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 October 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
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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
November 30, 2008 - 5,996,212.
AMREP CORPORATION AND SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
October 31, 2008 and April 30, 2008 1
Consolidated Statements of Income and Retained Earnings
(Unaudited) Three Months Ended October 31, 2008 and 2007 2
Consolidated Statements of Income and Retained Earnings
(Unaudited) Six Months Ended October 31, 2008 and 2007 3
Consolidated Statements of Cash Flows
(Unaudited) Six Months Ended October 31, 2008 and 2007 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits 20
SIGNATURE 21
EXHIBIT INDEX 22
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)
October 31, April 30,
2008 2008
------------------ -------------------
ASSETS:
Cash and cash equivalents $ 29,864 $ 32,608
Restricted cash 3,840 -
Receivables, net:
Real estate operations 10,084 13,124
Media services operations 46,139 45,701
------------------ -------------------
56,223 58,825
Taxes receivable 970 -
Real estate inventory 76,423 70,252
Investment assets, net 10,273 10,300
Property, plant and equipment, net 26,611 28,914
Intangible and other assets, net 28,833 29,913
Goodwill 54,139 54,139
------------------ -------------------
TOTAL ASSETS $ 287,176 $ 284,951
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable, net and accrued expenses $ 85,156 $ 98,532
Notes payable:
Amounts due within one year 25,928 4,816
Amounts subsequently due 11,590 21,164
------------------ -------------------
37,518 25,980
Taxes payable - 980
Deferred income taxes and other long-term liabilities 14,517 12,358
Accrued pension cost 1,948 2,045
------------------ -------------------
TOTAL LIABILITIES 139,139 139,895
------------------ -------------------
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value;
Shares authorized - 20,000,000; 7,420,704 shares issued at
October 31, 2008 and 7,419,704 at April 30, 2008 742 742
Capital contributed in excess of par value 46,100 46,085
Retained earnings 131,374 128,408
Accumulated other comprehensive loss, net (3,522) (3,522)
Treasury stock, at cost; 1,424,492 shares (26,657) (26,657)
------------------ -------------------
TOTAL SHAREHOLDERS' EQUITY 148,037 145,056
------------------ -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 287,176 $ 284,951
================== ===================
See accompanying notes to consolidated financial statements.
1
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income and Retained Earnings (Unaudited)
Three Months Ended October 31, 2008 and 2007
(Thousands, except per share amounts)
2008 2007
------------------ -------------------
REVENUES:
Real estate land sales $ 4,810 $ 3,161
Media services operations 35,254 35,592
Interest and other 226 3,337
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40,290 42,090
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COSTS AND EXPENSES:
Cost of sales - real estate land sales 154 1,569
Operating expenses:
Media services operations 30,289 30,117
Real estate commissions and selling 91 88
Other 279 458
General and administrative:
Media services operations 3,471 2,820
Real estate operations and corporate 985 1,081
Restructuring and fire recovery costs 125 117
Interest expense, net of capitalized amounts 147 337
------------------ -------------------
35,541 36,587
INCOME BEFORE INCOME TAXES 4,749 5,503
PROVISION FOR INCOME TAXES 1,854 2,036
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NET INCOME 2,895 3,467
RETAINED EARNINGS, beginning of period 128,479 120,966
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RETAINED EARNINGS, end of period $ 131,374 $ 124,433
================== ===================
EARNINGS PER SHARE - BASIC AND DILUTED $ 0.48 $ 0.55
================== ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,996 6,327
================== ===================
See accompanying notes to consolidated financial statements.
2
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income and Retained Earnings (Unaudited)
Six Months Ended October 31, 2008 and 2007
(Thousands, except per share amounts)
2008 2007
------------------ -------------------
REVENUES:
Real estate land sales $ 6,073 $ 21,311
Media services operations 69,277 67,890
Interest and other 510 4,248
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75,860 93,449
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OSTS AND EXPENSES:
Cost of sales - real estate land sales 520 7,331
Operating expenses:
Media services operations 60,450 59,898
Real estate commissions and selling 169 341
Other 534 925
General and administrative:
Media services operations 6,280 6,188
Real estate operations and corporate 2,075 2,188
Restructuring and fire recovery costs 712 419
Interest expense, net of capitalized amounts 259 625
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70,999 77,915
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INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 4,861 15,534
PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS 1,895 5,747
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INCOME FROM CONTINUING OPERATIONS 2,966 9,787
LOSS FROM OPERATIONS OF DISCONTINUED BUSINESS (NET OF INCOME TAXES) - (57)
------------------ -------------------
NET INCOME 2,966 9,730
RETAINED EARNINGS, beginning of period 128,408 121,333
DIVIDENDS PAID - (6,630)
------------------ -------------------
RETAINED EARNINGS, end of period $ 131,374 $ 124,433
================== ===================
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
CONTINUING OPERATIONS $ 0.49 $ 1.51
DISCONTINUED OPERATIONS - (0.01)
------------------ -------------------
EARNINGS PER SHARE - BASIC AND DILUTED $ 0.49 $ 1.50
================== ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,996 6,490
================== ===================
See accompanying notes to consolidated financial statements.
