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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-1
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2002 Commission File Number 1-4702
-------------- ------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
AMREP CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its Charter)
Oklahoma 59-0936128
- ------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
641 Lexington Ave., 6th Floor
New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 705-4700
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------- ---------------------
Common Stock $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Aggregate market value of Common Stock held by non-affiliates of the Registrant,
computed by reference to the last sales price of such Common Stock on July 22,
2002, on the New York Stock Exchange Composite Tape - $20,099,848.
Number of shares of Common Stock, par value $.10 per share, outstanding at July
22, 2002 - 6,577,612.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents of the Registrant are incorporated by
reference into the indicated parts of this report: Definitive Proxy Statement
for 2002 Annual Meeting - Part III.
PART I
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Item 1. Business
- ------- -------- GENERAL
The Company* is primarily engaged in two unrelated businesses, each operated by
a group of wholly-owned subsidiaries: the Real Estate business operated by AMREP
Southwest Inc. and its subsidiaries, and the Fulfillment Services and Magazine
Distribution businesses operated by Kable News Company, Inc. and Kable
Distribution Services, Inc., respectively, and their subsidiaries (collectively,
"Kable").
Data concerning Industry Segments is set forth in Note 13 of Notes to
Consolidated Financial Statements. The Company's foreign sales and activities
are not significant.
REAL ESTATE OPERATIONS
Recent Developments
For many years, the Company was both a real estate developer and a builder of
single-family homes, originally in Rio Rancho, New Mexico and then in the
Denver, Colorado, Sacramento, California and Portland, Oregon metro areas. In
the early 1960s, the Company established the community that now is the City of
Rio Rancho, New Mexico, and until 1999 was the predominant builder of housing
there. Rio Rancho, which adjoins Albuquerque, now has a population of
approximately 53,000 people. The Company entered the Denver market in 1993, and
in 1997 it purchased the assets of a land developer and homebuilder with
operations in the Sacramento and Portland markets. However, in 1999 the Company
decided to (i) cease all homebuilding operations and (ii) sell its landholdings
in California, Colorado and Oregon. It now is out of the homebuilding business
and, as noted below, has sold or is offering for sale nearly all of its
landholdings outside of New Mexico.
Land Development Operations
Prior to fiscal 1999, the Company developed both residential and commercial
sites at Rio Rancho and from time to time bought acreage in Colorado, California
and Oregon for its own homebuilding operations and to develop for sale to other
builders. As discussed above, the Company currently is performing development
work only at Rio Rancho.
Rio Rancho (including the City) consists of 91,049 contiguous acres in Sandoval
County, New Mexico, near Albuquerque, of which some 72,700 acres have been
platted into approximately 112,200 homesite and commercial lots and 16,300 acres
are dedicated to community facilities, roads and drainage with the remainder
consisting of unplatted land. At April 30, 2002, a total of approximately 83,300
of the lots had been sold. The Company currently owns approximately 21,600 acres
in Rio Rancho, of which approximately 6,300 acres are in contiguous blocks which
have been developed or are suitable for development and approximately 2,200
acres are in areas with a high concentration of ownership suitable for special
assessment districts or city redevelopment areas which may allow for future
development under the auspices of local governments. The balance is in scattered
lots which may require the purchase of a sufficient number of adjoining lots to
create tracts suitable for development or which may be sold individually or in
small groups.
_________________
* As used herein, "Company" includes the Registrant and its subsidiaries unless
the context requires or indicates otherwise.
2
The development activity includes the obtaining of necessary governmental
approvals ("entitlements"), installation of utilities and necessary storm
drains, and building or improving of roads. At Rio Rancho, the Company is
developing both residential lots and sites for commercial and industrial use as
the demand warrants, and also is securing entitlements for large development
tracts for sale to homebuilders. The engineering work at Rio Rancho is performed
by both Company employees and outside firms, but development work is performed
by outside contractors. Land at Rio Rancho is marketed by Company personnel,
both directly and through brokers. The Company competes with other owners of
land in the Albuquerque area who offer for sale developed residential lots and
sites for commercial and industrial use.
The commercial areas in Rio Rancho presently include more than 500 businesses
and professional offices, as well as 15 shopping centers with approximately 1.25
million square feet of retail space and office space, including a 55,000 square
foot office building owned by the Company. The industrial areas have
approximately 80 buildings with over 3.2 million square feet, including a
manufacturing facility containing approximately 2.1 million square feet which is
owned and occupied by Intel Corporation. Intel, Rio Rancho's largest employer,
will be completing construction on a 1 million square foot expansion of its
plant in the fall of 2002.
Since early 1977, no individual lots without homes at Rio Rancho have been sold
by the Company to consumers. Over 50,000 lots were sold prior to 1977, and most
of these are in areas where utilities have not yet been installed. However,
under certain of the contracts pursuant to which the lots were sold, if
utilities have not reached the respective lot when the purchaser is ready to
build a home, the Company is obligated to exchange a lot in an area then
serviced by water, telephone and electric utilities for the lot of the
purchaser, without cost to the purchaser. The Company has not incurred
significant costs related to such exchanges.
At April 30, 2002, the Company owned two tracts of land in Colorado, consisting
of one residential property of approximately 160 acres planned for approximately
350 homes which is being offered for sale subject to the Company obtaining all
necessary approvals, and one property of approximately 10 acres zoned for
commercial use, which is also being offered for sale but which may be developed
by the Company.
Home Building Operations
The Company has completed all homebuilding activities. Although the Company has
no present plans to do any further homebuilding, the decision to change its real
estate focus to emphasize land development operations in New Mexico and
wind-down homebuilding operations is not necessarily a permanent change of
strategy.
Other Real Estate Projects
The Company developed the Eldorado at Santa Fe, New Mexico subdivision which had
approximately 2,400 homes as of April 30, 2002. The Company sold 21 lots there
in fiscal 2002, and 10 lots remained to be sold at the end of fiscal 2002. The
Company also owns and operates a water utility company which serves the
subdivision and is under contract for sale.
The Company also owns approximately 14 acres in the Orlando, Florida area, much
of which is or is anticipated to be the subject of a condemnation proceeding.
3
FULFILLMENT SERVICES AND MAGAZINE DISTRIBUTION OPERATIONS
Through Kable, the Company (i) performs fulfillment and related services for
publishers and other customers and (ii) distributes periodicals nationally and
in Canada and, to a small degree, in other foreign countries. As of July 1,
2002, Kable employed approximately 900 persons, of whom approximately 730 were
involved in its fulfillment activities and 170 in distribution activities.
Fulfillment Services
Kable's Fulfillment Services business performs a number of fulfillment and
fulfillment-related activities, principally magazine subscription fulfillment
services, list services and product fulfillment services, and it accounted for
69% of Kable's total revenues in 2002.
In the magazine subscription fulfillment service operation, Kable processes new
orders, receives and accounts for payments, prepares and sends to each
publisher's printer labels or tapes containing the names and addresses of
subscribers for mailing each issue, handles subscriber telephone inquiries and
correspondence, prepares and mails renewal and statement notifications,
maintains subscriber lists and databases, generates marketing and statistical
reports, processes Internet orders and prints forms and promotional materials.
Kable performs all of these services for many clients, but some clients utilize
only certain of them. Although by far the largest number of magazine titles for
which Kable performs fulfillment services are consumer publications, Kable also
performs services for a number of trade (business) publications, membership
organizations and government agencies which utilize the broad capabilities of
Kable's extensive database system.
List services clients are primarily publishers. In this activity, Kable
maintains client customer lists, selects names for clients who rent their lists,
merges rented lists with a client's list to eliminate duplication for the
client's promotional mailings, and sorts and sequences mailing labels to provide
optimum postal discounts for clients.
Product fulfillment services are provided for Kable's publisher clients and
other direct marketers. In this activity, Kable receives, warehouses, processes
and ships merchandise.
Kable plans to expand these ancillary services, including lettershop, list
services and product fulfillment services, to other, non-publisher clients.
Kable now performs fulfillment services for approximately 640 different magazine
titles for approximately 215 clients and maintains almost 14 million active
subscriber names for its client publishers. In a typical month, Kable produces
over 15 million mailing labels for its client publishers and also produces and
mails approximately 4.3 million billing and renewal statements.
There are a large number of companies that perform fulfillment services for
publishers and with which Kable competes, two of which are much larger than
Kable. Since publishers often utilize only a single fulfillment company for a
particular publication, there is intense competition to obtain fulfillment
contracts with publishers. Competition for non-publisher clients is also
intense. Kable has a staff whose primary task is to solicit fulfillment
business.
Distribution Services
In its distribution operation, Kable distributes magazines for over 190
publishers. Among the titles are many special interest magazines, including
automotive, crossword puzzles, men's sophisticates, comics, romance and sports.
In a typical month, Kable distributes to wholesalers over 25 million copies of
various titles. Kable purchases the publications from its publishers and sells
them to approximately 53 independent wholesalers. The wholesalers in turn sell
the publications to individual retail outlets. All parties generally have full
return rights for unsold copies. The distribution services business accounted
for 31% of Kable's revenues in fiscal 2002.
4
While Kable Distribution does not handle all publications of all of its
publisher clients, it usually is the exclusive distributor for the publications
it distributes. Kable has a distribution sales and marketing force that works
with wholesalers and retailers to promote product sales and assist in
determining the number of copies of product to be delivered to each retailer.
Kable generally does not physically handle any product. It determines, in
consultation with the wholesalers and publishers, the number of copies of each
issue to be distributed, and generates and delivers to each publisher's printer
shipping instructions with the addresses of the wholesalers and the number of
copies of product to be shipped to each. All magazines have an "off-sale" date
(generally the on-sale date of the next issue) following which the retailers
return unsold copies to the wholesalers, who destroy them after accounting for
returned merchandise in a manner satisfactory to Kable.
Kable generally makes substantial cash advances to publishers against future
sales, which publishers may use to help pay for printing, paper and production
costs prior to the product going on sale. Kable is usually not paid by
wholesalers for product until some time after the product has gone on sale, and
is therefore exposed to potential credit risks with both the publishers and the
wholesalers. Its ability to limit its credit risk and make a profit is dependent
in part on its skill in estimating the number of copies of an issue which should
be printed and distributed and on limiting its advances to the publisher
accordingly.
