UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2008
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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 1-4702
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AMREP Corporation
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(Exact name of registrant as specified in its charter)
Oklahoma 59-0936128
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
300 Alexander Park , Suite 204, Princeton, New Jersey 08540
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (609) 716-8200
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Not Applicable
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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 (the
"Exchange Act") during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------ ------
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer X
--- ---
Non-accelerated filer Smaller reporting company
--- ---
(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
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Number of Shares of Common Stock, par value $.10 per share, outstanding at
August 31, 2008 - 5,995,712.
AMREP CORPORATION AND SUBSIDIARIES
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
July 31, 2008 and April 30, 2008 1
Consolidated Statements of Income and Retained Earnings
(Unaudited) Three Months Ended July 31, 2008 and 2007 2
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended July 31, 2008 and 2007 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 14
PART II. OTHER INFORMATION
Item 6. Exhibits 14
SIGNATURE 15
EXHIBIT INDEX 16
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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AMREP CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Thousands, except par value and number of shares)
July 31, April 30,
2008 2008
------------------ -------------------
ASSETS:
Cash and cash equivalents $ 23,909 $ 32,608
Receivables, net:
Real estate operations 12,084 13,124
Media services operations 49,533 45,701
------------------ -------------------
61,617 58,825
Taxes receivable 544 -
Real estate inventory 72,832 70,252
Investment assets, net 10,295 10,300
Property, plant and equipment, net 27,616 28,914
Intangible and other assets, net 29,594 29,913
Goodwill 54,139 54,139
------------------ -------------------
TOTAL ASSETS $ 280,546 $ 284,951
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable, net and accrued expenses $ 89,989 $ 98,532
Notes payable:
Amounts due within one year 2,879 4,816
Amounts subsequently due 27,682 21,164
------------------ -------------------
30,561 25,980
Taxes payable - 980
Deferred income taxes and other long-term liabilities 12,756 12,358
Accrued pension cost 2,113 2,045
------------------ -------------------
TOTAL LIABILITIES 135,419 139,895
------------------ -------------------
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value;
Shares authorized - 20,000,000; 7,419,704 shares issued 742 742
Capital contributed in excess of par value 46,085 46,085
Retained earnings 128,479 128,408
Accumulated other comprehensive loss, net (3,522) (3,522)
Treasury stock, at cost; 1,424,492 shares (26,657) (26,657)
------------------ -------------------
TOTAL SHAREHOLDERS' EQUITY 145,127 145,056
------------------ -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 280,546 $ 284,951
================== ===================
See notes to consolidated financial statements.
1
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income and Retained Earnings (Unaudited)
Three Months Ended July 31, 2008 and 2007
(Thousands, except per share amounts)
2008 2007
------------------ -------------------
REVENUES:
Real estate land sales $ 1,263 $ 18,150
Media services operations 34,023 32,299
Interest and other 284 910
------------------ -------------------
35,570 51,359
------------------ -------------------
COSTS AND EXPENSES:
Real estate land sales 366 5,762
Operating expenses:
Media services operations 30,161 29,780
Real estate commissions and selling 78 253
Restructuring and fire recovery costs 587 303
Other 255 467
General and administrative:
Media services operations 2,809 3,368
Real estate operations and corporate 1,090 1,107
Interest expense, net of capitalized amounts 112 288
------------------ -------------------
35,458 41,328
------------------ -------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 112 10,031
PROVISION FOR INCOME TAXES FROM CONTINUING
OPERATIONS 41 3,711
------------------ -------------------
INCOME FROM CONTINUING OPERATIONS 71 6,320
LOSS FROM OPERATIONS OF DISCONTINUED BUSINESS
(NET OF INCOME TAXES) - (57)
------------------ -------------------
NET INCOME 71 6,263
RETAINED EARNINGS, beginning of period 128,408 121,333
DIVIDEND PAYABLE - (6,630)
------------------ -------------------
RETAINED EARNINGS, end of period $ 128,479 $ 120,966
================== ===================
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
CONTINUING OPERATIONS $ 0.01 $ 0.95
DISCONTINUED OPERATIONS - (0.01)
------------------ -------------------
EARNINGS PER SHARE - BASIC AND DILUTED $ 0.01 $ 0.94
================== ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,995 6,653
================== ===================
See notes to consolidated financial statements.