3
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended October 31, 2008 and 2007
(Thousands)
2008 2007
------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,966 $ 9,730
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,818 5,342
Non-cash credits and charges:
Pension benefit (97) (132)
Provision for doubtful accounts 51 (251)
Gain on disposition of assets, net (3) (1,873)
Changes in assets and liabilities:
Receivables 2,589 1,119
Real estate inventory (4,192) (13,891)
Intangible and other assets (762) (1,073)
Accounts payable and accrued expenses (13,376) (2,017)
Taxes payable (1,950) 426
Deferred income taxes and other long-term liabilities 2,159 2,947
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Total adjustments (10,763) (9,403)
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Net cash provided by (used in) operating activities (7,797) 327
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - property, plant and equipment (660) (2,927)
Capital expenditures - investment assets - (1,092)
Acquisition, net of cash acquired - 195
Proceeds from disposition of assets - 4,749
Restricted cash (3,840) (5,796)
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Net cash used in investing activities (4,500) (4,871)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of treasury stock - (19,996)
Exercise of stock options 15 -
Proceeds from debt financing 37,997 52,841
Principal debt payments (28,459) (41,371)
Dividends paid - (6,630)
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Net cash provided by (used in) financing activities 9,553 (15,156)
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DECREASE IN CASH AND CASH EQUIVALENTS (2,744) (19,700)
CASH AND CASH EQUIVALENTS, beginning of period 32,608 42,102
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CASH AND CASH EQUIVALENTS, end of period $ 29,864 $ 22,402
================== ===================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amounts capitalized $ 222 $ 828
================== ===================
Income taxes paid - net of refunds $ 1,590 $ 2,374
================== ===================
See accompanying notes to consolidated financial statements.
4
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended October 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 second quarter or first six months of 2009 and
2008 mean the fiscal three and six month periods ended October 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):
October 31, April 30,
2008 2008
--------------- ----------------
Fulfillment Services $ 32,891 $ 28,348
Newsstand Distribution Services,
net of estimated returns 13,956 18,008
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46,847 46,356
Less allowance for doubtful accounts (708) (655)
--------------- ----------------
$ 46,139 $ 45,701
=============== ================
Newsstand Distribution Services accounts receivable are net of estimated
magazine returns of $57,596,000 at October 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 ($21,100,000 was netted at
October 31, 2008 and $22,703,000 at April 30, 2008) against the related accounts
payable due the publisher on the accompanying consolidated balance sheets.
5
(3) Investment Assets, Net
----------------------
Investment assets, net consist of the following (in thousands):
October 31, April 30,
2008 2008
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Land held for long-term investment $ 9,754 $ 9,771
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Commercial rental properties:
Land, buildings and improvements 754 754
Furniture and fixtures 40 40
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794 794
Less accumulated depreciation (275) (265)
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519 529
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$ 10,273 $ 10,300
=============== =================
(4) Property, Plant and Equipment, Net
----------------------------------
Property, plant and equipment, net consist of the following (in thousands):
October 31, April 30,
2008 2008
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Land, buildings and improvements $ 17,868 $ 17,875
Furniture and equipment and other 45,810 45,300
--------------- -----------------
63,678 63,175
Less accumulated depreciation (37,067) (34,261)
--------------- -----------------
$ 26,611 $ 28,914
=============== =================
(5) Intangible and Other Assets, Net
--------------------------------
Intangible and other assets, net consist of the following (in thousands):
October 31, 2008 April 30, 2008
------------------------------------ -----------------------------------
Cost Accumulated Cost Accumulated
Amortization Amortization
-------------- ---------------- ------------- ----------------
Software development costs $ 10,139 $ 4,877 $ 10,017 $ 3,780
Deferred order entry costs 5,185 - 5,681 -
Prepaid expenses 3,666 - 3,047 -
Customer contracts and relationships 15,000 2,237 15,000 1,613
Other 3,022 1,065 2,430 869
-------------- ---------------- ------------- ----------------
$ 37,012 $ 8,179 $ 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 twelve month period.
