<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission File Number: 333-1742
AMC, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-2201031
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
240 PEACHTREE ST., N. W. SUITE 2200
ATLANTA, GA 30303
(Address of principal executive offices) (Zip Code)
(404) 220-2000
(Registrant's telephone number, including area code)
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. X Yes No
--- ---
As of April 12, 1999, the Registrant has 62,173,154 shares of common
stock, par value $1.00 per share outstanding.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
February 28, August 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,552,239 $ 1,039,809
Restricted cash 3,353,611 2,678,182
Restricted escrow deposits 2,949,131 4,233,685
Accounts and notes receivable, net 2,994,980 2,731,941
Deferred income taxes -- 1,819,528
Other current assets 863,692 1,042,314
------------- -------------
Total current assets 11,713,653 13,545,459
Commercial property 338,341,495 329,479,276
Less accumulated depreciation (142,313,775) (135,537,458)
------------- -------------
Net commercial property 196,027,720 193,941,818
Deferred income taxes 26,139 10,460,611
Investment in limited partnerships 21,258,755 6,497,450
Other non current assets 450,728 420,716
------------- -------------
$ 229,476,995 $ 224,866,054
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 107,484,725 $ 109,448,965
Accounts payable and accrued expenses 9,191,952 9,961,499
Deferred revenue 1,839,735 1,452,940
------------- -------------
Total current liabilities 118,516,412 120,863,404
Long-term debt, less current portion 167,200,000 181,703,273
Revolving line of credit 7,038,907 6,102,900
Other non current liabilities 3,988,661 3,416,740
------------- -------------
Total liabilities 296,743,980 312,086,317
------------- -------------
Shareholders' deficit:
Common stock - $1 par value, 100,000,000 shares
authorized, 62,173,154 shares issued and outstanding 62,173,154 62,173,154
Capital deficit (172,660,875) (172,660,875)
Retained earnings 43,220,736 23,267,458
------------- -------------
Total shareholders' deficit (67,266,985) (87,220,263)
------------- -------------
$ 229,476,995 $ 224,866,054
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 3
AMC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED
EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended February 28,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Rental $ 15,125,549 $ 13,389,417
Trade shows 8,185,591 7,764,706
Other revenues 1,556,085 1,354,037
------------ ------------
Total revenues 24,867,225 22,508,160
Operating expenses:
Building operations 2,782,736 2,286,379
Trade shows 1,292,071 1,413,311
Marketing 2,823,748 2,582,630
General and administrative 5,569,683 4,426,501
Bad debt expense 318,590 191,832
Property taxes 919,794 1,121,144
Depreciation and amortization 3,411,468 3,220,637
------------ ------------
Total operating expenses 17,118,090 15,242,434
------------ ------------
Operating income 7,749,135 7,265,726
Other (income) expenses:
Interest expense 1,811,873 2,084,872
Interest income (80,295) (109,830)
Gain on limited partnership interest (100,496) (3,638,967)
Other (income) expense, net (1,143,899) 134,819
------------ ------------
Total other (income) expenses, net 487,183 (1,529,106)
------------ ------------
Income before income taxes 7,261,952 8,794,832
Deferred income tax expense 2,769,660 3,360,000
------------ ------------
Net income 4,492,292 5,434,832
Retained earnings at beginning of period 38,728,444 12,434,416
------------ ------------
Retained earnings at end of period $ 43,220,736 $ 17,869,248
============ ============
Net income per share - basic and diluted $ .07 $ .09
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
AMC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED
EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended February 28,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Rental $ 29,521,643 $ 26,389,374
Trade shows 9,843,079 9,292,979
Other revenues 2,172,284 2,065,028
------------ ------------
Total revenues 41,537,006 37,747,381
Operating expenses:
Building operations 4,951,287 4,173,612
Trade shows 1,751,169 1,764,645
Marketing 3,586,458 3,173,504
General and administrative 9,903,078 8,448,102
Bad debt expense 183,486 152,404
Property taxes 1,818,407 2,192,401
Depreciation and amortization 6,829,641 6,436,882
------------ ------------
Total operating expenses 29,023,526 26,341,550
------------ ------------
Operating income 12,513,480 11,405,831
Other (income) expenses:
Interest expense 3,746,869 4,183,599
Interest income (170,427) (206,462)
Gain on limited partnership interest (22,243,496) (3,638,967)
Other (income) expense, net (1,026,744) 254,634
