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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 2004 Commission File Number 1-4702
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
EXCHANGE ACT OF 1934
For the transition period from to
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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 Identification No.)
incorporation or organization)
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
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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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
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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 ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
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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 October
31, 2003 (the last business day of the Registrant's most recently completed
second fiscal quarter), on the New York Stock Exchange Composite Tape -
$35,519,083.
Number of shares of Common Stock, par value $.10 per share, outstanding at July
21, 2004 - 6,611,112.
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 2004 Annual Meeting - Part III.
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PART I
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Item 1. Business
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GENERAL
The Company*, through its subsidiaries, is primarily engaged in three business
segments: the Real Estate business operated by AMREP Southwest Inc. and its
subsidiaries (collectively, "AMREP Southwest"), and the Fulfillment Services and
Newsstand Distribution Services businesses operated by Kable News Company, Inc.
and its subsidiaries (collectively, "Kable"). Data concerning industry segments
is set forth in note 14 of the notes to the consolidated financial statements.
The Company's foreign sales and activities are not significant.
REAL ESTATE OPERATIONS
The Company conducts its real estate business through AMREP Southwest, with
these activities occurring primarily in Rio Rancho, New Mexico. As of July 1,
2004, the real estate business employed approximately 15 persons, none of whom
were represented by labor unions. The Company considers its relations with these
employees to be good.
Land Development Operations - Rio Rancho
Rio Rancho (including the City) consists of 91,049 contiguous acres in Sandoval
County, New Mexico, near Albuquerque, of which some 72,860 acres have been
platted into approximately 112,800 homesite and commercial lots and 16,330 acres
are dedicated to community facilities, roads and drainage with the remainder
consisting of unplatted land. At April 30, 2004, approximately 85,000 of these
lots had been sold. The Company currently owns approximately 20,460 acres in Rio
Rancho, of which approximately 5,700 acres are in contiguous blocks which are
being developed or are suitable for development and approximately 2,100 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 government. 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.
Development activities conducted or arranged by the Company include 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 1.4
million square feet of retail and office space, including a 55,000 square foot
office building owned by the Company. The industrial areas have approximately 85
buildings with approximately 4.5 million square feet, including a manufacturing
facility containing approximately 3.1 million square feet which is owned and
occupied by Intel Corporation, Rio Rancho's largest employer.
Since early 1977, no individual lots without homes at Rio Rancho have been sold
by the Company to consumers. A substantial number of lots without homes 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.
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* As used herein, "Company" includes the Registrant and its subsidiaries unless
the context requires or indicates otherwise.
2
Other Real Estate Projects
The Company owns and operates a water utility company (the "Utility") which
serves a subdivision of approximately 2,750 homes the Company developed in Santa
Fe, New Mexico in prior years. During the fourth quarter of 2004, the Eldorado
Water & Sanitation District (the "District") filed a Petition for Condemnation
and Immediate Possession of the Utility's assets for the purpose of assuming
control of the Utility. In connection with the condemnation process, the
District submitted an appraisal of approximately $6.2 million to support the
price it proposes to pay for the Utility's assets, which amount is in excess of
the Company's asset carrying value for the Utility. The Company is contesting
the accuracy of this appraisal, and has submitted a different appraisal which is
much higher than that of the District. The statutory process gives the parties
the right to request a third party appraisal. In May 2004, the District's
petition for immediate possession was denied and a September 2004 trial date was
set to hear this matter and, among other issues, to establish the valuation of
the Utility. Pending the outcome of the trial, the Company will continue to own
and operate the Utility.
The Company also owns 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 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.
In addition, the Company owns approximately 12.6 acres in the Orlando, Florida
area. During fiscal 2003, approximately 1.6 acres of contiguous property was
acquired by a governmental authority through condemnation proceedings, and
condemnation proceedings have been initiated on the remaining 12.6 acres. This
process was finalized during June 2004 at an amount which exceeded the
property's carrying value.
FULFILLMENT SERVICES AND NEWSSTAND DISTRIBUTION SERVICES 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,
2004, Kable employed approximately 1,425 persons, of whom approximately 1,285
were involved in its fulfillment activities and 140 in distribution activities,
none of whom were represented by labor unions. The Company considers its
relations with these employees to be good.
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
88% of Kable's revenues in fiscal 2004.
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 renewal and statement notifications for mailing,
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.
Kable's lettershop and graphics departments prepare and mail statements and
renewal forms for its publisher clients to their subscribers. List services
clients are also primarily publishers for whom 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 its ancillary services, including lettershop, list
services and product fulfillment services, to other, non-publisher clients.
In April 2003, the Company, through a wholly-owned subsidiary of Kable, acquired
the subscription fulfillment business of Electronic Data Systems Corporation and
3
various subsidiaries which was based in Louisville, Colorado. The acquired
business had revenues of approximately $82 million in its most recent fiscal
year prior to the acquisition; however, annual revenues and net income after the
acquisition were anticipated to be substantially reduced from historical levels
because of known customer losses that were identified prior to the purchase.
During the year ended April 30, 2004, revenues from the acquired business
approximated $49 million; however, it is anticipated that the revenues
contributed by the acquired subscription fulfillment business in fiscal 2005
will be lower than in fiscal 2004. As a result of this transaction, the Company
believes that Kable is now the second largest provider of subscription
fulfillment services to magazine publishers in the United States.
With this acquisition, Kable now performs fulfillment services for approximately
870 different magazine titles for approximately 280 clients and maintains almost
60 million active subscriber names for its client publishers. In a typical
month, Kable produces over 80 million mailing labels for its client publishers
and also prepares approximately 18 million billing and renewal statements for
mailing.
There are a number of companies that perform fulfillment services for publishers
and with which Kable competes, including one which is 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.
Newsstand Distribution Services
In its Newsstand Distribution Services operation, Kable distributes magazines
for over 190 publishers. Among the titles are many special interest magazines,
including automotive, puzzle, men's sophisticates, comics, romance and sports.
In a typical month, Kable distributes to wholesalers approximately 24 million
copies of various titles. Kable purchases the publications from its publisher
clients and sells them to approximately 50 independent wholesalers. The
wholesalers in turn sell the publications to individual retail outlets. All
parties generally have full return rights for unsold copies. The newsstand
distribution business accounted for 12% of Kable's revenues in fiscal 2004.
While Kable 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.
Kable competes primarily with four other national distributors, all of whom are
substantially larger than Kable. Each of these larger 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. In addition, there has been a major consolidation and reduction in the
number of wholesalers to whom Kable distributes magazines arising from changes
within the magazine distribution industry in recent years, and, as a result,
approximately 45% of Kable's accounts receivable at April 30, 2004 were due from
three customers.
Item 2. Properties
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The Company's real estate properties are described in Item 1. Additionally, the
Company has its executive offices in leased space in New York City and maintains
production, administration and sales facilities for its Fulfillment Services and
Newsstand Distribution Services businesses in owned and leased facilities
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aggregating approximately 700,000 square feet in Mt. Morris, Illinois, Marion,
Ohio, Louisville, Colorado, New York City and Cerritos, California. The Colorado
facility was leased in connection with the acquisition of the Electronic Data
System Corporation subscription fulfillment business. The Company's real estate
operations are headquartered in approximately 7,000 square feet of a
Company-owned 55,000 square foot office building in Rio Rancho, New Mexico, with
the excess space leased to commercial tenants. The Company believes its
facilities are adequate for its current and anticipated requirements.
Item 3. Legal Proceedings
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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 the Company'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 included two claims against Kable: (i) violation of the Robinson-Patman
Act, which generally prohibits discriminatory pricing, and (ii) breach of
fiduciary duty.
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 Robinson-Patman Act
claims of the Second Amended Complaint, denying the material allegations and
asserting affirmative defenses. Kable also asserted counterclaims to recover
approximately $5.375 million in unpaid debts from Unimag. Unimag responded to
the counterclaims with reply counterclaims for compensatory and punitive
damages, based on common law claims that were similar to claims previously
dismissed. The defendants moved to dismiss the reply counterclaims. That motion
was granted. 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.
Pursuant to an order of a United States Magistrate Judge in October 2003, Unimag
presented each of the defendants with an analysis of its damage claim against
such defendant. The damage claim against Kable amounts to approximately $15.2
million; any damages awarded would be trebled.
Pretrial discovery has been completed. The action against Levy has been settled,
and the remaining defendants other than Kable and one of the other national
distributors have moved for summary judgment on grounds not available to Kable.
That motion is pending. After that motion is decided, Kable and the other
national distributor and, if necessary, the remaining defendants, intend to move
for summary judgment on other grounds. If the case is not disposed of on the
summary judgment motions, it is unlikely that a trial would be conducted prior
to calendar 2005. An adverse outcome could materially affect the consolidated
financial position of the Company and its subsidiaries.
B. 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 in part upon advice of counsel, will not materially affect the
consolidated financial position or results of operations of the Company and its
subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
There were no matters submitted to a vote of security holders during the fourth
quarter of 2004.
Executive Officers of the Registrant
Set forth below is certain information concerning persons who are the current
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; 67
Chairman, President and Chief Executive Officer of
AMREP Southwest Inc., a wholly-owned subsidiary of
the Company, since 1991.