Customer contracts and relationships are amortized over twelve years.
6
(6) Accounts Payable, Net and Accrued Expenses
------------------------------------------
Accounts payable, net and accrued expenses consist of the following (in
thousands):
October 31, April 30,
2008 2008
----------------- ----------------
Publisher payables, net $ 65,877 $ 77,003
Accrued expenses 5,444 5,000
Trade payables 4,714 5,753
Other 9,121 10,776
----------------- ----------------
$ 85,156 $ 98,532
================= ================
As described in Note 2, pursuant to the 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 ($21,100,000 was
netted at October 31, 2008 and $22,703,000 at April 30, 2008) against the
related accounts payable due the publisher on the accompanying consolidated
balance sheets.
(7) Notes Payable
-------------
Notes payable consist of the following (in thousands):
October 31, April 30,
2008 2008
----------------- ----------------
Notes payable:
Line-of-credit borrowings:
Real estate operations $ 23,900 $ 18,000
Media services operations 13,133 4,582
Real estate operations term loan - 2,774
Other notes payable 485 624
----------------- ----------------
$ 37,518 $ 25,980
================= ================
(8) Taxes
-----
The unrecognized tax benefits pursuant to Financial Accounting Standards Board
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes",
were $2,076,000 at October 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 Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements". 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 Company's adoption of SFAS
No. 157 for financial assets and financial liabilities, effective May 1, 2008,
did not have an impact on its consolidated financial position or results of
operations.
7
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 permits entities to choose, at specified election
dates, to measure many financial instruments and certain 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. SFAS No. 159 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 six
month period ended October 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
-------------------------------------
In October 2008, the Company announced a project to unify its magazine
subscription, membership and direct mail fulfillment services under one brand,
Palm Coast Data, and in one location, Palm Coast, Florida. This unification
project is expected to streamline operations, improve service to clients and
create cost efficiencies through reduced overhead costs and the elimination of
operating redundancies. The Company is still evaluating various alternatives for
this expansion, which could be in the range of $15,000,000 to $20,000,000 in
capital expenditures. The project is scheduled to be implemented over a
two-to-three year period, and over that period may involve approximately
$6,000,000 of non-recurring cash costs for severance, training and transition,
facility closings and equipment relocation. The State of Florida and the City of
Palm Coast have agreed to provide incentives for the program, including cash and
employee training grants and tax relief, which could amount to as much as
$8,000,000, largely contingent on existing job retention and new job creation.
Previously during fiscal 2008, the Company announced (i) one significant
workforce reduction in its Fulfillment Services business that occurred in the
second quarter of fiscal 2008, (ii) a plan to redistribute the work performed at
the Marion, Ohio facility of its Fulfillment Services business and the scheduled
closing of that facility that was substantially completed in August 2008, and
(iii) the consolidation of fulfillment operations customer call centers. The
Company incurred total costs directly related to the unification project of
$75,000 and $573,000 in the second quarter and first six months of 2009 compared
to $117,000 and $419,000 for the same periods of 2008, principally for severance
and consulting costs. These costs are included in the Restructuring and fire
recovery costs in the Company's consolidated statements of income and retained
earnings.
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 filled 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 November
30, 2008, the Company's insurance carrier had paid approximately $164,000 to
8
customers for lost materials. The Company also recorded in the first quarter of
2009 $173,000 of other income for a business interruption claim resulting from
the fire. The Company believes that the net effect of the outcome of other
pending or unasserted claims 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.
The Company recorded charges to operations of $50,000 and $139,000 for the
second quarter and first six months of 2009 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 and retained earnings.
In June 2008, a lawsuit was brought against the Company's Kable News Company,
Inc. subsidiary by the owner of the warehouse building leased by the subsidiary
that was totally destroyed in the fire. A temporary staffing company that
provided the subsidiary with an employee who is alleged to have had a role in
causing the fire while operating a forklift is also named as a defendant.
Plaintiff claims specific to Kable News are with negligence and willful and
wanton misconduct. The Company's liability insurance provides coverage for the
negligence claim up to the policy limit, which may or may not be as much as the
full amount of plaintiff's claimed damages, which is unknown at this time.
