1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
X EXCHANGE ACT OF 1934
- - ---
For the quarterly period ended May 31, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 333-1742
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AMC, INC.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2201031
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification
No.)
240 Peachtree St., N. W. Suite 2200 Atlanta, GA 30303
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(Address of principal executive offices) (Zip Code)
(404) 220-3000
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ ] Yes [ X ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
62,173,153 shares of common stock, $1 par value as of May 31, 1996.
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1996 AND OCTOBER 2, 1995
(UNAUDITED)
ASSETS May 31, 1996 October 2, 1995
------------- ---------------
Current assets:
Cash $ 2,051,913 1,689,792
Restricted cash 2,409,089 2,541,154
Restricted escrow deposits 3,372,252 4,765,453
Current maturities of notes receivable 1,050,632 1,050,632
Receivables:
Tenants 3,948,500 3,789,797
Affiliates 522,007 1,452,781
------------- ------------
4,470,507 5,242,578
Allowance for doubtful receivables (2,462,387) (2,647,816)
------------- ------------
Net receivables 2,008,120 2,594,762
------------- ------------
Prepaid interest - 933,334
Prepaid property taxes - 1,049,884
Deferred income taxes 1,661,954 1,661,954
Other assets 1,045,049 520,645
------------- ------------
Total current assets 13,599,009 16,807,610
------------- ------------
Commercial property, at cost 318,574,086 313,001,013
Accumulated depreciation (120,269,422) (112,112,403)
------------- ------------
Net commercial property 198,304,664 200,888,610
------------- ------------
Notes receivable, less current maturities 2,680,027 3,151,894
Investment in affiliates - 33,796
Deferred income taxes 21,866,785 23,927,785
Other assets 1,813,469 2,561,653
------------- ------------
$ 238,263,954 247,371,348
============= ============
LIABILITIES & STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of corporate notes payable:
Mart Bonds interest payments $ 12,000,000 12,000,000
AMM Escrow Bonds 1,050,632 1,050,632
------------- ------------
Total current installments of corporate notes payable 13,050,632 13,050,632
------------- ------------
Accounts payable:
Trade and other 2,245,660 3,474,049
Affiliate 185,596 203,633
------------- ------------
Total accounts payable 2,431,256 3,677,682
------------- ------------
Accrued property taxes 1,712,186 -
Accrued interest payable 722,629 3,268,256
Deferred revenue 6,365,414 2,346,019
Accrued closing and other costs 357,533 2,954,026
------------- ------------
Total current liabilities 24,639,650 25,296,615
------------- ------------
Corporate notes payable, excluding current installments:
Mart Bonds (face amount of $160,000,000) 206,200,000 213,133,334
AMM Escrow Bonds 74,405 605,375
Antecedent Debt Bonds 7,303,273 7,303,273
------------- ------------
Total corporate notes payable, excluding current installments 213,577,678 221,041,982
------------- ------------
Mortgage loan payable 104,455,181 107,282,009
Security deposits 2,494,127 3,715,620
Accrued loan extension fees, excluding current installments 536,410 536,410
------------- ------------
Total liabilities 345,703,046 357,872,636
------------- ------------
Stockholders' equity (deficit):
Common stock - $1 par value, 100,000,000 shares authorized and
62,173,153 shares issued and outstanding 62,173,153 62,173,153
Capital deficit (172,660,874) (172,674,441)
Retained earnings since formation 3,048,629 -
------------- ------------
Total stockholders' deficit (107,439,092) (110,501,288)
------------- ------------
$ 238,263,954 247,371,348
============= ============
See accompanying notes to consolidated financial statements.