A significant realignment of industry relationships in the distribution of
magazines has occurred over the last several years. It was triggered by the
decision of certain major retailers with multiple outlets to sharply reduce the
number of wholesalers with whom the retailers would deal. This action has led to
the erosion of wholesaler profit margins and to a substantial continuing
reduction in the number of wholesalers through the merger of certain
wholesalers, the formation by certain other wholesalers of cooperatives to bid
for the business of such retailers, bankruptcy of wholesalers, and the complete
retirement from the business by a number of wholesalers. The consolidation has
reduced the number of Kable's wholesale customers by approximately 60% since
fiscal 1995, which has increased the concentration of its revenue source and
trade accounts receivable; at April 30, 2002, approximately 62% of Kable's
distribution accounts receivable was due from three customers. In fiscal 2001,
Kable increased the accounts receivable reserve by approximately $2.3 million to
reflect the uncertainties caused by these changes, but no significant new
reserves were required in fiscal 2002. Management believes that the process
described above has stabilized over the past 12 months, but the potential
remains for additional industry changes that could have further adverse
consequences for publishers and their national distributors, including Kable,
with the financial failure of a major wholesaler being a significant risk if it
were to occur.
Kable competes primarily with four national distributors, all of whom are
substantially larger than Kable. Each of these large competitors is owned by or
affiliated with a magazine publishing company. Such companies publish a
substantial portion of all magazines published in the United States, and the
competition for the distribution rights to the remaining publications is
intense.
COMPANY OFFICES
The Company's principal executive offices are in New York City. Kable has an
executive and sales office in New York City, and its operations are centered in
both owned and leased facilities in Mt. Morris, Illinois and Marion, Ohio. Real
estate operations are headquartered in Rio Rancho, New Mexico in a modern office
building owned by the Company.
EMPLOYEES
The Company had approximately 925 employees as of July 1, 2002. The Company
provides retirement, health and other benefits to its employees and considers
its employee relations to be good.
5
Item 2. Properties
- ------- ----------
The information contained in Item 1 of this report with respect to properties
owned by the Company is hereby incorporated herein by reference.
Item 3. Legal Proceedings
- ------- -----------------
A. On May 3, 2000, a civil action was commenced in the United States District
Court of the Southern District of New York entitled United Magazine Company, et
al. v. Murdoch Magazines Distribution, Inc., et al. The Complaint was filed by
five affiliated magazine wholesalers and a related service company (collectively
referred to as "Unimag") against Murdoch, a national distributor of magazines,
and Chas. Levy Circulating Co., a magazine wholesaler. An Amended Complaint was
filed on August 31, 2000, in which Registrant's Kable subsidiary and three other
national distributors were added as defendants. Motions by the defendants to
dismiss the Amended Complaint were granted, with leave to the plaintiffs to
replead specified claims. In June 2001, a Second Amended Complaint was filed
which includes two claims against Kable: (i) violation of the Robinson-Patman
Act, which generally prohibits discriminatory pricing, and (ii) breach of
fiduciary duty. Unimag seeks damages in the amount of at least $275,000,000
trebled, plus punitive damages, pre-judgement interest and attorneys' fees.
The defendants moved to dismiss the Second Amended Complaint. The Court denied
the motions with respect to the Robinson-Patman Act claims but dismissed the
claims for breach of fiduciary duty. Kable answered the Second Amended
Complaint, denying the material allegations and asserting affirmative defenses.
Kable also asserted counterclaims to recover approximately $5,375,000 in unpaid
debts from Unimag. Unimag has responded to the counterclaims with reply
counterclaims for compensatory and punitive damages, based on common law claims
that are similar to claims previously dismissed. The defendants have moved to
dismiss the reply counterclaims. Unimag is no longer in business and does not
appear to have the assets to pay if a judgment is awarded to Kable on its
counterclaims.
Pretrial discovery has recently commenced. It is unlikely that a trial will be
conducted prior to late 2004.
B. On or about May 14, 2002 a civil action was commenced in the New York State
Supreme Court, Westchester County, entitled Northeast Sort & Fulfillment Corp.
v. Kable Fulfillment Services of Ohio, Inc. Kable Fulfillment Services of Ohio,
Inc. ("Kable Fulfillment" ) is a subsidiary of Kable News Company, Inc. In its
complaint the plaintiff ("Northeast Sort") alleges that both it and Kable
Fulfillment were engaged in the mail fulfillment business; that Northeast Sort
had a contract with R.D. Manufacturing Corporation ("RDMC") for the processing
of Reader's Digest mail for a term expiring not earlier than December 31, 1997;
that RDMC was Northeast Sort's primary client; that Kable Fulfillment knew of
the contract; that it was foreseeable to Kable Fulfillment that the unlawful
termination of the contract would destroy Northeast Sort; that Kable Fulfillment
motivated solely by malice and avarice, induced RDMC to terminate the contract;
that the contract was terminated by RDMC in August 1996; that Northeast Sort
lost millions of dollars as a result and its business was completely destroyed;
and that RDMC entered into a fulfillment contract with Kable Fulfillment shortly
prior to the termination by RDMC of the contract. Northeast Sort seeks to
recover from Kable Fulfillment compensatory, consequential and special damages
of not less than $15 million plus punitive damages in an amount no less than the
sum of all profits earned by Kable Fulfillment on its contract plus $5 million.
In a different action against RDMC for breach of contract, Northeast Sort has
obtained a summary judgement against RDMC on the issue of liability and a trial
on damages is scheduled for September 2002. The Court in that action ruled that
damages against RDMC would be limited by reason of damage limitation provisions
in the contract between Northeast Sort and RDMC. In its action against Kable
Fulfillment, Northeast Sort seeks all of its alleged losses.
Pursuant to provisions in its contract with Kable Fulfillment, RDMC has agreed
to imdemnify and defend Kable Fulfillment in the action brought against Kable
Fulfillment by Northeast Sort. RDMC has retained counsel to represent Kable
Fulfillment. That counsel has had the case removed to the Federal District Court
6
for the Southern District of New York. That Court has stated that it will stay
all proceedings in the case until a final judgment is rendered in the action
against RDMC. It is unlikely that a trial in the action against Kable
Fulfillment will be held prior to 2004. Kable Fulfillment does not know whether
RDMC has the resources to respond to a judgement against Kable Fulfillment.
Pretrial discovery has not yet commenced in this case.
C. The Registrant and/or its subsidiaries are involved in various other claims
and legal actions incident to their operations, which in the opinion of
management, based in part upon advice of counsel, will not materially affect the
consolidated financial position or results of operations of the Registrant and
its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not Applicable.
Executive Officers of the Registrant
- ------------------------------------
Set forth below is certain information concerning persons who are the executive
officers of the Company.
Name Office Held/Principal Occupation for Past Five Years Age
- ---- ---------------------------------------------------- ---
James Wall Senior Vice President of the Company since 1991; 65
Chief Executive Officer of AMREP Southwest Inc.,
a wholly-owned subsidiary of the Company, since 1991.
Peter M. Pizza Vice President-Chief Financial Officer since May 2001; 51
Controller of the Company since 1995;
Vice President-Controller of the Company from 1997 to 2001.
Michael P. Duloc President and Chief Operating Officer of Kable News 46
Company, Inc. since November 2000;
President and Chief Operating Officer of Kable
Distribution Services from 1996 to November 2000.
The executive officers are elected or appointed by the Board of Directors of the
Company or its appropriate subsidiary to serve until the appointment or election
and qualification of their successors or their earlier death, resignation or
removal.
7
PART II
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Item 5. Market for Registrant's Common Equity and
- ------- -----------------------------------------
Related Stockholder Matters
---------------------------
The Company's common stock is traded on the New York Stock Exchange under the
symbol "AXR". On July 1, 2002, there were approximately 2,050 holders of record
of the common stock. The Company has historically not paid cash dividends. The
range of high and low closing prices for the last two fiscal years by quarter is
presented below:
FIRST SECOND THIRD FOURTH
--------------- --------------- ---------------- ----------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------ ------ ------ ------
2002 $ 5.16 $ 3.75 $ 4.90 $ 3.60 $ 8.69 $ 4.40 $ 8.49 $ 7.01
2001 $ 7.37 $ 4.94 $ 5.50 $ 4.56 $ 4.75 $ 4.00 $ 4.00 $ 3.60
Item 6. Selected Financial Data
- ------- -----------------------
The following selected consolidated financial data of the Company is qualified
by reference to and should be read in conjunction with the consolidated
financial statements, related notes thereto and other financial data elsewhere
herein. These historical results are not necessarily indicative of the results
to be expected in the future.
(In thousands of dollars except per share amounts)
Year Ended April 30,
----------------------------------------------------------------------------------
2002 2001 (a) 2000 1999 (b) 1998
-------------- --------------- --------------- --------------- -------------
Revenues $ 83,405 $ 73,209 $ 119,833 $ 190,291 $ 171,368
Net Income $ 3,698 $ 2,557 $ 1,169 $ 7,537 $ 8,206
Earnings Per Share -
Basic and Diluted $ 0.56 $ 0.38 $ 0.16 $ 1.02 $ 1.11
Total Assets $ 149,688 $ 164,844 $ 172,436 $ 217,777 $ 229,768
Notes Payable $ 16,619 $ 44,260 $ 46,911 $ 74,665 $ 84,248
Shareholders' Equity $ 93,479 $ 89,781 $ 91,981 $ 91,577 $ 84,040
Cash Dividends $ - $ - $ - $ - $ -
- --------------------------------------------------------------------------------
(a) Includes a tax benefit in the amount of $3,500,000 (the equivalent of $.52
per share) to reflect the settlement of 1993 and 1994 IRS tax examinations.
(b) Includes a tax benefit in the amount of $2,400,000 (the equivalent of $.33
per share) to reflect the settlement of 1990 through 1992 IRS tax
examinations.
8
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations
-----------------------------------
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
- -------------------------------------------
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 and in
reports to the Company's shareholders and news releases. All statements that
express expectations, estimates, forecasts and 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 assumptions
which are difficult to 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 update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
A wide range of factors could materially affect the Company's future performance
and financial and competitive position, including the following: (i) the level
of demand for land in Rio Rancho and the other markets in which the Company
sells land; (ii) the possibility of further adverse changes in the magazine
distribution system for magazines which the Company distributes, including the
financial failure of a major wholesaler; (iii) the existing United Magazine and
Northeast Sort lawsuits described in Item 3 of this Form 10-K and possible
future litigation and governmental proceedings; (iv) the availability of
financing and financial resources in the amounts, at the times and on the terms
required to support the Company's future business, including possible
acquisitions; (v) changes in U.S. financial markets, including significant
interest rate fluctuations; (vi) the failure to carry out marketing and sales
plans; (vii) the failure to successfully integrate acquired business, if any,
into the Company without substantial costs, delays or other operational or
financial problems; and (viii) changes in economic or business conditions,
including general economic and business conditions that are less favorable than
expected.
This list of factors that may affect the Company's future performance and its
financial and competitive position and also the accuracy of forward-looking
statements is illustrative, but by no means exhaustive. Accordingly, all
forward-looking statements should be evaluated with the understanding of their
inherent uncertainty.