Additionally, the insurance carrier has indicated it intends to deny coverage of
the willful and wanton misconduct claim. The Company believes it has good
defenses to the claims and potential cross-claims against the other parties for
their conduct in the matter, and intends vigorously to defend the lawsuit.
However, the proceeding is in the discovery phase and the Company is not in a
position to offer a prediction as to its outcome.
(12) Subsequent Events
-----------------
On November 7, 2008, the Company announced the purchase, through a newly-formed
subsidiary of Kable Media Services, Inc., of certain assets of Service Parts
Supply Corp. ("SPS"), a privately-held company engaged in the product
repackaging and fulfillment industry located in Fairfield, Ohio. In a separate
transaction, another Company subsidiary acquired a 191,000 square foot warehouse
leased by SPS. These transactions are expected to provide benefits to many of
the customers of the Company's product fulfillment subsidiary through the
combination of that subsidiary's services with those to be provided with the
purchased SPS assets. Lastly, on the same date, another newly-formed subsidiary
of Kable Media Services, Inc. purchased certain assets of Resource One Staffing,
LLC, a provider of temporary staffing services that was majority-owned by the
same individual who owned SPS. The aggregate purchase price of the assets
purchased in the three transactions was approximately $7,500,000, and was
financed from working capital, bank borrowings and the assumption of a
$4,800,000 mortgage on the warehouse.
On November 26, 2008, a lawsuit was brought against the Company's Kable News
Company, Inc. ("Kable News") subsidiary by a magazine publisher and a number of
insurance companies as the subrogees of other magazine publishers whose property
stored by Kable News in the warehouse was destroyed in the fire. The three
defendants are the warehouse owner, Kable News and the temporary staffing
company that provided an employee who is alleged to have had a role in causing
the fire. Plaintiffs' claims specific to Kable News are negligence, breach of
contract and willful and wanton misconduct. The complaint seeks damages in an
amount in excess of $1,000,000. The Company believes that Kable News has good
defenses to the claims and potential cross-claims against the other parties for
their conduct in the matter, and intends vigorously to defend the lawsuit.
However, the proceeding is in its very earliest stage and the Company is not in
a position to offer a prediction as to its outcome.
9
(13) 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 and six
month periods ended October 31, 2008 and 2007 (in thousands):
Newsstand
Real Estate Fulfillment Distribution
Operations Services Services Corporate Consolidated
--------------------------------------------------------------------------------------------------------------------------------
Three months ended October 31, 2008:
Revenues $ 5,001 $ 32,158 $ 3,096 $ 35 $ 40,290
Income (loss) from continuing operations 2,361 (23) 210 347 2,895
Provision (benefit) for income taxes from
continuing operations 1,534 (13) 195 138 1,854
-----------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 3,895 (36) 405 485 4,749
Interest expense (income), net (b) - 849 (312) (390) 147
Depreciation and amortization 11 2,259 145 - 2,415
-----------------------------------------------------------------------------------
EBITDA (c) $ 3,906 $ 3,072 $ 238 $ 95 $ 7,311
-----------------------------------------------------------------------------------
Capital expenditures $ 7 $ 463 $ 5 $ - $ 475
--------------------------------------------------------------------------------------------------------------------------------
Three months ended October 31, 2007 (a):
Revenues $ 6,428 $ 32,036 $ 3,556 $ 70 $ 42,090
Income from continuing operations 2,347 134 560 426 3,467
Provision for income taxes from continuing
operations 1,378 86 321 251 2,036
-----------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 3,725 220 881 677 5,503
Interest expense (income), net (b) - 1,394 (383) (674) 337
Depreciation and amortization 61 2,405 243 1 2,710
-----------------------------------------------------------------------------------
EBITDA (c) $ 3,786 $ 4,019 $ 741 $ 4 $ 8,550
-----------------------------------------------------------------------------------
Capital expenditures $ 277 $ 1,851 $ 21 $ 3 $ 2,152
--------------------------------------------------------------------------------------------------------------------------------
10
Newsstand
Real Estate Fulfillment Distribution
Operations Services Services Corporate Consolidated
--------------------------------------------------------------------------------------------------------------------------------
Six months ended October 31, 2008:
Revenues $ 6,530 $ 62,826 $ 6,451 $ 53 $ 75,860
Income (loss) from continuing operations 2,460 (723) 580 649 2,966
