SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2004
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________
Commission File Number 1-4702
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AMREP Corporation
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(Exact name of registrant as specified in its charter)
Oklahoma 59-0936128
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
641 Lexington Avenue, Sixth Floor, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 705-4700
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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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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Number of Shares of Common Stock, par value $.10 per share, outstanding at July
31, 2004 - 6,611,112.
AMREP CORPORATION AND SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
July 31, 2004 and April 30, 2004 1
Consolidated Statements of Operations and
Retained Earnings (Unaudited)
Three Months Ended July 31, 2004 and 2003 2
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended July 31, 2004 and 2003 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5 - 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
Item 4. Controls and Procedures 8 - 9
PART II. OTHER INFORMATION
Item 6. Exhibits 9
SIGNATURE 10
EXHIBIT INDEX 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statement
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AMREP CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets ( Unaudited )
(Thousands, except par value and number of shares)
July 31, April 30,
2004 2004
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ASSETS
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Cash and cash equivalents $ 25,355 $ 26,805
Receivables, net:
Magazine operations 48,498 42,768
Real estate operations 6,998 6,297
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55,496 49,065
Real estate inventory 56,206 58,221
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization of $22,039 at July 31, 2004
and $21,009 at April 30, 2004 21,471 21,299
Other assets 10,922 10,584
Goodwill 5,191 5,191
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TOTAL ASSETS $ 174,641 $ 171,165
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
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Accounts payable and accrued expenses $ 41,266 $ 41,931
Dividend payable 2,645 -
Notes payable:
Amounts due within one year 9,998 1,830
Amounts subsequently due 1,787 10,813
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11,785 12,643
Taxes payable 2,007 1,867
Deferred income taxes 6,794 5,996
Accrued pension cost 3,206 3,206
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TOTAL LIABILITIES 67,703 65,643
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Shareholders' equity:
Common stock, $.10 par value;
shares authorized - 20,000,000;
7,414,704 shares issued at July 31,
2004 and 7,409,204 at April 30, 2004 741 741
Capital contributed in excess of
par value 45,168 45,133
Retained earnings 71,196 69,815
Accumulated other comprehensive loss ( 4,614) ( 4,614)
Treasury stock, at cost;
803,592 shares at July 31, 2004
and at April 30, 2004 ( 5,553) ( 5,553)
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TOTAL SHAREHOLDERS' EQUITY 106,938 105,522
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 174,641 $ 171,165
================== ==================
See notes to consolidated financial statements.
1
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended July 31, 2004 and 2003
(Thousands, except per share amounts)
2004 2003
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REVENUES
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Magazine operations $ 23,650 $ 25,993
Real estate operations 9,682 6,394
Interest and other operations 901 1,230
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34,233 33,617
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COSTS AND EXPENSES
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Magazine operating expenses 18,917 20,734
Real estate cost of sales 4,478 2,613
Real estate commissions and selling 649 202
Other operations 735 607
General and administrative:
Magazine operations 2,066 2,584
Real estate operations and corporate 854 998
Interest expense, net 144 273
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27,843 28,011
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Income before income taxes 6,390 5,606
PROVISION FOR INCOME TAXES 2,364 2,075
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NET INCOME 4,026 3,531
RETAINED EARNINGS, beginning of period 69,815 59,786
DIVIDEND PAYABLE ($0.40 per share) ( 2,645) ( 1,648)
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RETAINED EARNINGS, end of period $ 71,196 $ 61,669
================== ===================
NET INCOME PER SHARE - BASIC AND DILUTED $ 0.61 $ 0.54
================== ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,606 6,589
================== ===================
See notes to consolidated financial statements.