3
AMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE PERIOD FROM OCTOBER 2, 1995 THROUGH MAY 31, 1996
ATLANTA MARKET CENTER COMPANIES (NOTE 1)
COMBINED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 1, 1994 THROUGH MAY 31, 1995
(UNAUDITED)
OCTOBER 2, 1995 OCTOBER 1, 1994
THROUGH THROUGH
MAY 31, 1996 MAY 31, 1995
--------------- ---------------
Revenues (note 2):
Rental $31,696,418 30,837,295
Trade shows 8,760,415 8,154,511
Other revenues 3,336,569 3,220,387
----------- ----------
Total revenues 43,793,402 42,212,193
----------- ----------
Operating expenses:
Building operations 6,112,325 5,674,799
Trade shows 2,218,671 1,635,516
Marketing 2,320,312 3,020,996
General and administrative 10,092,762 10,732,080
Bad debt 591,367 392,163
Property taxes 3,173,835 2,937,675
Depreciation and amortization 8,858,893 9,305,327
----------- ----------
Total operating expenses 33,368,165 33,698,556
----------- ----------
Operating income 10,425,237 8,513,637
----------- ----------
Other (income) expense:
Interest expense 5,640,413 21,123,144
Interest income (375,468) (322,167)
Loss from investment in affiliates 50,663 186,504
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Total other expense, net 5,315,608 20,987,481
----------- ----------
Income (loss) before income taxes 5,109,629 (12,473,844)
Deferred income tax expense 2,061,000 -
----------- ----------
Net income (loss) 3,048,629 (12,473,844)
=========== ==========
Retained earnings at beginning of period -
-----------
Retained earnings at end of period $ 3,048,629
===========
Net income per share - primary (note 4) $ .05
===========
Net income per share - fully diluted (note 4) $ .05
===========
See accompanying notes to consolidated financial statements.
4
AMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE-MONTH PERIOD ENDED MAY 31, 1996
ATLANTA MARKET CENTER COMPANIES (NOTE 1)
COMBINED STATEMENT OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED MAY 31, 1995
(UNAUDITED)
Three Months Three Months
Ended Ended
May 31, 1996 May 31, 1995
------------------- ------------
Revenues (note 2):
Rental $11,863,792 11,637,191
Trade shows 1,449,261 1,194,330
Other revenues 1,546,926 1,308,188
----------- ----------
Total revenues 14,859,979 14,139,709
------------ ----------
Operating expenses:
Building operations 2,341,435 1,954,235
Trade shows 501,647 421,756
Marketing 572,086 1,111,486
General and administrative 3,978,727 4,159,990
Bad debt 58,888 263,157
Property taxes 1,332,308 962,011
Depreciation and amortization 3,290,111 3,288,521
----------- ----------
Total operating expenses 12,075,202 12,161,156
----------- ----------
Operating income 2,784,777 1,978,553
----------- ----------
Other (income) expense:
Interest expense 2,087,155 8,081,309
Interest income (184,490) (146,986)
Loss from investment in affiliates 16,687 -
----------- ----------
Total other expense, net 1,919,352 7,934,323
----------- ----------
Income (loss) before income taxes 865,425 (5,955,770)
Deferred income tax expense 448,000 -
----------- ----------
Net income (loss) 417,425 (5,955,770)
==========
Retained earnings at beginning of period 2,631,204
-----------
Retained earnings at end of period $ 3,048,629
===========
Net income per share - primary (note 4) $ .01
===========
Net income per share - fully diluted (note 4) $ .01
===========
See accompanying notes to consolidated financial statements.
5
AMC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 2, 1995 THROUGH MAY 31, 1996
ATLANTA MARKET CENTER COMPANIES (NOTE 1)
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 1, 1994 THROUGH MAY 31, 1995
(UNAUDITED)
October 2, 1995 October 1, 1994
Through Through
May 31, 1996 May 31, 1995
--------------- ---------------
Net income (loss) $ 3,048,629 (11,935,507)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 8,858,893 9,305,327
Loss from investment in affiliates 50,663 186,504
Deferred income tax expense 2,061,000 -
Decrease in net receivables 586,642 885,602
Decrease (increase) in prepaid expenses and other assets 571,790 (153,530)
(Decrease) increase in accrued interest payable (2,545,627) 15,208,580
Decrease in accounts payable, affiliate payables and other
accrued expenses (3,352,277) (249,025)
Increase in deferred revenue 4,019,395 4,006,922
----------- ----------
Net cash provided by operating activities 13,299,108 17,254,873
----------- ----------
Cash flows from investing activities:
Additions to commercial property (5,573,073) (8,660,003)
Purchase of additional interest in investment in affiliate (16,867) -
Decrease in restricted cash 132,065 -
----------- ----------
Net cash used in investing activities (5,457,875) (8,660,003)
----------- ----------
Cash flows from financing activities:
Decrease (increase) in restricted escrow deposits 1,393,201 (1,348,831)
Payments received from notes receivable 471,867 -
Principal payments of AMM Escrow Bonds (517,352) -
Mart Bond payments (6,000,000) -
Principal repayments of mortgage loan (2,826,828) (4,487,724)
----------- ----------
Net cash used in financing activities (7,479,112) (5,836,555)
----------- ----------
Increase in cash 362,121 2,758,315
Cash at beginning of period 1,689,792 3,260,186
----------- ----------
Cash at end of period $ 2,051,913 6,018,501
=========== ==========
Noncash financing activities:
Prepaid interest applied against Mart Bonds $ 933,334 -
=========== ==========
Principal repayment on AMM Escrow Bonds through
contribution from stockholder $ 13,567 -
=========== ==========
Supplemental disclosure - cash paid during the period for
interest $14,186,040 6,546,693
=========== ==========
See accompanying notes to consolidated financial statements.