Provision (benefit) for income taxes from
continuing operations 1,592 (425) 413 315 1,895
-----------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 4,052 (1,148) 993 964 4,861
Interest expense (income), net (b) - 1,681 (618) (804) 259
Depreciation and amortization 20 4,510 285 3 4,818
-----------------------------------------------------------------------------------
EBITDA (c) $ 4,072 $ 5,043 $ 660 $ 163 $ 9,938
-----------------------------------------------------------------------------------
Capital expenditures $ 8 $ 641 $ 10 $ 1 $ 660
--------------------------------------------------------------------------------------------------------------------------------
Six months ended October 31, 2007 (a):
Revenues $ 25,291 $ 61,023 $ 6,867 $ 268 $ 93,449
Income (loss) from continuing operations 9,727 (1,725) 808 977 9,787
Provision (benefit) for income taxes from
continuing operations 5,712 (1,004) 464 575 5,747
-----------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 15,439 (2,729) 1,272 1,552 15,534
Interest expense (income), net (b) - 2,861 (869) (1,367) 625
Depreciation and amortization 116 4,736 487 3 5,342
-----------------------------------------------------------------------------------
EBITDA (c) $ 15,555 $ 4,868 $ 890 $ 188 $ 21,501
-----------------------------------------------------------------------------------
Capital expenditures $ 1,179 $ 2,800 $ 37 $ 3 $ 4,019
--------------------------------------------------------------------------------------------------------------------------------
(a) Segment information does not include net loss from discontinued
operations of $57,000 in the six months ended October 31, 2007.
(b) Interest expense (income), 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.
11
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 second quarter or first six months of 2009 and
2008 mean the fiscal three and six month periods ended October 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 April
30, 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 April 30, 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
these 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 Statement of Financial Accounting Standards ("SFAS")
No. 157, "Fair Value Measurements", 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", 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 new accounting policies
during the quarter ended October 31, 2008.
12
RESULTS OF OPERATIONS
---------------------
For the second quarter of 2009, net income was $2,895,000, or $0.48 per share,
compared to net income of $3,467,000, or $0.55 per share, in the second quarter
of 2008. Results for the second quarters of 2009 and 2008 were entirely from
continuing operations. For the first six months of fiscal 2009, net income was
$2,966,000, or $0.49 per share, compared to net income of $9,730,000, or $1.50
per share, for the same period of 2008. Results for the first six months of 2009
were from continuing operations while results for the first six months of 2008
included a loss on discontinued operations of $57,000, net of tax, 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 fiscal 2007. Revenues were $40,290,000 and $75,860,000
in the second quarter and first six months of 2009 compared to $42,090,000 and
$93,449,000 in the same periods last year.
Revenues from land sales at AMREP Southwest were $4,810,000 and $6,073,000 for
the three and six month periods ended October 31, 2008 compared to $3,161,000
and $21,311,000 for the same periods of the prior year. The increase of
$1,649,000 for the second quarter of 2009 compared to the same quarter of 2008
reflected the sale in this period's second quarter of approximately 50 acres of
undeveloped land for $3,849,000. Except for this sale, the Company continues to
experience 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. In total, second quarter land sales revenues and gross profits in
fiscal 2009 were from the sale of approximately 87 acres of undeveloped land,
including the aforementioned sale of approximately 50 acres to one purchaser,
and the sale of three developed residential lots, while in the same period of
fiscal 2008 they were from the sale of 58 developed residential lots to
homebuilders and commercial developers as well as from the sale of approximately
11 acres of undeveloped land. In addition, the trend of declining permits
for new home construction in the Rio Rancho area also continues, with 28% fewer
single-family residential building permits issued during the first ten calendar
months of 2008 compared to the same period in 2007. The Company believes that
this decline is generally consistent with the well-publicized problems of the
national home building industry and credit markets, 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 have slowed the pace of building on developed lots
previously purchased from the Company in Rio Rancho and 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.