2
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended July 31, 2004 and 2003
(Thousands)
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,026 $ 3,531
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Adjustments to reconcile net income
to net cash provided (used)
by operating activities -
Depreciation and amortization 1,221 1,276
Non-cash credits and charges:
Pension expense accrual 54 208
Bad debt reserve ( 92) 39
Changes in assets and liabilities -
Receivables ( 6,339) (11,837)
Real estate inventory 2,015 642
Other assets ( 529) ( 141)
Accounts payable and
accrued expenses ( 719) 2,187
Taxes payable 140 2,119
Deferred income taxes 798 -
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Total adjustments ( 3,451) ( 5,507)
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Net cash provided (used)
by operating activities 575 ( 1,976)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 1,202) ( 1,704)
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Net cash used
by investing activities ( 1,202) ( 1,704)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 181 13,412
Principal debt payments ( 1,039) ( 8,506)
Proceeds from exercise of stock options 35 14
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Net cash provided (used)
by financing activities ( 823) 4,920
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Increase (decrease)
in cash and cash equivalents ( 1,450) 1,240
CASH AND CASH EQUIVALENTS,
beginning of period 26,805 16,443
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CASH AND CASH EQUIVALENTS,
end of period $ 25,355 $ 17,683
================= ==================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid -
net of amounts capitalized $ 118 $ 138
================= ==================
Income taxes paid (refunds) -
net of refunds $ 1,426 $ ( 44)
================= ==================
See notes to consolidated financial statements.
3
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Three Months Ended July 31, 2004 and 2003
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements included herein
have been prepared by AMREP Corporation (the "Registrant" or the "Company")
pursuant to the rules and regulations of the Securities and Exchange Commission
for interim financial information, and do not include all the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, the accompanying unaudited financial statements include all
adjustments, which are of a normal recurring nature, necessary to reflect a fair
presentation of the results for the interim periods presented. The results of
operations for such interim periods are not necessarily a good indication of
what may occur in future periods.
The unaudited consolidated financial statements herein should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
April 30, 2004 which was previously filed with the Securities and Exchange
Commission.
(2) Information About the Company' s Operations in Different Industry Segments
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The following tables set forth summarized data relative to the industry segments
in which the Company operates for the three month periods ended July 31, 2004
and 2003. Certain amounts included in "Interest and other operations" on the
Consolidated Statements of Operations are classified below within the Land
Operations and Corporate and Other segments, depending upon the nature of the
business activity.
THREE MONTHS Land Corporate
Operations Distribution Fulfillment and Other Consolidated
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July 2004 (Thousands):
Revenues $ 9,832 $ 3,181 $ 20,469 $ 751 $ 34,233
Operating and SG&A expenses 5,697 2,642 18,341 1,019 27,699
Management fee 225 29 196 ( 450) -
Interest expense, net - ( 4) 127 21 144
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Pretax income contribution $ 3,910 $ 514 $ 1,805 $ 161 $ 6,390
========= ========= ========= ========== =========
Identifiable assets $75,031 $32,883 $ 40,430 $ 21,106 $169,450
Intangible assets $ - $ 3,893 $ 1,298 $ - 5,191
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July 2003 (Thousands):
Revenues $ 6,887 $ 3,249 $ 22,744 $ 737 $ 33,617
Operating and SG&A expenses 3,447 2,858 20,460 973 27,738
Management fee 193 48 135 ( 376) -
Interest expense, net - 5 213 55 273
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Pretax income contribution $ 3,247 $ 338 $ 1,936 $ 85 $ 5,606
========= ========= ========= ========== ==========
Identifiable assets $71,438 $41,388 $ 34,925 $ 19,425 $167,176
Intangible assets $ - $ 3,893 $ 1,298 $ - $ 5,191
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4
AMREP CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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INTRODUCTION
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The Company is primarily engaged in three business segments: the Real Estate
business operated by AMREP Southwest Inc. and the Fulfillment Services and
Newsstand Distribution Services businesses operated by Kable News Company, Inc.
("Kable"). The Company operates principally in North America, and its 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 2 to the first three months or first quarter of 2005 or 2004 mean the
fiscal quarters ended July 31, 2004 or 2003, as the case may be.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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Management's discussion and analysis of financial condition and results of
operations is based on the accounting policies used and disclosed in the 2004
consolidated financial statements and accompanying notes that were prepared in
accordance with accounting principles generally accepted in the United States of
America and included as part of the Company's annual report on Form 10-K for the
year ended April 30, 2004 (the "2004 Form 10-K"). The preparation of those
financial statements required management to make estimates and assumptions that
affected the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
The significant accounting policies of the Company are described in Note 1 to
the 2004 consolidated financial statements, and the critical accounting policies
and estimates are described in Management's Discussion and Analysis included in
the 2004 Form 10-K. Information concerning the implementation and the impact of
new accounting standards issued by the Financial Accounting Standards Board
(FASB) is included in the notes to the 2004 consolidated financial statements.
The Company did not adopt an accounting policy in the first quarter of 2005 that
had a material impact on its financial condition, liquidity or results of
operations.