5
Peter M. Pizza Vice President and Chief Financial Officer of the 53
Company since May 2001; Vice President and Controller
of the Company from 1997 to 2001.
Michael P. Duloc President and Chief Operating Officer of Kable 47
News Company, Inc., a wholly-owned subsidiary of
the Company, since November 2000; President and
Chief Operating Officer of the Kable Distribution
Services division of Kable News 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.
PART II
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Item 5. Market for Registrant's Common Equity and Related
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Stockholder Matters
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The Company's common stock is traded on the New York Stock Exchange under the
symbol "AXR". On July 1, 2004, there were approximately 1,800 holders of record
of the common stock. The range of high and low closing prices for the last two
fiscal years by quarter is presented below:
FIRST SECOND THIRD FOURTH
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HIGH LOW HIGH LOW HIGH LOW HIGH LOW
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2004 $ 13.88 $ 9.20 $ 16.45 $ 11.91 $ 16.05 $ 15.26 $ 17.65 $ 15.27
2003 $ 8.70 $ 7.50 $ 8.85 $ 7.71 $ 8.14 $ 7.27 $ 9.42 $ 7.85
Dividend Policy
Prior to 2003, the Company had never paid a cash dividend on its common stock.
On July 9, 2003, however, the Board of Directors declared a special dividend of
$0.25 per share payable on August 13, 2003 to shareholders of record on July 24,
2003. The Board also indicated that the declaration and payment of dividends in
the future would be determined in light of conditions then existing.
On July 13, 2004, the Board of Directors evaluated the Company's financial
performance for 2004, including its earnings, financial condition and future
capital requirements, and declared a special dividend of $0.40 per share payable
on August 18, 2004 to shareholders of record on July 27, 2004.
Sales of Unregistered Company Stock
Pursuant to the Company's 2002 Non-Employee Directors' Stock Plan, the Company
issued an aggregate of 7,500 shares of its Common Stock to its six non-employee
directors on each of September 15, 2003 and March 15, 2004, as partial payment
for their services as directors for the six months preceding each such issuance.
These issuances were not registered under the Securities Act of 1933, as
amended, by reason of the exemption provided in Section 4(2) of such Act for
transactions by an issuer not involving any public offering.
Equity Compensation Plan Information
See Item 12 of Part III of this annual report on Form 10-K which incorporates
such information by reference to the Company's 2004 Proxy Statement for its 2004
Annual Meeting of Shareholders.
Item 6. Selected Financial Data
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The selected consolidated financial data presented below for, and as of the end
of, each of the last five fiscal years has been derived from and is qualified by
reference to the consolidated financial statements. The consolidated financial
statements for the three years ended April 30, 2004 have been audited by
McGladrey & Pullen, LLP, independent registered public accounting firm, and the
consolidated financial statements for the years ended April 30, 2001 and 2000
6
have been audited by Arthur Andersen LLP, independent public accountant. The
information should be read in conjunction with the consolidated financial
statements and related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations", which is Item 7 of Part II of
this annual report on Form 10-K. 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,
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2004 2003 2002 2001 (a) 2000
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Financial Summary:
Revenues $ 131,107 $ 73,791 $ 83,405 $ 73,209 $ 119,833
Net Income $ 11,677 $ 6,273 $ 3,698 $ 2,557 $ 1,169
Total Assets (b) $ 171,165 $ 159,550 $ 149,832 $ 164,844 $ 172,436
Capitalization:
Shareholders' Equity $ 105,522 $ 93,828 $ 93,479 $ 89,781 $ 91,981
Notes Payable $ 12,643 $ 18,427 $ 16,619 $ 44,260 $ 46,911
Per Share:
Earnings Per Share-
Basic and Diluted $ 1.77 $ 0.95 $ 0.56 $ 0.38 $ 0.16
Book Value $ 15.97 $ 14.24 $ 14.22 $ 13.66 $ 12.70
Cash Dividend $ .25 $ - $ - $ - $ -
Shares Outstanding 6,606 6,588 6,574 6,574 7,240
(a) Includes a tax benefit in the amount of $3.5 million (the equivalent of
$0.52 per share) to reflect the settlement of 1993 and 1994 IRS tax
examinations.
(b) Total Assets for 2003 and 2002 have been reclassified to conform to the
2004 presentation. See note 5 to the consolidated financial statements.
Item 7. Management's Discussion and Analysis of Financial Condition
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and Results of Operations
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INTRODUCTION
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For a description of the Company's business, refer to Item I of Part I of this
annual report on Form 10-K.
As indicated in Item I, the Company is primarily engaged in three business
segments: the Real Estate business operated by AMREP Southwest and the
Fulfillment Services and Newsstand Distribution Services businesses operated by
Kable. Data concerning industry segments is set forth in note 14 of the notes to
the consolidated financial statements. The Company's foreign sales and
activities are not significant.
The following provides information that management believes is relevant to an
assessment and understanding of the Company's consolidated results of operations
and financial condition. The discussion should be read in conjunction with the
consolidated financial statements and accompanying notes. All references in this
Item 7 to 2004, 2003 and 2002 mean the fiscal years ended April 30, 2004, 2003
and 2002, respectively.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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The Company prepares its financial statements in conformity with accounting
principles generally accepted in the United States of America. The Company
discloses its significant accounting policies in the notes to its audited
consolidated financial statements.
The preparation of such financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
those financial statements and the reported amounts of revenues and expenses
during the reporting period. Following are some of the areas requiring
significant judgments and estimates: (i) revenue recognition for the magazine
distribution business, including estimates of allowances for magazine returns;
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(ii) allowances for doubtful accounts; (iii) land development budgets and costs
to complete; (iv) cash flow and valuation assumptions in performing asset
impairment tests of long-lived assets and assets held for sale; (v) pension plan
information; and (vi) legal contingencies. Actual results could differ from
those estimates.
There are numerous critical assumptions that may influence accounting estimates
in these and other areas. Management bases its critical assumptions on
historical experience, third-party data and various other estimates which are
believed to be reasonable. Certain of the more critical assumptions include: (i)
distribution revenues represent commissions earned from the distribution of
publications for client publishers which are recorded at the time the
publications go on sale and which are generally sold on a fully returnable
basis. Accordingly, management provides for estimated returns by charges to
income which are determined on an issue by issue basis utilizing sales
information and other relevant data, including publisher and like-title history;
(ii) management determines the allowance for doubtful accounts by attempting to
identify troubled accounts by analyzing the credit risk of specific customers
and by using historical experience applied to the aging of accounts and, where
appropriate within the real estate business, by reviewing any collateral which
may secure a receivable; (iii) real estate development costs are incurred
throughout the life of a project, and the costs of initial sales from a project
frequently must include a portion of costs that have been budgeted based on
engineering estimates or other studies, but not yet incurred; (iv) asset
impairment determinations (including that of goodwill) are based upon the
intended use of assets and expected future cash flows; (v) pension plan
accounting and disclosure is based upon numerous assumptions and estimates,
including the expected rate of investment return on retirement plan assets, the
interest rate used to determine the present value of liabilities (the discount
rate), and certain employee-related factors such as turnover, retirement age and
mortality; and (vi) the Company is currently involved in one significant legal
proceeding which is described in Item 3 of this annual report on Form 10-K which
could have a material adverse effect if decided against the Company, and several
routine matters. The legal proceeding described in Item 3 is not expected to
come to trial before calendar 2005. It is possible that the consolidated
financial position or results of operations for any particular quarterly or
annual period could be materially affected by a change in assumptions or the
effectiveness of strategies related to these proceedings.
Year Ended April 30, 2004 Compared to Year Ended April 30, 2003
- ---------------------------------------------------------------
Results of Operations
Consolidated revenues increased from $73.8 million in 2003 to $131.1 million in
2004, primarily due to (i) Kable's acquisition of the subscription fulfillment
business of Electronic Data Systems Corporation ("EDS") in April 2003 and (ii) a
substantial increase in land sales activity at the Company's AMREP Southwest
real estate subsidiary. As a result, net income increased from $6.3 million, or
$0.95 per share, in 2003 to $11.7 million, or $1.77 per share, in 2004.
Revenues from Kable's Fulfillment Services and Newsstand Distribution Services
businesses (collectively, "magazine operations") increased from $54.1 million in
2003 to $99.8 million in 2004. Revenues from Kable's Fulfillment Services
business increased from $39.2 million in 2003 to $87.6 million in 2004,
principally as a result of the acquisition of the EDS subscription fulfillment
business mentioned above. The revenue increase from Fulfillment Services was
offset in part, however, by a decline in revenues from the Newsstand
Distribution Services business from $14.8 million in 2003 to $12.2 million in
2004, primarily due to a decline in magazine sales rates. Kable's total
operating expenses also increased as a result of the acquisition of the EDS
subscription fulfillment business. Operating expenses for Fulfillment Services
increased from $33.7 million in 2003 to $75.0 million in 2004, and were
approximately 86% of related revenues in 2004 compared to 85% in 2003.