13
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 second quarter and first six months of
fiscal 2009 and 2008, the Company's land sales in Rio Rancho were as follows:
--------------------------------------------------------------------------------------
2008 2007
--------------------------------------- -----------------------------------------
Revenues Revenues
Acres Revenues Per Acre Acres Revenues Per Acre
Sold (in 000s) (in 000s) Sold (in 000s) (in 000s)
--------- ----------- ----------- -------- ------------ -----------
Three months ended
October 31:
Developed
Residential 0.4 $ 86 $ 244 10.0 $ 2,740 $ 274
Commercial - - - - - -
--------- ----------- ----------- -------- ------------ -----------
Total Developed 0.4 86 244 10.0 2,740 274
Undeveloped 87.1 4,724 54 11.0 421 38
--------- ----------- ----------- -------- ------------ -----------
Total 87.5 $ 4,810 $ 55 21.0 $ 3,161 $ 151
--------- ----------- ----------- -------- ------------ -----------
Six months ended
October 31:
Developed
Residential 1.8 $ 428 $ 238 30.0 $ 9,468 $ 316
Commercial 1.0 126 126 14.0 2,921 209
--------- ----------- ----------- -------- ------------ -----------
Total Developed 2.8 554 198 44.0 12,389 282
Undeveloped 131.9 5,519 42 302.0 8,922 30
--------- ----------- ----------- -------- ------------ -----------
Total 134.7 $ 6,073 $ 45 346.0 $ 21,311 $ 62
--------- ----------- ----------- -------- ------------ -----------
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 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 revenue per acre of undeveloped land in the
second quarter of 2009 was higher compared to the same period in the prior year
due to the undeveloped land sold in the current year being from locations nearer
developed areas and thus generally having higher average selling prices. The
average gross profit percentage on land sales increased from 50% and 66% for the
second quarter and first six months of 2008 to 97% and 91% for the same periods
in 2009. This increase was attributable to the mix of land sold, and principally
was the result of the previously described 50 acre sale of undeveloped land in
the second quarter of 2009 to one purchaser with revenues of $3,849,000, which
contributed a gross profit of $3,825,000 (99%). Revenues, gross profits, average
sales prices 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, remained nearly unchanged for the second quarter of 2009
versus the same period in 2008, totaling $35,254,000 this year compared to
$35,592,000 last year, and increased from $67,890,000 in the first six months of
2008 to $69,277,000 for the same period in 2009. The six month increase was
primarily attributable to the Company's Fulfillment Services operations, where
revenues were $32,158,000 and $62,826,000 for the second quarter and first six
months of 2009 compared to $32,036,000 and $61,023,000 in the same periods of
the prior year. The principal reason for the revenue increase in 2009 was the
net effect of revenue gains from new and existing clients that were offset in
part by reduced and lost business from certain customers. Revenues from
Newsstand Distribution Services operations decreased from $3,556,000 and
14
$6,867,000 for the second quarter and first six months of 2008 to $3,096,000 and
$6,451,000 for the same periods in 2009, primarily reflecting a softening of
magazine newsstand demand. Kable's operating expenses increased by $172,000 and
$552,000 for the second quarter and first six months of 2009 compared to the
same periods in 2008, primarily attributable to computer systems integration
costs and consulting costs of the Fulfillment Services business.
In October 2008, the Company announced a project to unify its magazine
subscription, membership and direct mail fulfillment services under one brand,
Palm Coast Data, and in one location, Palm Coast, Florida. This unification
project is expected to streamline operations, improve service to clients and
create cost efficiencies through reduced overhead costs and the elimination of
operating redundancies. The Company is still evaluating various alternatives for
this expansion, which could be in the range of $15,000,000 to $20,000,000 in
capital expenditures. The project is scheduled to be implemented over a
two-to-three year period, and over that period may involve approximately
$6,000,000 of non-recurring cash costs for severance, training and transition,
facility closings and equipment relocation. The State of Florida and the City of
Palm Coast have agreed to provide incentives for the program, including cash and
employee training grants and tax relief, which could amount to as much as
$8,000,000, largely contingent on existing job retention and new job creation.
Previously during fiscal 2008, the Company announced (i) one significant
workforce reduction in its Fulfillment Services business that occurred in the
second quarter of fiscal 2008, (ii) a plan to redistribute the work performed at
the Marion, Ohio facility of its Fulfillment Services business and the scheduled
closing of that facility that was substantially completed in August 2008, and
(iii) the consolidation of fulfillment operations customer call centers. The
Company incurred total costs directly related to the unification project of
$75,000 and $573,000 in the second quarter and first six months of 2009 compared
to $117,000 and $419,000 for the same periods of 2008, principally for severance
and consulting costs. These costs are included in the Restructuring and fire
recovery costs in the Company's consolidated statements of income and retained
earnings.
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 filled back-issue orders as part of its services.
The Company has filed a preliminary claim with its insurance carrier 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 November
30, 2008, the Company's insurance provider had paid approximately $164,000 to
customers for lost materials. The Company also recorded in the first quarter of
2009 $173,000 of other income for a business interruption claim resulting from
the fire. The Company believes that the net effect of the outcome of other
pending or unasserted claims 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.