------------ ------------
Total other (income) expenses, net (19,693,798) 592,804
------------ ------------
Income before income taxes 32,207,278 10,813,027
Deferred income tax expense 12,254,000 4,123,000
------------ ------------
Net income 19,953,278 6,690,027
Retained earnings at beginning of period 23,267,458 11,179,221
------------ ------------
Retained earnings at end of period $ 43,220,736 $ 17,869,248
============ ============
Net income per share - basic and diluted $ .32 $ .11
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
AMC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended February 28,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net income $ 19,953,278 $ 6,690,027
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,829,641 6,436,882
Deferred income tax expense 12,254,000 4,123,000
Gain on limited partnership interest (22,243,496) (3,638,967)
Changes in assets and liabilities:
Accounts and notes receivable, net (732,577) 303,699
Other current and non current assets 178,622 318,014
Accounts payable and accrued expenses (769,547) (4,124,656)
Deferred revenue 386,795 (201,957)
Other non current liabilities 571,921 162,280
------------ ------------
Net cash provided by operating activities 16,428,637 10,068,322
Cash flows from investing activities:
Principal repayments of notes receivable 469,538 469,538
Additions to commercial property (8,862,219) (4,780,334)
Increase in restricted cash (675,429) (1,024,166)
Cash received on sale of partnership units to related
party 4,490,186 --
------------ ------------
Net cash used in investing activities (4,577,924) (5,334,962)
Cash flows from financing activities:
Decrease in restricted escrow deposits 1,284,554 1,750,527
Net increase in revolving line of credit 936,007 1,815,804
Principal payments of Elevated Antecedent Debt (4,394,604) --
Mart Bond payments (7,200,000) (7,200,000)
Principal repayments of Gift Mart Mortgage Loan (1,964,240) (1,245,528)
------------ ------------
Net cash used in financing activities (11,338,283) (4,879,197)
------------ ------------
Increase (decrease) in cash 512,430 (145,837)
Cash at beginning of period 1,039,809 520,854
------------ ------------
Cash at end of period $ 1,552,239 $ 375,017
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
AMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended February 28,
-----------------------------
1999 1998
----------- ----------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 3,832,168 $4,202,732
=========== ==========
Supplemental schedule of non-cash investing and
financing activities:
Sale of partnership units to related party:
Elevated Antecedent Debt Notes assigned to AMC $ 2,908,669 $ --
Cash proceeds 4,490,186 --
----------- ----------
Total Value of BPLP Units Sold $ 7,398,855 $ --
=========== ==========
Elevated Antecedent Debt Note principal payment:
Face value of Elevated Antecedent Debt Notes repaid
through assignment to AMC $ 2,908,669 $ --
Cash paid 4,394,604 --
----------- ----------
Total Elevated Antecedent Debt Note principal paid $ 7,303,273 $ --
=========== ==========
Non-cash distribution of limited partnership interest $22,243,496 $3,877,378
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-5
<PAGE> 7
AMC, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended February 28, 1999 are
not necessarily indicative of the results that may be expected for the year
ended August 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the AMC, Inc. and
Subsidiaries' annual report on Form 10-K for the year ended August 31, 1998.
(2) CONTINGENT MATTERS
On April 19, 1993, a former employee of AMCMC (Predecessor Company) filed suit
against AMCMC for breach of contract and related tort claims. A judgment was
entered in favor of the plaintiff of $246,618 plus interest. The judgment plus
accrued interest was accrued at August 31, 1998. Still to be adjudicated is the
issue of whether attorney's fees should be awarded against either party in the
case.
The Company is subject to certain other claims in the ordinary course of
business. Management does not expect that the resolution of such claims will
have a material impact on the Company's financial position or results of
operations.
(3) RECENT ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
SFAS 130 was issued to address concerns over the practice of reporting elements
of comprehensive income directly in shareholders' equity. The term
"comprehensive income" is used in the statement to describe the total of all
components of comprehensive income including items recorded directly in
shareholders' equity, as well as net earnings under current accounting
standards. At the current time, the Company has no items of other comprehensive
income in any period presented in the accompanying financial statements.