6
AMC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying financial statements reflect the consolidated accounts of AMC,
Inc. and subsidiaries (the "Company") for the periods beginning on or after
October 2, 1995 and the combined accounts of the Atlanta Market Center
Companies (the predecessor companies of AMC, Inc.) for the earlier periods
reported. The financial statements as of May 31, 1996 and for the periods from
October 2, 1995 through May 31, 1996, and from October 1, 1994 through May 31,
1995 and for the three-month periods ended May 31, 1996 and 1995 are unaudited;
however, in the opinion of management, all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the financial position
at May 31, 1996; the results of operations for the period from October 2, 1995
through May 31, 1996, the period from October 1, 1994 through May 31, 1995, and
for the three-month periods ended May 31, 1996 and 1995; and the cash flows for
the period from October 2, 1995 through May 31, 1996 and the period from
October 1, 1994 through May 31, 1995 have been included.
(2) REVENUE RECOGNITION
Rental revenues are recorded monthly based on amounts billed to tenants. The
leases with the Company's tenants generally require equal monthly rents. The
effects of not recording rental income on a straight-line basis for the leases
that contain variable payment amounts during the terms of the leases do not
result in significant impact to the Company's consolidated financial
statements.
Trade show revenues are generally collected in advance and initially recorded
as deferred revenue. Trade show revenues are recognized in the month the
related show occurs.
Management fee revenues are recorded as earned in accordance with the related
management agreements.
(3) MARKETING COSTS
The Company incurs costs for various marketing and advertising efforts. All
costs related to marketing and advertising are expensed in the period incurred
or, if directly related to specific trade shows, are expensed in the month the
related show occurs.
(4) INCOME PER SHARE
Weighted average shares outstanding for the period from October 2, 1995 through
May 31, 1996 and for the three-month period ended May 31, 1996 were 62,173,153.
Primary net income per share has been calculated assuming no common stock
equivalents resulting from outstanding warrants since such warrants are
exercisable only upon certain conditions and such conditions have not yet
occurred. Even though the exercise price for the warrants is equal to the
assumed market price for a share of AMC, Inc. common stock, as a result of
total warrants exceeding 20% of current outstanding shares, fully diluted net
income per share has been calculated assuming 16,736,548 additional shares
issuable and outstanding and assuming earnings increases of approximately
$547,000 and $205,000 for the period from October 2, 1995 through May 31, 1996
and the three months ended May 31, 1996, respectively. Such assumed earnings
increases have been determined using a tax-effected interest rate of 4.9%,
applied to the proceeds that would have been received from the additional
16,736,548 shares assumed to be issued.
(5) AFFILIATE RECEIVABLES
Subsequent to October 2, 1995, the Company has written off a receivable from
Portman Apparel Associates, L.P. There was no impact to the consolidated
financial statements resulting from such write-off as this affiliate receivable
had previously been fully reserved.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company was formed in conjunction with a series of transactions in 1995
which involved the exchange of certain assets, debt and equity and the debt
restructuring of Mr. John C. Portman, Jr. and a group of affiliated entities
with their creditors. As a result of these transactions, the initial assets of
the Company included the Atlanta Merchandise Mart (the "Merchandise Mart"), the
Atlanta Apparel Mart (the "Apparel Mart"), the Atlanta Gift Mart (the "Gift
Mart"); (the Merchandise Mart, the Apparel Mart and the Gift Mart hereinafter
collectively, "AmericasMart"), and the assets of Atlanta Market Center
Management Company, Inc., a Georgia corporation ("AMCMC") which operated
AmericasMart and was merged into the Company. This restructuring was effective
as of October 2, 1995. The Company's year end is August 31.
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 Company's notes, these notes have
been initially recorded at an amount equal to the total future cash payments,
including interest, specified by their terms in accordance with SFAS 15. All
future cash payments will be accounted for as a reduction of the carrying
amount of the notes, and no interest expense will be recognized.