RESULTS OF OPERATIONS
- ---------------------
Year Ended April 30, 2002 ("2002" ) Compared to Year Ended April 30, 2001
- --------------------------------------------------------------------------------
("2001")
- --------
Consolidated revenues for the year ended April 30, 2002 were $83.4 million
compared to $73.2 million for the year ended April 30, 2001. The increase in
consolidated revenues in 2002 was principally due to an increase in revenues
from real estate operations from $21.0 million in 2001 to $30.9 million in 2002,
as well as a slight increase in revenues from magazine circulation operations.
Total revenues from magazine circulation operations were approximately $49.2
million in 2002 compared to $48.6 million in 2001. Revenues from the Fulfillment
Services business were approximately $34.0 million in 2002 compared to $34.7
million in 2001, and revenues from the Newsstand Distribution Services business
increased from approximately $13.9 million in 2001 to approximately $15.2
million in 2002. The decrease in revenues in the Fulfillment business was
principally due to the loss of sweepstakes processing work for one customer in
the first quarter of the prior year; otherwise, revenues in this business were
comparable on a year-to-year basis. Revenues in the Newsstand business increased
because, although gross billings declined slightly in line with industry
results, there was an increase in Kable's net sales rate due in part to the
effects of many special event publications issued throughout the year.
9
Revenues from real estate land and home sales increased from $21.0 million in
2001 to $30.9 million in 2002 principally as the result of land sales in 2002
made in accordance with the Company's plan to sell its landholdings outside of
New Mexico. During 2002, two sales of large tracts of land in Colorado and
California contributed aggregate revenues of $13.6 million whereas there were no
sales in these markets in 2001. Revenues from land sales in New Mexico were
comparable on a year-to-year basis, since an increase in revenues from
commercial and industrial property was offset by a decrease from residential lot
sales. As a result, total revenues from land sales increased from $16.4 million
in 2001 (with an average gross profit percentage of 42%) to $30.2 million in
2002 (with an average gross profit percentage of 24%). The average gross profit
percentage decreased in 2002 from the prior year because the two sales of large
land tracts outside of New Mexico contributed a significant amount of cash but
only a very slight gross profit. The average gross profit percentage on land
sales in the Company's principal market of Rio Rancho, New Mexico was 50% in
2001 and 43% in 2002. In addition, results for 2001 include impairment and other
charges of approximately $1.0 million associated with land activities, while
there were no similar charges in 2002. Revenues and related gross profits from
land sales can vary from period to period as a result of many factors, including
the nature and timing of specific transactions, and thus prior results are not
necessarily an indication of amounts that may be expected to occur in future
periods.
The Company completed all homebuilding activities during 2002, and realized
revenues of approximately $600,000 (representing 3 homes delivered) compared to
$4.6 million (representing 18 homes delivered) in 2001. In addition, results for
2001 include impairment and other charges of approximately $1.1 million
associated with the wind-down of homebuilding projects, while there were no such
charges in 2002.
Magazine circulation operating expenses decreased 6%, from $41.1 million in 2001
to $38.6 million in 2002, as a result of reduced bad debt expense as well as the
effects of a cost reduction program, including staff and related cost
reductions, principally in the Newsstand business. Real estate commissions and
selling expenses decreased from $1.2 million to $1.0 million due in part to the
wind-down of homebuilding operations and the elimination of related commissions.
Real estate and corporate general and administrative expenses also decreased
from $4.1 million to $3.2 million due to the effects of the Company's real
estate restructuring and the continued downsizing of administrative functions.
General and administrative costs of magazine circulation operations remained
comparable at approximately $6.9 million in each year. Interest expense-net
decreased from $2.8 million to $1.3 million due to reduced borrowing
requirements in all segments of the Company's operations and lower interest
rates.
Revenues associated with interest and other operations decreased from $3.6
million in 2001 to $3.3 million in 2002, principally due to a decrease in
interest income resulting from a reduction in the average balance of real estate
mortgages receivable from land sales from year to year. In addition, costs of
other operations also decreased, from $2.8 million in 2001 to $2.6 million in
2002, due to an impairment charge of $500,000 included in 2001's results for the
estimated loss on the sale of property, plant and equipment utilized in the
operations of the Company's utility subsidiary.
During 2001, the Company recognized a tax benefit of $3.5 million resulting from
the resolution of all matters under review by the Internal Revenue Service
("IRS") in connection in examinations of the Company's 1993 and 1994 tax returns
at an amount less than the Company had previously accrued on account thereof.
There was no similar tax adjustment recorded in 2002.
Year Ended April 30, 2001("2001") Compared to Year Ended April 30, 2000 ("2000")
- --------------------------------------------------------------------------------
Consolidated revenues for the year ended April 30, 2001 were $73.2 million
compared to $119.8 million for the year ended April 30, 2000. The reduction in
consolidated revenues in 2001 was principally due to the decrease in total real
estate revenues from $62.7 million in 2000 to $21.0 million in 2001 resulting
from the effects of the previously announced restructuring of the Company's real
estate operations, including the substantial completion of homebuilding
activities.
10
Revenues from homebuilding sales decreased from $30.1 million in 2000
(representing 193 homes delivered) to $4.6 million in 2001 (representing 18
homes delivered) as the Company completed delivery of substantially all homes
available for sale. In addition, results for 2001 and 2000 include approximately
$1.1 million and $3.2 million, respectively, of impairment and other charges
associated with the wind-down of homebuilding projects. There was no other
significant effect on net income resulting from the withdrawal from homebuilding
between these periods, however, as the decline in homebuilding revenues and
related gross profits in 2001 was substantially offset by a comparable decrease
in homebuilding-related commissions, selling and general and administrative
expenses.
Revenues from land sales decreased from $32.6 million in 2000 to $16.4 million
in 2001 primarily as a result of decreased sales of residential lots to
homebuilders in markets outside of New Mexico as well as a decrease in
commercial and industrial property sales in New Mexico. During 2000, as part of
a restructuring plan to sell its landholdings outside of New Mexico, the Company
closed several transactions in Colorado at an aggregate sales price of
approximately $10.2 million, whereas there were no similar transactions outside
of New Mexico in 2001. In addition, revenues from commercial and industrial
property sales declined from $6.7 million in fiscal 2000 to $1.0 million in
fiscal 2001 due in part to the availability of competing commercial sites. The
average gross profit percentage on land sales increased from 36% in 2000 to 42%
in 2001, primarily because all the current year land sales were from the New
Mexico market, where gross profits have historically been higher than in other
markets. In addition, results for 2000 and 2001 include approximately $1.0
million and $.6 million, respectively, of impairment and other charges
associated with the restructuring of real estate operations. Land sales revenues
and related gross profits can vary from period to period as a result of many
factors, including the nature and timing of specific transactions, and thus
prior results are not necessarily an indication of amounts that may be expected
to occur in future periods.
Total revenues from magazine circulation operations decreased approximately 8%,
from $52.5 million in 2000 to $48.6 million in 2001. Revenues from Fulfillment
Services decreased 5%, from $36.6 million in 2000 to $34.7 million in 2001, due
primarily to the loss of sweepstakes processing business for one customer, which
was partly offset by increased revenues from core fulfillment and other
continuing services to other customers. Revenues from Newsstand Distribution
Services decreased 13%, from $15.9 million in 2000 to $13.9 million in 2001,
primarily as the result of customer losses and decreased magazines sales for
existing customers, which reflected a continuation in 2001 of adverse business
conditions within the wholesaler and publisher ranks that had existed for
several years. Industry sales decreased approximately 7% in the 12 month period
ended December 2000, and certain publishers, including clients of Kable, have
either vacated newsstand distribution or discontinued the production of a number
of titles, thus adversely affecting overall sales. In addition, Kable determined
that certain wholesaler and publisher customers had been impacted by these
industry changes and were encountering financial difficulties and, accordingly,
provided additional allowances for doubtful accounts of approximately $2.3
million in 2001 and $1.8 million in 2000.
Magazine circulation operating expenses decreased 7%, from $44.2 million in 2000
to $41.1 million in 2001, with such decrease being the result of and
commensurate with lower revenues. Real estate commissions and selling expenses
decreased from $3.7 million in 2000 to $1.2 million in 2001 as a direct result
of the wind-down of homebuilding operations. Real estate and corporate general
and administrative expenses also decreased from $6.0 million in 2000 to $4.1
million in 2001 due to the effects of the Company's real estate restructuring
and related downsizing of administrative functions. General and administrative
costs of magazine circulation operations increased approximately 4% from $6.7
million in 2000 to $6.9 million in 2001 due to increased technology staffing
costs and legal and consulting fees incurred in connection with the modification
of Kable's credit agreement. Interest expense-net decreased 6%, from $2.9
million in 2000 to $2.8 million in 2001, as a result of lower borrowing
requirements in the real estate business offset in part by increased interest
related to magazine circulation operations due to higher borrowing levels.
Revenues associated with interest and other operations decreased from $4.6
million in 2000 to $3.6 million in 2001, principally as the result of the
wind-down of an ancillary real estate business made in connection with the
11
business restructuring discussed above. Costs of other operations also
decreased, from $4.6 million in 2000 to $2.8 million in 2001 due to the
wind-down of other operations as well as the elimination of certain costs
incurred in 2000 related to the completion of certain joint ventures in
California.
During 2001, the Company recognized a tax benefit of $3.5 million resulting from
the resolution of all matters under review by the Internal Revenue Service
("IRS") in connection in examinations of the Company's 1993 and 1994 tax returns
at an amount less than the Company had previously accrued on account thereof.
There was no similar tax adjustment recorded in 2000.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the past several years, the Company has financed its operations from
internally generated funds from home and land sales and magazine circulation
operations, and from borrowings under its various lines-of credit and
construction loan agreements.
Cash Flows From Financing Activities
- ------------------------------------
The Company's subsidiaries have line-of-credit arrangements with several
financial institutions collateralized by various assets which, based upon
collateral availability, amounted to an aggregate borrowing availability of
$25.4 million at April 30, 2002 against which $14.0 million was borrowed.
In April 2002, Kable entered into a loan agreement with a bank for a revolving
line-of-credit which allows the company to borrow up to $20 million based upon a
prescribed percentage of eligible accounts receivable, as defined. At April 30,
2002, Kable had borrowing availability of $16.2 million against which $8.2
million was outstanding. This line-of-credit bears interest at the bank's prime
rate plus .75%, and is collateralized by substantially all of Kable's assets.
The credit arrangement requires the maintenance or achievement of certain
financial covenants and contains certain financial restrictions, the most
significant of which limit the amount of dividends and other repayments that may
be made by Kable to its parent or other affiliates, as well as capital
expenditures and other borrowings. This line of credit matures May 1, 2005.
Other line-of-credit borrowings are used principally to support real estate
development in New Mexico. These loans are collateralized by certain real estate
assets and are subject to available collateral and various financial performance
and other covenants. At April 30, 2002, real estate operations had
lines-of-credit totaling $14.1 million and borrowing availability of $9.2
million against which $5.8 million was outstanding.