RESULTS OF OPERATIONS
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Three Months ended July 31, 2004 Compared to Three Months ended July 31, 2003
For the first quarter of 2005, net income was $4,026,000, or $0.61 per share,
compared to net income of $3,531,000, or $0.54 per share, in the same period of
5
2004. Revenues were $34,233,000 in the current year's first quarter versus
$33,617,000 in the same period last year.
Revenues from the Company's Kable News Company subsidiary were $23,650,000 for
the first quarter of the current fiscal year compared to $25,993,000 in the same
period last year. Revenues from Kable's Fulfillment Services business were
$20,469,000 in the first quarter of 2005 compared to $22,744,000 in the first
quarter of 2004, while revenues from the Newsstand Distribution Services
business were $3,181,000 versus $3,249,000 in the first quarter last year. The
decrease in Fulfillment Services' revenues was principally the result of
customer losses in fiscal 2004 at Kable's Colorado fulfillment business which
had been identified and known prior to Kable's acquisition of that business in
April 2003. Operating expenses for Fulfillment Services decreased from
$18,676,000 in 2004 to $17,023,000 in 2005 due in part to the revenue decrease
as well as a reduction in certain third party computer processing services, and
were approximately 82% of revenues in the prior year's first quarter compared to
83% in the current year period. Operating costs for Newsstand Distribution
Services also decreased, declining from $2,058,000 in the first three months of
2004 to $1,894,000 in the same period of 2005, principally due to decreased
selling expenses, and represented approximately 63% and 60% of related revenues
in the first quarters of 2004 and 2005, respectively.
Revenues from land sales at the Company's AMREP Southwest subsidiary increased
from $6,394,000 in the first quarter of 2004 to $9,682,000 in the first quarter
of 2005, principally as a result of the settlement of a condemnation proceeding
involving a parcel of land in Florida. An increase in residential lot sales in
the Company's principal market of Rio Rancho, New Mexico was partially offset by
a decrease in commercial property sales in that market. The first quarter gross
profit percentage on land sales decreased from 59% in the first quarter of 2004
to 54% in the first quarter of 2005 due to the change in the mix of residential
versus commercial lots sold, as the sales in 2005 consisted of a greater
proportion of residential lots which generally have a lower gross profit margin
than commercial lots. 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 increased to $649,000 in the first
quarter of 2005 from $202,000 in the same period last year due to the increased
land sales and the legal expenses associated with the condemnation of the
property in Florida referred to above. As a result, such expenses increased to
6.7% of related revenues in the first quarter of 2005 versus 3.2% in the same
period last year. Such costs generally vary depending upon the terms of specific
sale transactions. Real estate and corporate general and administrative expenses
decreased from $998,000 in the first quarter of 2004 to $854,000 in the same
period of 2005, principally due to decreased pension and consulting costs.
General and administrative costs of magazine operations decreased from
$2,584,000 in the first quarter of 2004 to $2,066,000 in the same period of the
current year, and also decreased as a percentage of related revenues from 9.9%
in 2004 to 8.7% in 2005, principally due to decreased pension and other benefit
expenses. Interest expense decreased from $273,000 in the first quarter of 2004
to $144,000 in the first quarter of 2005, primarily as a result of reduced debt
levels in both the real estate and magazine operations in the current year.
6
Revenues associated with interest and other operations decreased from $1,230,000
in the first quarter last year to $901,000 in the same period of 2005,
principally because the prior year included a recovery of $323,000 of past due
interest on a delinquent mortgage. Costs of other operations increased from
$607,000 in the first quarter of 2004 to $735,000 in the same period this year
because of legal costs associated with condemnation proceedings involving the
Company's utility subsidiary in New Mexico. Pending the outcome of those
proceedings, the Company will continue to own and operate that subsidiary.
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 development loan
agreements.
Cash Flows From Financing Activities
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Kable has a line of credit with a bank which allows the company to borrow up to
$30,000,000 based upon a prescribed percentage of eligible accounts receivable,
as defined. At July 31, 2004, borrowing availability was approximately
$28,474,000, against which $8,368,000 was outstanding. This line of credit bears
interest at the bank's prime rate (4.25% at July 31, 2004) plus .5%, and is
collateralized by substantially all of Kable's assets. This agreement matures on
May 1, 2005, and Kable has initiated discussions with the current lender as well
as with other potential lenders to obtain financing beyond this date. Kable also
has other borrowing arrangements to finance capital expenditures which allow
borrowings totaling approximately $5,279,000, against which $3,331,000 was
outstanding at July 31, 2004 at a weighted average interest rate of 5.3%.