(4) INVESTMENT IN LIMITED PARTNERSHIP
The Company, through its wholly owned subsidiary EC Holdings, Inc. ("EC
Holdings"), owns limited partnership interests in partnerships owning various
types of real estate. In November 1998, in a series of transactions (the "BPLP
Transaction"), EC Holdings sold its interest in Embarcadero Center Investors
Partnership ("ECIP") and Three Embarcadero Center West to Boston Properties
Limited
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<PAGE> 8
Partnership ("BPLP") for preferred limited partnership units in BPLP (the "BPLP
Preferred Units"). In addition, Two Embarcadero Center West sold an office
building to BPLP for cash, a portion of which was distributed to the Company in
December. As a result of these transactions, all of the office buildings in
which the Company held an interest were sold to BPLP. EC Holdings received a
total of 494,300 BPLP Preferred Units that had a fair value of approximately
$22.2 million, all of which was recorded as a gain since the Company had no
previously recorded basis in the interests held by EC Holdings.
On December 29, 1998, as contemplated by an agreement entered into on November
10, 1998, the Company sold 164,419 BPLP Preferred Units to FBCC Co. ("FBCC"),
AMC's largest shareholder, for total consideration of $7.4 million, comprised of
the satisfaction of Elevated Antecedent Debt Notes with a face value of
approximately $2.9 million held by FBCC and approximately $4.5 million in cash
(this transaction, the "FBCC Transaction"). The consideration received was equal
to the book value of the BPLP Preferred Units, and no gain or loss was recorded
on the FBCC Transaction.
The BPLP Preferred Units are not publicly traded, are restricted as to transfer
for a period of time, and are convertible, at the holder's election, into common
units of BPLP on or after December 31, 2002 at a conversion price of $38.10 per
common unit. Each common unit in BPLP may be redeemed for either one share of
common stock of Boston Properties, Inc. ("Boston Properties"), the general
partner of BPLP, or, at the option of Boston Properties, cash equal to the fair
market value of a share of common stock at the time of redemption. The BPLP
Preferred Units accrue dividends that are payable quarterly (the "Ordinary
Preferred Dividends"), based upon the liquidation preference, at a rate of 5.0%
per annum through March 31, 1999; 5.5% through December 31, 1999; 5.625% through
December 31, 2000; 6.0% through December 31, 2001; 6.5% through December 31,
2002; 7.0% until May 12, 2009; and 6.0% thereafter. However, if at any time the
quarterly dividends or distributions on the common units into which the BPLP
Preferred Units may be converted (the "Ratchet Dividend") are greater that the
Ordinary Preferred Dividends due, then each Preferred Unit will receive, in
respect of that quarter, the Ratchet Dividend rather than the lower Ordinary
Preferred Dividend. The terms of the BPLP Preferred Units provide that they may
be redeemed for cash in six annual tranches, beginning on May 12, 2009, at the
election of Boston Properties or the holders.
(5) LONG-TERM DEBT
On December 31, 1998, with the consent for early redemption of 100% of the
noteholders, the Company redeemed the remaining outstanding Elevated Antecedent
Debt Notes, with a face value of $8.0 million, with the cash proceeds from the
FBCC Transaction, the limited partnership cash distributions received, and the
Elevated Antecedent Debt Notes assigned to the Company in conjunction with the
FBCC Transaction. The Company had previously redeemed Elevated Antecedent Debt
Notes with a face value of $35,000 in September 1998 with cash distributions
from limited partnership interests.
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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Effective October 2, 1995, Mr. John C. Portman, Jr. and The Portman Companies
entered into a series of agreements with their lenders to restructure their
existing indebtedness (the "Formation Transactions"). 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 Mart Bonds, the AMM Escrow Bonds, and the Antecedent Debt
Notes.
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 Mart Bonds, the Mart Bonds 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 Mart
Bonds, and no interest expense will be recognized on the Mart Bonds.
The Company's primary business is the operation of trade marts and trade shows
at AmericasMart-Atlanta. Additionally, the Company manages trade shows on behalf
of third parties at other locations.