The Company recorded charges to operations of $50,000 and $139,000 for the
second quarter and first six months of 2009 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 and retained earnings.
Interest and other revenues decreased $3,129,000 and $3,776,000 for the second
quarter and six month periods ended October 31, 2008 compared to the same
periods in the prior year, primarily due to a pre-tax gain from the sale of a
commercial property ($1,873,000) and the forfeiture of a deposit for the
purchase of land by a homebuilder who did not exercise a purchase option
($618,000) in the second quarter of 2008, with no similar transactions occurring
in the first six months of 2009. To a lesser extent, interest and other revenues
were also lower in the first six months of 2009 compared to the same period in
2008 due to lower cash balances.
15
Real estate commissions and selling expenses were generally unchanged for the
quarter ended October 31, 2008 compared to the same period in 2007. For the six
month period ended October 31, 2008, real estate commissions and selling
expenses decreased $172,000 principally due to the reduced volume of land sales.
Other operating expenses decreased $179,000 and $391,000 for the three and six
month periods ended October 31, 2008 compared to the same periods last year,
primarily due to the previously mentioned sale of a commercial property in the
second quarter last year, which eliminated related operating expenses.
General and administrative expenses of Media Services operations increased
$651,000 and $92,000 in the second quarter and first six months of 2009 compared
to the same periods in 2008, primarily due to the aforementioned consulting fees
associated with the unification project of the Fulfillment Services business.
Real estate operations and corporate general and administrative expense
decreased $96,000 and $113,000 for the second quarter and first six months of
2009, primarily due to reduced professional fees.
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
$10,084,000 at October 31, 2008 reflecting the net effect of (i) 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 second quarter of 2009 and (ii) the reclassification of
approximately $1,962,000 to real estate inventory from receivables resulting
from the receipt of deeds in lieu of foreclosure related to delinquent mortgage
notes receivable. Receivables from Media Services operations increased from
$45,701,000 at April 30, 2008 to $46,139,000 at October 31, 2008, primarily due
to the effect of higher quarter-end billings at October 31, 2008 compared to
April 30, 2008.
Real estate inventory was $76,423,000 at October 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 $69,213,000
at October 31, 2008, primarily reflecting the net effect of development spending
and land sales and the reclassification of mortgage notes receivable to
inventory discussed above. 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 $85,156,000 at October 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 ($21,100,000 was netted at October 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.
16
Cash Flows From Investing Activities
------------------------------------
Restricted cash of $3,840,000 reflects amounts held in escrow that were received
in connection with the sale of investment assets that are identified as "1031
Exchange assets" and which are restricted pending the identification and
purchase of replacement assets.
Capital expenditures for property, plant and equipment, primarily for computer
hardware and software development expenditures related to the Fulfillment
Services business, totaled $660,000 and $2,927,000 in the first six months of
2009 and 2008. In addition, in the first six months of 2008, the Company spent
$1,092,000 for certain real estate investment assets. The Company believes that
it has adequate cash and financing capability to provide for its anticipated
future capital expenditures.
Cash Flows From Financing Activities
------------------------------------
The Company's subsidiaries have various 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 October 31, 2008.
AMREP Southwest has a $25,000,000 revolving credit facility with a bank that
matures in September, 2009. As a result of the extreme volatility in the
financial markets, the cost of obtaining money has increased and many lenders
have increased interest rates, imposed tighter lending standards, refused to
refinance existing debt at maturity on terms similar to current terms and, in
some cases, have ceased to provide funding to borrowers. The bank has recently
informed AMREP Southwest that it presently anticipates, as a matter of policy,
discussing a renewal of the arrangement and providing a terms letter 90-days
prior to the expiration of the current agreement; however, the bank has also
indicated that, due to the credit markets and the real estate economy, it would
expect different terms and conditions, including a higher interest rate, in
order to extend the line.
With respect to the Kable Fulfillment/Palm Coast Data unification project
described above in Results of Operations, the Company expects that this project
will include a two-to-three year capital expansion program. The Company is still
evaluating various alternatives for this expansion, which could be in the range
of $15,000,000 to $20,000,000, of which $3,800,000 is contemplated to be
provided by AMREP Southwest in the form of an "IRS Section 1031 reinvestment"
purchase of an office building that will be leased back to Palm Coast. The
Company estimates that the implementation of this program will also result in
approximately $6,000,000 of non-recurring cash costs for severance, training and
transition, facility closings and equipment relocation. To assist in the
program, Palm Coast has procured approximately $8,000,000 of governmental
incentives from the State of Florida and the City of Palm Coast for the program,
including cash and employee training grants and tax relief that are largely
contingent on existing job retention and new job creation. The Company is also
in various stages of discussions with several possible lenders to provide
financing for part of this expansion, with the balance anticipated to be funded
from operations.