2
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended July 31, 2008 and 2007
(Thousands)
2008 2007
------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 71 $ 6,263
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,403 2,632
Non-cash credits and charges:
Pension accrual 68 42
Provision for doubtful accounts 74 (207)
Gain on disposition of assets, net (3) -
Changes in assets and liabilities:
Receivables (2,866) (5,637)
Real estate inventory (2,580) (5,912)
Intangible and other assets (593) (230)
Accounts payable and accrued expenses, and deferred revenue (8,543) 455
Taxes payable (1,524) 1,458
Deferred income taxes and other long-term liabilities 398 1,042
----------------- ------------------
Total adjustments (13,166) (6,357)
----------------- ------------------
Net cash used by operating activities (13,095) (94)
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - property, plant and equipment (185) (993)
Capital expenditures - investment assets - (663)
----------------- ------------------
Net cash used by investing activities (185) (1,656)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 10,356 23,861
Principal debt payments (5,775) (25,872)
----------------- ------------------
Net cash provided (used) by financing activities 4,581 (2,011)
----------------- ------------------
DECREASE IN CASH AND CASH EQUIVALENTS (8,699) (3,761)
CASH AND CASH EQUIVALENTS, beginning of period 32,608 42,102
----------------- ------------------
CASH AND CASH EQUIVALENTS, end of period $ 23,909 $ 38,341
================= ==================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amounts capitalized $ 93 $ 509
================= ==================
Income taxes paid - net of refunds $ 1,167 $ 1,177
================= ==================
Non-cash transaction - Dividend payable $ - $ 6,630
================= ==================
See notes to consolidated financial statements.
3
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Three Months Ended July 31, 2008 and 2007
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been prepared
by AMREP Corporation (the "Registrant" or the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission for interim financial
information, and do not include all the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, these unaudited
consolidated financial statements include all adjustments, which are of a normal
recurring nature, necessary to reflect a fair presentation of the results for
the interim periods presented. The results of operations for such interim
periods are not necessarily indicative of what may occur in future periods.
The unaudited consolidated financial statements herein should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
April 30, 2008, which was previously filed with the Securities and Exchange
Commission. All references to the first quarter or first three months of 2009
and 2008 mean the fiscal three-month periods ended July 31, 2008 and 2007.
Certain 2008 financial statement amounts have been reclassified to conform to
the current year presentation.
(2) Receivables, Net
----------------
Media services operations accounts receivable, net consist of the following (in
thousands):
July 31, April 30,
2008 2008
----------------- ----------------
Fulfillment Services $ 29,227 $ 28,348
Newsstand Distribution Services,
net of estimated returns 21,035 18,008
----------------- ----------------
50,262 46,356
Less allowance for doubtful accounts (729) (655)
----------------- ----------------
$ 49,533 $ 45,701
================= ================
Newsstand Distribution Services accounts receivable are net of estimated
magazine returns of $53,013,000 at July 31, 2008 and $55,930,000 at April 30,
2008. In addition, pursuant to an arrangement with one publisher customer of the
Newsstand Distribution Services business, the publisher bears the ultimate
credit risk of non-collection of amounts due from the customers to which the
Company distributed the publisher's magazines under this arrangement. Accounts
receivable subject to this arrangement were netted ($25,188,000 was netted at
July 31, 2008 and $22,703,000 at April 30, 2008) against the related accounts
payable due the publisher on the accompanying consolidated balance sheets.
