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 January 31, 2005
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-4702
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AMREP Corporation
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(Exact name of registrant as specified in its charter)
Oklahoma 59-0936128
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
641 Lexington Avenue, Sixth Floor, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 705-4700
------------------------------
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 Exchange Act).
Yes No x
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Number of Shares of Common Stock, par value $.10 per share, outstanding at
January 31, 2005 - 6,618,612.
AMREP CORPORATION AND SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
January 31, 2005 and April 30, 2004 1
Consolidated Statements of Operations and Retained Earnings
(Unaudited) Three Months Ended January 31, 2005 and 2004 2
Consolidated Statements of Operations and Retained Earnings
(Unaudited) Nine Months Ended January 31, 2005 and 2004 3
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended January 31, 2005 and 2004 4
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures 11
PART II. OTHER INFORMATION
Item 6. Exhibits 12
SIGNATURE 13
EXHIBIT INDEX 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------- --------------------
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets ( Unaudited )
(Thousands, except par value and number of shares)
January 31, April 30,
2005 2004
------------------ -------------------
ASSETS:
Cash and cash equivalents $ 30,227 $ 26,805
Receivables, net:
Magazine operations 49,745 42,768
Real estate operations 6,629 6,297
------------------ -------------------
56,374 49,065
Real estate inventory 57,357 58,221
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization of $21,209 at
January 31, 2005 and $21,009 at
April 30, 2004 16,354 21,299
Other assets 12,725 10,584
Assets held for sale 5,760 -
Goodwill 5,191 5,191
------------------ -------------------
TOTAL ASSETS $ 183,988 $ 171,165
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued expenses $ 42,659 $ 41,931
Liabilities held for sale 188 -
Notes payable:
Amounts due within one year 13,370 1,830
Amounts subsequently due 2,964 10,813
------------------ -------------------
16,334 12,643
Taxes payable 655 1,867
Deferred income taxes 7,117 5,996
Accrued pension cost 3,206 3,206
------------------ -------------------
TOTAL LIABILITIES 70,159 65,643
------------------ -------------------
Shareholders' equity:
Common stock, $.10 par value;
shares authorized - 20,000,000;
7,414,704 shares issued at
January 31, 2005 and 7,409,204 at
April 30, 2004 741 741
Capital contributed in excess of
par value 45,252 45,133
Retained earnings 77,952 69,815
Accumulated other comprehensive loss ( 4,614) ( 4,614)
Treasury stock, at cost;
796,092 shares at January 31, 2005
and 803,592 at April 30, 2004 ( 5,502) ( 5,553)
------------------ -------------------
TOTAL SHAREHOLDERS' EQUITY 113,829 105,522
------------------ -------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 183,988 $ 171,165
================== ===================
See notes to consolidated financial statements.
1
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended January 31, 2005 and 2004
(Thousands, except per share amounts)
2005 2004
----------------- -------------------
REVENUES:
Magazine operations $ 24,126 $ 24,914
Real estate operations - land sales 6,996 7,738
Interest and other operations 364 317
----------------- -------------------
31,486 32,969
----------------- -------------------
COSTS AND EXPENSES:
Magazine operating expenses 20,430 21,908
Real estate cost of sales 3,650 3,847
Real estate commissions and selling 208 166
Other operations 286 281
General and administrative:
Magazine operations 1,860 974
Real estate operations and corporate 848 297
Interest expense, net 220 193
----------------- -------------------
27,502 27,666
----------------- -------------------
Income before income taxes 3,984 5,303
PROVISION FOR INCOME TAXES 1,473 1,962
----------------- -------------------
NET INCOME - CONTINUING OPERATIONS 2,511 3,341
NET INCOME - DISCONTINUED OPERATION -
NET OF TAX 50 42
----------------- -------------------
NET INCOME 2,561 3,383
RETAINED EARNINGS, beginning of period 75,391 64,385
----------------- -------------------
RETAINED EARNINGS, end of period $ 77,952 $ 67,768
================= ===================
NET INCOME PER SHARE - BASIC AND DILUTED
CONTINUING OPERATIONS $ 0.38 $ 0.50
DISCONTINUED OPERATION 0.01 0.01
----------------- -------------------
TOTAL NET INCOME PER SHARE -
BASIC AND DILUTED $ 0.39 $ 0.51
================= ===================
COMPREHENSIVE INCOME $ 2,561 $ 2,321
================= ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,619 6,598
================= ===================
See notes to consolidated financial statements.