Notes payable outstanding, including the lines-of-credit discussed above, were
$16.6 million at April 30, 2002 compared to $44.3 million at April 30, 2001.
Real estate loans decreased from $13.2 million at April 30, 2001 to $8.1 million
at April 30, 2002 as the result of the repayment of borrowings utilizing the
proceeds from certain land sales. Borrowings by Kable decreased from $31.1
million at April 30, 2001 to $8.5 million at April 30, 2002 from the use of cash
from several sources, including beginning of the year cash balances, loan
repayments from affiliates and cash generated from operations.
The Company has from time to time reacquired its shares to be held as treasury
stock as part of a stock repurchase program. During fiscal 2000, the Company
reacquired 143,000 of its common shares at a cost of approximately $857,000.
During fiscal 2001, the Company reacquired a total of approximately 668,000
shares at an aggregate cost of approximately $4.8 million.
Cash Flows From Operating Activities
- ------------------------------------
Inventories amounted to $62.3 million at April 30, 2002 compared to $73.3
million at April 30, 2001 This change is the net result of a $13.0 million
decrease in inventories outside of New Mexico, where the Company is winding-down
its activities, and a $2.0 million increase in New Mexico, where ongoing
projects are under development and costs are being incurred.
12
Receivables from magazine circulation operations decreased by approximately $2.7
million compared to the prior year primarily as the result of the timing of cash
collections. Accounts payable increased by $6.5 million due to a combination of
factors, including the acquisition of capital equipment at the end of the fiscal
year for which payment had not been made and the timing of month-end payments.
Cash Flows From Investing Activities
- ------------------------------------
Capital expenditures have remained comparable on a year-to-year basis. The
Company believes that it has adequate financing capability to provide for
anticipated capital expenditures.
The Company has a contract for the sale for its utility subsidiary which is
scheduled to close during fiscal 2003, subject to regulatory approval and the
satisfaction of other conditions. No material gain or loss is expected upon the
sale of this asset, which is included in Assets Held for Sale - Net on the
balance sheet and in Other operations on the income statement. There is no
assurance that this sale will be concluded.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
During 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", SFAS
NO. 142, "Goodwill and Other Intangible Assets" and SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". SFAS No. 141 requires the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001 and prohibits the use of the pooling of interests method.
SFAS No. 142 changes the accounting for goodwill from an amortization method to
an impairment approach. The Company has goodwill of $5.1 million on its balance
sheet resulting from the acquisition of Kable News Company, Inc. which has not
been amortized because it arose prior to the effective date of the previous
standard for goodwill accounting (Accounting Principles Board Opinion No. 17),
and management believes, based upon current information, that there has been no
impairment of the value of this company. SFAS No. 144 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. It also
requires disclosure of discontinued operations and extends that reporting to a
component of an entity that either has been disposed of or is classified as held
for sale. The Company will be required to adopt SFAS No. 142 and SFAS No. 144 in
the first quarter of fiscal 2003, and management expects there to be no material
effect on the financial statements as a result of adoption.
SEGMENT INFORMATION
- -------------------
Information by industry segment is presented in Note 13 to the consolidated
financial statements. This information has been prepared in accordance with SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Disclosures",
which requires that industry segment information be prepared in a manner
consistent with the manner in which financial information is prepared and
evaluated by management for making operating decisions. A number of assumptions
and estimations are required to be made in the determination of segment data,
including the need to make certain allocations of common costs and expenses
among segments. On an annual basis, management has evaluated the basis upon
which costs are allocated, and has periodically made revisions to these methods
of allocation. Accordingly, the determination of "pretax income (loss)
contribution" of each segment as summarized in Note 13 to the consolidated
financial statements is presented for informational purposes, and is not
necessarily the amount that would be reported if the segment were an independent
company.
IMPACT OF INFLATION
- -------------------
Operations of the Company can be impacted by inflation. Within the industries in
which the Company operates, inflation can cause increases in the cost of
materials, services, interest and labor. Unless such increased costs are
13
recovered through increased sales prices, operating margins will decrease.
Within the land development industry, the Company encounters particular risks. A
large part of the Company's real estate sales are to homebuilders who face their
own inflationary concerns that rising housing costs, including interest costs,
may substantially outpace increases in the income of potential purchasers and
make it difficult for them to finance the purchase of a new home or sell their
existing home. If this situation were to exist, the demand for the Company's
land by these homebuilder customers could decrease. In general, in prior years,
interest and price increases have been commensurate with the general rate of
inflation in the Company's markets, and the Company has not found the inflation
risk to be a significant problem in its real estate or magazine circulation
operations.
Item 7(A). Quantitative and Qualitative Disclosures About Market Risk
- ---------- ----------------------------------------------------------
The primary market risk facing the Company is interest rate risk on its
long-term debt. The Company does not hedge interest rate risk using financial
instruments. The Company is also subject to foreign currency risk, but this risk
is not material. The following table sets forth as of April 30, 2002 the
Company's long term debt obligations by scheduled maturity, weighted average
interest rate and estimated Fair Market Value ("FMV") (amounts in thousands):
There- FMV @
2003 2004 2005 2006 2007 after Total 4/30/02
---- ---- ---- ---- ---- ----- ----- -------
Fixed rate debt $ 253 $ 695 $ 154 $ 147 $ 146 $ 1,230 $ 2,625 $ 3,080
Weighted average
interest rate 8.2% 7.7% 8.0% 7.9% 7.9% 7.9% 7.9% -
Variable rate debt $ 3,130 $ 2,708 $ - $ 8,156 $ - $ - $13,994 $13,994
Weighted average
interest rate 4.8% 4.8% - 5.5% - - 5.2% -
14
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
Report of Independent Public Accountants
----------------------------------------
To the Shareholders
AMREP Corporation
New York, New York
We have audited the accompanying consolidated balance sheet of AMREP Corporation
and subsidiaries as of April 30, 2002 and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audit. The consolidated
financial statements of AMREP Corporation and subsidiaries for the years ended
April 30, 2001 and 2000 were audited by other auditors whose report, dated
August 13, 2001, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AMREP Corporation
and subsidiaries as of April 30, 2002 and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II accompanying the
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
/s/McGladrey & Pullen, LLP
Davenport, Iowa
June 14, 2002
15
Note: The Report of Independent Public Accountants that follows is a copy of a
previously issued Report of Arthur Andersen LLP, Independent Public Accountants,
and it has not been reissued by Arthur Andersen LLP. This Report was filed with
the Form 10-K/A (Amendment No. 1) of AMREP Corporation for the year ended April
30, 2001, and the consent of Arthur Andersen LLP, dated August 13, 2001, was
filed as an exhibit to the Form 10-K/A, consenting to the incorporation of this
Report in the previously filed Registration Statements of Form S-8 nos.
33-67114, 33-67116 and 333-17695. The Registrant has been unable to obtain a
reissued Report of Arthur Andersen LLP or a currently dated consent to the
incorporation of this previously issued Report of Arthur Andersen LLP into the
Registration Statements on Form S-8. While the extent of any resulting
limitations on recovery by investors is unclear, the lack of a currently dated
consent could limit the time within which any such actions by investors against
Arthur Andersen LLP for liabilities arising under Section 11 of the Securities
Act of 1933 must be brought.
Report of Independent Public Accountants
----------------------------------------
To AMREP Corporation:
We have audited the accompanying consolidated balance sheets of AMREP
Corporation (an Oklahoma corporation) and subsidiaries as of April 30, 2001 and
2000, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended April 30, 2001.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AMREP Corporation and
subsidiaries as of April 30, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
2001 in conformity with accounting principles generally accepted in the United
States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II accompanying the consolidated
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
August 13, 2001
16
AMREP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2002 AND 2001
(Dollar amounts in thousands)
ASSETS 2002 2001
------ ---------- ----------
CASH AND CASH EQUIVALENTS $ 15,744 $ 15,941
RECEIVABLES, net:
Real estate operations 6,630 7,070
Magazine circulation operations 34,849 37,533
---------- ----------
41,479 44,603
REAL ESTATE INVENTORY 62,296 73,347
PROPERTY, PLANT AND EQUIPMENT,
at historical cost, net of accumulated
depreciation and amortization 9,890 14,314
ASSETS HELD FOR SALE- NET 5,853 -
OTHER ASSETS, net of accumulated amortization 9,235 11,448
EXCESS OF COST OF SUBSIDIARY
OVER NET ASSETS ACQUIRED 5,191 5,191
---------- ----------
TOTAL ASSETS $ 149,688 $ 164,844
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 33,867 $ 27,326
NOTES PAYABLE:
Amounts due within one year 3,383 9,490
Amounts subsequently due 13,236 34,770
---------- ----------
16,619 44,260
TAXES PAYABLE 1,127 1,595
DEFERRED INCOME TAXES 4,596 1,882
---------- ----------
TOTAL LIABILITIES 56,209 75,063
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value;
shares authorized--20,000,000;
shares issued - 7,399,704 740 740
Capital contributed in excess of par value 44,935 44,935
Retained earnings 53,513 49,815
Treasury stock, at cost; 826,092 share (5,709) (5,709)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 93,479 89,781
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 149,688 $ 164,844
========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
17
AMREP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
Year Ended April 30,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
REVENUES:
Magazine circulation operations $ 49,248 $ 48,570 $ 52,548
Real estate operations-
Land sales 30,228 16,386 32,637
Home sales 635 4,611 30,079
------------ ------------ ------------
30,863 20,997 62,716
Interest and other operations 3,294 3,642 4,569
------------ ------------ ------------
83,405 73,209 119,833
------------ ------------ ------------
COSTS AND EXPENSES:
Operating expenses-
Magazine circulation operations 38,643 41,128 44,184
Real estate commissions and selling 978 1,218 3,670
Other operations 2,635 2,836 4,560
Real estate cost of sales-
Land sales 22,894 9,588 21,084
Home sales 704 6,083 28,735
General and administrative-
Magazine circulation operations 6,914 6,934 6,680
Real estate operations and corporate 3,209 4,121 6,026
Interest, net 1,265 2,771 2,946
------------ ------------ ------------
77,242 74,679 117,885
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 6,163 (1,470) 1,948
PROVISION (BENEFIT) FOR INCOME TAXES 2,465 (4,027) 779
------------ ------------ ------------
NET INCOME $ 3,698 $ 2,557 $ 1,169
============ ============ ============
EARNINGS PER SHARE - BASIC AND DILUTED $ .56 $ .38 $ .16
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,574 6,681 7,285
============ ============ ============
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
18
AMREP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
Capital
Contributed
Common Stock In Excess Treasury
of Retained Stock at
Shares Amount Par Value Earnings Cost Total
------ ------ ------------ -------- ---------- --------
BALANCE, April 30, 1999 7,399 $ 740 $ 44,928 $ 46,089 $ (180) $ 91,577
Net income - - - 1,169 - 1,169
Purchase of treasury stock - - - - (857) (857)
Issuance of treasury stock - - 2 - 90 92
------ ------ ------------ -------- ---------- --------
BALANCE, April 30, 2000 7,399 740 44,930 47,258 (947) 91,981
Net income - - - 2,557 - 2,557
Purchase of treasury stock - - - - (4,762) (4,762)
Exercise of stock options 1 - 5 - - 5
