<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 November 30, 1998
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 January 8, 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>
November 30, August 31,
1998 1998
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,460,942 $ 1,039,809
Restricted cash 2,623,227 2,678,182
Restricted escrow deposits 2,250,308 4,233,685
Accounts and notes receivable, net 3,270,957 2,731,941
Deferred income taxes 1,819,528 1,819,528
Other current assets 1,647,893 1,042,314
------------- -------------
Total current assets 14,072,855 13,545,459
Commercial property 333,264,876 329,479,276
Less accumulated depreciation (138,928,970) (135,537,458)
------------- -------------
Net commercial property 194,335,906 193,941,818
Deferred income taxes 976,271 10,460,611
Investment in limited partnerships 28,640,450 6,497,450
Other noncurrent assets 394,053 420,716
------------- -------------
$ 238,419,535 $ 224,866,054
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 6,549,663 $ 9,961,499
Deferred revenue 6,426,170 1,452,940
Current portion of long-term debt 109,285,708 109,448,965
------------- -------------
Total current liabilities 122,261,541 120,863,404
Long-term debt, less current portion 178,074,833 181,703,273
Revolving line of credit 6,266,574 6,102,900
Other non current liabilities 3,575,864 3,416,740
------------- -------------
Total liabilities 310,178,812 312,086,317
------------- -------------
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 38,728,444 23,267,458
------------- -------------
Total shareholders' deficit (71,759,277) (87,220,263)
------------- -------------
$ 238,419,535 $ 224,866,054
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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AMC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended November 30,
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Revenues:
Rental $ 14,396,094 $ 12,999,957
Trade shows 1,657,488 1,528,273
Other revenues 616,199 710,991
------------- -------------
Total revenues 16,669,781 15,239,221
Operating expenses:
Building operations 2,168,551 1,887,233
Trade shows 459,098 351,334
Marketing 762,710 590,874
General and administrative 4,333,395 4,021,601
Bad debt recovery (135,104) (39,428)
Property taxes 898,613 1,071,257
Depreciation and amortization 3,418,173 3,216,245
------------- -------------
Total operating expenses 11,905,436 11,099,116
------------- -------------
Operating income 4,764,345 4,140,105
Other (income) expenses:
Interest expense 1,934,996 2,098,727
Interest income (90,132) (96,632)
Other expense 117,155 119,815
Gain on limited partnership interests (22,143,000) --
------------- -------------
Total other (income) expenses, net (20,180,981) 2,121,910
------------- -------------
Income before income taxes 24,945,326 2,018,195
Deferred income tax expense 9,484,340 763,000
------------- -------------
Net income 15,460,986 1,255,195
Retained earnings at beginning of period 23,267,458 11,179,221
------------- -------------
Retained earnings at end of period $ 38,728,444 $ 12,434,416
============= =============
Net income per share basic $ .25 $ .02
============= =============
Net income per share - diluted $ .25 $ .02
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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AMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended November 30,
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net income $ 15,460,986 $ 1,255,195
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,418,173 3,216,245
Gain on limited partnership interests (22,143,000) --
Deferred income tax expense 9,484,340 763,000
Decrease in accounts and notes receivable (539,016) 56,852
Increase in other current and noncurrent assets (605,580) (1,060,018)
Decrease in accounts payable and accrued expenses (3,411,836) (6,110,984)
Increase in deferred revenue 4,973,230 4,367,367
Increase (decrease) in other non current liabilities 159,127 (139,822)
------------- -------------
Net cash provided by operating activities 6,796,424 2,347,835
Cash flows from investing activities:
Additions to commercial property (3,785,600) (1,444,961)
Decrease (increase) in restricted cash 54,955 (823,917)
------------- -------------
Net cash used in investing activities (3,730,645) (2,268,878)
Cash flows from financing activities:
Decrease in restricted escrow deposits 1,983,377 2,391,790
Net increase in revolving line of credit 163,674 1,136,890
Elevated Antecedent Debt Note payments (28,440) --
Mart Bond payments (3,600,000) (3,600,000)
Principal repayments of Gift Mart Mortgage Loan (163,257) --
------------- -------------
Net cash used in financing activities (1,644,646) (71,320)
------------- -------------
Increase in cash 1,421,133 7,637
Cash at beginning of period 1,039,809 520,854
============= =============
Cash at end of period $ 2,460,942 $ 528,491
============= =============
Supplemental disclosure -
Cash paid during the period for interest $ 1,909,085 $ 2,016,771
============= =============
Partnership units received on sale of limited partnership
interest $ 22,143,000 $ --
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
AMC, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
(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 three months ended November 30, 1998
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. On January 19,
1996, the trial court granted summary judgment in favor of the Company on all
counts. On March 5, 1997, the Georgia Court of Appeals reversed the trial court,
and directed that judgment be entered in favor of the former employee on the
breach of contract count and remanded the case for trial on the tort claims. The
amount awarded for the breach of contract claim for damages, plus estimated
interest, of $400,000 was accrued at August 31, 1998. The Georgia Supreme Court
granted the Company's petition requesting a review of the Court of Appeals
decision. On July 13, 1998 the Supreme Court issued its opinion affirming the
summary judgement on the breach of contract claim, but ruling in favor of the
Company on the tort claims. The case has been remanded to the trial court to
enter a judgement and to determine whether attorneys' 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 PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS 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
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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 (note 5). As a result of these transactions, all of the
office buildings in which the Company an interest were sold to BPLP. EC Holdings
received a total of 501,639 BPLP Preferred Units, subject to final proration
adjustments, that have a fair value of approximately $22.1 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.
