<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 May 31, 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 July 12, 1999, the Registrant had 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>
May 31, August 31,
1999 1998
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,712,040 $ 1,039,809
Restricted cash 2,927,876 2,678,182
Restricted escrow deposits 4,407,519 4,233,685
Accounts and notes receivable, net 2,090,359 2,731,941
Deferred income taxes -- 1,819,528
Other current assets 1,166,097 1,042,314
------------- -------------
Total current assets 12,303,891 13,545,459
Commercial property 342,836,077 329,479,276
Less accumulated depreciation (145,705,230) (135,537,458)
------------- -------------
Net commercial property 197,130,847 193,941,818
Deferred income taxes -- 10,460,611
Investment in limited partnerships 21,258,755 6,497,450
Other non current assets 424,067 420,716
------------- -------------
$ 231,117,560 $ 224,866,054
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 106,216,757 $ 109,448,965
Accounts payable and accrued expenses 6,283,656 9,961,499
Deferred revenue 7,560,075 1,452,940
------------- -------------
Total current liabilities 120,060,488 120,863,404
Long-term debt, less current portion 163,600,000 181,703,273
Revolving line of credit 7,396,542 6,102,900
Other non current liabilities 4,091,963 3,416,740
------------- -------------
Total liabilities 295,148,993 312,086,317
------------- -------------
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 46,456,288 23,267,458
------------- -------------
Total shareholders' deficit (64,031,433) (87,220,263)
------------- -------------
$ 231,117,560 $ 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 May 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Rental $ 15,379,094 $ 13,811,814
Trade shows 1,142,175 1,007,187
Other revenues 602,280 616,751
------------ ------------
Total revenues 17,123,549 15,435,752
Operating expenses:
Building operations 1,940,373 2,083,491
Trade shows 340,157 258,382
Marketing 619,936 431,263
General and administrative 4,569,377 4,038,038
Bad debt recovery (106,073) (50,937)
Property taxes 1,180,527 1,270,461
Depreciation and amortization 3,418,116 3,283,200
------------ ------------
Total operating expenses 11,962,413 11,313,898
------------ ------------
Operating income 5,161,136 4,121,854
Other (income) expenses:
Interest expense 1,868,717 2,086,616
Interest income (81,573) (104,901)
Gain on limited partnership interests -- (2,387,248)
Gain on land sale (325,625) --
Other (income) expense, net (83,074) 332,474
------------ ------------
Total other (income) expenses, net 1,378,445 (73,059)
------------ ------------
Income before income taxes 3,782,691 4,194,913
Income tax expense 547,139 1,464,000
------------ ------------
Net income 3,235,552 2,730,913
Retained earnings at beginning of period 43,220,736 17,869,248
------------ ------------
Retained earnings at end of period $ 46,456,288 $ 20,600,161
============ ============
Net income per share - basic and diluted $ .05 $ .04
============ ============
</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>
Nine months ended May 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Rental $ 44,900,737 $ 40,201,188
Trade shows 10,985,254 10,300,166
Other revenues 2,774,564 2,681,779
------------ ------------
Total revenues 58,660,555 53,183,133
Operating expenses:
Building operations 6,891,660 6,257,103
Trade shows 2,091,326 2,023,027
Marketing 4,206,394 3,604,767
General and administrative 14,472,455 12,486,140
Bad debt expense 77,413 101,467
Property taxes 2,998,934 3,462,862
Depreciation and amortization 10,247,757 9,720,082
------------ ------------
Total operating expenses 40,985,939 37,655,448
------------ ------------
Operating income 17,674,616 15,527,685
Other (income) expenses:
Interest expense 5,615,586 6,270,215
Interest income (252,000) (311,363)
Gain on limited partnership interests (22,243,496) (6,026,215)
Gain on land sale (325,625) --
Other (income) expense, net (1,109,818) 587,108
------------ ------------
Total other (income) expenses, net (18,315,353) 519,745
------------ ------------
Income before income taxes 35,989,969 15,007,940
Income tax expense 12,801,139 5,587,000
------------ ------------
Net income 23,188,830 9,420,940
Retained earnings at beginning of period 23,267,458 11,179,221
------------ ------------
Retained earnings at end of period $ 46,456,288 $ 20,600,161
============ ============
Net income per share - basic and diluted $ .37 $ .15
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
AMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended May 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net income $ 23,188,830 $ 9,420,940
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 10,247,757 9,720,082
Deferred income tax expense 12,280,139 5,587,000
Gain on limited partnership interests (22,243,496) (6,026,215)
Gain on land sale (325,625) --
Changes in assets and liabilities:
Accounts and notes receivables 172,044 49,152
Other current and non current assets (123,783) (869,551)
Accounts payable and accrued expenses (3,677,843) (5,075,069)
Deferred revenue 6,107,135 4,785,461
Other non current liabilities 675,223 241,075
------------ ------------
Net cash provided by operating activities 26,300,381 17,832,875
Cash flows from investing activities:
Principal repayments of notes receivable 469,538 469,538
Additions to commercial property (13,725,117) (6,436,411)
Sales of commercial property 693,941 --
Increase in restricted cash (249,694) (837,515)
Cash received on sale of partnership units to related party 4,490,186 --