2
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Nine Months Ended January 31, 2005 and 2004
(Thousands, except per share amounts)
2005 2004
------------------- -------------------
REVENUES:
Magazine operations $ 72,875 $ 76,107
Real estate operations - land sales 24,482 20,876
Interest and other operations 997 1,220
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98,354 98,203
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COSTS AND EXPENSES:
Magazine operating expenses 59,680 63,546
Real estate cost of sales 10,976 9,845
Real estate commissions and selling 1,246 645
Other operations 1,146 859
General and administrative:
Magazine operations 5,774 5,738
Real estate operations and corporate 2,592 2,118
Interest expense, net 540 721
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81,954 83,472
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Income before income taxes 16,400 14,731
PROVISION FOR INCOME TAXES 5,578 5,451
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NET INCOME - CONTINUING OPERATIONS 10,822 9,280
NET INCOME (LOSS) -
DISCONTINUED OPERATION - NET OF TAX ( 40) 350
------------------- -------------------
NET INCOME 10,782 9,630
DIVIDEND ( 2,645) (1,648)
RETAINED EARNINGS, beginning of period 69,815 59,786
------------------- -------------------
RETAINED EARNINGS, end of period $ 77,952 $ 67,768
=================== ===================
NET INCOME PER SHARE - BASIC AND DILUTED
CONTINUING OPERATIONS $ 1.64 $ 1.41
DISCONTINUED OPERATION ( 0.01) 0.05
------------------- -------------------
TOTAL NET INCOME PER SHARE -
BASIC AND DILUTED $ 1.63 $ 1.46
=================== ===================
COMPREHENSIVE INCOME $ 10,782 $ 8,568
=================== ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,613 6,594
=================== ===================
See notes to consolidated financial statements.
3
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended January 31, 2005 and 2004
(Thousands)
2005 2004
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 10,782 $ 9,630
----------------- ------------------
Adjustments to reconcile net income
to net cash provided by operating
activities -
Depreciation and amortization 3,763 4,213
Non-cash credits and charges:
Pension expense accrual 90 (530)
Bad debt reserve ( 207) 385
Stock based compensation - Directors' Plan 135 109
Changes in assets and liabilities -
Receivables ( 7,150) ( 15,165)
Real estate inventory 864 4,559
Other assets ( 1,510) ( 1,667)
Accounts payable and accrued expenses 796 7,193
Taxes payable ( 1,212) 841
Deferred income taxes 1,121 3,079
----------------- ------------------
Total adjustments ( 3,310) 3,017
----------------- ------------------
Net cash provided by operating
activities 7,472 12,647
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 4,041) ( 3,472)
Proceeds from sale of property,
plant and equipment 180 -
Acquisition of Distribution Contracts ( 100) -
----------------- ------------------
Net cash used by investing
activities ( 3,961) ( 3,472)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 11,004 23,592
Principal debt payments ( 8,483) ( 27,059)
Proceeds from exercise of stock options 35 17
Dividends paid ( 2,645) ( 1,648)
----------------- ------------------
Net cash used by financing
activities ( 89) ( 5,098)
----------------- ------------------
Increase in cash and cash equivalents 3,422 4,077
CASH AND CASH EQUIVALENTS,
beginning of period 26,805 16,443
----------------- ------------------
CASH AND CASH EQUIVALENTS,
end of period $ 30,227 $ 20,520
================= ==================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid -
net of amounts capitalized $ 465 $ 587
================= ==================
Income taxes paid - net of refunds $ 5,646 $ 1,736
================= ==================
Non-cash transactions: Note payable
for acquisition of Distribution
Contracts $ 1,170 $ -
================= ==================
See notes to consolidated financial statements.