Fulfillment Services' operating costs increased slightly as a percentage of
related revenues as a result of the EDS acquisition, where certain costs of the
acquired business's Colorado location are relatively higher than at the
Company's other locations, and included charges of approximately $1.6 million
for the costs of relocating and centralizing certain fulfillment operations
following the acquisition. Operating costs for Newsstand Distribution Services
decreased to $8.0 million in 2004 compared to $8.9 million in 2003, but
increased as a percentage of revenues from 62% in 2003 to 66% in 2004,
reflecting the decline in Newsstand Distribution Services revenues.
As a result of customer losses that were identified and known prior to the
acquisition of the EDS subscription fulfillment business and which occurred
throughout 2004, it is anticipated that the revenues and pretax income
contributed by the acquired subscription fulfillment business in 2005 will be
lower than in 2004. Accordingly, the results for Kable's Fulfillment Services
business for 2004 are not necessarily a good indication of what may occur in
future periods.
8
Revenues from land sales at the Company's AMREP Southwest subsidiary also
increased substantially in 2004, from $16.0 million in 2003 to $28.0 million in
2004. This improvement was the result of greater 2004 sales of both developed
and undeveloped lots in the Company's principal market of Rio Rancho, New
Mexico. The gross profit percentages on land sales were 51% and 54% in 2004 and
2003, respectively. The pretax profit contribution from the land sales segment
improved significantly in 2004 versus 2003, reflecting the much higher 2004
revenues. As previously reported, revenues and related gross profits from land
sales can vary significantly from period to period as a result of many factors,
including the nature and timing of specific transactions, and prior results are
not necessarily a good indication of what may occur in future periods.
Real estate commissions and selling expenses decreased as a percentage of
related revenues, from 5.2% in 2003 to 3.3% in 2004, due to the closing of a
higher mix of land sales in the current year without the involvement of a
broker. Such costs generally vary depending upon the terms of specific sale
transactions. Real estate and corporate general and administrative expenses
decreased in 2004 versus 2003, principally due to reduced pension expense
resulting from the curtailment of future service benefits under the Company's
pension plan, as discussed below. Kable's general and administrative costs
increased in 2004 compared to 2003 as a result of the acquisition of the EDS
subscription fulfillment business, partly offset by its allocable share of
reduced pension expense. Interest expense increased as a result of borrowings
incurred in connection with the acquisition, including for additional working
capital requirements.
Results for 2004 included a pretax gain of approximately $1.7 million
(equivalent to $0.16 per share) from the accelerated recognition of a deferred
actuarial gain due to the curtailment of future service benefits under the
Company's pension plan. This resulted in consolidated pension income of $485,000
in 2004 compared to pension expense of $160,000 in 2003 (see note 8).
Revenues associated with interest and other operations decreased in 2004
compared to 2003 because there were certain non-recurring revenues in 2003, but
the absence of such non-recurring revenues in 2004 was partially offset by
moderately higher revenues of the Company's utility subsidiary. Such one-time
revenues in 2003 included the receipt of interest in connection with a federal
tax refund claim and the settlement with an insurance company related to a claim
filed in prior years. Costs of other operations remained comparable at $2.4
million in 2004 and $2.5 million in 2003.
Year Ended April 30, 2003 Compared to Year Ended April 30, 2002
- ---------------------------------------------------------------
Net income in 2003 was $6.3 million, or $0.95 per share, compared to net income
of $3.7 million, or $0.56 per share, in 2002. Revenues were $73.8 million in
2003 versus $83.4 million in the prior year. The revenue decrease in 2003 from
2002 principally resulted from a decrease in revenues from real estate
operations from $30.9 million in 2002 to $16.0 million in 2003, which was partly
offset by an increase in revenues from Kable's operations.
Total revenues from Kable's magazine operations were approximately $54.1 million
in 2003 compared to $49.2 million in 2002. Revenues from the Fulfillment
Services business increased to approximately $39.2 million in 2003 from $34.0
million in 2002, and revenues from the Newsstand Distribution Services business
decreased from approximately $15.3 million in 2002 to approximately $14.8
million in 2003. The 15% increase in revenues in the Fulfillment Services
business resulted in part from revenues derived for the period subsequent to the
date of acquisition (April 15, 2003) of the EDS subscription fulfillment
business and in part from an expansion of product fulfillment services. Revenues
in the Newsstand Distribution Services business decreased 3% because, although
gross billings increased slightly in line with industry results, there was a
decrease in Kable's net sales rate due in part to the effects of many special
event publications issued throughout the prior year which increased revenues in
2002.
Revenues from real estate land sales decreased from $30.2 million in 2002 to
$16.0 million in 2003, principally as the result of certain land sales that
occurred in the prior year in accordance with the Company's plan to sell its
landholdings outside of New Mexico as part of a restructuring of its real estate
operations. During 2002, two sales of large tracts of land in Colorado and
California contributed aggregate revenues of $13.6 million whereas there were no
land sales in these markets in 2003. Revenues from land sales in New Mexico were
comparable on a year-to-year basis, approximating $15.4 million in both years.
The gross profit percentage on land sales increased from 24% in 2002 to 54% in
2003, primarily because the two large land sales outside of New Mexico in 2002
9
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 43% in 2002 and 55% in 2003, varying based
on the specific sales prices and costs of the properties sold in each 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 what
may be expected to occur in future periods. In addition, the Company completed
the wind-down of all homebuilding activities during 2002 and realized revenues
in connection therewith of approximately $600,000 (representing 3 homes
delivered).
Operating expenses for magazine operations increased 10%, from $38.6 million in
2002 to $42.5 million in 2003, primarily as a result of the operating costs
associated with the acquisition of the EDS subscription fulfillment business
discussed above and with the product fulfillment expansion. Total magazine
operating expenses were 78.7% of related revenues in 2003 compared to 78.5% in
2002. With respect to real estate business expenses, commissions and selling
expenses decreased from $1.0 million in 2002 to $800,000 in 2003 and generally
vary depending upon the terms of specific sale transactions. Real estate and
corporate general and administrative expenses also decreased from $3.2 million
in 2002 to $3.1 million in 2003 as the Company continued to control costs
related to administrative functions. General and administrative costs of
magazine operations remained comparable at approximately $6.9 million in each
year, but decreased as a percentage of sales from 14.0% in 2002 to 12.9% in 2003
due in part to the expansion of operations with the EDS acquisition. Interest
expense-net decreased from $1.3 million to $600,000 due to reduced average
borrowing requirements in all segments of the Company's operations and lower
interest rates.
Revenues associated with interest and other operations increased from $3.3
million in 2002 to $3.8 million in 2003, primarily due to various nonrecurring
revenue items in the first and second quarters of 2003, including interest on a
tax refund from the Internal Revenue Service and the settlement with an
insurance company related to a claim filed in prior years. Costs of other
operations remained comparable at $2.6 million in 2002 and $2.5 million in 2003.
The Company's effective income tax rate decreased from 40.0% in 2002 to 36.4% in
2003 due in part to the effect of a tax benefit associated with a charitable
contribution of certain land made by the real estate business in the fourth
quarter of 2003.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the past several years, the Company has financed its operations from
internally generated funds from real estate sales and magazine operations, and
from borrowings under its various lines-of credit and construction loan
agreements.
Cash Flows From Financing Activities
- ------------------------------------
Kable has a line of credit with a bank which allows it to borrow up to $30
million based upon a prescribed percentage of eligible accounts receivable, as
defined. At April 30, 2004, borrowing availability was approximately $18.3
million against which $8.6 million was outstanding. This line of credit bears
interest at the bank's prime rate (4.0% at April 30, 2004) plus .5%, and is
collateralized by substantially all of Kable's assets. The credit arrangement
requires the maintenance or achievement of certain financial ratios 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. Kable also has other borrowing arrangements to
finance capital expenditures totaling approximately $3.8 million with maturities
through 2011 at a weighted average interest rate of 5.4%.
AMREP Southwest has loan agreements with two financial institutions with a
maximum borrowing capacity of $9.4 million that are used to support real estate
development in New Mexico. The loans, which bear interest at a weighted average
of the prime rate minus .4%, are collateralized by certain real estate assets
and are subject to available collateral and various financial performance and
other covenants. At April 30, 2004, the borrowing availability under these
agreements was approximately $6.3 million against which $200,000 was outstanding
with interest at the prime rate plus .5%.
Notes payable outstanding, under the line of credit and other borrowings, were
$12.6 million at April 30, 2004 compared to $18.4 million at April 30, 2003.
Real estate loans decreased from $4.7 million at April 30, 2003 to $200,000 at
April 30, 2004 as the result of the repayment of borrowings utilizing the
proceeds from various land sales. Kable's borrowings decreased from $13.7
million at April 30, 2003 to $12.4 million at April 30, 2004.
10
Cash Flows From Operating Activities
- ------------------------------------
Inventories amounted to $58.2 million at April 30, 2004 compared to $63.1
million at April 30, 2003. Inventories in the Company's core real estate market
of Rio Rancho decreased from approximately $56.7 million at April 30, 2003 to
$51.4 million at April 30, 2004 as the result of land sale activity. The balance
of inventory principally consisted of properties in Colorado and Florida.
Receivables from magazine operations increased from $36.5 million at April 30,
2003 to $42.8 million at April 30, 2004 as a result of the additional
subscription fulfillment business due to the EDS acquisition. Accounts payable
increased by $3.8 million, also reflecting this expansion.