4
(3) Investment Assets, Net
----------------------
Investment assets, net consist of the following (in thousands):
July 31, April 30,
2008 2008
--------------- -----------------
Land held for long-term investment $ 9,771 $ 9,771
--------------- -----------------
Commercial rental properties:
Land, buildings and improvements 754 754
Furniture and fixtures 40 40
--------------- -----------------
794 794
Less accumulated depreciation (270) (265)
--------------- -----------------
524 529
--------------- -----------------
$ 10,295 $ 10,300
=============== =================
(4) Property, Plant and Equipment, Net
----------------------------------
Property, plant and equipment, net consist of the following (in thousands):
July 31, April 30,
2008 2008
--------------- -----------------
Land, buildings and improvements $ 17,875 $ 17,875
Furniture and equipment and other 45,453 45,300
--------------- -----------------
63,328 63,175
Less accumulated depreciation (35,712) (34,261)
--------------- -----------------
$ 27,616 $ 28,914
=============== =================
(5) Intangible and Other Assets, Net
--------------------------------
Intangible and other assets, net consist of the following (in thousands):
July 31, 2008 April 30, 2008
------------------------------------ -----------------------------------
(Thousands)
Accumulated Accumulated
Cost Amortization Cost Amortization
-------------- ---------------- ------------- ----------------
Software development costs $ 10,090 $ 4,318 $ 10,017 $ 3,780
Deferred order entry costs 5,243 - 5,681 -
Prepaid expenses 3,694 - 3,047 -
Customer contracts and relationships 15,000 1,925 15,000 1,613
Other 2,777 967 2,430 869
-------------- ---------------- ------------- ----------------
$ 36,804 $ 7,210 $ 36,175 $ 6,262
============== ================ ============= ================
Software development costs include internal and external costs of the
development of new or enhanced software programs and are generally amortized
over five years. Deferred order entry costs represent costs incurred in
connection with the data entry of customer subscription information to database
files and are charged directly to operations over a 12-month period. Customer
contracts and relationships are amortized over 12 years.
5
(6) Accounts Payable, Net and Accrued Expenses
------------------------------------------
Accounts payable, net and accrued expenses consist of the following (in
thousands):
July 31, April 30,
2008 2008
----------------- ----------------
Publisher payables, net $ 69,577 $ 77,003
Accrued expenses 4,564 5,000
Trade payables 5,708 5,753
Other 10,140 10,776
----------------- ----------------
$ 89,989 $ 98,532
================= ================
Pursuant to an arrangement with a publisher customer of the Newsstand
Distribution Services business, the Company has netted $25,188,000 and
$22,703,000 of accounts receivable against the related accounts payable at July
31, 2008 and April 30, 2008 (see Note 2).
(7) Notes Payable
-------------
Notes payable consist of the following (in thousands):
July 31, April 30,
2008 2008
----------------- ----------------
Notes payable:
Line-of-credit borrowings:
Real estate operations and other $ 20,600 $ 18,000
Media services operations 8,561 4,582
Real estate operations term loan 855 2,774
Other notes payable 545 624
----------------- ----------------
$ 30,561 $ 25,980
================= ================
(8) Taxes
-----
The unrecognized tax benefits pursuant to the Financial Accounting Standards
Board ("FASB") Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in
Income Taxes", were $2,076,000 at July 31, 2008 and April 30, 2008. As a result
of either the expiration of statutes of limitations or the recognition and
measurement considerations under FIN 48, the Company believes that it is
reasonably possible that the amount of unrecognized tax benefits will decrease
within the next twelve months.
(9) Fair Value Measurements
-----------------------
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 establishes a common definition for fair value to
be applied to U.S. GAAP requiring use of fair value, establishes a framework for
measuring fair value, and expands disclosure about such fair value measurements.
SFAS No. 157 is effective for financial assets and financial liabilities for
fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 for
financial assets and financial liabilities, effective May 1, 2008, did not have
an impact on the Company's consolidated financial position or results of
operations.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, ("SFAS No. 159"). The Statement permits entities to choose, at
specified election dates, to measure many financial instruments and certain
6
other items at fair value that are not currently measured at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected would be reported in earnings at each subsequent reporting date. SFAS
No. 159 also establishes presentation and disclosure requirements in order to
facilitate comparisons between entities choosing different measurement
attributes for similar types of assets and liabilities. SFAS No. 159 does not
affect existing accounting requirements for certain assets and liabilities to be
carried at fair value. This statement became effective for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company adopted SFAS No. 159 effective May 1, 2008, but it has
elected not to designate any financial instruments to be subject to the fair
value option.
(10) Discontinued Operations
-----------------------
Loss from operations of discontinued business (net of income taxes) in the
three-month period ended July 31, 2007 reflected costs associated with the
settlement of all litigation related to the Company's El Dorado, New Mexico
water utility subsidiary that were in addition to costs that had been accrued
for this matter in prior years.