AMREP Southwest has loan agreements with two financial institutions with a
maximum borrowing capacity of $6,553,000 to support its operations in New
Mexico. Loans under these facilities bear interest at the prime rate (4.25% at
July 31, 2004) less .5%, are collateralized by certain real estate assets and
are subject to available collateral and various financial performance and other
covenants. At July 31, 2004, the borrowing availability under these agreements
was $4,766,000, and no amounts were outstanding. These agreements expire during
fiscal 2005 and 2006.
On July 13, 2004, the Company's Board of Directors declared a special dividend
of $0.40 per share payable on August 18, 2004 to shareholders of record on July
27, 2004. This dividend was paid on August 18, 2004. The Board indicated that it
may consider special dividends from time-to-time in the future in light of
conditions then existing, including earnings, financial condition, cash
position, and capital requirements and other needs.
Cash Flows From Operating Activities
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Real estate inventory was $56,206,000 at July 31, 2004 compared to $58,221,000
at April 30, 2004. This decline reflected the disposition through the settlement
of the condemnation proceeding of a parcel of land in Florida discussed above,
as well as the New Mexico cost of land sales being in excess of capitalized
7
expenditures incurred during the first quarter of 2005. As a result of the
condemnation, the Company has no remaining land in Florida. As of July 31, 2004,
the Company owned two properties in Colorado with a book value of approximately
$6,055,000, and substantially all other inventory is located in Rio Rancho, New
Mexico. Kable's receivables increased from $42,768,000 at April 30, 2004 to
$48,498,000 at July 31, 2004, principally as the result of the timing of
period-ending billings and collections.
Future Payments Under Contractual Obligations
- ---------------------------------------------
The Company is obligated to make future payments under various contracts such as
debt agreements and lease agreements, and it is subject to certain other
commitments and contingencies. There have been no material changes to Future
Payments Under Contractual Obligations as reflected in the Liquidity and Capital
Resources section of Management's Discussion and Analysis in the Company's 2004
Annual Report on Form 10-K. Refer to notes 7, 11 and 12 to the consolidated
financial statements in the 2004 Form 10-K for additional information on
long-term debt and commitments and contingencies.
Statement of Forward-Looking Information
- ----------------------------------------
Certain information included herein and in other Company statements, reports and
filings with the Securities and Exchange Commission is forward-looking within
the meaning of the Private Securities Litigation Reform Act of 1995. Refer to
Item 7 of the Company's 2004 Form 10-K for a discussion of the assumptions and
factors on which these statements are based. Any changes in the actual outcome
of these assumptions and factors could produce significantly different results;
accordingly, all forward-looking statements should be evaluated with the
understanding of their inherent uncertainty. The Company disclaims any intention
or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------- ----------------------------------------------------------
The Company has several credit facilities or loans that require the Company to
pay interest at a rate that may change periodically. These variable rate
obligations expose the Company to the risk of increased interest expense in the
event of increases in short-term interest rates. At July 31, 2004, approximately
$8,368,000 of the Company's total debt of $11,785,000 was subject to variable
interest rates. Refer to Item 7(A) of the Company's 2004 Form 10-K for
additional information regarding quantitative and qualitative disclosures about
market risk.
Item 4. Controls and Procedures
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Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of the end of the period covered by this
report was carried out by the Company's management, with the participation of
the Company's chief financial officer and the other executive officers whose
certificates accompany this quarterly report. Based on that evaluation, the
chief financial officer and the other executive officers concluded that such
8
disclosure controls and procedures have been designed and are functioning
effectively to provide reasonable assurance that the information required to be
disclosed in reports filed under the Securities and 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. A controls system,
no matter how well designed and operated, cannot provide absolute assurance that
the objectives of the controls 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 internal controls, there were no significant changes in
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II. OTHER INFORMATION
Item 6. Exhibits
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Exhibits
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31.1 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.3 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification required pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
9
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AMREP CORPORATION
(Registrant)
Dated: September 14, 2004 By: /s/ Peter M. Pizza
------------------
Peter M. Pizza
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
10
AMREP CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------------------------------------
31.1 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.3 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification required pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
11