The unfunded pension liability of the Company's defined benefit retirement plan
decreased from $7.1 million at April 30, 2003 to $3.2 million at April 30, 2004,
primarily due to an increase in the value of the plan's investments. The Company
recorded comprehensive income of $1.4 million in 2004 and a charge to
comprehensive loss of approximately $6.0 million in 2003 to reflect the change
in the unfunded pension liability in each year, net of deferred tax and
unrecognized prepaid pension amounts.
Cash Flows From Investing Activities
- ------------------------------------
Capital expenditures were relatively comparable in 2004 and 2003. The Company
believes that it has adequate financing capability to provide for anticipated
capital expenditures.
During 2003, Kable purchased substantially all of the assets of a subscription
fulfillment business formerly owed by Electronic Data Systems Corporation and
various affiliates. The purchase price for the assets was approximately $10.0
million, and consisted of $6.5 million of cash and the assumption of certain
liabilities. The cash portion of the purchase price was financed from available
borrowing capacity under Kable's line of credit bank arrangement, which line of
credit was increased from $20.0 million to $30.0 million in connection with the
acquisition.
Future Payments Under Contractual Obligation
- --------------------------------------------
The table below summarizes significant contractual cash obligations as of April
30, 2004 for the items indicated (in thousands):
Contractual Less than 1-3 3-5 More than
Obligations Total 1 year years years 5 years
----------- ----------- ------------ ----------- ------------ -------------
Notes payable $ 12,643 $ 1,830 $ 10,754 $ 24 $ 35
Operating leases 16,399 7,664 8,437 298 -
----------- ------------ ----------- ------------ -------------
Total $ 29,042 $ 9,494 $ 19,191 $ 322 $ 35
=========== ============ =========== ============ =============
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In December 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 132 (Revised), "Employer's
Disclosure About Pensions and Other Post-Retirement Benefits" ("Revised SFAS No.
132"). Revised SFAS 132 retains disclosure requirements in original SFAS 132 and
requires additional disclosures relating to assets, obligations, cash flows and
net periodic benefit cost. Revised SFAS 132 is effective for fiscal years ending
after December 15, 2003, except that certain disclosures are effective for
fiscal years ending after June 15, 2004. The disclosure provisions have been
adopted and are included in note 8 to the consolidated financial statements.
SEGMENT INFORMATION
- -------------------
Information by industry segment is presented in note 14 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
11
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 14 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
recovered through increased sales prices or improved operating efficiencies,
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 recent years interest rates have been at historically
low levels and other price increases have been commensurate with the general
rate of inflation in the Company's markets, and as a result the Company has not
found the inflation risk to be a significant problem in its real estate or
magazine operations businesses.
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, New Mexico, the principal market in which the
Company's real estate subsidiary sells land; (ii) the possibility of further
adverse changes in the magazine distribution system for magazines which the
Company's Kable distribution subsidiary distributes, including the financial
failure of a major wholesaler; (iii) the existing United Magazine lawsuit
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 effect of or the
failure to successfully integrate the acquisition of the subscription
fulfillment business completed in April 2003 and described in note 2 to the
consolidated financial statements, or other acquired businesses, if any, into
the Company without substantial costs, delays or other operational or financial
problems; (viii) the ability to renew customer contracts within the magazine
operations business segments on favorable terms and conditions; and (ix) 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.
12
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 and fixed rate receivables. 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, 2004 the Company's long term debt obligations and receivables
(excluding trade accounts) by scheduled maturity, weighted average interest rate
and estimated Fair Market Value ("FMV") (amounts in thousands):
There- FMV @
2005 2006 2007 2008 2009 after Total 04/30/04
---- ---- ---- ---- ---- ----- ----- -------
Fixed rate
receivables $2,947 $ 365 $ 792 $ - $ - $ - $4,104 $ 4,185
Weighted average
interest rate 8.3% 8.2% 8.1% - - - 8.2% -
Fixed rate debt $1,630 $1,504 $ 632 $ 12 $ 12 $ 35 $3,825 $ 3,895
Weighted average
interest rate 5.4% 5.4% 5.2% 7.8% 7.8% 7.8% 5.4% -
Variable rate debt $ 200 $8,618 $ - $ - $ - $ - $8,818 $ 8,818
Weighted average
interest rate 4.5% 4.5% - - - - 4.5% -
13
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
To the Shareholders
AMREP Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of AMREP
Corporation and subsidiaries as of April 30, 2004 and 2003 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended April 30, 2004. 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 the standards of the Public Company
Accounting Oversight Board (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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AMREP Corporation
and subsidiaries as of April 30, 2004 and 2003 and the results of their
operations and their cash flows for each of the three years in the period ended
April 30, 2004 in conformity with U.S. generally accepted accounting principles.
Our audits were 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 audits 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 9, 2004
14
AMREP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2004 AND 2003
(Dollar amounts in thousands)
ASSETS 2004 2003
------ ---------------- -----------------
CASH AND CASH EQUIVALENTS $ 26,805 $ 16,443
RECEIVABLES, net:
Magazine operations 42,768 36,464
Real estate operations 6,297 5,970
---------------- -----------------
49,065 42,434
REAL ESTATE INVENTORY 58,221 63,084
PROPERTY, PLANT AND EQUIPMENT, net 21,299 22,487
OTHER ASSETS, net of accumulated amortization 10,584 9,911
GOODWILL 5,191 5,191
---------------- -----------------
TOTAL ASSETS $ 171,165 $ 159,550
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 41,931 $ 38,101
NOTES PAYABLE:
Amounts due within one year 1,830 4,124
Amounts subsequently due 10,813 14,303
---------------- -----------------
12,643 18,427
TAXES PAYABLE 1,867 605
DEFERRED INCOME TAXES 5,996 1,506
ACCRUED PENSION COST 3,206 7,083
---------------- -----------------
TOTAL LIABILITIES 65,643 65,722
---------------- -----------------
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value;
shares authorized - 20,000,000;
shares issued - 7,409,204 at
April 30, 2004 and 7,406,704 at
April 30, 2003 741 741
Capital contributed in excess of par value 45,133 44,992
Retained earnings 69,815 59,786
Accumulated other comprehensive loss, net ( 4,614) ( 6,034)
Treasury stock, at cost ( 5,553) ( 5,657)
---------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 105,522 93,828
---------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 171,165 $ 159,550
================ =================
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
15
AMREP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
Year Ended April 30,
-------------------------------------------------------
2004 2003 2002
--------------- --------------- ----------------
REVENUES:
Magazine operations $ 99,791 $ 54,058 $ 49,248
Real estate operations-
Land sales 28,012 15,965 30,228
Home sales - - 635
--------------- --------------- ----------------
28,012 15,965 30,863
Interest and other
operations 3,304 3,768 3,294
--------------- --------------- ----------------
131,107 73,791 83,405
--------------- --------------- ----------------
COSTS AND EXPENSES:
Operating expenses-
Magazine operations 83,020 42,527 38,643
Real estate commissions
and selling 923 836 978
Other operations 2,361 2,548 2,635
Real estate cost of sales-
Land sales 13,634 7,365 22,894
Home sales - - 704
General and administrative-
Magazine operations 8,801 6,962 6,914
Real estate operations
and corporate 2,894 3,114 3,209
Interest, net 944 582 1,265
--------------- --------------- ----------------
112,577 63,934 77,242
--------------- --------------- ----------------
INCOME BEFORE INCOME TAXES 18,530 9,857 6,163
PROVISION FOR INCOME TAXES 6,853 3,584 2,465
--------------- --------------- ----------------
NET INCOME $ 11,677 $ 6,273 $ 3,698
=============== =============== ================
EARNINGS PER SHARE -
BASIC AND DILUTED $ 1.77 $ 0.95 $ 0.56
=============== =============== ================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING 6,595 6,580 6,574
=============== =============== ================
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
16
AMREP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
Capital
Contributed Accumulated
Common Stock In Excess Other Treasury
------------ of Retained Comprehensive Stock, at
Shares Amount Par Value Earnings Loss Cost Total
------ ------ ------------ -------- ------------- ----------- -----------
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
Net income - - - 6,273 - - 6,273
Other comprehensive loss - - - - (6,034) - (6,034)
-----------
Total comprehensive income 239
-----------
Issuance of stock under
Directors' Plan - - 14 - - 52 66
Exercise of stock options 7 1 43 - - - 44
------ ------ ------------ -------- ------------- ----------- -----------
BALANCE, April 30, 2003 7,407 741 44,992 59,786 (6,034) (5,657) 93,828
Net income - - - 11,677 - - 11,677
Other comprehensive income - - - - 1,420 - 1,420
-----------
Total comprehensive income 13,097
-----------
Cash dividends - - - (1,648) - - (1,648)
Issuance of stock under
Directors' Plan - - 126 - - 104 230
Exercise of stock options 2 - 15 - - - 15
------ ------ ------------ -------- ------------- ----------- -----------
BALANCE, April 30, 2004 7,409 $ 741 $ 45,133 $ 69,815 $ (4,614) $ (5,553) $ 105,522
====== ====== ============ ======== ============= =========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
17
AMREP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year Ended April 30,
------------------------------------
2004 2003 2002
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,677 $ 6,273 $ 3,698
Adjustments to reconcile net income
to net cash provided by operating activities-
Depreciation and amortization 5,015 3,071 2,691
Non-cash credits and charges:
(Gain) loss on disposition of property and equipment 619 (109) -
Provision for doubtful accounts 680 237 491
Pension (benefit) accrual ( 485) 160 (511)
Stock based compensation - Directors' Plan 230 66 -
Changes in assets and liabilities,
excluding the effect of acquisition-
Receivables ( 7,311) (1,024) 2,465
Real estate inventory 4,863 (788) 11,051
Other assets ( 1,451) (246) 1,527
Accounts payable and accrued expenses 2,806 (1,112) 6,685
Taxes payable 1,262 (522) (468)
Deferred income taxes 3,542 933 2,714
---------- ---------- ----------
Net cash provided by operating activities 21,447 6,939 30,343
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 3,668) (1,916) (2,899)
Proceeds from disposition of property, plant and equipment - 404 -
Acquisition, net - (6,580) - -
---------- ---------- ----------
Net cash used by investing activities ( 3,668) (8,092) (2,899)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 27,831 28,098 14,582
Principal debt payments ( 33,615) (26,290) (42,223)
Exercise of stock options 15 44 -
Dividend ( 1,648) - -
---------- ---------- ----------
Net cash provided (used) by financing activities ( 7,417) 1,852 (27,641)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,362 699 (197)
CASH AND CASH EQUIVALENTS, beginning of year 16,443 15,744 15,941
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year $ 26,805 $ 16,443 $ 15,744
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amounts capitalized $ 822 $ 918 $ 2,281
========== ========== ==========
Income taxes paid - net of refunds $ 2,049 $ 3,173 $ 219
========== ========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
18
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 primarily engaged in three business segments. Kable News
Company, Inc. ("Kable") operates in the fulfillment services and magazine
distribution services businesses (collectively, "magazine operations"), and
AMREP Southwest Inc. ("ASW") operates mainly 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.