(11) Restructuring and Fire Recovery Costs
-------------------------------------
During fiscal 2008, the Company announced a project to integrate certain aspects
of the Kable's Fulfillment Services operations in order to improve operating
efficiencies and customer service and also to reduce costs. To date, this
project has resulted in (i) one significant workforce reduction that occurred in
the first quarter of 2008, (ii) the substantial completion of a plan announced
in the second quarter of 2008 to redistribute the work performed at the Marion,
Ohio facility of its Fulfillment Services business and the scheduled closing of
that facility, and (iii) the consolidation of a fulfillment operations customer
call center. The Company incurred costs directly related to the integration
project of $498,000 and $303,000 for the quarters ending July 31, 2008 and 2007,
principally for severance and other consulting costs related to the integration,
and these costs are included in the Restructuring and fire recovery costs in the
Company's consolidated statements of income.
On December 5, 2007 a warehouse of approximately 38,000 square feet leased by
the Company in Oregon, Illinois was totally destroyed by fire. The warehouse was
used principally to store back issues of magazines published by certain
customers for whom the Company fills back-issue orders as part of its services.
The Company has filed a preliminary claim with its insurance provider for its
property loss and has been advanced $500,000 for replacement of such property.
In addition, the Company was required to provide insurance for certain of those
customers whose property was destroyed in the warehouse fire. Through August 31,
2008, the Company's insurance provider had paid approximately $65,000 to
customers for lost materials. The Company believes that the net effect of the
outcome of other claims pending or unasserted related to materials of certain
publishers for whom it was required to provide insurance, together with proceeds
from its property claims, will not have a material effect on its financial
position, results of operations or cash flows.
During the quarter ended July 31, 2008, the Company recorded other income of
$173,000 for a business interruption claim resulting from the fire that was
approved by its insurer. The Company also recorded charges to operations of
$89,000 related to fire recovery costs, principally for legal and other advisory
costs that were not covered by insurance. These costs are included in the
Restructuring and fire recovery costs in the Company's consolidated statements
of income.
7
(12) Information About the Company's Operations in Different Industry Segments
-------------------------------------------------------------------------
The following tables set forth summarized data relative to the industry segments
for continuing operations in which the Company operated for the three month
periods ended July 31, 2008 and 2007 (in thousands):
Newsstand
Real Estate Fulfillment Distribution
Operations Services Services Corporate Consolidated
-------------------------------------------------------------------------------------------------------------------------------
Three months ended July 31, 2008:
Revenues $ 1,529 $ 30,667 $ 3,355 $ 19 $ 35,570
Income (loss) from continuing operations 99 (700) 370 302 71
Provision (benefit) for income taxes from
continuing operations 58 (412) 218 177 41
-----------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 157 (1,112) 588 479 112
Interest expense (income), net (b) - 832 (305) (415) 112
Depreciation and amortization 8 2,254 140 1 2,403
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EBITDA (c) $ 165 $ 1,974 $ 423 $ 65 $ 2,627
-----------------------------------------------------------------------------------
Capital expenditures $ 1 $ 178 $ 5 $ 1 $ 185
--------------------------------------------------------------------------------------------------------------------------------
Three months ended July 31, 2007 (a):
Revenues $ 18,863 $ 28,988 $ 3,311 $ 197 $ 51,359
Income (loss) from continuing operations 7,380 (1,859) 248 551 6,320
Provision (benefit) for income taxes from
continuing operations 4,334 (1,090) 143 324 3,711
-----------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 11,714 (2,949) 391 875 10,031
Interest expense (income), net (b) - 1,467 (486) (693) 288
Depreciation and amortization 55 2,331 244 2 2,632
-----------------------------------------------------------------------------------
EBITDA (c) $ 11,769 $ 849 $ 149 $ 184 $ 12,951
-----------------------------------------------------------------------------------
Capital expenditures $ 691 $ 949 $ 16 $ - $ 1,656
--------------------------------------------------------------------------------------------------------------------------------
(a) Segment information does not include net loss from discontinued
operations of $57,000 in the three months ended July 31, 2007.
(b) Interest expense, net includes inter-segment interest income and
expense that is eliminated in consolidation.
(c) The Company uses EBITDA (which the Company defines as income from
continuing operations before interest expense, net, income taxes and
depreciation and amortization) in addition to income from continuing
operations as a key measure of profit or loss for segment performance
and evaluation purposes.
