litigation generally incidental to their business. Although it is
difficult to predict the ultimate outcome of these cases, management
believes, based on discussions with counsel, that any ultimate liability
will not materially affect the consolidated financial position of the
Company.
(16) Employee Retirement Plans
Employees of the Company or Predecessor participate in defined
contribution retirement plans that cover substantially all employees over
age 21. Retirement plan expense approximated $300,000, $326,000, and
$397,000 for the 335-day period ended August 31, 1996; the 274-day period
ended October 1, 1995; and the year ended December 31, 1994,
respectively.
(17) Insurance Claim Receivable and Related Proceeds
The Company received $883,881 during the period from October 2, 1995
through August 31, 1996 and AMCMC received $147,216 during the period
from January 1, 1995 through October 1, 1995 from the cash settlement of
an insurance claim relating to litigation under which Portman and certain
affiliates were defendants. The insurance claim was filed by Portman and
affiliates prior to the formation of the Company. When the claim was
settled, by agreement, $147,216 was paid to AMCMC and a balance of
$850,000 was held as security for an appeal bond issued in conjunction
with the litigation.
The rights to the proceeds of the insurance claim were assigned to the
Company upon its formation. Due to the uncertainty surrounding the
outcome of the litigation, the insurance claim receivable was fully
reserved as of October 2, 1995. During 1996, the court ruled in favor of
the defendants, the appeal bond was canceled and the insurance claim plus
accrued interest were paid to the Company.
(Continued)
F - 29
<PAGE> 45
AMC, INC. AND SUBSIDIARIES
ATLANTA MARKET CENTER COMPANIES (PREDECESSOR)
Notes to Consolidated and Combined Financial Statements
(18) Income, Net Resulting from One-Time Event
Income, net resulting from one-time event is the revenues net of direct
costs of business undertaken by the Company specifically related to the
1996 Centennial Olympic Games. Due to the Company's location in Downtown
Atlanta, the main center of activity of the Olympic Games, the Company
enjoyed a one-time opportunity to conduct business activities not
normally conducted by the Company, and to license available space in its
facilities for other Olympic-related activities at rates not normally
available to the Company. These business activities included housing and
operating the Main Press Center for the Olympics; the operation of the
AT&T Press Center, a facility for noncredentialed press; the operation
of the International Sport Club which provided meals and entertainment
for corporate customers on a per capita basis and to the general public
on a daily admission fee basis; the rental and operation of concession
kiosks on the Company's premises and on the Pisa surface parking lot;
the rental of the AGM lobby for an exhibition of automobiles and for
corporate entertainment; housing the Olympic coin and stamp show; and
the rental of the AAM rooftop and balconies for network camera
locations.
F - 30
<PAGE> 46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the directors and
executive officers of the Company as of August 31, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION .
- ------------------------------------------------------------------------ --- ----------------------------------------------------
<S> <C> <C>
John C. Portman Jr................................................... 71 Chairman of the Board and Chief Executive Officer
John M. Ryan......................................................... 53 President and Director
Jeffrey L. Portman................................................... 37 Executive Vice President -- Sales and Marketing
David J. Nadeau...................................................... 38 Treasurer and Senior Vice President-Finance
Virginia S. Gorday................................................... 51 Sr Vice President -- Operations and Administration
Neal G. Patton....................................................... 40 Secretary and General Counsel
Lawrence B. Gardner.................................................. 45 Vice President -- Human Resources
R. Charles Loudermilk, Sr............................................ 69 Director
D. Raymond Riddle.................................................... 63 Director
A. J. Robinson....................................................... 41 Director
Stanley P. Steinberg................................................. 63 Director
Andrew Young......................................................... 64 Director
</TABLE>
John C. Portman, Jr. has served as Chairman of the Board and as Chief Executive
Officer of the Company since its formation. Prior thereto, Mr. Portman was the
principal of the Portman Companies for over 40 years. Mr. Portman has also
served as the Chairman of Portman Properties, Inc., the managing general
partner of Portman Holdings, since its formation. Mr. Portman was the general
partner of Los Angeles Bonaventure Company, which filed a petition under
Chapter 11 of the federal bankruptcy code within the last five years. Mr.
Portman is also President, sole director and sole shareholder of the general
partner of Portman Apparel Associates, L.P. ("Portman Apparel"), whose
principal property was the subject of a receivership action, which action
resulted in foreclosure of such property in April 1996. Mr. Portman is the
father of Jeffrey L. Portman.
John M. Ryan has served as a Director and as President of the Company since its
formation. Prior thereto, he had served as President of AMCMC since June 1994,
as Chief Financial Officer and Executive Vice President of the Portman
Companies and Treasurer of related entities from September 1991, through
October 1995, and as Executive Vice President of Portman Capital Company, one
of the Portman Companies, for more than five years prior thereto. Mr. Ryan is
an executive officer of the general partner of Portman Apparel, whose principal
property was the subject of a receivership action which action resulted in
foreclosure of such property in April 1996.