The Company's primary business is the operation of AmericasMart and the
management of trade shows in conjunction with AmericasMarts. Additionally, the
Company manages trade shows on behalf of third parties at other locations.
RESULTS OF OPERATIONS
The Company's principal sources of revenues are rental revenues from the lease
of showroom and exhibition space in AmericasMart and trade show revenues, which
relate to specific shows staged for related industries. The Company leases
showroom space over terms ranging from one to five years (on average three
years) with rent payable monthly over the term of the lease. In addition, the
Company rents exhibition space for short terms thereby affording manufacturers
an opportunity to exhibit merchandise during a specific trade show.
Quarter Ended May 31, 1996 Compared to Quarter Ended May 31, 1995
Rental revenues increased approximately $227,000 during the quarter ended May
31, 1996 as compared to the quarter ended May 31, 1995. Rental revenues
increased approximately $439,000 in the Gift Mart due to an increase in rental
rates. Rental revenues decreased approximately $133,000 in the Merchandise
Mart, reflecting a decrease of approximately $478,000 due to occupancy,
partially offset by an increase in rental rates of approximately $346,000.
Rental revenues in the Apparel Mart decreased approximately $80,000, reflecting
an approximate decrease of $159,000 in rental rates, partially offset by an
increase in occupancy of approximately $79,000.
Trade show revenues increased approximately $255,000 for the quarter ended May
31, 1996, compared to the quarter ended May 31, 1995. This increase was due to
an increase in revenues associated with the March gift show and an increase in
food services revenue.
Building operations expenses increased approximately $387,000 for the quarter
ended May 31, 1996 as compared to the quarter ended May 31, 1995 due to
increases in cleaning, utilities, repairs and maintenance expenses.
Trade show expenses increased approximately $80,000 for the quarter ended May
31, 1996 as compared to the quarter ended May 31, 1995. This increase was due
to the increase in buyer and exhibitor attendance at the March gift show.
Marketing expenses decreased approximately $539,000 for the quarter ended May
31, 1996 as compared to the quarter ended May 31, 1995. This decrease was the
result of the timing of marketing expenditures during the quarter ended May 31,
1995.
General and administrative expenses remained relatively constant for the
quarter ended May 31, 1996 as compared to the quarter ended May 31, 1995.
Bad debt expense decreased approximately $ 204,000 for the quarter ended May
31, 1996 as compared to the quarter ended May 31, 1995. This decrease was due
to increased cash collections during 1996.
8
Property taxes increased approximately $370,000 for the quarter ended May 31,
1996 compared to the quarter ended May 31, 1995 due to an anticipated increase
in property tax assessments for 1996.
Depreciation expense remained relatively stable for the quarter ended May 31,
1996 as compared to the quarter ended May 31, 1995.
The resulting operating income was approximately $2,785,000 for the quarter
ended May 31, 1996 as compared to $1,979,000 for the quarter ended May 31,
1995. This increase in operating income was due to the increase in revenues
and decrease in marketing expenses.
Interest expense decreased approximately $5,994,000 during the quarter ended
May 31, 1996 as compared to the quarter ended May 31, 1995. This decrease in
interest expense was due to the fact that, subsequent to the formation of the
Company, interest on the Company's Mart Bonds is charged against their carrying
value and no interest expense is recognized on the Mart Bonds.
Income tax expense was approximately $448,000 for the quarter ended May 31,
1996. No income tax expense was recognized during the quarter ended May 31,
1995 due to the fact that prior to the formation of the Company, the
predecessor companies were partnerships and S corporations, and any liability
for income taxes was that of the partners and stockholders and not that of the
Company.
Net income was approximately $417,000 for the quarter ended May 31, 1996 as
compared to a net loss of approximately $5,805,000 for the quarter ended May
31, 1995. This increase in net income is due to the fact that interest expense
relating to the Mart Bonds is charged against principal and no interest expense
is recognized on such debt.
Period from October 2, 1995 through May 31, 1996 Compared to Period from
October 1, 1994 through May 31, 1995
Rental revenues increased approximately $859,000 during the period from October
2, 1995 through May 31, 1996 as compared to the period from October 1, 1994
through May 31, 1995. Rental revenues increased approximately $1,226,000 in
the Gift Mart due to an increase in rental rates. Rental revenues decreased
approximately $224,000 in the Merchandise Mart, reflecting a decrease of
approximately $1,203,000 due to occupancy, partially offset by an increase in
rental rates of approximately $980,000. Rental revenues in the Apparel Mart
decreased approximately $143,000, reflecting an approximate decrease of
$457,000 in rental rates, partially offset by an increase in occupancy of
approximately $313,000.