Fiscal Year
-----------
The Company's fiscal year ends on April 30. All references to 2004, 2003 and
2002 mean the fiscal years ended April 30, 2004, 2003 and 2002, respectively,
unless the context otherwise indicates.
Revenue recognition
-------------------
Revenues from magazine operations include revenues from the distribution of
periodicals and subscription fulfillment and other 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. In accordance with Emerging
Issues Task Force Issue No. 99-19, "Reporting Revenue Gross as a Principal
versus Net as an Agent", reimbursed postage costs are accounted for on a net
basis.
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.
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.
Receivables
-----------
Receivables are carried at original invoice or closing statement amount less
estimates made for doubtful receivables and, in the case of distribution
receivables, return allowances. Management determines the allowances for
doubtful accounts by reviewing and identifying troubled accounts on a monthly
basis and by using historical experience applied to an aging of accounts. A
receivable is considered to be past due if any portion of the receivable balance
is outstanding for more than 90 days. Receivables are written off when deemed
uncollectible. Recoveries of receivables previously written off are recorded
when received. Management determines the estimated returns for magazines on an
issue by issue basis utilizing historical sales information and other relevant
information, including publisher and like-title history.
19
Real estate inventory
---------------------
Land and improvements for completed real estate projects, as well as land and
improvements on land 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 generally are 10 years or less for furniture and fixtures (including
equipment) and 25 to 40 years for buildings. Assets utilized in the Company's
utility company subsidiary are depreciated over 5 to 50 years.
Goodwill
--------
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,
since this acquisition was made prior to the effective date of Accounting
Principles Board Opinion ("APB") No. 17, was not amortized.
Effective May 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets". Under SFAS No. 142, goodwill and intangible assets with an
indefinite life are no longer subject to amortization and are reviewed for
impairment at least annually. An impairment charge is recognized only when the
calculated fair value of a reporting unit, including goodwill, is less than its
carrying amount. Based on a review completed in April 2004, the Company believes
that no goodwill impairment existed at April 30, 2004.
Long-lived assets
-----------------
Long-lived assets, including real estate inventory and property, plant and
equipment, are evaluated in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", and reviewed for impairment when
events or changes in circumstances indicate the carrying value of an asset may
not be recoverable. Provisions for possible losses are recorded when
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount.
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 issues stock options to non-employee directors under the
Non-Employee Directors Option Plan (see note 8). The Company accounts for stock
option grants in accordance with APB No. 25, "Accounting for Stock Issued to
Employees", and has adopted the disclosure-only provisions of SFAS No. 123 as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure". 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
plan. Further, the amount of additional compensation disclosable under the
disclosure-only provisions of SFAS No. 123 is immaterial for all periods
presented.
20
Comprehensive income (loss)
---------------------------
Comprehensive income (loss) is defined as the change in equity during a period
from transactions and other events from non-owner sources. Comprehensive income
(loss) is the total of net income and other comprehensive income (loss), which
for the Company is comprised entirely of the minimum pension liability net of
the related deferred income taxes.
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, allowances for magazine returns, the recoverability of long-term
assets and amortization periods, pension plan assumptions and legal
contingencies. Actual results could differ from those estimates.
Recent accounting pronouncements
--------------------------------
In December 2003, the FASB issued SFAS No. 132 (Revised), "Employer's Disclosure
About Pensions and Other Post-Retirement Benefits". Revised SFAS 132 retains
disclosure requirements in original SFAS 132 and requires additional disclosures
relating to assets, obligations, cash flows and net periodic cost. Revised SFAS
132 is effective for fiscal years ending after December 15, 2003, except that
certain disclosures are effective for fiscal years ending after June 15, 2004.
The disclosure provisions have been adopted and are included in note 8 to the
consolidated financial statements.
(2) ACQUISITION:
------------
On April 15, 2003, the Company acquired certain tangible and intangible assets
and assumed certain liabilities constituting the subscription fulfillment
business of Electronic Data Systems Corporation and various subsidiaries
("Business") in order to expand its fulfillment operations. The purchase price
for these assets was approximately $10.0 million and consisted of cash and the
assumption of certain customer deposit liabilities. The transaction has been
accounted for as a purchase in accordance with SFAS No. 141, "Business
Combinations", and the results of operations since the date of acquisition are
included in the consolidated financial statements. The payment of the cash
portion of the purchase price and related acquisition expenses was financed from
available cash and borrowings under the Company"s collateralized credit line for
magazine operations. In connection with the acquisition, that credit line was
increased from $20.0 million to $30.0 million, subject to available collateral
(see note 7).
The following unaudited pro forma information reflects the results of the
Company's operations as if the acquisition had occurred at the beginning of 2002
(in thousands, except per share data):
Year Ended April 30,
------------------------------------
Pro forma: 2003 2002
---------------- ----------------
Revenue $ 148,688 $ 187,360
Net income 9,426 12,944
Earnings per share- basic and diluted $ 1.43 $ 1.97
Because of customer losses of the Business that were identified and known prior
to the acquisition and which occurred throughout 2004, the revenues and net
income from the acquired Business for the year ended April 30, 2004 were
substantially reduced from historical levels. Accordingly, these pro-forma
results are not an indication of what may be expected to occur in future
periods.
The purchase price was allocated to the acquired assets based upon an appraisal
and other studies. The purchase price allocation was as follows (in thousands):
Property, plant and equipment - $7,486; Other assets - $4,296; Accrued expenses
- - $5,202; Total cash price - $6,580.
21
(3) RECEIVABLES:
------------
Receivables consist of: April 30,
-------------------------------------
2004 2003
---------------- -----------------
(Thousands)
Magazine operations-
Accounts receivable (maturing
within one year) $ 98,388 $ 102,275
Allowances for-
Estimated returns ( 53,808) (64,419)
Doubtful accounts ( 1,812) (1,392)
---------------- -----------------
$ 42,768 $ 36,464
================ =================
Real estate operations-
Mortgage and other receivables $ 6,489 $ 6,250
Allowance for doubtful accounts ( 192) (280)
---------------- -----------------
$ 6,297 $ 5,970
================ =================
Magazine operations receivables collateralize a general purpose line-of-credit
utilized for the magazine operations. Mortgage and other receivables bear
interest at rates ranging from 8.0% to 12.0% and result primarily from land
sales (see note 7).
The Company extends credit to various companies in the real estate and magazine
operations 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, the
taking of 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,
approximately 45% and 55% of Kable's accounts receivable were due from three
customers at April 30, 2004 and 2003, respectively.
Kable performs fulfillment services for 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 represented approximately 2%, 4% and 3% of consolidated
revenues in 2004, 2003 and 2002, respectively.
Maturities of principal on real estate receivables at April 30, 2004 are as
follows (in thousands): 2005 - $5,199; 2006 - $378; 2007 - $793; 2008 - $29;
2009 - $45; 2010 and thereafter - $45.
(4) REAL ESTATE INVENTORY:
----------------------
Real estate inventory consists of land and improvements held for sale or
development. Accumulated capitalized interest costs included in real estate
inventory at April 30, 2004 and 2003 were (in thousands) $3,936 and $4,192,
respectively. Interest costs capitalized during 2004, 2003 and 2002 were $126,
$287 and $767, respectively. Accumulated capitalized real estate taxes included
in the inventory of land and improvements at April 30, 2004 and 2003 were $4,865
and $5,049, respectively. Real estate taxes capitalized during 2004, 2003 and
2002 were $42, $72 and $72, respectively. Previously capitalized interest costs
and real estate taxes charged to real estate cost of sales were $608, $319 and
$2,103 in 2004, 2003 and 2002, respectively.