8
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
INTRODUCTION
------------
The Company, through its subsidiaries, is primarily engaged in three business
segments: the Real Estate business operated by AMREP Southwest Inc. and its
subsidiaries (collectively, "AMREP Southwest") and the Fulfillment Services and
Newsstand Distribution Services businesses operated by Kable Media Services,
Inc. and its subsidiaries (collectively, "Kable" or "Media Services"). The
Company's foreign sales and activities are not significant.
The following provides information that management believes is relevant to an
assessment and understanding of the Company's consolidated results of operations
and financial condition. The discussion should be read in conjunction with the
April 30, 2008 consolidated financial statements and accompanying notes. All
references in this Item 2 to the first quarter or first three months of 2009 and
2008 mean the fiscal three-month periods ended July 31, 2008 and 2007.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
------------------------------------------
Management's discussion and analysis of financial condition and results of
operations is based on the accounting policies used and disclosed in the 2008
consolidated financial statements and accompanying notes that were prepared in
accordance with accounting principles generally accepted in the United States of
America and included as part of the Company's annual report on Form 10-K for the
year ended April 30, 2008 (the "2008 Form 10-K"). The preparation of those
consolidated financial statements required management to make estimates and
assumptions that affected the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual amounts or results could differ from those
estimates.
The significant accounting policies of the Company are described in Note 1 to
the 2008 consolidated financial statements, and the critical accounting policies
and estimates are described in Management's Discussion and Analysis included in
Item 7 of the 2008 Form 10-K. There have been no changes in the critical
accounting policies. Information concerning the implementation and the impact of
new accounting standards issued by the Financial Accounting Standards Board
("FASB") is included in the notes to the April 30, 2008 consolidated financial
statements.
The Company adopted SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157")
effective May 1, 2008. The adoption of SFAS No. 157 did not have an impact on
the Company's consolidated financial position or results of operations. The
Company also adopted SFAS No. 159, "The Fair Value Option for Financial Assets
and Financial Liabilities - Including an Amendment of FASB Statement No. 115"
("SFAS No. 159") effective May 1, 2008. The adoption of SFAS No. 159 did not
have an impact on the Company's consolidated financial position or results of
operations. The Company did not adopt any other new accounting policies during
the quarter ended July 31, 2008.
9
RESULTS OF OPERATIONS
---------------------
For the first quarter of 2009, net income was $71,000, or $0.01 per share,
compared to net income of $6,263,000, or $0.94 per share, in the first quarter
of 2008. Results for the first quarter of 2009 were entirely from continuing
operations. Results for the first quarter of 2008 included net income from
continuing operations of $6,320,000, or $0.95 per share, and a loss on
discontinued operations, net of tax, of $57,000, or $0.01 per share, that
reflected costs incurred in connection with the settlement of all litigation
related to the Company's El Dorado, New Mexico water utility subsidiary that
were in addition to costs estimated and accrued for this matter in the fourth
quarter of 2007. Revenues were $35,570,000 in the first quarter of fiscal 2009
compared to $51,359,000 for the same period last year.
First quarter 2009 revenues from land sales at AMREP Southwest were $1,263,000
compared to $18,150,000 for the same period of fiscal 2008. This significant
year-over-year revenue decrease reflected substantially lower land sales in the
Company's principal market of Rio Rancho, New Mexico due to the severe decline
in the real estate market in the greater Albuquerque-metro and Rio Rancho areas
that began in earlier periods. First quarter land sales revenues and gross
profits in fiscal 2009 were primarily from the sale of scattered residential
lots, while in the same period of fiscal 2008 they were from sales of developed
lots to homebuilders and commercial developers as well as from sales of
undeveloped land. The trend of the declining number of permits for new home
construction, as previously reported, continues with 20% fewer building permits
issued during the first six calendar months of 2008 compared to the same period
in 2007. The Company believes that this decline has been generally consistent
with the well-publicized problems of the national home building industry,
including fewer sales of both new and existing homes, an increasing number of
mortgage delinquencies and foreclosures and a tightening of mortgage
availability. Faced with these adverse conditions, builders continued to slow
the pace of building on developed lots previously purchased from the Company in
Rio Rancho and, in some cases, delayed or cancelled the purchase of additional
developed lots. These factors have also contributed to a steep decline in the
sale of undeveloped land to both builders and investors.