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. The BPLP Preferred Units are
pledged as collateral to the Elevated Antecedent Debt Notes (note 5).
(5) SUBSEQUENT EVENTS
In December 1998 the Company received cash distributions from Two Embarcadero
Center West and the ECIP Liquidating Trust, an entity created to wind up the
business of ECIP, totaling $1.4 million.
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.
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 $5.1 million, with the cash proceeds from the
FBCC transaction and a portion of the cash distribution received. The remaining
cash of approximately $830,000 was used to pay down the Revolving Line of Credit
in January 1999.
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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
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<PAGE> 8
exhibition space during markets thereby affording non-tenant manufacturers and
their representatives an opportunity to exhibit merchandise during a specific
trade show.
Quarter Ended November 30, 1998 Compared to Quarter Ended November 30, 1997
Rental revenues increased approximately $1,396,000 during the quarter ended
November 30, 1998 ("Q1 1999") as compared to the quarter ended November 30, 1997
("Q1 1998"). Rental revenues increased approximately $508,000 in the Gift Mart
due to an increase in both rental rates and occupancy. Rental revenues increased
approximately $1,064,000 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. Rental
revenues in the Apparel Mart decreased approximately $176,000, reflecting a
slight decrease in occupancy offset by an increase in rental rates.
Trade show revenues increased approximately $129,000 in Q1 1999 compared to Q1
1998 primarily due to an increase in convention and conference revenues. Other
revenues decreased approximately $95,000 in Q1 1999 compared to Q1 1998
primarily due to a decrease in hotel commission revenue.
Building operations expense increased approximately $281,000 in Q1 1999 over Q1
1998 due to increased electrical and cleaning costs. Trade show expenses
increased approximately $108,000 during Q1 1999 compared to Q1 1998 due to costs
associated with the increased convention and conference center revenue.
Marketing expenses increased approximately $172,000 during Q1 1999 compared to
Q1 1998 due to increased marketing costs associated with the Fall Gift and
Accessories Market, International Marketing and the October Apparel Shows.
General and administrative expenses increased approximately $312,000 during Q1
1999 compared to Q1 1998 primarily due to increases in salaries and benefits
costs associated with planned industry expansions and convention and conference
center operations. The bad debt recoveries increased approximately $96,000
during Q1 1999 compared to Q1 1998 due to further improvements in collection
efforts during Q1 1999.
Property tax expense decreased approximately $173,000 due to an expected
decrease in the property tax assessment.
Depreciation expense increased approximately $202,000 in Q1 1999 as compared to
Q1 1998 due to capital improvements, which were made during fiscal year 1998.
Interest expense decreased approximately $164,000 during Q1 1999 compared to Q1
1998 due to the reduction of the principal balance of the Gift Mart Mortgage
Loan.
The gain on limited partnership interests of $22,143,000 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.
Income tax expense increased approximately $8,721,000 in Q1 1999 compared to Q1
1998 due to the increase in taxable income, primarily as a result of the BPLP
Transaction.
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RECENT DEVELOPMENTS
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 501,639 BPLP
Preferred Units, subject to final proration adjustments, that have a fair value
of approximately $22.1 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.