Substantially all of the Company's real estate assets are located in Rio Rancho,
New Mexico. As a result of this geographic concentration, the Company could be
affected by economic conditions in this region.
22
(5) PROPERTY, PLANT AND EQUIPMENT:
------------------------------
Property, plant and equipment consists of:
April 30,
---------------------------------
2004 2003
-------------- ---------------
(Thousands)
Land, buildings and improvements $ 9,349 $ 9,411
Furniture and fixtures 24,512 22,911
Utility plant and equipment 8,308 8,302
Other 139 132
-------------- ---------------
42,308 40,756
Accumulated depreciation and
amortization (21,009) (18,269)
-------------- ---------------
$ 21,299 $ 22,487
============== ===============
Depreciation charged to operations amounted to (in thousands) $4,237, $2,081 and
$1,752 in 2004, 2003 and 2002, respectively.
A contract for the sale of the Company's water utility subsidiary in Eldorado,
New Mexico expired in September 2003, accordingly the related assets and
liabilities have been reclassified from the prior year presentation as an asset
held for sale. See note 12.
(6) OTHER ASSETS:
-------------
Other assets consist of:
April 30,
---------------------------------
2004 2003
-------------- ---------------
(Thousands)
Prepaid expenses and other deferred charges, net $ 10,165 $ 9,414
Security and other deposits 266 103
Other 153 394
-------------- ---------------
$ 10,584 $ 9,911
============== ===============
Amortization related to deferred charges was (in thousands) $778, $990 and $939
in 2004, 2003 and 2002, respectively.
(7) DEBT FINANCING:
---------------
Debt financing consists of:
April 30,
---------------------------------
2004 2003
-------------- ---------------
(Thousands)
Notes payable -
Line-of-credit borrowings -
Real estate operations and other $ 200 $ 3,143
Magazine operations 8,618 10,562
Mortgages and other notes payable 3,825 4,722
-------------- ---------------
$ 12,643 $ 18,427
============== ===============
Maturities of principal on notes outstanding at April 30, 2004 are as follows
(in thousands): 2005 - $1,830; 2006 - $10,122; 2007 - $632; 2008 - $12; 2009 -
$12; 2010 and thereafter - $35.
23
Line-of-credit and other borrowings
-----------------------------------
Kable has a line of credit with a bank which allows it to borrow up to $30
million based upon a prescribed percentage of eligible accounts receivable, as
defined. At April 30, 2004, borrowing availability was approximately $18.3
million against which $8.6 million was outstanding. This line of credit bears
interest at the prime rate (4.0% at April 30, 2004) plus .5%, and is
collateralized by substantially all of Kable's assets. The credit arrangement
requires the maintenance or achievement of certain financial ratios and contains
certain financial restrictions, the most significant of which limit the amount
of dividends and other payments that may be made to its parent or other
affiliates, as well as capital expenditures and other borrowings. This line of
credit matures May 1, 2005. Kable also has other borrowing arrangements to
support equipment purchases totaling approximately $3.8 million maturing through
2011 with a weighted average interest rate of 5.4%.
AMREP Southwest has loan agreements with two financial institutions to support
real estate development in New Mexico. These agreements have a total maximum
loan amount available of approximately $9.4 million subject to a borrowing base
determined based upon a prescribed percentage of eligible inventory and accounts
receivable. The loans, which mature in fiscal 2005 and 2006 and bear interest at
a weighted average of the prime rate minus .4%, are collateralized by certain
real estate assets and are subject to certain financial performance and other
covenants. At April 30, 2004, the borrowing availability under these agreements
was approximately $6.3 million against which $200,000 was outstanding with
interest at the prime rate plus .5%. The Chief Executive Officer of AMREP
Southwest, who is also a member of the Board of Directors of the Company, serves
as a member of the board of directors of one of the lenders.
(8) BENEFIT PLANS:
--------------
Retirement plan
---------------
The Company has a retirement plan which, prior to March 1, 2004, covered
substantially all full-time employees and provided benefits based upon a
percentage of the employee's annual salary. Effective March 1, 2004, accumulated
benefits were frozen and future service credits were curtailed. The following
tables summarize the balance sheet impact as well as the benefit obligations,
assets, funded status and assumptions associated with the retirement plan.
Net periodic pension cost (income) for 2004, 2003 and 2002 was comprised of the
following components:
Year Ended April 30,
-------------------------------------------------------
2004 2003 2002
--------------- ------------------ --------------
(Thousands)
Service cost - benefits earned during the period $ 784 $ 568 $ 556
Interest cost on projected
benefit obligation 1,762 1,804 1,766
Expected return on assets (1,793) (2,049) (2,481)
Amortization of prior service cost (293) (352) (352)
Recognized net actuarial loss 741 189 -
--------------- ------------------ --------------
Pension cost (income) for normal activity 1,201 160 (511)
(Gain) on curtailment (1,686) - -
--------------- ------------------ --------------
Total cost (benefit) recognized in pretax income (485) 160 (511)
Cost (benefit) recognized in pretax other
comprehensive income (2,368) 10,057 -
--------------- ------------------ --------------
$ (2,853) $ 10,217 $ (511)
=============== ================== ==============
Assumptions used in determining net periodic pension cost were:
Year Ended April 30,
---------------------------------------------------------
2004 2003 2002
--------------- ------------------ ----------------
Discount rates 6.25% 6.25% 7.25%
Rates of increase in compensation
levels 4.5% 4.5% 4.5%
Expected long-term rate of return
on assets 8.0% 8.0% 9.0%
24
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,
-------------------------------
2004 2003
------------- --------------
(Thousands)
Change in benefit obligations:
Benefit obligation at beginning of year $ 29,483 $ 25,833
Service cost (excluding expense component) 684 447
Interest cost 1,762 1,804
Actuarial (gain) loss (123) 3,051
Benefits paid (1,758) (1,652)
------------- --------------
Benefit obligation at end of year $ 30,048 $ 29,483
------------- --------------
Change in plan assets:
Fair value of plan assets at beginning of year $ 22,400 $ 26,558
Actual return on plan assets 5,299 (2,406)
Employer contribution 1,025 -
Benefits paid (1,758) (1,652)
Expenses paid (124) (100)
------------- --------------
Fair value of plan assets at end of year $ 26,842 $ 22,400
------------- --------------
Funded status $ (3,206) $ (7,083)
Unrecognized net actuarial loss 7,689 12,036
Unrecognized prior service cost - (1,979)
------------- --------------
Net amount recognized in the balance sheets $ 4,483 $ 2,974
============= ==============
Amounts recognized on the balance sheets:
Accrued pension costs $ (3,206) $(7,083)
Pre-tax accumulated comprehensive loss 7,689 10,057
------------- --------------
$ 4,483 $ 2,974
============= ==============
The average asset allocation for the retirement plan is as follows:
April 30,
-------------------------------
2004 2003
------------- --------------
Equity securities 70% 65%
Fixed income securities 27 33
Other (principally cash and cash equivalents) 3 2
------------- --------------
Total 100 % 100 %
============= ==============
The Company recorded other comprehensive income (loss) of $1.4 million in 2004
and ($6.0 million) in 2003 to account for the net effect of changes to the
unfunded pension liability.
The investment mix between equity securities and fixed income securities is
based upon achieving a desired return by balancing higher return, more volatile
equity securities and lower return, less volatile fixed income securities. Plan
assets are invested in portfolios of diversified public-market equity and fixed
income securities. Investment allocations are made across a range of markets,
industry sectors, capitalization sizes, and, in the case of fixed income
securities, maturities and credit quality. The plan holds no securities of the
Company.
The plan's expected return on assets, as shown above, is based on management's
expectations of long-term average rates of return to be achieved by the
underlying investment portfolios. In establishing this assumption, management
considers historical and expected returns for the asset classes in which the
plan is invested, as well as current economic and market conditions.
The Company funds the retirement plan according to IRS funding limitations. In
2004, approximately $1.0 million was paid by the Company to the plan. No
contributions were required in 2003 and 2002. No contribution is expected to be
required in 2005. The amount of future annual benefit payments is expected to be
between $1.8 million and $2.1 million in 2005 through 2009, and an aggregate of
$11.0 million is expected to be paid in the five year period 2010-2014.
25
Savings and Salary Deferral Plan
--------------------------------
The Company has a Savings and Salary Deferral Plan, commonly referred to as a
401(k) plan, in which all full-time employees with more than one year of service
are eligible to participate and contribute to through salary deductions. The
Company may make discretionary matching contributions, subject to the approval
of the Board of Directors. As of March 1, 2004, the Company matches 66.67% of
eligible employee's defined contributions up to a maximum of 4% of such
employees' compensation. Prior to March 1, 2004, the matching contribution was
33.33% of each employee's defined contribution up to a maximum of 2% of
compensation. The Company's contribution to the plan amounted to approximately
(in thousands) $389, $251 and $230 in 2004, 2003 and 2002, respectively.
