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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31 , 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-4702
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AMREP Corporation
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(Exact name of registrant as specified in its charter)
Oklahoma 59-0936128
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
641 Lexington Avenue, Sixth 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
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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
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Number of Shares of Common Stock, par value $.10 per share, outstanding at July
31, 2002 - 6,577,612.
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Consolidated Financial Statements:
Balance Sheets
July 31, 2002 and April 30, 2002 1
Statements of Operations and Retained Earnings
Three Months Ended July 31, 2002 and 2001 2
Statements of Cash Flows
Three Months Ended July 31, 2002 and 2001 3
Notes to Consolidated Financial Statements 4
Item 2. Managements Discussion and Analysis 5 - 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 7
Item 4. Controls and Procedures 8
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
CERTIFICATIONS 11 - 13
EXHIBIT INDEX 14
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
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AMREP CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands, except par value and number of shares)
July 31, April 30,
2002 2002
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(Unaudited) (Audited)
ASSETS
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Cash and cash equivalents $ 15,041 $ 15,744
Receivables, net:
Real estate operations 7,005 6,630
Magazine circulation operations 35,789 34,849
Real estate inventory 62,899 62,296
Property, plant and equipment, at cost,
net of accumulated depreciation
and amortization of $14,913 at July 31,
2002 and $14,499 at April 30, 2002 9,801 9,890
Assets held for sale - net 5,747 5,853
Other assets 9,142 9,235
Excess of cost of subsidiary
over net assets acquired 5,191 5,191
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$ 150,615 $ 149,688
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Accounts payable $ 21,548 $ 26,349
Accrued expenses 6,694 7,518
Notes payable:
Amounts due within one year 9,592 3,383
Amounts subsequently due 12,174 13,236
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21,766 16,619
Taxes payable 1,711 1,127
Deferred income taxes 4,596 4,596
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56,315 56,209
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Commitments and contingencies
Shareholders' equity:
Common stock, $.10 par value;
shares authorized - 20,000,000; shares
issued -7,403,704 at July 31, 2002
and 7,399,704 at April 30, 2002 740 740
Capital contributed in excess of par value 44,961 44,935
Retained earnings 54,308 53,513
Treasury stock, at cost; 826,092 shares at
July 31, 2002 and April 30, 2002 ( 5,709) (5,709)
--------------- --------------
94,300 93,479
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$ 150,615 $ 149,688
=============== ==============
See notes to consolidated financial statements.
1
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended July 31, 2002 and 2001
(Thousands, except per share amounts)
2002 2001
--------------- --------------
REVENUES
- --------
Magazine circulation operations $ 12,166 $ 11,598
Real estate operations 2,493 7,266
Interest and other operations 1,351 786
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16,010 19,650
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COSTS AND EXPENSES
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Magazine circulation operating expenses 9,872 9,722
Real estate cost of sales 1,433 6,495
Real estate commissions and selling 130 150
Other operations 671 619
General and administrative:
Magazine circulation operations 1,732 1,770
Real estate operations and corporate 714 986
Interest expense, net 133 516
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14,685 20,258
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Income (loss) before income taxes 1,325 (608)
PROVISION (BENEFIT) FOR INCOME TAXES 530 (243)
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NET INCOME ( LOSS ) 795 (365)
RETAINED EARNINGS, beginning of period 53,513 49,815
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RETAINED EARNINGS, end of period $ 54,308 $ 49,450
=============== ==============
NET INCOME PER SHARE -
BASIC AND DILUTED $ 0.12 $ (0.06)
=============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,576 6,574
=============== ==============
See notes to consolidated financial statements.