------ ------ ------------ -------- ---------- --------
BALANCE, April 30, 2001 7,400 $ 740 $ 44,935 $ 49,815 $ (5,709) $ 89,781
Net income - - - 3,698 - 3,698
------ ------ ------------ -------- ---------- --------
BALANCE, April 30, 2002 7,400 $ 740 $ 44,935 $ 53,513 $ (5,709) $ 93,479
====== ====== ============ ======== ========== ========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
19
AMREP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year Ended April 30,
------------------------------------
2002 2001 2000
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,698 $ 2,557 $ 1,169
Adjustments to reconcile net income
to net cash provided by operating activities-
Depreciation and amortization 2,691 3,033 4,104
Non-cash credits and charges:
Loss (gain) on disposition of fixed assets - (211) 167
Provision for doubtful accounts 491 2,265 1,806
Impairment of long-lived assets - 2,256 4,543
Pension benefit accrual (511) (603) (573)
Issuance of treasury stock charged to expense - - 92
Changes in assets and liabilities,
excluding the effect of acquisition-
Receivables 2,465 7,606 8,388
Real estate inventory 11,051 (2,085) 19,164
Other real estate investments - - 1,089
Other assets 1,527 (634) 1,145
Accounts payable and accrued expenses 6,685 1,406 (11,708)
Taxes payable (468) (3,402) (9,341)
Deferred income taxes 2,714 (745) 1,612
---------- ---------- ----------
Net cash provided by operating activities 30,343 11,443 21,657
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,899) (2,045) (2,659)
Proceeds from disposition of property, plant and equipment - 1,017 227
Amount received upon acquisition - - 873
---------- ---------- ----------
Net cash used by investing activities (2,899) (1,028) (1,559)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 14,582 24,843 25,424
Principal debt payments (42,223) (27,494) (55,284)
Exercise of stock option - 5 -
Purchase of treasury stock - (4,762) (857)
---------- ---------- ----------
Net cash used by financing activities (27,641) (7,408) (30,717)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (197) 3,007 (10,619)
CASH AND CASH EQUIVALENTS, beginning of year 15,941 12,934 23,553
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year $ 15,744 $ 15,941 $ 12,934
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amounts capitalized $ 2,032 $ 4,354 $ 3,759
========== ========== ==========
Income taxes paid - net of refunds $ 219 $ 100 $ 8,363
========== ========== ==========
Non-Cash Transaction
Transfer to Inventory from Fixed Assets $ - $ 317 $ -
========== ========== ==========
Acquisition of real estate assets:
Identifiable assets acquired $ - $ - $ 1,408
Liabilities assumed - - 2,281
---------- ---------- ----------
Net cash (received) paid for acquisition $ - $ - $ (873)
========== ========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
20
AMREP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES:
-------------------------------------------------------------------
Organization and principles of consolidation
--------------------------------------------
The consolidated financial statements include the accounts of AMREP Corporation,
an Oklahoma corporation, and its subsidiaries (individually and collectively, as
the context requires, the "Company"). The Company, through its principal
subsidiaries, is engaged in two unrelated businesses. Kable News Company, Inc.
("Kable") operates in the magazine distribution and fulfillment services
industries, and AMREP Southwest Inc. operates predominately in the real estate
industry, principally in New Mexico. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The consolidated balance sheets are presented in an unclassified format, since
the Company has substantial operations in the real estate industry and its
operating cycle is greater than one year.
Revenue recognition
-------------------
Revenues from magazine circulation operations include revenues from the
distribution of periodicals and subscription fulfillment activities.
Distribution revenues represent commissions earned from the distribution of
publications for client publishers which are recorded at the time the
publications go on sale. The publications generally are sold on a fully
returnable basis, which is in accordance with prevailing trade practice.
Accordingly, the Company provides for estimated returns by charges to income
which are based on experience. Revenues from subscription fulfillment activities
represent fees earned from the maintenance of computer files for customers,
which are billed and earned monthly, and other fulfillment activities including
customer telephone support, product fulfillment, and graphic arts and lettershop
services, all of which are billed and earned as the services are provided.
Land sales are recognized when all elements of Statement of Financial Accounting
Standards ("SFAS") No. 66, "Accounting for Sales of Real Estate", are met,
including when the parties are bound by the terms of the contract, all
consideration (including adequate cash) has been exchanged and title and other
attributes of ownership have been conveyed to the buyer by means of a closing.
Profit is recorded either in its entirety or on the installment method depending
upon, among other things, the ability to estimate the collectibility of the
unpaid sales price. In the event the buyer defaults on the obligation, the
property is taken back and recorded as inventory at the unpaid receivable
balance, net of any deferred profit, but not in excess of fair market value less
estimated costs to sell.
Sales of homes are recognized when title and other attributes of ownership have
been conveyed to the buyer by means of a closing.
Cash and cash equivalents
-------------------------
Cash equivalents consist of short term, highly liquid investments which have an
original maturity of ninety days or less, and that are readily convertible into
cash.
21
Real estate inventory
---------------------
Land and improvements for completed real estate projects, as well as those held
for future development or sale, are stated at the lower of accumulated cost
(except in certain instances where property is repossessed as discussed above
under "Revenue recognition") which includes the development cost, certain
amenities, capitalized interest and capitalized real estate taxes, or fair
market value less estimated costs to sell.
Property, plant and equipment
-----------------------------
Items capitalized as part of property, plant and equipment are recorded at cost.
Expenditures for maintenance and repair and minor renewals are charged to
expense as incurred, while those expenditures which improve or extend the useful
life of existing assets are capitalized. Upon sale or other disposition of
assets, their cost and the related accumulated depreciation or amortization are
removed from the accounts and the resulting gain or loss, if any, is reflected
in operations.
Depreciation and amortization of property, plant and equipment are provided
principally by the straight-line method at various rates calculated to amortize
the book values of the respective assets over their estimated useful lives which
range from 3 to 40 years. Assets utilized in the Company's utility company
subsidiary, which is under contract for sale and classified as "Assets Held for
Sale-Net", are depreciated over 5 to 50 years.
Excess of cost of subsidiaries over net assets acquired
-------------------------------------------------------
The excess of amounts paid for business acquisitions over the net fair value of
the assets acquired and liabilities assumed ("goodwill") is carried as an asset.
Goodwill arose in connection with the acquisition of Kable during 1969 and has
not been amortized to operations, since this acquisition was made prior to the
effective date of Accounting Principles Board Opinion ("APB") No. 17 and
management is of the opinion that there has been no diminution of value.
Long-lived assets
-----------------
Long-lived assets, including real estate inventory and goodwill, are evaluated
when indicators of impairment are present. Provisions for possible losses are
recorded when undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount. See Notes 3 and 4.
Income taxes
------------
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities, and are measured by
using currently enacted tax rates expected to apply to taxable income in the
years in which those differences are expected to reverse.
Earnings per share
------------------
Basic earnings per share is based on the weighted average number of common
shares outstanding during each year. Diluted earnings per share is computed
assuming the issuance of common shares for all dilutive stock options
outstanding (using the treasury stock method) during the reporting period.
Stock options
-------------
The Company accounts for stock option grants in accordance with APB No. 25,
"Accounting for Stock Issued to Employees." The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" (see Note 7).
22
Comprehensive income
--------------------
The Company is required to report components of comprehensive income in an
annual financial statement that is displayed with the same prominence as other
financial statements. The Company's comprehensive income and net income are the
same.
Management's estimates and assumptions
--------------------------------------
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. The significant estimates that
affect the financial statements include, but are not limited to, inventory
valuation, magazine returns, the recoverability of long-term assets and
amortization periods. Actual results could differ from those estimates.
New accounting pronouncements
-----------------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"
("SFAS No. 141") which requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001 and prohibits the
use of the pooling of interests method. The Company has made no acquisitions
subsequent to June 30, 2001.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets ("SFAS No. 142") which changes the accounting for goodwill from an
amortization method to an impairment approach. The Company will be required to
adopt SFAS No. 142 in the first quarter of the fiscal year beginning May 1,
2002. The impairment test compares the fair value of a business with its
carrying amount (including goodwill). Based upon current information, management
believes there has been no impairment of the carrying amount of Kable and, as a
result, management expects there to be no effect on the financial position or
results of operations of the Company.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets) ("SFAS No. 144"). SFAS No. 144 requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. It also requires companies to separately report discontinued
operations and extends that reporting to a component of an entity that either
has been disposed of or is classified as held for sale. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less costs to
sell. The Company will be required to adopt SFAS No. 144 in the first quarter of
the fiscal year beginning May 1, 2002, and expects there to be no material
effect on the financial statements.
Financial statement presentation
--------------------------------
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the 2002 presentation with no effects on net income
or shareholders' equity.
23
(2) RECEIVABLES:
------------
Receivables consist of: April 30,
---------------------------------
2002 2001
-------------- --------------
(Thousands)
Real estate operations-
Mortgage and other receivables $ 6,883 $ 7,243
Allowance for doubtful accounts (253) (173)
-------------- --------------
$ 6,630 $ 7,070
============== ==============
Magazine circulation operations-
Accounts receivable (maturing
within one year) $ 92,760 $ 87,946
Allowances for-
Estimated returns (56,803) (49,201)
Doubtful accounts (1,108) (1,212)
-------------- --------------
$ 34,849 $ 37,533
============== ==============
Mortgage and other receivables bear interest at rates ranging from 8.0% to 11.0%
and result primarily from land sales. Magazine circulation operations
receivables collateralize a general purpose line-of-credit utilized for the
magazine circulation operations (see Note 6).
The Company extends credit to various companies in the real estate and magazine
circulation industries which may be affected by changes in economic or other
external conditions. Financial instruments that may potentially subject the
Company to a significant concentration of risk primarily consist of trade
accounts receivable from wholesalers in the magazine distribution industry. As
industry practices allow, the Company's policy is to manage its exposure to
credit risk through credit approvals and limits and, where appropriate, to be
secured by collateral. The Company also provides an allowance for doubtful
accounts for potential losses based upon factors surrounding the credit risk of
specific customers, historical trends and other financial and non-financial
information. In recent years, as a result of changes within the magazine
distribution industry there has been a major consolidation and reduction in the
number of wholesalers to whom Kable distributes magazines and, as a result, at
April 30, 2002 approximately 62% of Kable's accounts receivable were due from
three customers.