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes certain forward-looking statements about the Company's
business, revenues, expenditures and operating and capital requirements, as such
term is defined in Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. In addition, forward-looking statements may
be included in various other Company documents to be issued in the future and in
various oral statements by Company representatives to security analysts and
investors from time to time. Any such statements are subject to risks that could
cause the actual results to vary materially. The risks and uncertainties
associated with the forward-looking information, include, but are not limited
to, (a) changes in the general economic climate, (b) conditions of tenants, (c)
increased operating costs and interest expense, (d) the timing of and costs
associated with property improvements, (e) changes in taxation or zoning laws,
(f) government regulations, (g) availability of financing to repay outstanding
indebtedness and for other purposes, (h) potential liability under environmental
or other laws or regulations, (i) general competitive factors and (j) year 2000
compliance issues.
RESULTS OF OPERATIONS
The Company's principal sources of revenues are rental revenues from the lease
of showroom and exhibition space in AmericasMart-Atlanta and trade show
revenues, which relate to specific shows staged for related industries. The
Company leases showroom space over terms ranging from one to ten 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 and
their representatives an opportunity to exhibit merchandise during a specific
trade show.
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<PAGE> 10
Quarter Ended February 28, 1999 Compared to Quarter Ended February 28, 1998
Rental revenues increased approximately $1,736,000 during the quarter ended
February 28, 1999 ("Q2 1999") as compared to the quarter ended February 28, 1998
("Q2 1998"). Rental revenues increased approximately $582,000 in the Gift Mart
due to an increase in both rental rates and occupancy. Rental revenues increased
approximately $1,210,000 in the Merchandise Mart, reflecting an increase in both
occupancy and rental rates. The increase in occupancy is primarily associated
with the expansion of permanent showroom space for the Holiday and Floral and
the Gardens industries subsequent to the first quarter of fiscal 1998, and the
expansion of permanent showroom space for the Floorcovering industry in January
1999. Rental revenues in the Apparel Mart decreased approximately $56,000
reflecting a slight decrease in occupancy offset by an increase in rental rates.
Trade show revenues increased approximately $421,000 in Q2 1999 compared to Q2
1998 primarily due to an increase in convention and conference revenues and an
increase in January International Gift and Home Furnishings market revenue.
Other revenues increased approximately $202,000 in Q2 1999 compared to Q2 1998
primarily due to an increase in publishing and transient parking revenue.
Building operations expense increased approximately $496,000 in Q2 1999 over Q2
1998 due to higher operations costs associated with higher occupancies in the
Merchandise Mart, certain one-time repair costs, higher utility costs and higher
security costs. Trade show expenses decreased approximately $121,000 during Q2
1999 compared to Q2 1998 due primarily to a decrease in market registration
costs. Marketing expenses increased approximately $241,000 during Q2 1999
compared to Q2 1998 due primarily to one-time marketing expense associated with
the expansion of the Gardens and Floorcovering industries, and higher publishing
costs. General and administrative costs increased approximately $1,143,000
during Q2 1999 compared to Q2 1998 primarily due to increases in salary and
benefit costs and attorneys' fees. The increase in salary and benefit costs is
associated with planned industry expansions and convention and conference center
operations, hires made for previously unfilled positions, and higher benefit
costs.
Bad debt expense increased by approximately $127,000 during Q2 1999 compared to
Q2 1998 due a decrease in bad debt recoveries.
Property tax expense decreased approximately $201,000 due to an expected
decrease in the property tax assessment.
Depreciation expense increased approximately $191,000 in Q2 1999 as compared to
Q2 1998 due to capital improvements made during late fiscal year 1998 and fiscal
1999.
Interest expense decreased approximately $273,000 during Q2 1999 compared to Q2
1998 due to the reduction of the principal balance of the Gift Mart Mortgage
Loan.
The gain on limited partnership interests of approximately $100,000 represents
an adjustment to the gain as a result of certain amounts finalized in January
1999 for the BPLP Transaction.
Other income recorded in Q2 1999 primarily represents dividends and cash
distributions received by the Company from limited partnership investments for
which there was no basis, net of accrued litigation costs.
Income tax expense decreased approximately $590,000 in Q2 1999 compared to Q2
1998 due to the decrease in taxable income.