Trade show revenues increased approximately $606,000 for the period from
October 2, 1995 through May 31, 1996, compared to the period from October 1,
1994 through May 31, 1995. This increase was due to an increase in revenues
associated with the January and March gift shows.
Building operations expenses increased approximately $438,000 for the period
from October 2, 1995 through May 31, 1996, compared to the period from October
1, 1994 through May 31, 1995 due to increases in cleaning, repairs and
maintenance expenses.
Trade show expenses increased approximately $583,000 for the period from
October 2, 1995 through May 31, 1996, compared to the period from October 1,
1994 through May 31, 1995. This increase was due to an increase in expenses
relating to the January and March gift shows. Most notably, an upgrade in the
buyer registration system was implemented to better accommodate the increasing
number of buyers.
Marketing expenses decreased approximately $701,000 for the period from October
2, 1995 through May 31, 1996, compared to the period from October 1, 1994
through May 31, 1995. This decrease was the result of the timing of marketing
expenditures during the period from October 1, 1994 through May 31, 1995.
General and administrative expenses remained relatively constant for the period
from October 2, 1995 through May 31, 1996, compared to the period from October
1, 1994 through May 31, 1995.
Bad debt expense increased approximately $199,000 for the period from October
2, 1995 through May 31, 1996 as compared to the period from October 1, 1994
through May 31, 1995 due to certain recoveries during the period from October
1, 1994 through May 31, 1995 of receivables previously written off.
Property taxes increased approximately $236,000 for the period from October 2,
1995 through May 31, 1996, compared to the period from October 1, 1994 through
May 31, 1995 due to an expected increase in property tax assessments for 1996.
9
Depreciation expense decreased from approximately $9,305,000 during the period
from October 1, 1994 through May 31, 1995 to approximately $8,859,000 during
the period from October 2, 1995 through May 31, 1996. This decrease was due to
the fact that certain tenant and capital improvements became fully depreciated
during 1995.
The resulting operating income was approximately $10,425,000 for the period
from October 2, 1995 through May 31, 1996 as compared to $8,514,000 for the
period from October 1, 1994 through May 31, 1995. This increase in operating
income was due to the increase in revenues and the decrease in marketing and
depreciation expense.
Interest expense decreased approximately $15,483,000 during the period from
October 2, 1995 through May 31, 1996 as compared to the period from October 1,
1994 through May 31, 1995. This decrease in interest expense was due to the
fact that subsequent to the formation of the Company, interest on the Company's
Mart Bonds is charged against their carrying value and no interest expense is
recognized on the Mart Bonds.
Income tax expense was approximately $2,061,000 for the period from October 2,
1995 through May 31, 1996. No income tax expense was recognized during the
period from October 1, 1994 through May 31, 1995 due to the fact that prior to
the formation of the Company, the predecessor companies were partnerships and S
corporations, and any liability for income taxes was that of the partners and
stockholders and not that of the Company.
Net income was approximately $3,049,000 for the period from October 2, 1995
through May 31, 1996 as compared to a net loss of approximately $11,936,000 for
the period from October 1, 1994 through May 31, 1995. This increase in net
income is due to the fact that interest expense relating to the Mart Bonds is
charged against principal and no interest expense is recognized on such debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of cash is internally generated funds from
operations. The availability of cash flows generated by the Gift Mart are
limited by the terms of its financing. The net cash flow 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 $2.8 million
for the period from October 2, 1995 through May 31, 1996, and $4.5 million for
the period from October 1, 1994 through May 31, 1995.
The Company has entered into a line of credit agreement (the Revolver) with a
bank for up to $10 million which may be used to fund operations and capital
improvements and for acquisition and start-up costs for new trade shows in an
amount not to exceed $2.5 million. At May 31, 1996, the Company had $10
million available under the Revolver.