Kable performs fulfillment services and purchases magazines for resale to
wholesalers from publishing companies owned or controlled by a major shareholder
and member of the Board of Directors. Commissions and other revenues earned on
these transactions represent approximately 3%, 3% and 2% of consolidated
revenues in 2002, 2001 and 2000, respectively.
Maturities of principal on real estate receivables at April 30, 2002 are as
follows (in thousands): 2003 - $4,482; 2004 - $961; 2005 - $1,137; 2006 - $4;
2007 - $6; and thereafter - $293.
(3) REAL ESTATE INVENTORY:
----------------------
Real estate inventory consists of:
April 30,
---------------------------------
2002 2001
-------------- --------------
(Thousands)
Land and improvements held for sale
or development $ 62,296 $ 72,654
Homes and condominiums -
land and construction costs - 693
-------------- --------------
$ 62,296 $ 73,347
============== ==============
Accumulated capitalized interest costs included in real estate inventory at
April 30, 2002 and 2001 were $4,017,000 and $4,946,000, respectively. Interest
costs capitalized during 2002, 2001 and 2000 were $767,000, $1,533,000, and
24
$1,371,000, respectively. Accumulated capitalized real estate taxes included in
the inventory of land and improvements at April 30, 2002 and 2001 were
$5,184,000 and $5,519,000, respectively. Real estate taxes capitalized during
2002, 2001 and 2000 were $72,000, $425,000 and $182,000, respectively.
Previously capitalized interest costs and real estate taxes charged to real
estate cost of sales were $2,103,000, $775,000, and $2,375,000 in 2002, 2001 and
2000, respectively.
During 2001 and 2000, the Company determined that certain real estate assets
were impaired primarily due to conditions associated with the restructuring of
real estate operations. The Company recognized an impairment for long-lived
assets of approximately $1,750,000 in 2001 and $3,800,000 in 2000 based upon an
estimate of the future cash flows to be generated by those assets compared to
the remaining carrying value of those assets. No impairment charge was recorded
in 2002.
Substantially all of the Company's real estate assets are located in New Mexico.
As a result of this geographic concentration, the Company could be affected by
economic conditions in this region.
(4) PROPERTY, PLANT AND EQUIPMENT:
------------------------------
Property, plant and equipment consists of:
April 30,
---------------------------------
2002 2001
-------------- --------------
(Thousands)
Land, buildings and improvements $ 9,574 $ 9,588
Furniture and fixtures 14,663 12,170
Utility plant and equipment - 7,706
Other 152 136
-------------- --------------
24,389 29,600
Accumulated depreciation and
amortization (14,499) (15,286)
-------------- --------------
$ 9,890 $ 14,314
============== ==============
The Company has a contract for sale for its utility subsidiary which is
scheduled to close during fiscal 2003, subject to regulatory approval and the
satisfaction of other conditions. No material gain or loss is expected upon the
sale of this asset, which is included in Assets Held for Sale - Net on the
balance sheet and in Other operations on the income statement. At April 30,
2002, Assets Held for Sale - Net consists of the following: Accounts receivable
($168,000), Property, plant and equipment ($5,571,000) and Other assets
($258,000) net of Accounts payable, and accrued expenses ($144,000). There is no
assurance that this sale will be concluded.
During 2001, the Company provided an impairment reserve of $500,000 for the
estimated loss on the sale of property, plant and equipment utilized in the
operations of the utility subsidiary. During 2000, the Company determined that
certain property and specialized equipment utilized in its fulfillment
operations would no longer be utilized due to the impending loss of a large
customer, and the Company recognized an impairment for long-lived assets of
approximately $735,000 based upon an estimate of the future cash flows to be
generated by those assets compared to the remaining carrying value of those
assets. No impairment charge was recorded in 2002.
Depreciation charged to operations amounted to $1,752,000, $1,807,000 and
$2,230,000, in 2002, 2001 and 2000, respectively.
25
(5) OTHER ASSETS:
-------------
Other assets consist of:
April 30,
-------------------------------
2002 2001
-------------- -------------
(Thousands)
Prepaid expenses and other deferred charges, net $ 4,922 $ 5,118
Purchased magazine distribution contracts,
net of accumulated amortization of $3,744 and
$3,316 in 2002 and 2001, respectively 535 963
Security and other deposits 379 2,635
Prepaid pension (Note 7) 3,134 2,623
Other 265 109
-------------- -------------
$ 9,235 $ 11,448
============== =============
Amortization related to deferred charges and distribution contracts was
$939,000, $1,226,000 and $1,874,000 in 2002, 2001 and 2000, respectively.
(6) DEBT FINANCING:
---------------
Debt financing consists of:
April 30,
-------------------------------
2002 2001
------------ ------------
(Thousands)
Notes payable -
Line-of-credit borrowings -
Real estate operations and other $ 5,839 $ 7,758
Magazine circulation operations 8,156 29,975
Mortgages and other notes payable 2,624 6,527
------------ -------------
$ 16,619 $ 44,260
============ =============
Maturities of principal on notes outstanding at April 30, 2002 are as follows
(in thousands): 2003 - $3,383; 2004 - $3,403; 2005 - $154; 2006 - $8,303; 2007 -
$146; 2008 and thereafter - $1,230.
Line-of-credit borrowings
-------------------------
The Company has several loans with one financial institution to support real
estate operations. These loans have a total maximum amount available of
approximately $14.1 million subject to a borrowing base determined based upon a
prescribed percentage of eligible inventory and accounts receivable. At April
30, 2002, the Company had borrowing availability of $9.2 million against which
$5.8 million was outstanding. These borrowings, which mature in fiscal 2003 and
2004, bear interest at the prime rate (4.75% at April 30, 2002), are
collateralized by certain real estate assets and are subject to certain
financial performance and other covenants. The Chief Executive Officer of the
real estate subsidiary, who is also a member of the Board of Directors of the
Company, serves as a member of the board of directors of the financial
institution from which these loans were obtained.
In April 2002, Kable entered into an agreement with a bank for a line of credit
which allows the Company to borrow up to $20 million based upon a prescribed
percentage of eligible accounts receivable, as defined. This credit arrangement
replaced a similar borrowing arrangement with a group of banks in the amount of
26
$23.5 million that was due to expire on May 1, 2002. At April 30, 2002, the
Company had borrowing availability of approximately $16.2 million against which
$8.2 million was outstanding. This line of credit bears interest at the bank's
prime rate (4.75% at April 30, 2002) plus .75%, and is collateralized by
substantially all the Company's assets. The credit arrangement requires the
maintenance or achievement of certain financial covenants and contains certain
financial restrictions, the most significant of which limit the amount of
dividends and other payments that may be made by Kable to its Parent or other
affiliates, as well as capital expenditures and other borrowings. This line of
credit matures May 1, 2005.
Mortgages and other notes payable
---------------------------------
Mortgages and other notes payable had interest rates ranging from 6.4% to 10% at
April 30, 2002, and are primarily collateralized by property, plant and
equipment and certain land inventory. These borrowings mature through fiscal
2013.
(7) BENEFIT PLANS:
--------------
Retirement plan
---------------
The Company has a retirement plan which covers substantially all full-time
employees and which provides benefits based upon a percentage of the employee's
annual salary. No contribution to the plan was required in 2002, 2001 and 2000.
Assets are invested primarily in equity and debt securities, United States
Treasury obligations and money market funds.
Net periodic pension cost (income) for 2002, 2001 and 2000 was comprised of the
following components:
Year Ended April 30,
-------------------------------------------------------
2002 2001 2000
--------------- ------------------ --------------
(Thousands)
Service cost - benefits earned during the
period $ 556 $ 571 $ 656
Interest cost on projected
benefit obligation 1,766 1,738 1,611
Expected return on assets (2,481) (2,560) (2,464)
Amortization of prior service cost (352) (352) (352)
Recognized net actuarial loss - - (24)
--------------- ----------------- ---------------
Net periodic pension cost (income) $ (511) $ (603) $ (573)
=============== ================= ===============
Assumptions used in determining net periodic pension cost were:
Year Ended April 30,
-----------------------------------------------------------
2002 2001 2000
----------------- ----------------- -----------------
Discount rates 7.25% 7.5% 7.25%
Rates of increase in compensation
levels 4.5% 4.5% 4.5%
Expected long-term rate of return
on assets 9.0% 9.0% 9.0%
27
The following table sets forth changes in the plan's benefit obligations and
assets, and summarizes components of amounts recognized in the Company's
consolidated balance sheets:
April 30,
-------------------------------
2002 2001
------------- --------------
(Thousands)
Change in benefit obligations:
Benefit obligation at beginning of year $ 24,621 $ 21,437
Service cost (excluding expense component) 433 441
Interest cost 1,766 1,738
Actuarial (gain) loss 651 2,749
Benefits paid (1,638) (1,744)
------------- --------------
Benefit obligation at end of year $ 25,833 $ 24,621
============= ==============
Change in plan assets:
Fair value of plan assets at
beginning of year $ 28,411 $ 29,240
Actual return on plan assets (98) 1,052
Employer contribution - -
Benefits paid (1,638) (1,744)
Expenses (117) (137)
------------- --------------
Fair value of plan assets at end of year $ 26,558 $ 28,411
============= ==============
Funded status $ 725 $ 3,790
Unrecognized net actuarial (gain) loss 4,740 1,516
Unrecognized prior service cost (2,331) (2,683)
------------- --------------
Prepaid pension cost $ 3,134 $ 2,623
============= ==============
Savings plan
------------
The Company has a savings plan to which the Company makes contributions. The
plan provides for standard contributions of 33.3% of eligible employees defined
contributions up to a maximum of 2% of such employees' compensation. Additional
amounts may be contributed with the approval of the Companys Board of
Directors. The Company's contribution to the plan amounted to approximately
$230,000, $252,000 and $254,000 in 2002, 2001 and 2000, respectively.
Stock option plans
------------------
Under the Company's 1992 Stock Option Plan, 311,750 shares were reserved for
issuance to officers and other key employees at April 30, 2002. This plan
expires on June 30, 2002. The Non-Employee Directors Option Plan has 34,000
shares reserved for issuance and provides for an automatic issuance of options
to purchase 500 shares of common stock to each non-employee director annually at
the fair market value at the date of grant. The options are exercisable in one
year and expire five years after the date of grant.