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<PAGE> 11
Six Months Ended February 28, 1999 Compared to Six Months Ended February 28,
1998
Rental revenues increased approximately $3,132,000 during the six months ended
February 28, 1999 ("YTD 1999") as compared to the six months ended February 28,
1998 ("YTD 1998"). Rental revenues increased approximately $1,090,000 in the
Gift Mart due to an increase in both rental rates and occupancy. Rental revenues
increased approximately $2,274,000 in the Merchandise Mart, reflecting an
increase in both occupancy and rental rates. The increase in occupancy is
primarily associated with the expansion of permanent showroom space for the
Holiday and Floral and the Gardens industries subsequent to the first quarter of
fiscal 1998, and the expansion of permanent showroom space in the Floorcovering
industry in January 1999. Rental revenues in the Apparel Mart decreased
approximately $232,000, reflecting a slight decrease in occupancy offset by an
increase in rental rates.
Trade show revenues increased approximately $550,000 in YTD 1999 compared to YTD
1998 primarily due to an increase in convention and conference revenues and an
increase in January International Gift and Home Furnishings Market revenues.
Other revenues increased approximately $107,000 in YTD 1999 compared to YTD 1998
primarily due to an increase in publishing revenue.
Building operations expense increased approximately $778,000 in YTD 1999 due to
higher operations costs associated with higher occupancies in the Merchandise
Mart, certain one-time repair costs, higher utility costs, and higher security
costs. Marketing expenses increased approximately $413,000 during YTD 1999
compared to YTD 1998 due primarily to one time marketing expense associated with
the expansion of the Gardens and Floorcoverings industries, and higher
publishing costs. General and administrative expenses increased approximately
$1,455,000 during YTD 1999 compared to YTD 1998 primarily due to increases in
salary and benefit costs and attorneys' fees. The increase in salary and benefit
costs is associated with planned industry expansions and convention and
conference center operations, hires made for previously unfilled positions, and
higher benefit costs.
Property tax expense decreased approximately $374,000 due to an expected
decrease in the property tax assessment.
Depreciation expense increased approximately $393,000 in YTD 1999 as compared to
YTD 1998 due to capital improvements, made during late fiscal year 1998 and
fiscal 1999.
Interest expense decreased approximately $437,000 during YTD 1999 compared to
YTD 1998 due to the reduction of the principal balance of the Gift Mart Mortgage
Loan.
The gain on limited partnership interests of $22,243,000 represents the fair
value of the Company's share of BPLP Preferred Units received as a result of the
BPLP Transaction. The Company had no previously recorded basis in the interest
held by EC Holdings.
Other income recorded in YTD 1999 primarily represents dividends and cash
distributions received by the Company from limited partnership investments for
which there was no basis, net of accrued litigation costs.
Income tax expense increased approximately $8,392,000 in YTD 1999 compared to
YTD 1998 due to the increase in taxable income, primarily as a result of the
BPLP Transaction.
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<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1999, the Company had approximately $281.7 million in total debt
outstanding, as follows (amounts in thousands):
<TABLE>
<CAPTION>
Description Principal Maturity
---------------------------------------- ---------- ---------------
<S> <C> <C>
Gift Mart Mortgage Loan $ 93,085 July 31, 1999
Mart Bonds (face amount of $160 million) 181,600 July 31, 2000
Revolving Line of Credit 7,039 May 31, 2001
----------
Total debt $ 281,724
==========
</TABLE>
The Company will not generate sufficient cash to repay its indebtedness and is
currently seeking to refinance its debt obligations at or before maturity. The
Company currently does not have a commitment in place to refinance the amounts
currently outstanding, and 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. The Company has requested a
one-year extension of the maturity date of the Gift Mart Mortgage Loan to July
31, 2000, but has not received an extension commitment from the Gift Mart
lenders. Since the operating assets of the Gift Mart secure the Gift Mart
Mortgage Loan, foreclosure by the Gift Mart lenders would seriously impair the
Company's ability to continue as a going concern.
The Company has engaged financial advisors to assist the Company in the
identification and evaluation of strategic alternatives that may include certain
transactions designed to maximize the value of the Company. The possible
transactions could include a capital restructuring, refinancing, asset
repositioning or a sale of the Company or certain of its assets, in either a
single transaction or a series of related transactions. Other assets of
affiliates of the Company could be included in any such transaction or series of
transactions. There can be no assurance that the financial advisors will
formulate any strategic alternative to maximize the value of the Company or that
the Company will succeed in completing any transaction or series of transactions
recommended by the financial advisors.