In Rio Rancho, the Company offers for sale both developed and undeveloped lots
to national, regional and local home builders, commercial and industrial
property developers and others. For the first quarter of 2009 and 2008, the
Company's land sales in Rio Rancho have been as follows:
2009 2008
--------------------------------------- -----------------------------------------
Revenues Revenues
Acres Revenues Per Acre Acres Revenues Per Acre
Sold (in 000s) (in 000s) Sold (in 000s) (in 000s)
--------- ----------- ----------- -------- ------------ -----------
Developed
Residential 1.4 $ 342 $ 244 19.5 $ 6,729 $ 345
Commercial 1.0 126 126 13.7 2,920 213
--------- ----------- ----------- -------- ------------ -----------
Total Developed 2.4 468 195 33.2 9,649 291
Undeveloped 44.8 795 18 290.8 8,501 29
--------- ----------- ----------- -------- ------------ -----------
Total 47.2 $ 1,263 $ 27 324.0 $ 18,150 $ 56
--------- ----------- ----------- -------- ------------ -----------
The average selling price of land sold by the Company in Rio Rancho in recent
years has fluctuated, as the Company offers for sale developed and undeveloped
land in Rio Rancho from a number of different projects, and selling prices may
vary from project to project and within projects depending on location, the
stage of development and other factors. The price per acre of developed land in
the first quarter of 2009 was lower compared to the same period in the prior
year due to a change in the mix and the stage of development of specific
projects from which the land was sold. The decrease in the average selling price
of undeveloped land in the first quarter of 2009 was primarily attributable to a
higher proportion of undeveloped land sold in the current year from locations in
10
Rio Rancho that are further removed from developed areas and thus generally have
lower average selling prices. The average gross profit percentage on land sales
increased from 68% for the first quarter of 2008 to 71% for the first quarter of
2009. This increase was attributable to the mix of lots sold, with 2009 sales
including a higher percentage of revenues from sales of commercial and
undeveloped lots, which generally have higher gross profit percentages than
sales of developed residential lots. Revenues and gross profits, average sales
prices of land and related gross profit percentages from land sales can vary
significantly from period to period as a result of many factors, including the
nature and timing of specific transactions, and prior results are not
necessarily a good indication of what may occur in future periods.
Revenues from Media Services, including both Fulfillment Services and Newsstand
Distribution Services, increased from $32,299,000 for the first quarter of 2008
to $34,023,000 for the same period in 2009. This increase was primarily
attributable to the Company's Fulfillment Services operations, where revenues
increased from $28,988,000 for the first quarter of 2008 to $30,667,000 for the
same period of 2009. Revenues from Kable's Newsstand Distribution Services
operations were generally unchanged, $3,311,000 for the first quarter 2008
compared to $3,355,000 for the same period of 2009. Kable's operating expenses
increased by $381,000 for the first quarter of 2009 compared to the same period
in 2008, primarily attributable to computer systems integration costs and
consulting costs.
During fiscal 2008, the Company announced a project to integrate certain aspects
of the Kable's Fulfillment Services operations in order to improve operating
efficiencies and customer service and also to reduce costs. To date, this
project has resulted in (i) one significant workforce reduction that occurred in
the first quarter of 2008, (ii) the substantial completion of a plan announced
in the second quarter of 2008 to redistribute the work performed at the Marion,
Ohio facility of its Fulfillment Services business and the scheduled closing of
that facility, and (iii) the consolidation of a fulfillment operations customer
call center. The Company incurred costs directly related to the integration
project of $498,000 and $303,000 for the quarters ending July 31, 2008 and 2007,
principally for severance and other consulting costs related to the integration,
and these costs are included in the Restructuring and fire recovery costs in the
Company's consolidated statements of income.
On December 5, 2007 a warehouse of approximately 38,000 square feet leased by
the Company in Oregon, Illinois was totally destroyed by fire. The warehouse was
used principally to store back issues of magazines published by certain
customers for whom the Company fills back-issue orders as part of its services.
The Company has filed a preliminary claim with its insurance provider for its
property loss and has been advanced $500,000 for replacement of such property.
In addition, the Company was required to provide insurance for certain of those
customers whose property was destroyed in the warehouse fire. Through August 31,
2008, the Company's insurance provider had paid approximately $65,000 to
customers for lost materials. The Company believes that the net effect of the
outcome of other claims pending or unasserted related to materials of certain
publishers for whom it was required to provide insurance, together with proceeds
from its property claims, will not have a material effect on its financial
position, results of operations or cash flows.