Jeffrey L. Portman has served as Executive Vice President---Sales and
Marketing of the Company since its formation. Prior thereto, he had served as
Executive Vice President--Sales & Marketing for AMCMC since June 1994. He had
served as General Manager of the Atlanta Decorative Arts Center, a company
owned and controlled by Mr. Portman's wife, from July 1989 until June 1994.
Jeffrey Portman is the son of Mr. Portman.
David J. Nadeau has served as Treasurer and Senior Vice President - Finance of
the Company since its formation. Prior thereto, he had served as Senior Vice
President - Finance for AMCMC since June 1994. Prior thereto, he had served as
Vice President of Finance for the Portman Companies beginning in April 1991.
Mr. Nadeau is an
16
<PAGE> 47
executive officer of the general partner of Portman Apparel, whose principal
property was the subject of a receivership action, which action resulted in
foreclosure of such property in April 1996.
Virginia S. Gorday has served as Senior Vice President - Operations and
Administration of the Company since its formation. Prior thereto, she had
served as Senior Vice President - Operations for AMCMC since March 13, 1995.
She served as Deputy Executive Director of Housing for the Atlanta Housing
Authority from November 1994 through March 1995. Prior thereto, she was Vice
President - Property Management for Peachtree Center Management Company, one of
the Portman Companies, for more than five years.
Neal G. Patton has served as Secretary and General Counsel of the Company since
its formation. Prior thereto, he had served as General Counsel of AMCMC since
November 1994. He served as Assistant General Counsel of the Portman Companies
from November 1986 to November 1994.
Lawrence B. Gardner has served as Vice President--Human Resources of the
Company since its formation. Prior thereto, he had served as Vice
President--Human Resources for the Portman Companies for more than five years.
R. Charles Loudermilk, Sr. has served as a Director of the Company since its
formation. Mr. Loudermilk has been the Chairman, Chief Executive Officer and
President of Aaron Rents, Inc., for more than five years.
D. Raymond Riddle has served as a Director of the Company since its formation.
Mr. Riddle has served as Chairman and Chief Executive Officer of National
Service Industries, Inc. ("NSI") since September 1994, and had served as
President and Chief Executive Officer of NSI beginning in January 1993. Prior
thereto, he had served as President and Chief Executive Officer of Wachovia
Corporation of Georgia for more than five years. Mr. Riddle serves on the
Boards of Directors of Atlanta Gas Light Company, Equifax, Inc., National
Services Industries, Inc., Fuqua Enterprises, Inc. and Atlantic American
Corporation.
A. J. Robinson has served as a Director of the Company since its formation. In
addition, he has served as the President of Portman Properties, Inc., the
managing general partner of Portman Holdings, since its formation. Prior
thereto, he had been employed by Portman Overseas, one of the Portman
Companies, first as Executive Vice President and then as President, for more
than five years.
Stanley P. Steinberg has served as a Director of the Company since its
formation. Mr. Steinberg has been Chairman and Chief Executive Officer of Sony
Retail Entertainment, a subsidiary of Sony Corporation of America since August
1994. Mr. Steinberg was Executive Vice President of Walt Disney Imageering, a
wholly-owned subsidiary of the Walt Disney Company, from January 1989 to July
1994. Prior thereto, he was Executive Vice President of the Portman Companies.
Andrew Young has served as a Director of the Company since its formation. Mr.
Young has served as Vice Chairman of Law Companies Group, an engineering and
environmental consulting firm since January 1990. Prior thereto, he had served
as the Mayor of Atlanta from 1981 to 1989. Mr. Young is a director of Delta
Airlines Inc., Host Marriott Corporation and Cox Communications, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation of
the Company's Chief Executive Officer and the other four most highly
compensated officers:
17
<PAGE> 48
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
==============================================================================
ANNUAL COMPENSATION
==============================================================================
OTHER ANNUAL
- ------------------------------------------------------------------------------
NAME & PRINCIPAL POSITION FISCAL YEAR SALARY BONUS (1) COMPENSATION
<S> <C> <C> <C> <C>
John C. Portman, Jr.
Chairman of the Board and
Chief Executive Officer 1996 $527,695 $ - $7,446
John M. Ryan
President and Director 1996 258,462 100,000 9,554
Jeffrey L. Portman
Executive Vice President -
Sales and Marketing 1996 123,075 50,000 9,606
David J. Nadeau
Treasurer and Senior Vice
President - Finance 1996 115,392 70,000 2,280
Virginia S. Gorday
Senior Vice President -
Operations and Administration 1996 106,157 70,000 1,079
==============================================================================
</TABLE>
(1) REPRESENTS BONUSES PAID BY THE COMPANY FOR THE 1996 FISCAL YEAR AND
BONUSES ACCRUED AT AUGUST 31, 1996.