On December 31, 1998, with the consent for early redemption of 100% of the
noteholders, the Company redeemed the remaining outstanding Elevated Antecedent
Debt Notes, with a face value of $8.0 million with the cash proceeds from the
FBCC Transaction, limited partnership cash distributions received, and the
Elevated Antecedent Debt Notes assigned to the Company in conjunction with the
FBCC Transaction. The Company had previously redeemed Elevated Antecedent Debt
Notes with a face value of $35,000 in September 1998 with cash distributions
from limited partnership interests. All remaining cash not required to pay down
the Elevated Antecedent Debt Note was used to pay down the Revolving Line of
Credit in January 1999.
Management believes that cash flows from operations and borrowings under the
Revolving Line of Credit will be sufficient to fund operations, debt service
prior to maturity and approved capital expenditures, provided that the Company
can maintain its operating revenues and expenses at current levels and that no
unforeseen or additional significant capital improvements are required. 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
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<PAGE> 13
age. In the event that operating cash flows and borrowings under the Revolving
Line of Credit are insufficient, the Company would be required to seek
additional financing or to refinance all of its debt obligations prior to
maturity. The Company's ability to seek additional financing is limited under
the terms of the Revolving Line of Credit and its indentures.
The Company's primary sources of cash are operating cash flows and borrowings
under the Revolving Line of Credit, which has a maximum revolving commitment of
$20.0 million. Amounts under the Revolving Line of Credit are available for
general corporate use, including operating expenses, working capital, capital
improvements, debt service and acquisitions. The Company intends to use the
Revolving Line of Credit to fund approved capital projects, for working capital
purposes, and for an additional liquidity reserve. At February 28, 1999
approximately $13.0 million was available under the Revolving Line of Credit.
The availability of operating cash flows generated by the Gift Mart is limited
by the terms of the Gift Mart Mortgage Loan. Cash flows from operations 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 $2.0 million in YTD 1999 and $1.2 million in YTD
1998. Included in the YTD 1999 principal payments of $2.0 million were
approximately $730,000 in proceeds received from the redemption of the Elevated
Antecedent Debt Notes held by the Gift Mart.
Under the terms of the Mart Bonds, the Company is required to use certain
portions of its 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. Mart Bond repayments totaled
approximately $7.2 million in YTD 1999 and YTD 1998. Principal payments to
reduce the indebtedness under the Gift Mart financing and the Mart Bonds are
determined based upon cash flows of the Gift Mart and of the Company,
respectively.
Cash flows from operations, net of cash flows of the Gift Mart, were
approximately $12.7 million during YTD 1999, and $ 7.8 million during YTD 1998.
The increase in operating cash flow in YTD 1999 compared to YTD 1998 is
primarily attributable to the increase in operating income, limited partnership
distributions received and working capital changes.
Significant capital expenditures were incurred during the past several years and
ongoing capital expenditures will be necessary to maintain and improve the
Company's properties. Total capital expenditures were approximately $8.9 million
in YTD 1999 and $4.8 million in YTD 1998, which included approximately $1.0
million and $272,000 in Gift Mart capital expenditures for YTD 1999 and YTD
1998, respectively. Capital expenditures, including tenant improvements, of
approximately $18.3 million are forecasted for fiscal year 1999, $2.9 million of
which are for the Gift Mart. There can be no assurance that changes in the
competitive environment, governmental regulations or unforeseen loss or damage
will not cause capital expenditures to exceed management's estimate.
In February 1998, one of the holders of the Mart Bonds offered to purchase for
cash a portion of the outstanding Mart Bonds. This offer expired and it is the
understanding of the Company that none of the outstanding Mart Bonds were
purchased pursuant to this offer. In connection with the offer, the offeror
indicated that it intended to engage in discussions with the Company regarding
the refinancing of the Mart Bonds and that another holder also intended to
engage in such discussions with the Company. While the Company has from time to
time engaged in preliminary discussions with certain holders of the Mart Bonds
regarding the refinancing of those Bonds and possible arrangements under
I-12
<PAGE> 14
which the Company would participate in repurchases of the Mart Bonds, the
Company currently is not a party to any agreement, understanding or arrangement
with respect to the refinancing of the Mart Bonds or with respect to any
repurchase by the Company of the Mart Bonds. Two of the Company's major
shareholders are parties to an agreement whereby each shareholder has the option
to purchase shares of common stock or warrants purchased by the other.