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.
In December 1998 the Company received cash distributions from Two Embarcadero
Center West and the ECIP Liquidating Trust, an entity created to wind up the
business of ECIP, totaling $1.4 million.
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 $5.1 million, with the cash proceeds from the
FBCC Transaction and a portion of the limited partnership cash distributions
received. 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. The remaining cash of approximately $830,000 was
used to pay down the Revolving Line of Credit in January 1999.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1998, the Company had approximately $293.6 million in total debt
outstanding, as follows (amounts in thousands):
<TABLE>
<CAPTION>
Description Principal Maturity
-------------------------------------------- ------------ ---------------
<S> <C> <C>
Gift Mart Mortgage Loan $ 94,886 July 31, 1999
Mart Bonds (face amount of $160 million) 185,200 July 31, 2000
Elevated Antecedent Debt Notes 7,275 July 31, 2000
Revolving Line of Credit 6,267 May 31, 2001
------------
Total debt $ 293,628
============
</TABLE>
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 November 30, 1998
approximately $13.7 million was available under the Revolving Line of Credit.
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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 $163,000 in Q1 1999. No principal payments were
made for Q1 1998.
Cash flows from operations, net of cash flows of the Gift Mart, were
approximately $4.7 million during Q1 1999, and $2.0 million during Q1 1998. The
increase in operating cash flow in Q1 1999 compared to Q1 1998 is primarily
attributable to the increase in operating income.
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 $3.8 million
in Q1 1999 and $1.4 million in Q1 1998, which included approximately $293,000
and $64,000 in Gift Mart capital expenditures for Q1 1999 and Q1 1998,
respectively. Capital expenditures, including tenant improvements, of
approximately $17.3 million are budgeted for fiscal year 1999, $3.2 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.
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 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.
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 $3.6 million in Q1 1999 and Q1 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.
The remaining principal balance on the Gift Mart Mortgage Loan is due on July
31, 1999. The Company's Mart Bonds are due and payable on July 31, 2000. The
Company will not generate sufficient cash to repay such indebtedness and intends
to refinance these 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. Since the Gift Mart Mortgage Loan is
secured by the operating assets of the Gift Mart, foreclosure by the lender
would seriously impair the Company's ability to continue as a going concern.
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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.
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 offer or
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 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, which is
scheduled to close in the third quarter of fiscal 1999, will be completed or
that the transaction will be completed as proposed.
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-10
<PAGE> 12
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 January 4, 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 97%
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>
The completion of the accounting system remediation and testing, originally
scheduled to be completed by December 31, 1998, has been delayed until May 1,
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 January 4, 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 November 30, 1998 , the Company had incurred approximately $154,000
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-11
<PAGE> 13
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.
I-12
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See note 1 to Part 1, Item 1 - Financial Statements.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters have been submitted to a vote of security holders during the
quarter ended November 30, 1998.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Transfer of Partnership Interest by and among EC Holdings,
Inc., AMC, Inc. and FBCC Co. dated December 29, 1998.
27 Financial Data Schedule
(b) The Company has not filed any reports on Form 8-K during the
quarter ended November 30, 1998 or subsequent to that date but
prior to the filing date of this Form 10-Q.
II-1
<PAGE> 15
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: January 14, 1999
<PAGE> 1
EXHIBIT 10.1
TRANSFER OF PARTNERSHIP INTEREST
THIS TRANSFER OF PARTNERSHIP INTEREST (this "TRANSFER") is made as of the
29th day of December, 1998, but intended to be effective as of the 12th day of
November, 1998 (the "EFFECTIVE DATE"), by and among EC HOLDINGS, INC., a
Georgia corporation ("TRANSFEROR"), AMC, Inc., a Georgia corporation ("AMC";
Transferor and AMC, collectively, "SELLERS"), and FBCC Co., a Texas general
partnership ("TRANSFEREE").