Directors' Stock Plan
---------------------
During 2003, the Company adopted the AMREP Corporation 2002 Non-Employee
Directors' Stock Plan and reserved 65,000 shares of common stock for issuance to
non-employee directors. Under the plan each non-employee director receives 1,250
shares of stock on each March 15 and September 15 as partial payment for
services rendered. During 2004, 15,000 shares were issued under this plan (7,500
during 2003), and an expense (in thousands) of $230 was recorded based upon the
fair market value of the stock at time of issuance ($66 in 2003).
Stock option plans
------------------
The Company has a Non-Employee Directors Option Plan which has 24,500 shares
reserved for issuance at April 30, 2004 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. Under the
Company's 1992 Stock Option Plan, 311,750 shares were available for issuance to
officers and other key employees at April 30, 2002. This plan expired on June
30, 2002.
A summary of activity in the Company's stock option plans is as follows:
Year Ended April 30,
-----------------------------------------------------------------------
2004 2003 2002
-------------------- ----------------------- ----------------------
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 9,000 $ 6.30 13,000 $ 5.92 12,000 $ 6.30
Granted 3,000 15.19 3,000 8.45 3,000 3.95
Exercised (2,500) 6.23 (7,000) 6.53 -
Expired or canceled - - - - (2,000) 5.19
------------------- -------------------- ------------------
Options outstanding at
end of year 9,500 9.12 9,000 6.30 13,000 5.92
=================== ==================== ==================
Available for grant at
end of year 15,000 18,000 332,750
=================== ==================== ==================
Options exercisable at
end of year 6,500 6,000 10,000
=================== ==================== ==================
Range of exercise prices
for options exercisable
at end of year
$3.95 to $8.45 $3.95 to $7.75 $3.95 to $7.75
=================== ==================== ==================
Options outstanding at April 30, 2004 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, 2004, 2003 and 2002 was
3.2, 3.1 and 2.5 years, respectively. The weighted average fair value of options
26
granted during the year was $4.82 in 2004, $2.84 in 2003 and $1.36 in 2002. 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 2004, 2003 and 2002, respectively: expected
volatility of 44%, 46%, and 46%; risk-free interest rates of 2.0%, 2.6%,and
3.3%; 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.
(9) INCOME TAXES:
-------------
The provision (benefit) for income taxes consists of the following:
Year Ended April 30,
-----------------------------------------
2004 2003 2002
----------- ------------ ------------
(Thousands)
Current:
Federal $ 2,961 $ 2,335 $ (76)
State and local 350 316 (173)
----------- ------------ ------------
3,311 2,651 (249)
----------- ------------ ------------
Deferred:
Federal 3,011 793 2,317
State and local 531 140 397
----------- ------------ ------------
3,542 933 2,714
----------- ------------ ------------
Total provision for income taxes $ 6,853 $ 3,584 $ 2,465
=========== ============ ============
The components of the net deferred income tax liability are as follows:
April 30,
-------------------------------------
2004 2003
--------------- ----------------
(Thousands)
Deferred income tax assets-
State tax loss carryforwards $ 5,009 $ 4,721
Accrued pension costs 1,282 2,833
Real estate inventory valuation 566 566
Other 1,573 1,525
--------------- ----------------
Total deferred income tax assets 8,430 9,645
--------------- ----------------
Deferred income tax liabilities-
Real estate basis differences (2,149) (1,194)
Reserve for periodicals and paperbacks (1,177) (898)
Depreciable assets (3,270) (3,009)
Capitalized costs for financial reporting
purposes, expensed for tax (2,968) (1,447)
--------------- ----------------
Total deferred income tax liabilities (9,564) (6,548)
--------------- ----------------
Valuation allowance for realization of
state tax loss carry forwards (4,862) (4,603)
--------------- ----------------
Net deferred income tax liability $ (5,996) $ (1,506)
=============== ================
27
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,
----------------------------------
2004 2003 2002
---------- ---------- ----------
(Thousands)
Computed tax provision at
statutory rate $ 6,300 $ 3,351 $ 2,095
Increase (reduction) in tax resulting from:
State income taxes, net of federal
income tax effect 741 394 308
Other, primarily permanent differences (188) (161) 62
---------- ---------- ----------
Actual tax provision $ 6,853 $ 3,584 $ 2,465
========== ========== ==========
(10) SHAREHOLDERS' EQUITY:
---------------------
The Company recorded other comprehensive income (loss) of $1.4 million and
($6.0) million 2004 and 2003, respectively, to account for the net effect of the
unfunded minimum pension liability (see note 8).
In connection with the 2002 Non-Employee Directors' Stock Plan, 15,000 shares of
common stock were issued from treasury stock during 2004 and 7,500 during 2003
to members of the Board of Directors as partial compensation for services. As a
result, there were 803,592 and 818,592 shares held in the treasury at April 30,
2004 and 2003, respectively.
(11) COMMITMENTS AND CONTINGENCIES:
-----------------------------
Land sale contracts
-------------------
The Company has entered into several conditional sales contracts for the sale of
approximately 810 lots in Rio Rancho, New Mexico which would close at varying
times throughout fiscal 2005 and 2006; 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 for 2004, 2003 and 2002 was approximately (in thousands)
$12,075, $4,378 and $3,750 respectively.
The total minimum rental commitments for years subsequent to April 30, 2004 of
$16,399 are due as follows (in thousands): 2005 - $7,664; 2006 - $6,573; 2007 -
$1,864; 2008 - $243; 2009 - $55; thereafter-none.
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 the lot of the
purchaser, without cost to the purchaser. The Company has not incurred
significant costs related to the exchange of lots.
(12) LITIGATION:
----------
Kable is a defendant in a lawsuit in which 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
28
business. The plaintiff is seeking damages from Kable of approximately $15.2
million; any damages awarded would be trebled. Kable is vigorously defending
itself, but the outcome of this matter is unknown. Pretrial discovery has been
completed, and it is unlikely that a trial will commence prior to calendar 2005.
During the fourth quarter of 2004, the Eldorado Water & Sanitation District (the
"District") filed a Petition for Condemnation and Immediate Possession of the
assets of the Company's water utility subsidiary ( the "Utility") for the
purpose of assuming control of the Utility. The District submitted an appraisal
of approximately $6.2 million to support the price it intended to pay for the
assets, which amount is in excess of the Company's carrying value of the assets.
The Company is contesting the accuracy of this appraisal, and has submitted a
different appraisal which is higher than that of the District. A trial date in
September, 2004 has been set to hear various objections of the Company to the
condemnation process and, among other issues, to establish the valuation of the
Utility. Pending the outcome of the trial, the Company will continue to own and
operate the Utility.
The Company and 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.
(13) 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 was $4.2 million and
$3.6 million versus carrying amounts of $4.1 million and $3.5 million at April
30, 2004 and April 30, 2003, respectively. The estimated fair value of the
Company's long-term, fixed-rate notes payable was $3.9 million versus a carrying
amount of $3.8 million as of April 30, 2004 and $5.1 million versus $4.7 million
as of April 30, 2003.
(14) INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT
-------------------------------------------------------
INDUSTRY SEGMENTS:
------------------
The Company has identified three segments in which it currently operates under
the definition established by SFAS No. 131. The Company's magazine operations
subsidiary has two identified segments, Newsstand Distribution Services and
Fulfillment Services operations. Newsstand Distribution Services operations
involve the national and international distribution and sale of periodicals and
paperbacks to wholesalers, and Fulfillment Services 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 is active in Land Sales activities, which involve the obtaining of
approvals and development of large tracts of land for sale to homebuilders,
commercial users and others. In prior years, the real estate subsidiary was also
active in Homebuilding, which involved the construction and sale of
single-family homes and other projects; however, the Company has exited this
segment as part of a restructuring of its real estate operations. 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. In addition, corporate management fees were charged to
business segments beginning in 2003.
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.