Cash flows from operations were approximately $13.3 million during the period
October 2, 1995 through May 31, 1996, and $17.3 million during the period from
October 1, 1994 through May 31, 1995. Cash flows from operations have been
positive during the past several years, despite the net losses of the Company,
primarily due to the fact that net income is negatively impacted by
depreciation expense, which is a non-cash charge to earnings and also, all
interest expense incurred over the past several years has not been paid. Under
the terms of its indebtedness, the Company is required to use certain portions
of its cash flows to repay its indebtedness. The terms of such debt may also
limit the Company's ability to make required capital improvements.
Significant capital expenditures were incurred during the past several years
and ongoing capital expenditures will be necessary to adequately maintain the
Company's properties. Total capital expenditures were $5.6 million in the
period from October 2, 1995 through May 31, 1996, and $8.7 million in the
period from October 1, 1994 through May 31, 1995. Management expects that
capital expenditures, including tenant improvements, of approximately $7.0
million to $9.0 million will be needed to improve and maintain the buildings
during the year ending August 31, 1996. There can be no assurance, however,
that changes in the competitive environment, governmental regulations or
unforeseen loss or damage will not cause capital expenditures to exceed
management's estimate.
Debt repayments totaled $9.3 million in the period from October 2, 1995 through
May 31, 1996, and $4.5 million in the period from October 1, 1994 through May
31, 1995. During 1996, the Company will be required to repay approximately
$1.0 million of the principal amount of its indebtedness under the AMM Escrow
Bonds, of which the Company had paid approximately $500,000 at May 31, 1996.
Principal payments to reduce the indebtedness under the Gift Mart financing and
the Mart Bonds will be determined based upon cash flows of the Gift Mart and of
the Company, respectively.
10
Management expects that cash flows from operations and borrowings under the
Revolver will be sufficient to fund planned capital expenditures during the
1996 fiscal year and interest and principal payments on the Company's
indebtedness. Over the longer term, management anticipates that internally
generated funds will be sufficient to fund required capital expenditures and
scheduled debt service prior to the maturity date for the Gift Mart financing,
provided the Company can maintain its operating revenues and expenses at
current levels. There can be no assurance that the Company can maintain
current revenue levels which are affected by changing economic conditions in
the specific industries represented at its Marts and trade shows. In addition,
there can be no assurance that the overall level of capital expenditures will
not increase as the Marts age. In the event that internally generated funds
and borrowings under the Revolver are insufficient, the Company would be
required to seek financing; however, the Company's ability to do so is limited
under the terms of the Revolver.
The remaining principal balance on the Gift Mart financing is due on July 31,
1998, with an option to extend the maturity date for one year, if specified
performance levels are achieved. The Company's 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 both of these debt obligations at
maturity by extending their maturity dates or securing other financing. There
can be no assurance that the Company will be able to extend the maturity dates
of any of its indebtedness or secure alternative financing to fund the
repayment thereof.
INFLATION
The Company deals with the effects of inflation by adjusting rental rates on
new leases and renewal leases. In times of higher inflation, the Company's
operating results are negatively impacted due to the fact that most lease terms
are from one to five years while the term of most service contracts is one year
or less.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121")
which is effective for fiscal years beginning after December 15, 1995. This
statement requires that long-lived assets that are to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of any such asset may not be recoverable. In
the event that facts and circumstances indicate that the carrying value of
long-lived assets may be impaired, an evaluation of their recoverability would
be performed and any resulting impairment loss recorded. The implementation of
SFAS 121 is not expected to materially impact the Company's financial position
or results of operations because the Company periodically evaluates its
commercial property and other assets for impairment using independent
appraisals, cash flow analyses, and other relevant information. The Company
has not experienced any significant impairment losses.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" which is effective for fiscal years beginning after December 15,
1995. This standard defines a fair value-based method of measuring employee
stock options or similar equity instruments. I lieu of recording the value of
such options as compensation expense, companies may provide pro forma
disclosures quantifying the difference between compensation cost included in
net income as prescribed by current accounting standards and the related cost
measured by such fair value-based method. The Company currently does not have
any stock-based employee compensation plans. The Company will provide
disclosure in its financial statements after the effective date of the standard
relating to its outstanding warrants to the extent applicable.
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
11. Computation of earnings per common share
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, 1996 or subsequent to that date but prior to the filing
date of this Form 10-Q.
SIGNATURES
Pursuant to the requirements 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)
July 15, 1996 John M. Ryan
- - --------------------- -------------------------, President
Date (Signature)
July 15, 1996 David J. Nadeau
- - --------------------- -------------------------, Principal Financial and
Date (Signature) Accounting Officer