COMPENSATION COMMITTEE
The Board of Directors has established a Compensation Committee, upon which
Messrs. Steinberg, Riddle, and Loudermilk serve. Mr. Steinberg is the Chairman
of the Compensation Committee. Each member of the Compensation Committee must
be an Independent Director. The Compensation Committee administers the
Company's incentive and stock option plans (if any) and other employee benefit
and compensation plans. Additionally, the Compensation Committee reviews,
fixes and determines the compensation paid by the Company and its subsidiaries
to all (1) directors, (2) executive officers, (3) employees whose aggregate
annual compensation (excluding leasing commissions) exceeds $100,000 and (4)
employees who are related to an executive officer or director of the Company or
its subsidiaries.
DIRECTOR COMPENSATION
The Company's Independent Directors receive an annual fee of $20,000, paid
quarterly, $1,000 for each Board of Directors meeting attended and $500 for
each committee meeting attended. Additionally, Independent Directors are
reimbursed for reasonable expenses incurred in connection with attendance at
such meetings.
ACTION REQUIRING APPROVAL OF INDEPENDENT DIRECTORS
Pursuant to the Company's Bylaws, certain actions of the Company and its
subsidiaries require the affirmative approval of a majority of the Independent
Directors. These actions include: (1) adoption of the consolidated annual
budget and business plan; (2) any expenditure within the reasonable control of
the Company which would cause a line item in the approved consolidated annual
budget to be exceeded by more than 10%; (3) any transaction not provided for
in the approved consolidated annual budget involving in excess of 10% of the
net worth of the Company; (4) any amendment to the Company's Articles of
Incorporation involving the stated purpose of the Company; (5) the incurrence
or refinancing of debt not contemplated by the approved consolidated annual
budget; (6) with certain exceptions, the issuance of any security of the
Company or any of its subsidiaries or any security convertible into any such
security or the grant of a stock option or right to purchase any such security;
(7) the dissolution, merger, consolidation or liquidation of the Company or
any of its subsidiaries; (8) the
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<PAGE> 49
election of directors of any subsidiary; and (9) any amendment to the Bylaws of
the Company or of any of the Company's subsidiaries.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of November 18, 1996, there were 61,962,751 shares of common stock, $1.00
par value, of the Company ("Common Stock") outstanding. The following table
sets forth as of August 31, 1996, certain information with respect to the
beneficial ownership of Common Stock by each person who owned, at such date at
least 5% of the outstanding Common Stock, each director of the Company who owns
Common Stock, each executive officer of the Company named in the Summary
Compensation Table above who owns Common Stock, and all directors and executive
officers of the Company as a group. Except as otherwise noted below, each such
person has sole voting and investment power with respect to all shares shown
below.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF PERCENT
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP OF CLASS
-------------------- --------
<S> <C> <C>
Portman Holdings, L.P.................................................10,880,302 (1) 17.5594%
240 Peachtree Street, N.W.
Suite 2200
Atlanta, Georgia 30303
John C. Portman, Jr...................................................11,372,408 (1) (2) 18.3535%
Chief Executive Officer and Chairman
240 Peachtree Street, N.W.
Suite 2200
Atlanta, Georgia 30303
Citicorp Real Estate, Inc..............................................6,863,798 11.0773%
599 Lexington Avenue
25th Floor, Zone 11
New York, New York 10043
FBCC Co................................................................6,350,598 10.2491%
3419 Westminster, Lock Box 274
Dallas, TX 75207
Banque Paribas, New York Branch........................................6,098,883 9.8429%
The Equitable Tower
787 Seventh Avenue
New York, New York 10019
Joan N. Portman........................................................4,479,356 (3) (4) 7.2291%
240 Peachtree Street, N.W.
Suite 2200
Atlanta, Georgia 30303
351 Holdings, L.P......................................................4,375,425 7.0614%
231 Peachtree Street, N.E.
Suite 200
Atlanta, Georgia 30303
</TABLE>
19
<PAGE> 50
<TABLE>
<S> <C> <C>
Unibank A/S, New York..................................................4,252,089 6.8623%
13-15 West 54th Street
New York, New York 10019
The Industrial Bank of Japan Trust Company.............................3,282,259 5.2971%
191 Peachtree Street, N.E.
Suite 3600
Atlanta, Georgia 30303
Jeffrey L. Portman........................................................13,568(5) *
240 Peachtree Street, N.W.
Suite 2200
Atlanta, Georgia 30303
John M. Ryan...............................................................3,895(6) *
240 Peachtree Street, N.W.
Suite 2200
Atlanta, Georgia 30303
Stanley P. Steinberg.......................................................3,254(7) *
240 Peachtree Street, N.W.
Suite 2200
Atlanta, Georgia 30303
All executive officers and directors as a group (12 persons)..........11,393,125 18.3870%
</TABLE>
* Less than 1%.