In June 1998, the Company entered into an agreement to sell the Pisa Land for
approximately $750,000. There can be no guarantee that the transaction will be
completed or that the transaction will be completed as proposed.
In November 1998, in a series of transactions (the "BPLP Transaction"), EC
Holdings sold its interest in Embarcadero Center Investors Partnership ("ECIP")
and Three Embarcadero Center West to Boston Properties Limited Partnership
("BPLP") for preferred limited partnership units in BPLP (the "BPLP Preferred
Units"). In addition, Two Embarcadero Center West sold an office building to
BPLP for cash, a portion of which was distributed to the Company in December. As
a result of these transactions, all of the office buildings in which the Company
held an interest were sold to BPLP. EC Holdings received a total of 494,300 BPLP
Preferred Units that had a fair value of approximately $22.2 million, all of
which has been recorded as a gain since the Company had no previously recorded
basis in the interests held by EC Holdings.
In December 1998, as contemplated by an agreement entered into in November 1998,
the Company sold 164,419 BPLP Preferred Units to FBCC Co. ("FBCC"), AMC's
largest shareholder, for total consideration of $7.4 million, comprised of the
satisfaction of Elevated Antecedent Debt Notes with a face value of
approximately $2.9 million held by FBCC and approximately $4.5 million in cash
(this transaction, the "FBCC Transaction"). The consideration received was equal
to the book value of the BPLP Preferred Units, and no gain or loss was recorded
on the FBCC Transaction.
The Company's investment in limited partnerships is comprised primarily of an
interest in SHC Units and BPLP Preferred Units. Both the SHC Units and the BPLP
Preferred Units are not publicly traded and are restricted as to transfer for a
period of time. As soon as permitted under the terms of the SHC Units and the
BPLP Preferred Units, the Company plans to liquidate its investments in the
units, or use the units to collateralize additional borrowings. Such borrowings
are limited under the terms of the Revolving Line of Credit and the indentures.
Any cash distributions to EC Holdings or cash received upon the sale or
financing of the units or the sale of the Pisa Land must first be used to pay
down the Revolving Line of Credit. The use of any additional cash distributions
is limited under the terms of the Company's debt agreements, and the Company
plans to use any available cash distributions to fund proposed capital
expansions and other capital projects, in addition to budgeted 1999 capital
expenditures, totaling approximately $9.2 million.
Inflation
The Company deals with the effects of inflation by adjusting rental rates on new
leases and renewal leases, and by providing for annual rental rate increases in
most 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 ten
years while the term of most service contracts is one year or less.
Year 2000 Information
The Year 2000 compliance issue concerns the inability of computerized
information systems to accurately calculate, store or use a date after 1999.
This could result in a system failure or miscalculations causing disruptions of
operations. The Year 2000 issue affects virtually all companies
I-13
<PAGE> 15
and all organizations. The Company recognizes the importance of ensuring that
its business operations are not disrupted as a result of Year 2000 related
computer system and software issues.
The Company has conducted an assessment of its computer and telecommunications
information systems ("IT Systems"), as well those computer systems that do not
relate to information technology, including, without limitation, its security
systems, energy management systems and other life safety systems ("Non-IT
Systems"), to identify needed Year 2000 remediation. The Company currently
anticipates that its Year 2000 assessment, remediation, and testing efforts will
be completed by December 31, 1999. The following table outlines the current
status of the Company's Year 2000 efforts as of April 6, 1999:
<TABLE>
<CAPTION>
Time Frame Percent Complete
------------ ----------------
<S> <C> <C>
IT Systems assessment 8/97 - 2/98 100%
Accounting system remediation and testing 2/98 - 5/99 99%
Telecommunication system remediation and testing 2/98 - 12/98 100%
Other IT System remediation and testing 2/98 - 12/98 100%
Non-IT System assessment 2/98 - 3/98 100%
Non-IT System remediation and testing 3/98 - 12/98 100%
</TABLE>
Accounting system remediation was completed in Q2 1999. The completion of the
accounting system testing, originally scheduled to be completed by December 31,
1998, has been delayed until May 31, 1999.
The Company has also mailed letters to its significant vendors and service
providers to determine the extent to which these entities have addressed Year
2000 compliance issues. As of April 6, 1999, the Company had received responses
from all but one-third party. All other third parties have responded and have
provided written assurances that they expect to address all significant Year
2000 issues on a timely basis. A follow-up mailing to the non-respondent has
been sent. The Company has not communicated with its tenants regarding Year 2000
compliance issues, since none of its tenants is individually significant and the
Company receives no electronic data from its tenants.