During the quarter ended July 31, 2008, the Company recorded other income of
$173,000 for a business interruption claim resulting from the fire that was
approved by its insurer. The Company also recorded charges to operations of
$89,000 related to fire recovery costs, principally for legal and other advisory
costs that were not covered by insurance. These costs are included in the
Restructuring and fire recovery costs in the Company's consolidated statements
of income.
11
Interest and other revenues were $284,000 for the three-month period ended July
31, 2008 compared to $910,000 for the same period in the prior year. The
decrease in the 2009 first quarter was the result of reduced interest income due
to lower cash balances to invest.
Real estate commissions and selling expenses decreased $175,000 in the first
quarter of 2009 compared to the same period in 2008, principally due to the
reduced volume of land sales. Other operating expenses decreased $212,000 for
the three-month period ended July 31, 2008 compared to the same period in 2007
primarily due to the sale of certain AMREP Southwest non-inventory real estate
assets in the second quarter of 2008, which eliminated related operating
expenses.
General and administrative costs of Media Services operations decreased $559,000
in the first quarter of 2009 compared to the same period in 2008 primarily due
to realized savings from the Fulfillment Services operations integration
project. Real estate and corporate general and administrative expense was
comparable on a year-to-year basis.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During the past several years, the Company has financed its operations from
internally generated funds from real estate sales and Media Services operations,
and from borrowings under its various lines-of-credit and development loan
agreements.
Cash Flows From Operating Activities
------------------------------------
Real Estate receivables decreased from $13,124,000 at April 30, 2008 to
$12,084,000 at July 31, 2008 reflecting the net effect of payments received on
mortgage notes held by AMREP Southwest offset in part by mortgages notes
received by AMREP Southwest in connection with real estate sales that closed
during the first three months of 2009. Receivables from Media Services
operations increased from $45,701,000 at April 30, 2008 to $49,533,000 at July
31, 2008, primarily due to the effect of higher quarter-end billings at July 31,
2008 compared to April 30, 2008.
Real Estate inventory was $72,832,000 at July 31, 2008 compared to $70,252,000
at April 30, 2008. Inventory in the Company's core real estate market of Rio
Rancho increased from $63,215,000 at April 30, 2008 to $65,689,000 at July 31,
2008, primarily reflecting the net effect of development spending and land
sales. The balance of real estate inventory consisted of properties in Colorado.
Accounts payable and accrued expenses decreased from $98,532,000 at April 30,
2008 to $89,989,000 at July 31, 2008, primarily as a result of the timing of
payments due to publishers and vendors. In addition, under a distribution
arrangement with one publisher customer of the Newsstand Distribution Services
business, that publisher bears the ultimate credit risk of non-collection of
related amounts due from the customers to which the Company distributes the
publisher's magazines. Accounts receivable subject to this arrangement were
netted ($25,188,000 was netted at July 31, 2008 and $22,703,000 was netted at
April 30, 2008) against the related accounts payable due the publisher on the
accompanying consolidated balance sheets.
Cash Flows From Investing Activities
------------------------------------
Capital expenditures totaled $185,000 and $1,656,000 in the first three months
of 2009 and 2008, primarily for computer hardware and software development
expenditures related to the Fulfillment Services business and, in 2008, $663,000
for certain real estate investments assets. The Company believes that it has
adequate cash and financing capability to provide for its anticipated future
capital expenditures.
12
Cash Flows From Financing Activities
------------------------------------
AMREP Southwest has a revolving credit facility with a bank that matures in
September 2009. Media Services has bank financing facilities that mature at
various dates through May 2010. Each of the facilities requires the borrowers to
meet certain covenants. The borrowers were in compliance with these covenants at
July 31, 2008.