(1) Includes 10,880,302 shares which are owned of record by Portman
Holdings, with respect to which John C. Portman, Jr., as sole
shareholder of Portman Properties, Inc., the sole general partner of
Portman Holdings, has sole voting and investment power.
(2) Includes 492,106 shares which are owned of record by Peachtree Hotel
Company, with respect to which John C. Portman, Jr., as sole general
partner of Peachtree Hotel, has sole voting and investing power.
(3) Includes 4,375,425 shares owned by 351 Holdings, LP, with respect to
which Joan N. Portman, as sole General Partner of 351 Holdings, LP
has sole investment and voting power.
(4) Includes 103,931 shares owned by CGS Associates, L.P., with
respect to which Joan N. Portman, as sole general partner of CGS
Associates, L.P., has sole voting and investment power.
(5) Such shares are owned of record by AMC Orlando, in which Jeffrey L.
Portman is a shareholder.
(6) Includes 3,254 shares owned of record by AMC Orlando, in which John M.
Ryan is a shareholder.
(7) Such shares are owned of record by AMC Orlando, in which Stanley P.
Steinberg is a shareholder.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
SERVICE AGREEMENTS
Prior to the formation of the Company, the Portman Companies shared personnel
who provided certain services, including risk management, tax services, human
resources services and legal services, to all of such affiliated entities.
Following the formation of the Company, such personnel will continue to provide
certain of those services for both the Company and Portman Holdings pursuant to
a series of agreements as described below. The cost of such services were
determined based upon the cost of services obtained from third parties or the
direct personnel expenses of the personnel providing such services. The
service agreements have been approved by the independent directors of the
Company. Additional services may be provided from time to time by Portman
Holdings and the Company to each other during a transition period as the need
arises. It is the Company's intention that such
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<PAGE> 51
services will also be reimbursed based on the direct personnel expenses of the
personnel providing such services or the cost to the Company for such services.
Services of Portman Holdings
The Company and Portman Holdings have entered into an agreement dated November
13, 1995 (the "Risk Management Agreement") whereby Portman Holdings will
provide risk management services to the Company. Portman Holdings will receive
$102,000 in twelve equal monthly installments for these services. Portman
Holdings will also be reimbursed for pre-approved out-of-pocket expenses and
receive 50% of any claims management fee which is reimbursed to the Company by
insurance companies. The Risk Management Agreement expires on December 31,
1996, subject to annual renewal by Portman Holdings and the Company.
The Company and Portman Holdings have also entered into an agreement dated
January 24, 1996 (the "Financial and Strategic Planning Agreement") whereby
Portman Holdings will provide financial and strategic planning services to the
Company. Portman Holdings will receive $10,000 per month for these services.
The Financial and Strategic Planning Agreement expires on December 31,1996,
subject to annual renewal by Portman Holdings and the Company.
The Company and Portman Holdings have entered into an agreement dated January
24, 1996 (the "Staff Support Agreement") whereby Portman Holdings will provide
the services of two support personnel to assist Mr. Portman. Portman Holdings
will receive $5,000 per month for these services, which represents
approximately one half of the costs of providing such personnel. The Staff
Support Agreement expires on December 31, 1996, subject to annual renewal by
Portman Holdings and the Company.
The Company and Portman Holdings have entered into an agreement dated November
14, 1995 (the "Tax Services Agreement") whereby Portman Holdings will provide
tax services to the Company on a time available basis based on specified rates
for personnel involved. The Tax Services Agreement expires on December 31,
1996. The scope of services is to be mutually agreed upon. The total cost of
services during the Company's 1996 fiscal year was immaterial.
The Company and Portman Holdings have entered into an agreement dated October
25, 1995 (the "Cash Management Services Agreement") whereby Portman Holdings
will provide the Company with the services of its cash management administrator
in implementing and administering the Company's cash management system.
Services are reimbursed at a rate of $30 per hour. The total estimated cost of
services during the Company's 1996 fiscal year was approximately $600.
The Company and Portman Holdings have entered into an agreement dated April 1,
1996 (the "Construction Management Services Agreement") whereby Portman
Holdings will provide consulting services related to construction management.
Portman Holdings will receive $5,000 per month for these services. The
Construction Management Services Agreement expires on January 31, 1997, subject
to earlier termination by either party with sixty (60) days' prior written
notice.
The Company and Portman Holdings have entered into an agreement dated May 1,
1996 (the "Security Services Agreement"), whereby Portman Holdings will
provide certain security services for the Mart buildings. Portman Holdings
will receive approximately $29,000 per year for such services. The initial
term of the Security Services Agreement expires on December 31, 1996 and such
agreement will automatically renew for successive terms of one (1) year,
subject to termination by either party after the initial term with thirty (30)
days' prior written notice.