W I T N E S S E T H:
WHEREAS, Transferor is a limited partner in Boston Properties Limited
Partnership (the "PARTNERSHIP"), a Delaware limited partnership currently
existing pursuant to the Second Amended and Restated Agreement of Limited
Partnership of Boston Properties Limited Partnership dated June 29, 1998 (as
amended, the "PARTNERSHIP AGREEMENT");
WHEREAS, Transferor became such limited partner by virtue of the Seventh
Amendment to Second Amended and Restated Agreement of Limited Partnership dated
November 12, 1998, pursuant to which Transferor was admitted to the Partnership
as an "Additional Limited Partner" (as defined in the Partnership Agreement)
holding 501,639.46 "Series Two Preferred Units" (as defined in the Partnership
Agreement) (the "PREFERRED UNITS");
WHEREAS, Transferor wishes hereby to transfer a portion of the Preferred
Units to Transferee and Transferee wishes hereby to acquire a portion of the
Preferred Units; and
WHEREAS, AMC is the parent of Transferor and joins in this Transfer for the
purposes set forth below.
NOW, THEREFORE, in consideration of the foregoing provisions and other
good and valuable consideration, the receipt and sufficiency whereof is hereby
acknowledged by each party hereto, the parties hereto hereby covenant and agree
as follows;
1. DEFINED TERMS. Defined terms used in this Transfer (as indicated by
the capitalization of the initial letter in each word thereof) shall, if such
terms are defined in the Partnership Agreement and are not otherwise defined in
this Transfer, be deemed to have the same definitions as are ascribed thereto
in the Partnership Agreement.
2. TRANSFER OF UNITS. Transferor does hereby transfer, convey and
assign effective as of the Effective Date, without representation or warranty
of any nature whatsoever except as expressly set forth herein, 164,419.0
Preferred Units (the "TRANSFERRED UNITS") having an aggregate face value of
$8,220,950.00, together with any and all other right, title, interest and claim
of Transferor in and to the Partnership as of the Effective Date incidental to
the Transferred Units (but not incidental to the remaining 337,220.46 Preferred
Units retained by Transferor (the "RETAINED UNITS")). This transfer of the
Transferred Units by Transferor to Transferee is made expressly subject to the
terms and conditions of the following (collectively, the "PARTNERSHIP
DOCUMENTS"):
<PAGE> 2
a. The Partnership Agreement;
b. the Registration Rights and Lock-Up Agreement among the Partnership
and Transferor, et al., dated November 12, 1998 (the "REGISTRATION
RIGHTS AGREEMENT");
c. the Boston Properties Limited Partnership Certificate of Designations
Establishing and Fixing the Rights, Limitations and Preferences of a
Series of Preferred Units, executed by the general partner of the
Partnership as of November 12, 1998, amending the Partnership
Agreement; and
d. the Contribution Agreement among the Partnership and Transferor, et
al., dated November 12, 1998 (the "CONTRIBUTION AGREEMENT").
The parties acknowledge that pursuant to Section 10.4 of the Contribution
Agreement, the total number of Preferred Units issued to Transferor by the
Partnership may be adjusted once prorations are finalized under the Contribution
Agreement. Any increase or decrease in the number of Preferred Units issued to
Transferor shall operate to increase or decrease, as the case may be, only the
Retained Units and not the Transferred Units; it being the intent of the parties
that Transferor alone shall bear the sole risk and benefit of any adjustment in
the total number of Preferred Units pursuant to said Section 10.4 of the
Contribution Agreement. Further, should Transferor hereafter receive any
distributions from the Partnership attributable to the Transferred Units,
whether for a period before or after the date of this Agreement, Transferor
shall promptly remit such amount to Transferee.
3. ACCEPTANCE OF TRANSFER. Transferee (i) hereby accepts the transfer of
the Transferred Units and assumes and agrees to be bound by all of the terms and
conditions of the Partnership Documents applicable to the Transferred Units, and
(ii) hereby assumes and agrees to perform all of the obligations and liabilities
imposed by the Partnership Documents upon the owner and holder of the
Transferred Units.
4. CONSIDERATION. In consideration of the above transfer of the
Transferred Units, Transferee has simultaneously herewith (i) endorsed, assigned
and delivered to AMC, the original Class A Elevated Antecedent Debt Notes(s) Due
July 31, 2000 issued by AMC to Transferee in the aggregate principal face amount
of $2,908,669.13 and (ii) transferred to AMC via bankwire funds in the amount of
$4,490,185.87 (which funds AMC agrees to use promptly to redeem the remaining
outstanding Class A Elevated Antecedent Debt Notes Due July 31, 2000).