29
The following schedules set forth summarized data relative to the industry
segments (amounts in thousands):
Newsstand
Distribution Fulfillment Land Home Corporate
Services Services Sales Building and Other Consolidated
------------ ----------- ------------ ----------- ---------- ------------
Year ended April 30, 2004:
Revenues $ 12,162 $ 87,629 $ 28,896 $ - $ 2,420 $ 131,107
Expenses 11,036 80,786 16,590 - 3,221 111,633
Management fee 141 592 770 - (1,503) -
Interest expense, net 30 615 - - 299 944
------------ ----------- ------------ ----------- ---------- ------------
Pretax income contribution $ 955 $ 5,636 $ 11,536 $ - $ 403 $ 18,530
============ =========== ============ =========== ========== ============
Depreciation and amortization $ 459 $ 4,087 $ 88 $ - $ 381 $ 5,015
Identifiable assets $ 33,917 $ 38,983 $ 73,217 $ - $ 19,857 $ 165,974
Intangible assets $ 3,893 $ 1,298 $ - $ - $ - $ 5,191
Capital expenditures $ 218 $ 3,069 $ 266 $ - $ 115 $ 3,668
- ---------------------------------------------------------------------------------------------------------------------------
Year ended April 30, 2003:
Revenues $ 14,832 $ 39,226 $ 17,087 $ - $ 2,646 $ 73,791
Expenses 12,147 37,342 10,430 - 3,433 63,352
Management fee 182 518 700 - (1,400) -
Interest expense, net 190 162 - - 230 582
------------ ----------- ------------ ----------- ---------- ------------
Pretax income contribution $ 2,313 $ 1,204 $ 5,957 $ - $ 383 $ 9,857
============ =========== ============ =========== ========== ============
Depreciation and amortization $ 763 $ 1,848 $ 89 $ - $ 371 $ 3,071
Identifiable assets $ 31,962 $ 34,970 $ 67,969 $ - $ 19,458 $ 154,359
Intangible assets $ 3,893 $ 1,298 $ - $ - $ - $ 5,191
Capital expenditures $ 66 $ 1,263 $ - $ - $ 587 $ 1,916
- ----------------------------------------------------------------------------------------------------------------------------
Year ended April 30, 2002:
Revenues $ 15,253 $ 33,995 $ 31,321 $ 683 $ 2,153 $ 83,405
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 $ 30,489 $ 18,264 $ 75,787 $ 448 $ 19,653 $ 144,641
Intangible assets $ 3,893 $ 1,298 $ - $ - $ - $ 5,191
Capital expenditures $ 133 $ 2,629 $ - $ - $ 137 $ 2,899
- ----------------------------------------------------------------------------------------------------------------------------
30
(15) 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, 2004: 2003 2003 2004 2004
-------------- -------------- --------------- --------------
Revenues $ 33,617 $ 32,702 $ 33,360 $ 31,428
Gross Profit 9,663 7,845 6,999 7,585
Net Income $ 3,531 $ 2,716 $ 3,383 $ 2,047
============== ============== =============== ==============
Earnings Per Share -
Basic and Diluted $ 0.54 $ 0.41 $ 0.51 $ 0.31
============== ============== =============== ==============
July 31, October 31, January 31, April 30,
Year Ended April 30, 2003: 2002 2002 2003 2003
-------------- -------------- --------------- --------------
Revenues $ 16,010 $ 16,336 $ 20,858 $ 20,587
Gross Profit 4,034 4,823 7,454 5,040
Net Income $ 795 $ 1,249 $ 2,677 $ 1,552
============== ============== ============== ==============
Earnings Per Share -
Basic and Diluted (a) $ 0.12 $ 0.19 $ 0.41 $ 0.24
============== ============== ============== ==============
(a) The sum of the quarters does not equal the full year earnings per share due
to rounding.
Item 9. Changes in and Disagreements with Accountants on Accounting
- ------- -----------------------------------------------------------
and Financial Disclosure
------------------------
None
Item 9A. Controls and Procedures
- -------- -----------------------
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's chief
financial officer and the other executive officers whose certifications
accompany this annual report, have evaluated the effectiveness of the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934) as of the end of the period covered by this
report. As a result of such evaluation, the chief financial officer and other
executive officers have concluded that such disclosure controls and procedures
are effective, in all material respects, to provide reasonable assurance that
the information required to be disclosed in the reports the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. The Company believes that a controls
system, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the control system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected. Subsequent to the date of
the most recent evaluation of the Company's internal controls, there was no
significant change to the Company's internal controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
31
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
The information set forth under the headings "Election of Directors", "The Board
of Directors and its Committees" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's Proxy Statement for its 2004 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
(the "2004 Proxy Statement") is incorporated herein by reference. In addition,
information concerning the Company's executive officers is included in Part I
above under the caption "Executive Officers of the Registrant".
Item 11. Executive Compensation
- -------- ----------------------
The information set forth under the headings "Executive Compensation" and "The
Board of Directors and its Committees" in the 2004 Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
and Related Stockholder Matters
-------------------------------
The information set forth under the heading "Common Stock Ownership of Certain
Beneficial Owners and Management" and under the subheading "Equity Compensation
Plan Information" in the 2004 Proxy Statement is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The information set forth under the heading "Compensation Committee Interlocks
and Insider Participation" in the 2004 Proxy Statement is incorporated herein by
reference.
Item 14. Principal Accountant Fees and Services
- -------- --------------------------------------
The information set forth under the subheadings "Audit Fees" and "Pre-Approval
Policies and Procedures" in the 2004 Proxy Statement is incorporated herein by
reference.
32
PART IV
-------
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------- ----------------------------------------------------------------
(a) 1. Financial Statements. The following consolidated financial statements
---------------------
and supplementary financial information are filed as part of this report:
AMREP Corporation and Subsidiaries:
o Report of Independent Registered Public Accounting Firm dated June 9,
2004 - McGladrey and Pullen, LLP
o Consolidated Balance Sheets - April 30, 2004 and 2003
o Consolidated Statements of Income for the Three Years Ended April 30,
2004
o Consolidated Statements of Shareholders' Equity for the Three Years
Ended April 30, 2004
o Consolidated Statements of Cash Flows for the Three Years Ended April
30, 2004
o Notes to Consolidated Financial Statements
2. Financial Statement Schedules. The following financial statemen
--------------------------------
schedule is 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) Reports on Form 8-K. During the quarter ended April 30, 2004, Registrant
--------------------
furnished a current report on Form 8-K on February 27, 2004 under Item 12,
"Results of Operations and Financial Condition", reporting third quarter
2004 financial results.
(c) Exhibits. See (a)3 above.
---------
(d) Financial Statement Schedules. See (a)2 above.
------------------------------
33
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 23, 2004 By /s/Peter M. Pizza
-----------------
Peter M. Pizza
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
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 and Chief Financial Officer Director
Principal Financial Officer Dated: July 23, 2004
and Principal Accounting Officer*
Dated: July 23, 2004
/s/Jerome Belson /s/Albert V. Russo
- ---------------- -------------------
Jerome Belson Albert V. Russo
Director Director
Dated: July 23, 2004 Dated: July 23, 2004
/s/Edward B. Cloues II /s/Samuel N. Seidman
- ---------------------- --------------------
Edward B. Cloues II Samuel N. Seidman
Director Director
Dated: July 23, 2004 Dated: July 23, 2004
/s/Lonnie A. Coombs /s/James Wall
- ------------------- -------------
Lonnie A. Coombs James Wall
Director Director*
Dated: July 23, 2004 Dated: July 23, 2004
/s/Michael P. Duloc
-------------------
Michael P. Duloc
President, Kable News
Company, Inc.*
Dated: July 23, 2004
- -----------------
*The Registrant 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 Registrant has no
chief executive officer and its only executive officers are James Wall, Senior
Vice President, Peter M. Pizza, Vice President and Chief Financial Officer, and
Michael P. Duloc, who may be deemed an executive officer by reason of his
position with Kable.
34
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, 2004:
Allowance for doubtful
accounts (included in
receivables - real estate
operations on the
consolidated balance sheet) $ 280 $ 7 $ - $ 95 $ 192
----------- ------------- -------------- -------------- --------------
Allowance for estimated
returns and doubtful accounts
(included in receivables -
magazine circulation
operations on the consolidated
balance sheet) $ 65,811 $ (10,015) $ - $ 176 $ 55,620
----------- ------------- -------------- -------------- --------------
FOR THE YEAR ENDED
APRIL 30, 2003:
Allowance for doubtful
accounts (included in
receivables - real estate
operations on the
consolidated balance sheet) $ 253 $ 97 $ - $ 70 $ 280
----------- ------------- -------------- -------------- --------------
Allowance for estimated
returns and doubtful accounts
(included in receivables -
magazine circulation
operations on the consolidated
balance sheet) $ 57,911 $ 8,030 $ - $ 130 $ 65,811
----------- ------------- -------------- -------------- --------------
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
----------- ------------- -------------- -------------- --------------
35
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 July 13, 2004 - Filed herewith.
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.
4 (b) Amendment to Loan Agreement dated as of March 31, 2003 among Kable
News Company, Inc., Kable Fulfillment Services of Ohio, Inc., Kable
Distribution Services, Inc. and Kable Fulfillment Services, Inc. and
U. S. Bank National Association - Incorporated by reference to Exhibit
10.2 to Registrant's current report on Form 8-K filed April 24, 2003.
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.*
10 (b) 2002 Non-Employee Directors' Stock Plan - Incorporated by reference to
Exhibit 10.1 to Registrant's quarterly report on Form 10-Q for the
quarterly period ended January 31, 2003.*
10 (c) Asset Purchase Agreement dated as of March 31, 2003 among Kable
Fulfillment Services, Inc. and Electronic Data Systems Corporation,
EDS Information Services, Inc., and EDS Resource Management
Corporation - Incorporated by reference to Exhibit 10.1 to
Registrant's current report on Form 8-K filed April 24, 2003.
21 Subsidiaries of Registrant - Incorporated by reference to Exhibit 21
to Registrant's annual report on Form 10-K for the fiscal year ended
April 30, 2003.
23 Consent of McGladrey & Pullen, LLP - Filed herewith.
31.1 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934 - Filed herewith.
31.2 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934 - Filed herewith
31.3 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934 - Filed herewith.
32 Certification required by Rule 13a - 14 (b) under the Securities
Exchange Act of 1934 - Filed herewith.
- ----------------------------------------
* Management contract or compensatory plan or arrangement in which directors or
officers participate.
36