Services of the Company
The Company and Portman Holdings have entered into an agreement dated November
13, 1995 (the "Telephone Service Agreement") whereby the Company will provide
various telephone services to Portman Holdings, its affiliates and the Atlanta
Decorative Arts Center ("ADAC"), which is owned and controlled by Mr.
Portman's wife, Joan N. Portman. The services include maintenance and
consulting services at specified hourly rates,
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<PAGE> 52
telephone services based on cost plus a mark-up, and equipment at specified
rates. The Telephone Service Agreement has an initial term of one year but may
be terminated at any time by either party on two-months' written notice. Such
agreement provides that it will be automatically extended for a second one-year
term in the event it is not terminated prior to the expiration of its initial
term. The total billings for these services during the Company's 1996 fiscal
year was approximately $13,000.
The Company and Portman Holdings have also entered into an agreement dated
November 13, 1995 (the "Human Resource Service Agreement") whereby the Company
will provide human resource services to Portman Holdings, its affiliates and
ADAC. The fee for the services is based on a fixed rate per employee per month
and is payable on a monthly basis. The Human Resource Service Agreement has an
initial term of one year but may be terminated at any time by either party on
three-months' written notice. Such agreement provides that it will be
automatically extended for a second one-year term in the event it is not
terminated prior to the expiration of its initial term. The total billings for
these services during the Company's 1996 fiscal year was approximately $84,000.
The Company and Portman Holdings have entered into an agreement dated November
13, 1995 (the "Legal Services Agreement") whereby the Company's legal
department will provide legal services to Portman Holdings and its affiliates
on a time available basis at specified hourly rates. The agreement expires on
December 31, 1996. The total billings for these services during the Company's
1996 fiscal year was approximately $27,000.
The Company and Portman Holdings have entered in an agreement dated November
13, 1995 (the "Computer Service Agreement") whereby the Company will provide
computer services to Portman Holdings, its affiliates and ADAC. Maintenance
services are provided at an hourly rate and access to hardware and software are
provided at a base rate of $7,100 per month subject to increases and additional
costs in certain circumstances. The initial term of the Computer Service
Agreement is one year, but it may be terminated at any time by either party on
six-months' written notice. Such agreement provides that it will be
automatically extended for a second one-year term in the event it is not
terminated prior to the expiration of its initial term. The total billings for
these services during the Company's 1996 fiscal year was approximately $49,000.
The Company and Portman Holdings have entered into an agreement dated January
1, 1996 (the "AMC Security Services Agreement"), whereby the Company will
provide certain security services for a building owned by Portman Holdings.
AMC will receive approximately $12,000 per year for such services. The term of
the AMC Security Services Agreement will expire on December 31, 1996.
Interests in Portman Holdings
At October, 2, 1995, Portman Holdings owed the Company $320,507, which
primarily represented reimbursable expenses and has subsequently been paid.
Mr. Portman is the sole shareholder of Portman Properties, Inc., the sole
general partner of Portman Holdings, and beneficially owns a 36.5783% interest
in such partnership. Joan N. Portman and Jeffrey L. Portman beneficially own
21.2417% and 4.6743% interest, respectively, in Portman Holdings, and the other
adult children of Mr. Portman and a trust, the beneficiaries of which are Mr.
Portman's adult children and their heirs, beneficially own an aggregate
37.5057% interest in Portman Holdings.
OTHER AGREEMENTS, INDEBTEDNESS AND INTERESTS
The Company is a party to a separate management agreement with AMC Orlando, AMC
Tampa and CGS. Additionally, as part of the formation of the Company, the
Company received a Purchase Money Note of each of AMC Orlando and AMC Tampa.
Each of such Purchase Money Notes bears interest at the rate of 7.5% per annum
and is due and payable on July 20, 1999. Further, the Company has accounts
receivable from certain affiliates, primarily representing management fees and
reimbursable expenses, upon which interest does not accrue.
22
<PAGE> 53
AMC Orlando and AMC Tampa
At August 31, 1996, AMC Orlando owed the Company approximately $55,000 in
addition to the Purchase Money Note in the principal amount of $2,817,232 with
accrued interest of $24,942. Jeffrey L. Portman beneficially owns an 11.9075%
interest in AMC Orlando, and Messrs. Steinberg and Ryan beneficially own a
4.7110% and 2.8555% interest, respectively, in AMC Orlando. Mr. Portman's
other adult children beneficially own an aggregate 6.248% interest in AMC
Orlando.
At August 31, 1996, AMC Tampa owed the Company approximately $56,000. The
Company holds the Purchase Money Note of AMC Tampa which at August 31, 1996,
was in the principal amount of $390,442 with accrued interest of $17,779.