------------ ------------
Net cash used in investing activities (8,321,146) (6,804,388)
Cash flows from financing activities:
Decrease (increase) in restricted escrow deposits (173,834) 684,852
Net increase in revolving line of credit 1,293,642 2,044,577
Principal payments of Elevated Antecedent Debt (4,394,604) --
Mart Bond payments (10,800,000) (10,800,000)
Principal repayments of Gift Mart Mortgage Loan (3,232,208) (2,923,243)
------------ ------------
Net cash used in financing activities (17,307,004) (10,993,814)
------------ ------------
Increase (decrease) in cash 672,231 34,673
Cash at beginning of period 1,039,809 520,854
------------ ------------
Cash at end of period $ 1,712,040 $ 555,527
============ ============
</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 NINE MONTHS ENDED MAY 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended May 31,
----------------------------
1999 1998
----------- ---------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 5,709,500 $6,183,977
=========== ==========
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 $6,414,114
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-5
<PAGE> 7
AMC, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 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 nine months ending May 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
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, which was paid
during fiscal year 1999. 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
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<PAGE> 8
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 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. SALE OF PISA LAND
In April 1999 the Company sold the Pisa Land for approximately $750,000. A gain
of approximately $326,000 was recorded on the sale.
6. 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 May 31, 1999 Compared to Quarter Ended May 31, 1998
Rental revenues increased approximately $1,567,000 during the quarter ended May
31, 1999 ("Q3 1999") as compared to the quarter ended May 31, 1998 ("Q3 1998").
Rental revenues increased approximately $398,000 in the Gift Mart due to an
increase in both rental rates and occupancy. Rental revenues increased
approximately $1,266,000 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 $97,000
reflecting a decrease in occupancy offset by an increase in rental rates.
Trade show revenues increased approximately $135,000 in Q3 1999 compared to Q3
1998 primarily due to an increase in convention and conference revenues and an
increase in Atlanta Spring Immediate Delivery Show revenue. Other revenues
decreased approximately $14,000 in Q3 1999 compared to Q3 1998 primarily due to
the loss of revenue associated with the Inforum management agreement, which
expired in May 1998.
Building operations expense decreased approximately $143,000 in Q3 1999 compared
to Q3 1998 due to lower spring utility costs offset by higher operations costs
associated with higher occupancies in the Merchandise Mart. Trade show expense
increased approximately $82,000 during Q3 1999 compared to Q3 1998 due primarily
to the timing of the purchase of market registration supplies and related costs.
Marketing expenses increased approximately $189,000 during Q3 1999 compared to
Q3 1998 due primarily to new apparel market initiatives implemented for the
April shows and the timing of certain international marketing costs. General and
administrative costs increased approximately $531,000 during Q3 1999 compared to
Q3 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 recoveries increased by approximately $55,000 during Q3 1999 compared
to Q3 1998 due to improved collections experience.
Property tax expense decreased approximately $90,000 due to property tax
assessment adjustments.
Depreciation expense increased approximately $135,000 in Q3 1999 as compared to
Q3 1998 due to capital improvements made during late fiscal year 1998 and fiscal
1999.
Interest expense decreased approximately $218,000 during Q3 1999 compared to Q3
1998 due to the reduction of the principal balance of the Gift Mart Mortgage
Loan.
The gain on limited partnership interests of approximately $2,387,000 in Q3 1998
resulted from the sale of a hotel property in which the Company had an interest
and the distribution of partnership units to EC Holdings as a result of the
sale.
In April 1999 the Company sold the Pisa Land for approximately $750,000. A gain
of approximately $326,000 was recorded on the sale.
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<PAGE> 11
Other (income) expense, net recorded in Q3 1999 primarily represents dividends
and cash distributions received by the Company from limited partnership
investments for which there was no basis.
Income tax expense decreased approximately $917,000 in Q3 1999 compared to Q3
1998 due to the realization of certain deferred tax assets.
Nine Months Ended May 31, 1999 Compared to Nine Months Ended May 31, 1998
Rental revenues increased approximately $4,700,000 during the nine months ended
May 31, 1999 ("YTD 1999") as compared to the nine months ended May 31, 1998
("YTD 1998"). Rental revenues increased approximately $1,488,000 in the Gift
Mart due to an increase in both rental rates and occupancy. Rental revenues
increased approximately $3,540,000 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 $328,000, reflecting a decrease in occupancy offset by an increase
in rental rates.
Trade show revenues increased approximately $685,000 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 $93,000 in YTD 1999 compared to YTD 1998
primarily due to an increase in publishing revenue.