2
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended July 31, 2002 and 2001
(Thousands)
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ( Loss ) $ 795 $ (365)
--------------- --------------
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities -
Depreciation and amortization 740 650
Non-cash credits and charges:
Pension benefit accrual (4) (96)
Bad debt reserve 16 74
Changes in assets and liabilities -
Receivables (1,365) (5,028)
Real estate inventory (603) 3,810
Other assets (26) (248)
Accounts payable and accrued
expenses (5,629) 1,934
Taxes payable 584 (297)
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Total adjustments (6,287) 799
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Net cash provided (used)
by operating activities (5,492) 434
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (384) (144)
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Net cash used
by investing activities (384) (144)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 7,745 6,813
Principal debt payments (2,598) (12,635)
Proceeds from exercise of stock options 26 -
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Net cash provided (used)
by financing activities 5,173 (5,822)
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Decrease in cash and cash equivalents (703) (5,532)
CASH AND CASH EQUIVALENTS,
beginning of period 15,744 15,941
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CASH AND CASH EQUIVALENTS,
end of period $ 15,041 $ 10,409
=============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net
of amounts capitalized $ 133 $ 516
=============== ==============
Income taxes paid - net of refunds $ (54) $ 54
=============== ==============
See notes to consolidated financial statements.
3
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Three Months Ended July 31, 2002 and 2001
(1) BASIS OF PRESENTATION
---------------------
The accompanying unaudited financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission for interim financial information. The April 30, 2002
balance sheet amounts have been derived from the April 30, 2002 audited
financial statements of the Registrant. Since the accompanying consolidated
financial statements do not include all the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements, it is suggested that they be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Registrant's 2002 Annual Report on Form 10-K. In the opinion of management, the
accompanying unaudited financial statements include all adjustments, which are
of a normal recurring nature, necessary to reflect a fair presentation of the
results for the interim periods presented. The results of operations for such
interim periods are not necessarily indicative of the results to be expected for
the full fiscal year.
(2) INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT
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INDUSTRY SEGMENTS
-----------------
The following tables set forth summarized data relative to the industry segments
in which the Company operates for the three month periods ended July 31, 2002
and 2001. Certain amounts included in "Interest and other operations" on the
Consolidated Statements of Operations are classified below within the land
operations and homebuilding segments, depending upon the nature of business
activity. In addition, certain prior year amounts with respect to corporate
allocations have been reclassified to conform to the 2002 presentation and
methodology of allocations.
THREE MONTHS Land Home Corporate
Operations Building Distribution Fulfillment and Other Consolidated
July 2002 (Thousands):
Revenues $ 2,829 $ - $ 3,492 $ 8,674 $ 1,015 $ 16,010
Expenses(excluding interest) 2,271 - 2,959 8,820 502 14,552
Interest expense, net - - 64 10 59 133
------------- ---------- ------------ ---------- ---------- -----------
Pretax income (loss)
contribution $ 558 $ - $ 469 $ (156) $ 454 $ 1,325
============= ========== ============ ========== ========== ===========
Identifiable Assets $ 73,408 $ - $ 36,337 $ 22,429 $ 18,441 $ 150,615
- ------------------------------------------------------------------------------------------------------------------
July 2001 (Thousands):
Revenues $ 7,509 $ 16 $ 3,567 $ 8,031 $ 527 $ 19,650
Expenses(excluding interest) 7,464 164 3,283 8,209 622 19,742
Interest expense, net 45 - 351 83 37 516
------------- ---------- ------------ ---------- ---------- -----------
Pretax income (loss)
contribution $ - $ (148) $ (67) $ (261) $ (132) $ (608)
============= ========== ============ ========== ========== ===========
Identifiable Assets $ 81,747 $ 2,208 $ 43,651 $ 20,436 $ 12,252 $ 160,294
4
AMREP CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
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and Results of Operations
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RESULTS OF OPERATIONS
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Three Months ended July 31, 2002 Compared to the Three Months ended July 31,2001
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Total revenues from magazine circulation operations of the Company's Kable News
Company ("Kable") subsidiary were $12.2 million for its fiscal 2003 first
quarter ended July 31, 2002 compared to $11.6 million in the first quarter of
the prior fiscal year. Revenues from Kable's Fulfillment Services business
increased 8%, from $8.0 million in the first quarter of 2002 to $8.7 million in
the first quarter of 2003, primarily as a result of revenue contributed from
several new clients. Revenues from Kable's Newsstand Distribution Services'
business decreased 2% in the first quarter of fiscal 2003, from $3.6 million
last year to $3.5 million in the current year, as the result of a modest decline
in magazine sales for existing customers. The operating margin contributed by
Kable improved as operating expenses increased approximately 1.5%, primarily
because of variable cost increases of fulfillment activities related to new
business, which increases were offset in part by the elimination or reduction of
certain costs in newsstand operations that had been incurred in the prior year
in connection with the start-up of internet and other activities.