Jeffrey L. Portman beneficially owns an 11.9075% interest in AMC Tampa, and
Messrs. Steinberg and Ryan beneficially own a 5.7110% and 2.8555% interest,
respectively, in AMC Tampa. Mr. Portman's other adult children beneficially
own an aggregate 65.2485% interest in AMC Tampa.
Messrs. Portman and Ryan are executive officers and directors of both AMC
Orlando and AMC Tampa, and Neal G. Patton, Secretary and General Counsel of the
Company, is an executive officer of AMC Orlando and AMC Tampa.
CGS
At August 31, 1996, CGS owed the Company approximately $103,000. Joan N.
Portman beneficially owns a 47.5477% interest in CGS and Jeffrey L. Portman
beneficially owns a 7.7115% interest in CGS. Mr. Portman's other adult
children beneficially own an aggregate of 41.2534% interest in CGS.
Portman Apparel
At October 2, 1995, Portman Apparel owed the Company $514,658 which was
reserved and subsequently written off by the Company due to the foreclosure of
Portman Apparel's principal property. Mr. Portman is the sole shareholder,
sole director and President of S.F. Fashion Center, Inc., the sole general
partner of Portman Apparel and beneficially owns an 85.8% interest in such
partnership. Messrs. Ryan and Robinson, directors of the Company, beneficially
own a 4.0% and 3.0% interest, respectively, in Portman Apparel. An adult child
of Mr. Portman also beneficially owns a 0.2% interest in Portman Apparel. Mr.
Ryan and Mr. Nadeau, Treasurer and Senior Vice President - Finance, are
executive officers of S. F. Fashion Center, Inc.
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<PAGE> 54
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8 - K.
A. Documents filed as part of this Form 10 - K:
<TABLE>
<S> <C>
1. Financial Statements (included in Part II, Item 8):
AMC, INC. AND SUBSIDIARIES
Independent Auditors' Report F-1
Consolidated Balance Sheet as of August 31, 1996 F-2
Consolidated Statement of Operations for the Period from October 2, 1995
through August 31, 1996 F-4
Consolidated Statement of Stockholders' Equity (Deficit) for the Period
from October 2, 1995 through August 31, 1996 F-5
Consolidated Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
THE ATLANTA MARKET CENTER COMPANIES
Independent Auditors' Report F-1
Combined Balance Sheet as of October 1, 1995 F-2
Combined Statements of Operations for the Period from January 1, 1995
through October 1, 1995 and for the Year ended December 31, 1994 F-4
Combined Statements of Equity (Deficit) for the Period from January 1, 1995
through October 1, 1995 and for the Year ended December 31, 1994 F-5
Combined Statements of Cash Flows for the Period from January 1, 1995
through October 1, 1995 and for the Year ended December 31, 1994 F-6
Notes to Combined Financial Statements F-8
2. Financial Statement Schedules (included in Part IV):
Independent Auditors' Report S-1
Schedule II Valuation and Qualifying Accounts S-2
</TABLE>
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is included in the Financial
Statements or notes thereto.
3. Exhibits
The following exhibits filed with the Securities and Exchange Commission are
incorporated by reference to the Registrant's Registration Statement on Form
S-4 No. 333-1742 filed on May 24, 1996 and correspondingly numbered:
Exhibit No. Description
3.1 Articles of Incorporation
3.2 Articles of Amendment
3.3 By-laws
4.1 Exchange and Registration Rights Agreement, dated as of October 2, 1995,
by and between the Company and the initial holders of the Private
Placement Notes named therein
4.2 Shareholders Agreement, dated as of October 2, 1995, by and between the
Company and the initial shareholders of the Company named therein, as
amended
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<PAGE> 55
4.3 Indenture dated as of October 2, 1995 between the Company and Reliance
Trust Company as Trustee, relating to the Exchange Notes (including the
form of the Exchange Notes)
4.4 First Amendment to Indenture, dated as of April 4, 1996, between the
Company and Reliance Trust Company, as Trustee
4.5 Form of Warrants
5.1 Opinion of Jones, Day, Reavis & Pogue re: legality
8.1 Opinion of Jones, Day, Reavis & Pogue re: tax matters
10.1 Amended and Restated Credit Agreement dated as of October 2, 1995, by
and among Atlanta Gift Mart, L.P., Bank of America National Trust and
Savings Association, as Agent, and the other financial institutions
named therein
10.2 Rate Cap Transaction Agreement dated as of July 28, 1995, between
Atlanta Gift Mart, L.P. and NationsBank, N.A. (Carolinas)
10.3 Modification and Second Amended and Restated Deed to Secure Debt and
Security Agreement dated as of October 2, 1995, by and among Atlanta
Gift Mart, L.P. and Bank of America National Trust and Savings
Association, as Agent