5. REPRESENTATIONS AND WARRANTIES OF SELLERS. Sellers herby represent and
warrant to Transferee as follows:
a. the execution, delivery and performance of this Transfer by
Sellers are within each Seller's respective power and have been duly
authorized by all necessary corporate actions of each Seller;
b. Transferor holds clear and unencumbered title to the Transferred
Units subject to the Partnership Documents and to the collateral
documents securing the Notes
<PAGE> 3
referred to in Section 4 hereof, which collateral documents are to be fully
released by Trustee upon receipt of the consideration specified in Section 4
hereof; and
c. Transferor has received no distributions from the Partnership
with regard to the Preferred Units (except for one distribution in the
aggregate amount of $13,744.92, $4,505.11 of which is being paid by Sellers
to Transferee on even date herewith).
6. REPRESENTATIONS AND WARRANTIES OF TRANSFEREE. Transferee hereby
represents and warrants to Sellers as follows:
a. the execution, delivery and performance of this Transfer by
Transferee are within Transferee's power and have been duly authorized by
all partnership or corporate actions;
b. Transferee is acquiring the Transferred Units for its own
account and not with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). Transferee understands that the Transferred
Units (and, subject to the Registration Rights Agreement, the corporate
shares of the Partnership's general partner issuable upon exchange thereof
(the "Shares")) have not been and will not be registered under the
Securities Act or any state securities laws, have been offered and sold
pursuant to exemptions therefrom and cannot be resold without registration
thereunder or exemption therefrom. Transferee represents (i) that it has
sufficient knowledge and experience in financial and business matters to
enable it to evaluate the merits and risks of investment in the Transferred
Units (and the Shares that may be issued in lieu of redemption thereof),
(ii) that it has the ability to bear the economic risk of acquiring the
Transferred Units, and (iii) that it has been supplied with, or had access
to, information to which a reasonable investor would attach significance in
making investment decisions, including, but not limited to, all information
as it has requested, to answer all of its inquiries about the Partnership
and its general partner, and to enable it to make its decision to acquire
the Transferred Units (and the Shares that may be issued in lieu of
redemption thereof). Transferor represents and warrants that it is an
"accredited investor" as such term is defined in Rule 501 under the
Securities Act.
7. FURTHER ASSURANCES. Upon the reasonable request of any party hereto,
any other party will execute and deliver such other documents, releases,
assignments and other instruments as may be required to effectuate completely
the transfer and assignment to Transferee of the Transferred Units and the
redemption in full of the Notes and to otherwise carry out the purposes of this
Transfer. Without limiting the foregoing, Sellers will execute any documents
reasonably requested by Transferee to assist Transferee in having its title to
the Transferred Units registered on the books of the Partnership and its being
admitted as an Additional Limited Partner in the Partnership should Transferee
at any time wish to pursue such admission.
8. GOVERNING LAW. This Transfer shall be construed by and interpreted
in accordance with the laws of the State of Delaware.
3
<PAGE> 4
9. COUNTERPARTS. This Transfer may be executed in any number of
counterparts, each of which shall constitute an original and all of which,
when taken together, shall constitute one agreement.
10. SUCCESSORS AND ASSIGNS. This Transfer shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Transfer as of the date
first above written.
TRANSFEROR
EC HOLDINGS, INC., a Georgia corporation
By: /s/ John M. Ryan
----------------------------------------
Name: John M. Ryan
Title: President
[CORPORATE SEAL]
AMC
AMC, INC., a Georgia corporation
By: /s/ John M. Ryan
----------------------------------------
Name: John M. Ryan
Title: President
[CORPORATE SEAL]
4
<PAGE> 5
TRANSFEREE
FBCC CO., a Texas general partnership
By: /s/ William S. Buchanan
----------------------------------------
Name: William S. Buchanan
Title: As Agent
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FINANCIAL STATEMENTS FILED FOR THE QUARTER ENDED NOVEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 2,461
<SECURITIES> 0
<RECEIVABLES> 3,271
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,073
<PP&E> 333,265
<DEPRECIATION> 138,929
<TOTAL-ASSETS> 238,420
<CURRENT-LIABILITIES> 122,262
<BONDS> 178,075
0
0
<COMMON> 62,173
<OTHER-SE> (133,932)
<TOTAL-LIABILITY-AND-EQUITY> 238,420
<SALES> 0
<TOTAL-REVENUES> 16,670
<CGS> 0
<TOTAL-COSTS> 12,041
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (135)
<INTEREST-EXPENSE> 1,935
<INCOME-PRETAX> 24,945
<INCOME-TAX> 9,484
<INCOME-CONTINUING> 15,461
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,461
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