Based on the Company's assessments and available information, the Company
believes that its cost to ensure Year 2000 compliance will not exceed $300,000.
As of February 28, 1999, the Company had incurred approximately $206,000 related
to Year 2000 assessment, remediation and testing. The Company believes that the
Year 2000 issue will not pose significant operational problems for the Company.
However, if all Year 2000 issues are not properly identified, or assessment,
remediation and testing are not completed timely, there can be no assurance that
the Year 2000 issue will not materially adversely impact the Company's results
of operations or adversely affect the Company's relationships with tenants,
vendors or others. Additionally, there can be no assurance that the Year 2000
issues of other entities, including, but not limited to, the Company's third
party vendors and service providers and its tenants, will not have a material
adverse impact on the Company's systems or results of operations. The Company
has not engaged an independent expert solely to assist in its Year 2000 efforts.
However, when installing new software, the Company requires year 2000 compliance
assurances from its vendors.
The Company has not yet determined the operational costs and problems that would
be reasonably likely to result from the failure by the Company and certain third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. The Company has not developed a contingency plan for dealing with
the most reasonably likely worst case scenario, and such scenario has not yet
I-14
<PAGE> 16
been clearly identified. The Company currently plans to complete such analysis
and contingency planning by December 31, 1999.
Readers are cautioned that forward-looking statements regarding Year 2000 issues
should be read in conjunction with the cautionary statement in the Overview
section of this Item.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's major market risk exposure is the potential loss arising from
changes in interest rates and its impact on variable rate debt instruments. The
following table summarizes information related to the Company's market risk
sensitive debt instruments as of February 28, 1999:
<TABLE>
<CAPTION>
Gift Mart Mortgage Loan Revolving Line of Credit
------------------------- --------------------------
<S> <C> <C>
Principal balance $93,084,725 $7,038,907
Fair value $93,084,725 $7,038,907
Total availability $93,084,725 $20,000,000
Maturity 7/31/1999 5/31/2001
Interest rates Prime rate plus 1% or Prime rate or
LIBOR plus 2% or LIBOR plus 2.1%, at
IBOR plus 2%, at the the Company's
Company's option option
</TABLE>
I-15
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable. .
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable. .
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Voted upon at the Annual Meeting of Shareholders held on January 29, 1999:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED
---------- --------- -----------
<S> <C> <C> <C>
Re-election of three Class III directors: R. Charles
Loudermilk, Stanley P. Steinberg, John C. Portman,
Jr.; terms to expire at the 2002 Annual Meeting of
Shareholders 52,073,475 0 0
Ratification of appointment of KPMG LLP as
independent auditors for FYE August 31, 1999
52,073,475 0 0
</TABLE>
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
(b) The Company has not filed any reports on Form 8-K during the
quarter ended February 28, 1999 or subsequent to that date but
prior to the filing date of this Form 10-Q.
II-1
<PAGE> 18
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)
/S/ John M. Ryan
------------------------------------------
John M. Ryan
President
/S/ Henry G. Almquist, Jr.
------------------------------------------
Henry G. Almquist, Jr.
Sr. Vice President - Finance and
Accounting, Chief Financial Officer
(Principal financial and accounting officer)
Date: April 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FINANCIAL STATEMENTS OF AMC, INC. FILED FOR THE QUARTER ENDED FEBRUARY 28, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> FEB-28-1999
<CASH> 1,552
<SECURITIES> 0
<RECEIVABLES> 2,995
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,714
<PP&E> 338,341
<DEPRECIATION> 142,314
<TOTAL-ASSETS> 229,477
<CURRENT-LIABILITIES> 118,516
<BONDS> 167,200
0
0
<COMMON> 62,173
<OTHER-SE> (129,440)
<TOTAL-LIABILITY-AND-EQUITY> 229,477
<SALES> 0
<TOTAL-REVENUES> 41,537
<CGS> 0
<TOTAL-COSTS> 28,840
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 183
<INTEREST-EXPENSE> 3,747
<INCOME-PRETAX> 32,207
<INCOME-TAX> 12,254
<INCOME-CONTINUING> 19,953
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,953
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