10.4 First Amended and Restated Sequestration Agreement dated as of October
2, 1995, by and among Atlanta Gift Mart, L.P., Bank of America National
Trust and Savings Association, as Agent, and the Company
10.5 Credit Agreement dated as of September 30, 1995, by and among the
Company, The Provident Bank as Agent, and the other lenders named
therein
10.6 Deed to Secure Debt and Security Agreement dated as of October 2, 1995,
between the Company and The Provident Bank
10.7 Risk Management Agreement dated November 13, 1995, between the Company
and Portman Holdings
10.8 Financial and Strategic Planning Agreement dated January 24, 1996,
between the Company and Portman Holdings
10.9 Executive Office Staff Support Agreement dated January 24, 1996, between
the Company and Portman Holdings
10.10 Tax Services Agreement dated November 14, 1995, between the Company and
Portman Holdings
10.11 Cash Management Services Agreement dated October 25, 1995, between the
Company and Portman Holdings
10.12 Telephone Service Agreement dated November 13, 1995, between the Company
and Portman Holdings
10.13 Human Resource Service Agreement dated November 13, 1995, between the
Company and Portman Holdings
10.14 Legal Services Agreement dated November 13, 1995, between the Company
and Portman Holdings
10.15 Computer Service Agreement dated November 13, 1995, between the Company
and Portman Holdings
10.16 First Restatement of Management Agreement dated as of October 2, 1995,
by and between AMC Orlando and AMCMC
10.17 First Restatement of Management Agreement dated as of October 2, 1995,
by and between AMC Tampa and AMCMC
10.18 First Restatement of Management Agreement dated as of October 2, 1995,
by and between CGS and AMCMC
10.19 Indenture of Lease dated as of November 1, 1968, by and between Mary
Templis and Belle Frank as Trustees under the terms of the Will of Louis
Templis, as Lessor, and the Company (by virtue of assignment), as Lessee
10.20 Indenture of Lease dated as of December 30, 1966, by and between The 250
Spring Corp., as Lessor, and the Company (by virtue of assignment), as
Lessee
10.21 Indenture of Lease dated as of September 1, 1972, by and between Bonnie
Gordon Roe, as Lessor, and the Company (by virtue of assignment), as
Lessee
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<PAGE> 56
10.22 Indenture of Lease dated as of October 27, 1969, by and between Shepard
Bryan, as Lessor, and the Company (by virtue of assignment), as Lessee
10.23 Indenture of Lease dated as of November 1, 1969, by and between Jules G.
Edwards, as Lessor, and the Company (by virtue of assignment), as
Lessee, as amended by an Amendment to Indenture of Lease dated January
16, 1970
10.24 Indenture of Lease dated as of September 1, 1969, by and between Mrs.
Dorothy Fielder Ewing, Frank K. Ewing, Morris M. Ewing, Nancy C. Ewing
Hembrough, and Trust Company of Georgia, as Trustee, under the Will of
Charles A. Ewing, as Lessor, and the Company (by virtue of assignment),
as Lessee
10.25 Indenture of Lease dated as of July 1, 1969, by and between Alice L.
Weeks, and James C. Weeks, as Lessor, and the Company (by virtue of
assignment), as Lessee, as amended by a First Amendment to Indenture of
Lease dated as of February 28, 1987
10.26 Indenture of Lease dated as of September 1, 1968, by and between Paul A.
Clark, as Lessor, and the Company (by virtue of assignment), as Lessee
10.27 Indenture of Lease dated as of September 1, 1969, by and between Sara K.
Bernath, Myer Caplan, Elias Margoles, Alvin Saul, and Felice G.
Silberstein, as Lessor, and the Company (by virtue of assignment), as
Lessee
10.28 Indenture of Lease dated as of October 16, 1963, by and between
Methodist Children's Home of North Georgia, Inc., as Lessor, and the
Company (by virtue of assignment), as Lessee
10.29 Indenture of Lease dated October 1, 1963, by and between Mrs. Eula Sikes
Hamilton, as Lessor, and the Company (by virtue of assignment), as
Lessee
10.30 Indenture of Lease dated as of August 1, 1975, by and between William T.
Davis as Lessor, and the Company (by virtue of assignment), as Lessee
10.31 Indenture of Lease dated October 16, 1963, by and between J. W. O'Neal,
as Lessor, and the Company (by virtue of assignment), as Lessee
10.32 Indenture of Lease dated November 7, 1963, by and among Mrs. Anne Grant
Owens, as Lessor, and the Company (by virtue of assignment), as Lessee
10.33 Lease Agreement dated May 20, 1992, by and between Metropolitan Atlanta
Rapid Transit Authority, as Lessor, and the Company (by virtue of
assignment), as Lessee
10.34 Promissory Note dated October 2,1995, by and between AMC Tampa, Inc. and
the Company (by virtue of assignment)
10.35 Promissory Note dated October 2, 1995, by and between AMC Orlando, Inc.
and the Company (by virtue of assignment)