28
A summary of activity in the Company's stock option plans is as follows:
Year Ended April 30,
------------------------------------------------------------------------------
2002 2001 2000
------------------------------- ---------------------------------- -----------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
Options outstanding at
beginning of year 12,000 $ 6.30 12,000 $ 6.27 43,500 $ 6.20
Granted 3,000 3.95 2,500 5.88 2,500 5.84
Exercised - (1,000) 5.53 -
Expired or canceled (2,000) 5.19 (1,500) 5.88 (34,000) 7.50
----------------- ------------- -----------
Options outstanding at
end of year 13,000 5.92 12,000 6.30 12,000 6.27
================= ============= ===========
Available for grant at
end of year 332,750 335,750 337,750
================= ============= ===========
Options exercisable at
end of year 10,000 9,500 9,500
================= ============= ===========
Range of exercise prices
for options exercisable
at end of year $3.95 to $7.75 $5.19 to $7.75 $5.19 to $7.75
================= ============== ==============
Options outstanding at April 30, 2002 are exercisable over a four year period
beginning one year from date of grant. The weighted average remaining
contractual life of options outstanding at April 30, 2002, 2001 and 2000 are
2.5, 3.1 and 3.1 years, respectively. The weighted average fair value of options
granted during the year was $1.36 in 2002, $1.08 in 2001 and $.97 in 2000. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2002, 2001 and 2000, respectively: expected
volatility of 46%, 34% and 41%, risk-free interest rates of 3.3%, 4.4% and 6.6%,
and expected lives of 3 years.
Stock options granted have been issued with an exercise price at the fair market
value of the Company's stock at the date of grant. Accordingly, no compensation
expense has been recognized with respect to the stock option plans. Further, the
amount of additional compensation disclosable under the disclosure-only
provisions of SFAS No. 123 is immaterial for all periods presented.
29
(8) INCOME TAXES:
-------------
The provision (benefit) for income taxes consists of the following:
Year Ended April 30,
-----------------------------------------
2002 2001 2000
----------- ------------ ------------
(Thousands)
Current:
Federal $ (76) $ (3,290) $ (833)
State and local (173) 8 -
----------- ------------ ------------
(249) (3,282) (833)
----------- ------------ ------------
Deferred:
Federal 2,317 (847) 1,341
State and local 397 102 271
----------- ------------ ------------
2,714 (745) 1,612
----------- ------------ ------------
Total provision (benefit)
for income taxes $ 2,465 $ (4,027) $ 779
=========== ============ ============
The components of the net deferred income tax liability are as follows:
April 30,
-----------------------
2002 2001
--------- ---------
(Thousands)
Deferred income tax assets-
State tax loss carryforwards $ 4,500 $ 4,732
Real estate inventory valuation 602 623
Interest payable on tax settlements - 622
Other 585 1,323
--------- ---------
Total deferred income tax assets 5,687 7,300
--------- ---------
Deferred income tax liabilities-
Real estate basis differences (1,238) (683)
Reserve for periodicals and paperbacks (862) (709)
Depreciable assets (2,413) (1,675)
Differences related to timing of partnership income - (142)
Capitalized costs for financial reporting
purposes, expensed for tax (1,388) (1,358)
--------- ---------
Total deferred income tax liabilities (5,901) (4,567)
--------- ---------
Valuation allowance for realization of state tax
loss carryforwards (4,382) (4,615)
--------- ---------
Net deferred income tax liability $(4,596) $(1,882)
========= =========
30
The following table reconciles taxes computed at the U.S. federal statutory
income tax rate to the Company's actual tax provision (benefit):
Year Ended April 30,
----------------------------------
2002 2001 2000
---------- ---------- ----------
(Thousands)
Computed tax provision at
statutory rate $ 2,095 $ (500) $ 662
Increase (reduction) in tax resulting from:
State income taxes, net of federal
income tax effect 308 73 126
Net reduction in tax liability as a
result of IRS settlement - (3,500) -
Nondeductible meals and entertainment 44 57 71
Other 18 (157) (80)
---------- ---------- ----------
Actual tax provision (benefit) $ 2,465 $ (4,027) $ 779
========== ========== ==========
The benefit for income taxes in 2001 includes a component of $3.5 million
resulting from the settlement of Internal Revenue Service examinations for the
years 1993 and 1994 at an amount less than that which the Company had previously
accrued on account thereof.
(9) SHAREHOLDERS' EQUITY:
---------------------
The Company has from time to time reacquired its shares to be held as treasury
stock as part of a stock repurchase program. During 2000, the Company reacquired
143,000 of its common shares at a cost of approximately $857,000. During 2001,
the Board of Directors authorized an additional repurchase of stock by means of
a self-tender "Dutch Auction" for 725,000 shares of the Company's stock at a
price not to exceed $7.00 per share and not lower than $5.25 per share. As a
result of this program and other repurchases, the Company reacquired a total of
approximately 668,000 shares at an aggregate cost of approximately $4.8 million.
(10) COMMITMENTS AND CONTINGENCIES:
------------------------------
Land sale contracts
-------------------
The Company has entered into several conditional sales contracts for the sale of
approximately 400 lots in Rio Rancho which would close at varying times
throughout fiscal 2003 and 2004; however, since each of the contracts permits
the purchaser to terminate its obligations by forfeiture of a relatively modest
deposit, there are no assurances that all, or even a substantial portion, of the
lots subject to the contracts will be sold pursuant to the contracts.
Non-cancelable leases
---------------------
The Company is obligated under long-term non-cancelable leases for equipment and
various real estate properties. Certain real estate leases provide that the
Company will pay for taxes, maintenance and insurance costs and include renewal
options. Rental expense (in thousands) for 2002, 2001 and 2000 was approximately
$3,750, $3,767 and $4,667 respectively.
The approximate minimum rental commitments for years subsequent to April 30,
2002, are as follows (in thousands): 2003 - $1,900; 2004 - $1,606; 2005 -
$1,319; 2006 - $819; 2007 - $209, and the total future minimum rental payments -
$5,853.
31
Rio Rancho lot exchanges
------------------------
In connection with certain individual homesite sales made prior to 1977 at Rio
Rancho, New Mexico, if water, electric and telephone utilities have not reached
the lot site when a purchaser is ready to build a home, the Company is obligated
to exchange a lot in an area then serviced by such utilities for a lot of the
purchaser, without cost to the purchaser. The Company has not incurred
significant costs related to the exchange of lots.
(11) LITIGATION:
-----------
The Company's magazine subsidiary is a defendant in two lawsuits. In one case,
the plaintiff is a former wholesaler no longer in business who alleges that the
company and other national magazine distributors and wholesalers engaged in
violations of the Robinson-Patman act, (which generally prohibits discriminatory
pricing) that caused it to go out of business. In the other case, the plaintiff
is a fulfillment services company which alleges Kable and R.D. Manufacturing
Corporation ("RDMC"), a subsidiary of the Readers Digest Association and a
former client of the plaintiff, engaged in practices that caused RDMC to
terminate its contract with the plaintiff and become a client of Kable, and
thereby cause the loss of millions of dollars and the destruction of the
business of the client. In the first case, the plaintiff is seeking damages of
$275 million trebled against all the defendants, plus punitive damages. In the
second case, the plaintiff is seeking damages of not less than $15 million plus
punitive damages. Kable has been indemnified by RDMC in this matter and RDMC is
providing joint defense to the complaint, however, Kable does not know if RDMC
has the resources to respond to any judgment. Management intends to vigorously
defend itself, however, the outcome of these matters is unknown since both cases
are in the early stages, discovery has not commenced and it will be several
years before these matters are expected to come to trial.
The Company and/or its subsidiaries are involved in various other claims and
legal actions incident to their operations, which in the opinion of management,
based upon advice of counsel, will not materially affect the consolidated
financial position or results of operations of the Company and its subsidiaries.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS:
------------------------------------
The estimated fair value of financial instruments is determined by reference to
various market data and other valuation techniques as appropriate. The carrying
amounts of cash and cash equivalents and trade payables approximate fair value
because of the short maturity of these financial instruments. Debt that bears
variable interest rates indexed to prime or LIBOR also approximates fair value
as it reprices when market interest rates changes. The estimated fair value of
the Company's long-term, fixed-rate mortgage receivables is $4.0 million versus
a carrying amount of $4.6 million, and $5.0 million versus $5.2 million,
respectively, at April 30, 2002 and April 30, 2001. The estimated fair value of
the Company's long-term, fixed-rate notes payable is $3.1 million versus a
carrying amount of $2.6 million as of April 30, 2002 and $6.3 million versus
$6.2 million as of April 30, 2001.
(13) INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT
-------------------------------------------------------
INDUSTRY SEGMENTS:
------------------
The Company has identified four segments in which it operates under the
definition established by this standard. The Companys magazine circulation
operations has two identified segments, Distribution and Fulfillment operations.
Distribution operations involve the national and international distribution and
sale of periodicals and paperbacks to wholesalers, and Fulfillment operations
involve the performance of subscription and product fulfillment and other
related activities on behalf of various publishers and other clients. The
Company's real estate subsidiary also has two identified segments, Land Sale
32
operations and Homebuilding operations. Land Sale operations involve the
obtaining of approvals, and development of large tracts of land for sale to
builders, commercial users and others, and Homebuilding operations involve the
construction and sale of single-family homes and other projects. Corporate and
other miscellaneous revenues and expenses not identifiable with a specific
segment are grouped together in this presentation. Certain expenses are
allocated among industry segments based upon management's estimate of each
segment's absorption.
Identifiable assets by industry are those assets that are used in the Company's
operations in each industry segment, which also is based upon certain estimates
and allocations among segments.