Revenues from land sales decreased from $7.3 million in fiscal 2002's first
quarter to $2.5 million in the same quarter this year, as the result of a large
land sale in California made last year as part of the Company's restructuring
program to dispose of all assets in markets outside of New Mexico. Although this
sale generated revenue of approximately $5 million, it contributed very modest
profits and, as a result, gross profits from real estate operations were
approximately $290,000 higher in the current fiscal year even though revenues
were lower. The gross profit on land sales in the Company's principal market of
Rio Rancho, New Mexico was 44% in the first quarter of 2003 compared to 35% in
the same period last year. 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.
Real estate commissions and selling expenses are primarily related to land
sales, and decreased from $150,000 in the first quarter last year to $130,000 in
the first quarter of fiscal 2003. These costs can vary depending upon the
specific parcels and tracts of land sold. Real estate and corporate general and
administrative expenses also decreased from $986,000 in the first quarter of
2002 to $714,000 in the first quarter of 2003 as a result of the continuing
effects of the Company's downsizing of administrative functions. General and
administrative costs of magazine circulation operations decreased approximately
2%, from $1.8 million in the first quarter of 2002 to $1.7 million in the first
5
quarter of the current year, which reflected continuing benefits of a cost
reduction program implemented throughout Kable, particularly within the
Distribution Services business, as well as the elimination of costs incurred in
the prior year in connection with the start-up of internet-related and other new
business opportunities.
Revenues associated with interest and other operations increased from $786,000
in the first quarter last year to $1,351,000 in the first quarter of the current
fiscal year, primarily as the result of the receipt of interest of $344,000 in
connection with a tax refund claim settled during the quarter. In addition,
revenues in the Company's water utility subsidiary increased by $125,000 as the
result of an increase in rates, and the real estate subsidiary concluded a sale
of certain impact fee credits associated with its development activities for
$194,000. The related costs of these other operations also increased from
$619,000 in 2002 to $671,000 this year, principally due to additional operating
costs of the water utility.
Interest expense net of amounts capitalized decreased from $516,000 in the first
quarter of fiscal 2002 to $133,000 in the first quarter of fiscal 2003 as a
result of lower average borrowing levels in both real estate and magazine
circulation operations and a decrease in average interest rates.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the past several years, the Company has financed its operations from
internally generated funds from land sales and magazine circulation operations,
and from borrowings under its various lines-of credit and development loan
agreements.
Cash Flows From Financing Activities
- ------------------------------------
The Company's subsidiaries have line of credit arrangements with several
financial institutions which are collateralized by various assets. Based upon
collateral availability, the Company's subsidiaries had an aggregate borrowing
availability of $33.2 million at July 31, 2002 against which $19.2 million had
been borrowed.
Kable News Company has an agreement with a bank which allows the Company to
borrow up to $20 million based upon a prescribed percentage of eligible accounts
receivable, as defined. This line of credit bears interest at the bank's prime
rate (4.75% at July 31, 2002) plus .75%, and is collateralized by substantially
all of Kable's assets. At July 31, 2002, Kable had borrowing availability of
$17.9 million, against which borrowings of $8.4 million were outstanding. During
the quarter ended July 31, 2002, Kable entered into an additional arrangement
with a bank for a $4.6 million credit line to be used for and collateralized by
specific capital expenditures. At July 31, 2002, the Company had borrowed
approximately $3.6 million under this agreement at an average interest rate of
5.6%, with principal payments due over a three to four year term.
The Company also has several loans to support real estate operations in New
Mexico. These loans bear interest at the bank's prime rate (4.75% at July 31,
6
2002) and are collateralized by certain real estate assets. At July 31, 2002 the
maximum available under real estate lines-of-credit totaled $10.7 million,
against which borrowings of $7.2 million were outstanding.
Cash Flows From Operating Activities
- ------------------------------------
Real estate inventory amounted to $62.3 million at April 30, 2002 compared to
$62.9 million at July 31, 2002. This change is the net result of additional
development work at Rio Rancho, New Mexico. Receivables from magazine
circulation operations increased from $34.8 million at April 30, 2002 to $35.8
million at July 31, 2002, primarily as the result of the timing of distribution
billings. Accounts payable decreased from $26.3 million at April 30, 2002 to
$21.5 million at July 31, 2002 primarily due to the timing of month end
payments.