10.36 Noncompetition Agreement dated as of October 2, 1995, between John C.
Portman, Jr. and the Company
10.37 Construction Management Services Agreement dated April 1, 1996, between
Portman Holdings and the Company
10.38 Security Services Agreement dated January 1, 1996, between Portman
Holdings and the Company
10.39 Security Services Agreement dated May 1, 1996 between Portman Holdings
and the Company
The following exhibits are included in this Form 10-K:
11.0 Computation of Earnings Per Common Share
21.1 Subsidiaries of the Company
27.0 Financial Data Schedule
B. No reports on Form 8 - K were issued subsequent to the Registrant's
Quarterly Report on Form 10 - Q for the quarter ended May 31, 1996.
26
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AMC, Inc.:
Under date of November 1, 1996, we reported on the consolidated balance sheet
of AMC, Inc. and subsidiaries (Company) as of August 31, 1996, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the period from October 2, 1995 through August 31, 1996, and the
combined balance sheet of the Atlanta Market Center Companies (Predecessor) as
of October 1, 1995, and the related combined statements of operations, equity
(deficit), and cash flows for the period from January 1, 1995 through October
1, 1995 and for the year ended December 31, 1994, as contained in the annual
report on Form 10-K for the year ended August 31, 1996. In connection with our
audits of the aforementioned consolidated financial statements of the Company
and the combined financial statements of the Predecessor, we also have audited
the related financial statement schedule as listed in the accompanying index.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
November 1, 1996
S-1
<PAGE> 58
Schedule II
AMC, INC. AND SUBSIDIARIES
For the Period from October 2, 1995
through August 31, 1996
ATLANTA MARKET CENTER COMPANIES
For the Period From January 1, 1995 through October 1, 1995 and
for the Year ended December 31, 1994
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
============================================================================================================
Additions
============================================================================================================
Allowance at Bad Recoveries of Allowance
beginning of debt previous write- Receivables at end of
period expense offs written off period
- ------------------------------------------------------------------------------------------------------------
Allowance for
doubtful receivables:
<S> <C> <C> <C> <C> <C>
1996 $2,647,816 $ 932,909 $93,052 $(1,467,980) $2,205,797
1995 2,428,372 667,830 78,947 (527,333) 2,647,816
1994 2,549,441 1,182,613 25,385 (1,329,067) 2,428,372
============================================================================================================
</TABLE>
S-1
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMC, Inc.
(Registrant)
Date: November 25, 1996 By: /s/ John C. Portman, Jr.
------------------------------- -------------------------------
John C. Portman, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the undersigned on behalf of the registrant and
in the capacity and on the date indicated.
Date: November 25, 1996 /s/ John M. Ryan
-------------------------------- -------------------------------
John M. Ryan
President
/s/ David J. Nadeau
-------------------------------
David J. Nadeau
Sr. Vice President, Finance
27
<PAGE> 1
EXHIBIT 11
AMC, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE PERIOD FROM OCTOBER 2, 1995 THROUGH AUGUST 31, 1996
<TABLE>
<S> <C>
Net Earnings $7,300,598
Weighted average number of outstanding common shares 61,962,751
Primary earnings per common share and common share equivalent $ .12
==========
Assumed earnings increases upon exercise of warrants
and reduction of debt $ 762,000
Adjusted net earnings 8,062,598
Additional shares assumed issued upon exercise of warrants 16,736,548
Adjusted weighted average number of outstanding common shares 78,699,299
Fully diluted earnings per common share and common share equivalent .10
==========
</TABLE>
<PAGE> 1
Exhibit 21.1
AMC, Inc.
Subsidiaries of the Company
as of August 31, 1996
Gift Mart Limited Partner, Inc.
GMGP, Inc.
EC Holdings, Inc.
LFGP, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FINANCIAL STATEMENTS FILED FOR THE PERIOD ENDING AUGUST 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 1,052
<SECURITIES> 0
<RECEIVABLES> 6,344
<ALLOWANCES> 2,206
<INVENTORY> 0
<CURRENT-ASSETS> 12,632
<PP&E> 321,708
<DEPRECIATION> 123,306
<TOTAL-ASSETS> 235,222
<CURRENT-LIABILITIES> 21,989
<BONDS> 313,455
0
0
<COMMON> 61,963
<OTHER-SE> (165,150)
<TOTAL-LIABILITY-AND-EQUITY> 235,222
<SALES> 0
<TOTAL-REVENUES> 62,767
<CGS> 0
<TOTAL-COSTS> 48,680
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 933
<INTEREST-EXPENSE> 7,780
<INCOME-PRETAX> 10,702
<INCOME-TAX> 3,402
<INCOME-CONTINUING> 7,301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,301
<EPS-PRIMARY> .12
<EPS-DILUTED> .10
</TABLE>