The following schedules set forth summarized data relative to the industry
segments (amounts in thousands):
Land Home Corporate
Distribution Fulfillment Sales Building and Other Consolidated
------------ ----------- ------------ ----------- ---------- ------------
Year ended April 30, 2002:
Revenues $ 15,253 $ 33,995 $ 31,321 $ 683 $ 2,153 $ 83,405
Operating expenses 13,065 32,492 26,164 950 3,306 75,977
Interest expense, net 933 158 27 - 147 1,265
------------ ----------- ------------ ----------- ---------- ------------
Pretax income (loss) contribution $ 1,255 $ 1,345 $ 5,130 $ (267) $ (1,300) $ 6,163
============ =========== ============ =========== ========== ============
Depreciation and amortization $ 890 $ 1,296 $ 94 $ - $ 411 $ 2,691
Identifiable assets $ 34,382 $ 19,562 $ 75,787 $ 448 $ 19,509 $ 149,688
Capital expenditures $ 133 $ 2,629 $ - $ - $ 137 $ 2,899
- ---------------------------------------------------------------------------------------------------------------------------
Year ended April 30, 2001:
Revenues $ 13,899 $ 34,671 $ 17,914 $ 4,805 $ 1,920 $ 73,209
Operating expenses 15,963 32,099 12,808 6,900 4,138 71,908
Interest expense, net 1,740 472 350 42 167 2,771
------------ ----------- ------------ ----------- ---------- ------------
Pretax income (loss) contribution $ (3,804) $ 2,100 $ 4,756 $ (2,137) $ (2,385) $ (1,470)
============ =========== ============ =========== ========== ============
Depreciation and amortization $ 1,093 $ 1,311 $ 106 $ 150 $ 373 $ 3,033
Identifiable assets $ 42,937 $ 19,540 $ 79,032 $ 4,194 $ 19,141 $ 164,844
Capital expenditures $ 295 $ 1,020 $ - $ - $ 730 $ 2,045
- ---------------------------------------------------------------------------------------------------------------------------
Year ended April 30, 2000:
Revenues $ 15,927 $ 36,621 $ 33,629 $ 30,674 $ 2,982 $ 119,833
Operating expenses 15,858 35,006 24,851 34,218 5,006 114,939
Interest expense, net 1,558 553 370 241 224 2,946
------------ ----------- ------------ ----------- ---------- ------------
Pretax income (loss) contribution $ (1,489) $ 1,062 $ 8,408 $ (3,785) $ (2,248) $ 1,948
============ =========== ============ =========== ========== ============
Depreciation and amortization $ 1,076 $ 1,585 $ 361 $ 860 $ 222 $ 4,104
Identifiable assets $ 43,157 $ 16,778 $ 77,808 $ 10,247 $ 24,446 $ 172,436
Capital expenditures $ 592 $ 1,159 $ - $ - $ 908 $ 2,659
- ---------------------------------------------------------------------------------------------------------------------------
33
Selected Quarterly Financial Data (Unaudited):
- ----------------------------------------------
(In thousands of dollars, except per share amounts)
Quarter Ended
----------------------------------------------------------------
July 31, October 31, January 31, April 30,
Year Ended April 30, 2002: 2001 2001 2002 2002
-------------- -------------- --------------- --------------
Revenues $ 19,650 $ 28,218 $ 16,297 $ 19,240
Gross Profit 2,814 6,228 3,945 5,542
Net Income (Loss) $ (365) $ 1,729 $ 668 $ 1,666
============== ============== ============== ==============
Earnings (Loss) Per Share -
Basic and Diluted (b) $ (0.06) $ 0.26 $ 0.10 $ 0.25
============== ============== ============== ==============
July 31, October 31, January 31, April 30,
Year Ended April 30, 2001: 2000 2000 2001(a) 2001
-------------- -------------- --------------- --------------
Revenues $ 18,210 $ 17,391 $ 16,031 $ 21,577
Gross Profit (Loss) 3,892 4,566 (31) 5,147
Net Income (Loss) $ (214) $ 554 $ 1,326 $ 891
============== ============== ============== ==============
Earnings (Loss) Per Share -
Basic and Diluted (b) $ (0.03) $ 0.08 $ 0.20 $ 0.14
============== ============== ============== ==============
(a) Includes a tax benefit of $3.5 million to reflect the settlement of IRS
tax examinations. See Note 8.
(b) The sum of the quarters does not equal the full year earnings per
share due to rounding and, in fiscal 2001, the change in average
shares outstanding during the year.
Item 9. Changes in and Disagreements with Accountants on Accounting and
-----------------------------------------------------------------------
Financial Disclosure.
---------------------
On March 7, 2002, the Company notified Arthur Andersen LLP ("Andersen") that the
Company would change its independent public accountants and auditors to
McGladrey & Pullen, LLP for its fiscal year ending April 30, 2002. Andersen and
its predecessor partnership had been the independent public accountants and
auditors for the Company since 1981.
Prior to such notification, the Company did not consult with McGladrey & Pullen,
LLP regarding the application of accounting principles to a specific completed
or contemplated transaction or any matter that was either the subject of a
disagreement or a reportable event. The Company also did not consult with
McGladrey & Pullen, LLP regarding the type of audit opinion that might be
rendered on the Company's consolidated financial statements.
The reports of Andersen on the Company's consolidated financial statements for
the fiscal years ended April 30, 2001 and 2000 contained no adverse opinion or
34
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. In connection with its audits for the
fiscal years ended April 30, 2001 and 2000 and the subsequent interim period
preceding the Company's notification to Andersen of its intention to dismiss
such firm, there has been no disagreements with Andersen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure that, if not resolved to the satisfaction of Andersen, would
have caused such firm to make reference to the subject matter of the
disagreement(s) in connection with this report.
The Company's Audit Committee participated in and approved the decision to
change the Company's external auditors and the Board made the appointment.
PART III
--------
The information called for by Part III is hereby incorporated by reference from
the information set forth and under the headings "Common Stock Ownership of
Certain Beneficial Owners and Management", "Election of Directors", and
"Executive Compensation" in Registrant's definitive proxy statement for the 2002
Annual Meeting of Shareholders, which meeting involves the election of
directors, such definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this Annual Report on Form 10-K. In addition,
information on Registrant's executive officers has been included in Part I above
under the caption "Executive Officers of the Registrant".
35
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------- ----------------------------------------------------------------
(a) 1. The following financial statements and supplementary financial
information are filed as part of this report:
AMREP Corporation and Subsidiaries:
o Report of Independent Public Accountants dated June 14, 2002 -
McGladrey and Pullen, LLP
o Report of Independent Public Accountants dated August 13, 2001 -
Arthur Andersen LLP
o Consolidated Balance Sheets - April 30, 2002 and 2001
o Consolidated Statements of Income for the Three Years
Ended April 30, 2002
o Consolidated Statements of Shareholders' Equity for the Three Years
Ended April 30, 2002
o Consolidated Statements of Cash Flows for the Three Years
Ended April 30, 2002
o Notes to Consolidated Financial Statements
o Selected Quarterly Financial Data
2. The following financial statement schedules are filed as part
of this report:
AMREP Corporation and Subsidiaries:
o Schedule II - Valuation and Qualifying Accounts
Financial statement schedules not included in this Annual Report on Form
10-K have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
3. Exhibits:
The exhibits filed in this report are listed in the Exhibit Index.
The Registrant agrees, upon request of the Securities and Exchange
Commission, to file as an exhibit each instrument defining the rights of holders
of long-term debt of the Registrant and its consolidated subsidiaries which has
not been filed for the reason that the total amount of securities authorized
thereunder does not exceed 10% of the total assets of the Registrant and its
subsidiaries on a consolidated basis.
(b) During the quarter ended April 30, 2002, Registrant filed a Report
on Form 8-K on March 7, 2002 under Item 4, "Changes in Registrant's Certifying
Accountant, reporting a change in independent public accountants and auditors
from Arthur Andersen LLP to McGladrey and Pullen, LLP for the fiscal year ending
April 30, 2002.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AMREP CORPORATION
(Registrant)
Dated: July 18, 2002 By /s/Peter M. Pizza
-----------------
Peter M. Pizza
Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment has been signed below by the following persons on behalf of Registrant
and in the capacities and on the dates indicated.
/s/Peter M. Pizza /s/Nicholas G. Karabots
- ----------------------- -----------------------
Peter M. Pizza Nicholas G. Karabots
Vice President, Director
Principal Financial Officer Dated: July 18, 2002
and Principal Accounting Officer*
Dated: July 18, 2002
/s/Jerome Belson /s/Albert V. Russo
- ----------------------- -----------------------
Jerome Belson Albert V. Russo
Director Director
Dated: July 18, 2002 Dated: July 18, 2002
/s/Edward B. Cloues II /s/Samuel N. Seidman
- ----------------------- -----------------------
Edward B. Cloues II Samuel N. Seidman
Director Director
Dated: July 18, 2002 Dated: July 18, 2002
/s/Lonnie A. Coombs /s/James Wall
- ----------------------- -----------------------
Lonnie A. Coombs James Wall
Director Director
Dated: July 18, 2002 Dated: July 18, 2002
*Also acting as Principal Executive Officer in the absence of a Chief Executive
Officer, solely for the purpose of signing this Annual Report.
37
AMREP CORPORATION AND SUBSIDIARIES
----------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
(Thousands)
Additions
-----------------------------
Charges Charged
Balance at (Credits) to (Credited) to
Beginning Costs and Other Balance at End
Description of Period Expenses Accounts Deductions of Period
- ----------- ----------- ------------- -------------- -------------- --------------
FOR THE YEAR ENDED
APRIL 30, 2002:
Allowance for doubtful
accounts (included in
receivables - real estate
operations on the
consolidated balance sheet) $ 173 $ 137 $ - $ 57 $ 253
----------- ------------- -------------- -------------- --------------
Allowance for estimated
returns and doubtful accounts
(included in receivables -
magazine circulation
operations on the
consolidated balance sheet) $ 50,413 $ 8,098 $ - $ 600 $ 57,911
----------- ------------- -------------- -------------- --------------
FOR THE YEAR ENDED
APRIL 30, 2001:
Allowance for doubtful
accounts (included in
receivables - real estate
operations on the
consolidated balance sheet) $ 361 $ (21) $ - $ 167 $ 173
----------- ------------- -------------- -------------- --------------
Allowance for estimated
returns and doubtful accounts
(included in receivables -
magazine circulation
operations on the
consolidated balance sheet) $ 64,628 $ (11,509) $ - $ 2,706 $ 50,413
----------- ------------- -------------- -------------- --------------
FOR THE YEAR ENDED
APRIL 30, 2000:
Allowance for doubtful
accounts (included in
receivables - real estate
operations on the
consolidated balance sheet) $ 255 $ 106 $ - $ - $ 361
----------- ------------- -------------- -------------- --------------
Allowance for estimated
returns and doubtful accounts
(included in receivables -
magazine circulation
operations on the
consolidated balance sheet) $ 44,357 $ 41,387 $ - $ 21,116 $ 64,628
----------- ------------- -------------- -------------- --------------
38
EXHIBIT INDEX
-------------
3 (a) (i) Articles of Incorporation, as amended - Incorporated by reference to
Exhibit (3) (a) (i) to Registrant's Annual Report on Form 10-K for
the fiscal year ended April 30, 1998.
3 (a) (ii) Certificate of Merger - Incorporated by reference to Exhibit (3) (a)
(ii) to Registrant's Annual Report on Form 10-K for the fiscal year
ended April 30, 1998.
3 (b) By-Laws as restated September 24, 1997 - Incorporated by reference to
Exhibit 3 (c) to Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended October 31, 1997.
4 (a) Loan Agreement dated as of April 4, 2002 between U.S. Bank
National Association and Kable News Company, Inc., Kable Fulfillment
Services of Ohio, Inc. and Kable Distribution Services, Inc. -
Incorporated by reference to Exhibit 4(a) to Registrant's Current
Report on Form 8-K filed April 11, 2002.
10 (a) Non-Employee Directors Option Plan, as amended - Incorporated by
reference to Exhibit 10 (i) to Registrant's Annual Report on Form 10-K
for the fiscal year ended April 30, 1997.*
21 Subsidiaries of Registrant - Filed herewith.
23 Consent of McGladrey & Pullen, LLP
_________________________________________
* Management contract or compensatory plan or arrangement in which directors or
officers participate.
39