In both of the above cases, there can be no assurance the required financing
will be available on satisfactory terms.
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 October 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 $ 37,518 $ 25,928 $ 11,377 $ 213 $ -
Operating leases and other 26,811 5,511 10,809 7,076 3,415
----------- -------------- ------------- ------------- --------------
Total $ 64,329 $ 31,439 $ 22,186 $ 7,289 $ 3,415
=========== ============== ============= ============= ==============
The increase in notes payable from April 30, 2008 was due to increased
borrowings by AMREP Southwest and Media Services. Operating leases and other
includes liabilities of $2,890,000 related to unrecognized tax benefits and
related accrued interest recorded in accordance with FIN 48. Refer to Notes 9,
14 and 16
17
to the consolidated financial statements included in the 2008 Form 10-K for
additional information on long-term debt and commitments and contingencies.
Pension Plan
------------
With the recent substantial declines in the global equity and debt markets,
there has been a substantial decline in the fair market value of the assets in
the Retirement Plan for Employees of AMREP Corporation ("Plan"), from
$27,225,000 at April 30, 2008 to approximately $17,900,000 at November 30, 2008,
which will likely result in additional funding requirements from the Company to
the Plan beginning in calendar 2009. Funding requirements to the Plan are
determined based upon the provisions of the Pension Protection Act of 2006,
which generally requires "full funding" (as defined) of defined benefit pension
plans to be made over a seven year period. The amount that may be required to be
funded by the Company is not presently determinable, as it will be based upon
the fair market value of assets of the Plan as compared to the actuarially
computed value of the Plan's vested liabilities, in each case as of December 31,
2008. In addition, the change in the previously accrued pension liability for
the Plan based upon the fair market value of assets compared to the pension
benefit obligation as of April 30, 2009 will be reflected as a component of
comprehensive income or loss in the Company's 2009 financial statements.
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
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 forward-looking statements contained in this
report include, but are not limited to, statements regarding the unification
project of the Fulfillment Services business (including the estimated related
capital expenditures and incentives anticipated to be received from the State of
Florida and the City of Palm Coast), future financing requirements and concerns
of future pension plan funding obligations. 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.
18
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 October 31, 2008, borrowings of
$33,342,000 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 1. Legal Proceedings
------- -----------------
Reference is made to paragraph B of Item 3 of the 2008 Form 10-K which reports a
lawsuit commenced in June 2008 against the Company's Kable News Company, Inc.
("Kable News") subsidiary by the owner of a warehouse leased by Kable News that
was totally destroyed in a fire in December 2007. On November 26, 2008 a lawsuit
captioned Alpinist, et al v. Haan, et al was filed in the Circuit Court of the
-------------------------------
Fifteenth Judicial Circuit Ogle County, Illinois. The plaintiffs are a magazine
publisher and a number of insurance companies as the subrogees of other magazine
publishers whose property stored by Kable News in the warehouse was destroyed in
the fire. The three defendants are the warehouse owner, Kable News and the
temporary staffing company that provided an employee who is alleged to have had
a role in causing the fire. Plaintiffs' claims specific to Kable News are
negligence, breach of contract and willful and wanton misconduct. The complaint
seeks damages in an amount in excess of $1,000,000. The Company believes that
Kable News has good defenses to the claims and potential cross-claims against
the other parties for their conduct in the matter, and intends vigorously to
defend the lawsuit. However, the proceeding is in its very earliest stage and
the Company is not in a position to offer a prediction as to its outcome.
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
The 2008 Annual Meeting of Shareholders of the Company was held on September 15,
2008. At the meeting, Nicholas G. Karabots, Albert V. Russo and Jonathan B.
Weller were re-elected directors of the Company by the following votes:
For Withheld
--- --------
Nicholas G. Karabots 5,468,830 378,697
Albert V. Russo 5,803,531 43,996
Jonathan B. Weller 5,804,288 43,239
19
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.
20
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: December 10, 2008 AMREP CORPORATION
(Registrant)
By: /s/ Peter M.Pizza
----------------------------------------------
Peter M. Pizza
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
21
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.
22