Building operations expense increased approximately $635,000 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. Trade show expense increased approximately $68,000 in YTD 1999 compared
to YTD 1998 due to higher costs of convention center sales business associated
with the increase in revenue. Marketing expenses increased approximately
$602,000 during YTD 1999 compared to YTD 1998 due primarily to one-time
marketing expense associated with the expansion of the Gardens and
Floorcoverings industries, new apparel market initiatives implemented for the
April shows and higher publishing costs. General and administrative expenses
increased approximately $1,986,000 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 $464,000 due to property tax
assessment adjustments.
Depreciation expense increased approximately $528,000 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 $655,000 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 approximately $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.
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<PAGE> 12
In April 1999 the Company sold the Pisa Land for approximately $750,000. A gain
of approximately $326,000 was recorded on the sale.
Other (income) expense, net recorded in YTD 1999 primarily represents dividends
and cash distributions received by the Company from limited partnership
investments for which there was no basis, offset by other litigation costs.
Income tax expense increased approximately $7,214,000 in YTD 1999 compared to
YTD 1998 due to the increase in taxable income, primarily as a result of the
BPLP Transaction, offset by the realization of certain deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1999, the Company had approximately $277.2 million in total debt
outstanding. All of the debt agreements include cross-default provisions with
each other. The debt balances are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
Description Principal Maturity
------------------------------------------------ ------------ ------------------
<S> <C> <C>
Gift Mart Mortgage Loan $ 91,817 July 31, 1999
Mart Bonds (face amount of $160 million) 178,000 July 31, 2000
Revolving Line of Credit 7,397 May 31, 2001
-------------
Total debt $ 277,214
============
</TABLE>
The Company will not generate sufficient cash flow from operations to repay its
indebtedness and is actively seeking to refinance the Gift Mart Mortgage Loan,
the Mart Bonds and the Revolving Line of Credit. The Company is in the process
of finalizing its refinancing plan. The Gift Mart lenders have agreed to extend
the maturity date of the Gift Mart Mortgage Loan until September 28, 1999,
subject to certain conditions. The Company expects to meet the requirements to
extend the maturity of the Gift Mart Mortgage Loan, although there can be no
assurance that this will occur. There can also be no assurance that the Company
will be able to finalize its refinancing plan or further extend the maturity
dates of any of its indebtedness.
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.
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 May 31, 1999 approximately
$12.6 million was available under the Revolving Line of Credit.
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<PAGE> 13
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 $3.2 million in YTD 1999 and $2.9 million in YTD
1998. Included in the YTD 1999 principal payments of $3.2 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 $10.8 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 $19.9 million during YTD 1999, and $ 13.4 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
dividends and 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 $13.4
million in YTD 1999 and $6.4 million in YTD 1998, which included approximately
$2.1 million and $700,000 in Gift Mart capital expenditures for YTD 1999 and YTD
1998, respectively. Capital expenditures, including tenant improvements, of
approximately $17.3 million are forecasted for fiscal year 1999, $2.4 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 April
1999 the Company sold the PISA Land for approximately $750,000.
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.
I-12
<PAGE> 14
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. The Company plans to use the units to collateralize borrowings
under the proposed refinancing. 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.
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.
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 (average five 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 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 June 30, 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 - 5/99 100%
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 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 June 30, 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.
I-13
<PAGE> 15
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 May 31, 1999, the Company had incurred approximately $236,000 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
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 May 31, 1999:
<TABLE>
<CAPTION>
Gift Mart Mortgage Loan Revolving Line of Credit
-------------------------- --------------------------
<S> <C> <C>
Principal balance $91,816,757 $7,396,542
Fair value $91,816,757 $7,396,542
Total availability $91,816,757 $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 the
IBOR plus 2%, at the Company's option
Company's option
</TABLE>
I-14
<PAGE> 16
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.
Not applicable.
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 May 31, 1999 or subsequent to that date but
prior to the filing date of this Form 10-Q.
II-1
<PAGE> 17
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: July 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FINANCIAL STATEMENTS FILED FOR THE QUARTER ENDED MAY 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 1,712
<SECURITIES> 0
<RECEIVABLES> 2,090
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,304
<PP&E> 342,836
<DEPRECIATION> 145,705
<TOTAL-ASSETS> 231,118
<CURRENT-LIABILITIES> 120,060
<BONDS> 163,600
0
0
<COMMON> 62,173
<OTHER-SE> (126,205)
<TOTAL-LIABILITY-AND-EQUITY> 231,118
<SALES> 0
<TOTAL-REVENUES> 58,661
<CGS> 0
<TOTAL-COSTS> 40,909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 77
<INTEREST-EXPENSE> 5,616
<INCOME-PRETAX> 35,990
<INCOME-TAX> 12,801
<INCOME-CONTINUING> 23,189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,189
<EPS-BASIC> .37
<EPS-DILUTED> .37
</TABLE>