Future Payments Under Contractual Obligations
---------------------------------------------
The Company is obligated to make future payments under various contracts,
including its debt agreements and lease agreements, and is subject to certain
other commitments and contingencies. The table below summarizes significant
contractual obligations as of July 31, 2008 for the items indicated (in
thousands):
Less than 1 - 3 3 - 5 More than
Contractual Obligations Total 1 year years years 5 years
----------------------- ----- --------- ----- ----- ---------
Notes payable $30,561 $ 2,879 $27,267 $ 415 $ -
Operating leases and other 27,376 5,567 10,517 7,220 4,072
----------- -------------- ------------- ------------- --------------
Total $57,937 $ 8,446 $37,784 $ 7,635 $ 4,072
=========== ============== ============= ============= ==============
The increase in notes payable from April 30, 2008 was due to increased
borrowings by AMREP Southwest and Kable. Operating leases and other includes
liabilities of $2,793,000 related to unrecognized tax benefits and related
interest accrued in accordance with FIN 48. Refer to Notes 9, 14 and 16 to the
consolidated financial statements included in the 2008 Form 10-K for additional
information on long-term debt and commitments and contingencies.
Risk Factors
------------
In addition to the other information set forth in this report, the factors
discussed in Part I, "Item 1A. Risk Factors" in the 2008 Form 10-K, which could
materially affect the Company's business, financial condition or future results,
should be carefully considered. The risks described in the 2008 Form 10-K are
not the only risks facing the Company. Additional risks and uncertainties not
currently known to the Company or that currently are deemed to be immaterial
also may materially adversely affect the Company's business, financial condition
or operating results.
Statement of Forward-Looking Information
----------------------------------------
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by or on behalf of the Company. The
Company and its representatives may from time to time make written or oral
statements that are "forward-looking", including statements contained in this
report and other filings with the Securities and Exchange Commission, reports to
the Company's shareholders and news releases. All statements that express
expectations, estimates, forecasts or projections are forward-looking statements
within the meaning of the Act. In addition, other written or oral statements,
which constitute forward-looking statements, may be made by or on behalf of the
Company. Words such as "expects", "anticipates", "intends", "plans", "believes",
"seeks", "estimates", "projects", "forecasts", "may", "should", variations of
such words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and contingencies that are difficult to
predict. These risks and uncertainties include, but are not limited to, the
risks described above under the heading "Risk Factors". Many of the factors that
will determine the Company's future results are beyond the ability of management
13
to control or predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in or suggested by such
forward-looking statements. The Company undertakes no obligation to revise or
update any forward-looking statements, or to make any other forward-looking
statements, whether as a result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
------- ----------------------------------------------------------
The Company has several credit facilities that require the Company to pay
interest at a rate that may change periodically. These variable rate obligations
expose the Company to the risk of increased interest expense in the event of
increases in short-term interest rates. At July 31, 2008, borrowings of
$25,880,000 were subject to variable interest rates. Refer to Item 7(A) of the
2008 Form 10-K for additional information regarding quantitative and qualitative
disclosures about market risk.
Item 4. Controls and Procedures
------- -----------------------
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's chief
financial officer and the other executive officers whose certifications
accompany this quarterly report, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934) as of the end of the period covered by this
report. As a result of such evaluation, the chief financial officer and such
other executive officers have concluded that such disclosure controls and
procedures are effective to provide reasonable assurance that the information
required to be disclosed in the reports the Company files or submits under the
Securities Exchange Act of 1934 is (i) recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and (ii) accumulated and communicated to the
Company's management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate, to allow
timely decisions regarding disclosure. The Company believes that a control
system, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the control system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.
Changes in Internal Control over Financial Reporting
No change in the Company's system of internal control over financial reporting
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 6. Exhibits
------- --------
Exhibit No. Description
----------- -----------
31.1 Certification required by Rule 13a-14(a) under the Securities
Exchange Act of 1934.
31.2 Certification required by Rule 13a-14(a) under the Securities
Exchange Act of 1934.
31.3 Certification required by Rule 13a-14(a) under the Securities
Exchange Act of 1934.
32 Certification required pursuant to 18 U.S.C. Section 1350.
14
SIGNATURE
---------
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.
Date: September 8, 2008 AMREP CORPORATION
(Registrant)
By: /s/ Peter M. Pizza
-------------------
Peter M. Pizza
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
15
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
31.1 Certification required by Rule 13a-14(a) under the Securities Exchange
Act of 1934 - Filed herewith.
31.2 Certification required by Rule 13a-14(a) under the Securities Exchange
Act of 1934 - Filed herewith.
31.3 Certification required by Rule 13a-14(a) under the Securities Exchange
Act of 1934 - Filed herewith.
32 Certification required pursuant to 18 U.S.C. Section 1350 - Filed
herewith.
16