Application of Critical Accounting Policies
- -------------------------------------------
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. The significant estimates that affect the financial
statements of the Company include, but are not limited to, inventory valuation
judgments for real estate operations, sales percentage and magazine return
estimates for magazine circulation operations, and the recoverability of
long-term assets and amortization periods for all business operations. Actual
results could differ from those estimates. There has been no significant effect
on the financial condition or results of operations as a result of changes in
policies or estimates.
Statement of Forward-Looking Information
- ----------------------------------------
Certain information included herein and in other statements, reports and filings
with the Securities and Exchange Commission is forward-looking within the
meaning of the Private Securities Litigation Reform Act of 1995. Refer to Item 7
of the Company's Annual Report on Form 10-K for the fiscal year ended April 30,
2002 for a discussion of the assumptions and factors on which these statements
are based. Any changes in the actual outcome of these assumptions and factors
could produce significantly different results; accordingly, all forward-looking
statements should be evaluated with the understanding of their inherent
uncertainty.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------- ----------------------------------------------------------
There have been no material changes to the Company's market risk for the three
month period ended July 31, 2002. Refer to Item 7(A) of the Company's Annual
Report on Form 10-K for the fiscal year ended April 30, 2002 for additional
information regarding quantitative and qualitative disclosures about market
risk.
7
Item 4. Controls and Procedures
- ------- -----------------------
(a) Not applicable.
(b) Internal controls were most recently evaluated in connection with the
audit of the Company's financial statements for the fiscal year ended
April 30, 2002, and there have been no significant changes in the
internal controls or in other factors that could significantly affect
these controls since that time.
8
PART II
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Other Information
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Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
--------
99.1 Certification Pursuant to 18 U.S.C. Section 1350 as enacted by
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by Registrant during the quarter
ended July 31, 2002.
9
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMREP CORPORATION
(Registrant)
Dated: September 13, 2002 By: /s/ Peter M. Pizza
-------------------
Peter M. Pizza
Chief Financial
Officer (Principal
Financial and
Accounting Officer)
10
CERTIFICATIONS
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I, Peter M. Pizza, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMREP Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Dated: September 13, 2002
/s/ Peter M. Pizza
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Peter M. Pizza
Title: Chief Financial Officer
11
CERTIFICATIONS
- --------------
I, James Wall, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMREP Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Dated: September 13, 2002
/s/ James Wall
- --------------------------------
James Wall
Title: *
_______________________
* The Company is a holding company which does substantially all of its business
through two wholly-owned subsidiaries (and their subsidiaries). Those
wholly-owned subsidiaries are AMREP Southwest Inc. ("ASW") and Kable News
Company, Inc. ("Kable"). Mr. Wall is the principal executive officer of ASW, and
Mr. Duloc is the principal executive officer of Kable. The Company has no chief
executive officer and its only executive officers are James Wall and Peter M.
Pizza. Mr. Wall is a Vice President of the Company and Mr. Pizza is a Vice
President and Chief Financial Officer of the Company.
12
CERTIFICATIONS
- --------------
I, Michael P. Duloc, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMREP Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Dated: September 13, 2002
/s/ Michael P. Duloc
- --------------------------------
Michael P. Duloc
Title: *
_______________________
* The Company is a holding company which does substantially all of its business
through two wholly-owned subsidiaries (and their subsidiaries). Those
wholly-owned subsidiaries are AMREP Southwest Inc. ("ASW") and Kable News
Company, Inc. ("Kable"). Mr. Wall is the principal executive officer of ASW, and
Mr. Duloc is the principal executive officer of Kable. The Company has no chief
executive officer and its only executive officers are James Wall and Peter M.
Pizza. Mr. Wall is a Vice President of the Company and Mr. Pizza is a Vice
President and Chief Financial Officer of the Company.
13
AMREP CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
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Exhibit No. Description
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99.1 Certification Pursuant to 18 U.S.C. Section 1350 as
enacted by Section 906 of the Sarbanes-Oxley Act of 2002
14