4
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended January 31, 2005 and 2004
(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
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Segments
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The following tables set forth summarized data relative to the industry segments
for continuing operations in which the Company operated for the three and nine
month periods ended January 31, 2005 and 2004. 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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January 2005 (Thousands):
Revenues $ 7,149 $ 3,122 $ 21,004 $ 211 $ 31,486
Operating and SG&A expense 4,402 3,212 19,078 590 27,282
Management fee 225 29 196 ( 450) -
Interest expense, net - 31 179 10 220
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Pretax income ( loss ) $ 2,522 $ ( 150) $ 1,551 $ 61 $ 3,984
========== ========== ========== ========= ==========
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January 2004 (Thousands):
Revenues $ 7,897 $ 2,979 $ 21,935 $ 158 $ 32,969
Operating and SG&A expenses 4,298 2,616 20,265 294 27,473
Management fee 192 23 160 (375) -
Interest expense, net - 10 129 54 193
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Pretax income $ 3,407 $ 330 $ 1,381 $ 185 $ 5,303
========== ========== ========== ========= ==========
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5
NINE MONTHS: Land Corporate
Operations Distribution Fulfillment and Other Consolidated
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January 2005 (Thousands):
Revenues $ 24,931 $ 9,435 $ 63,440 $ 548 $ 98,354
Operating and SG&A expenses 13,895 8,328 57,126 2,065 81,414
Management fee 675 87 588 ( 1,350) -
Interest expense, net - 28 459 53 540
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Pretax income ( loss ) $ 10,361 $ 992 $ 5,267 $ ( 220) $ 16,400
========== ========== ========== ========== ==========
Identifiable assets $ 77,569 $ 41,322 $ 41,269 $ 18,637 $ 178,797
Intangible assets $ - $ 3,893 $ 1,298 $ - $ 5,191
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January 2004 (Thousands):
Revenues $ 21,623 $ 9,196 $ 66,911 $ 473 $ 98,203
Operating and SG&A expenses 11,950 8,130 61,153 1,518 82,751
Management fee 577 118 432 ( 1,127) -
Interest expense, net - 22 537 162 721
---------- ---------- ---------- ---------- ----------
Pretax income ( loss ) $ 9,096 $ 926 $ 4,789 $ ( 80) $ 14,731
========== ========== ========== ========== ==========
Identifiable assets $ 72,870 $ 38,033 $ 40,203 $ 18,477 $ 169,583
Intangible assets $ - $ 3,893 $ 1,298 $ - $ 5,191
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(3) Pending Transaction - Condemnation of Utility Company Subsidiary
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In September 2004, a jury verdict was reached in court proceedings in connection
with the condemnation of the Company's El Dorado water utility subsidiary (the
"Utility") in Santa Fe, New Mexico which valued the Utility at $11 million. The
condemning authority, the Eldorado Water & Sanitation District (the "District"),
had proposed a $6.2 million valuation, which the Company had contested. On
November 9, 2004, the Court entered its Judgment confirming the jury verdict in
the condemnation case, and required the District to deposit $7 million into the
Court's account by December 1, 2004. The Court granted the District possession
of the Utility fifteen days after the date of the deposit, and required that the
remaining balance of the verdict be deposited with interest no later than June
1, 2005. The District made the initial required $7 million deposit on November
15, 2004 and took possession of the Utility's assets on December 1, 2004. The
Utility applied to withdraw these monies from the account, but distribution was
withheld by the Court pending its determination of whether certain third-party
claims against the Utility in the Court could involve a claim against the
proceeds under New Mexico condemnation law. On March 8, 2005, the Court ordered
the funds released to the Utility. If the District does not deposit the
remaining balance of $4 million before June 1, 2005, the condemnation is
considered abandoned, the District must return the Utility's assets to the
Utility and the Utility must return the funds which have now been released to
it. The Company believes that the District is seeking the additional financing
that it requires to complete the condemnation, but the Company is unable to
predict whether the District will obtain this financing or whether it will
complete the condemnation in accordance with the Court's order. The Company will
not record the effect of this transaction, which is estimated to result in a net
gain after taxes of approximately $3,400,000, or the equivalent of $0.51 per
share, unless and until the remaining amount due from the District is received.
If this payment is not received in accordance with the Court's Order, the
Utility will regain ownership of its assets and must return the $7 million
deposit to the District.
As a result of the above, the Company has accounted for the operations of the
Utility as a "Discontinued Operation" in the quarter ended January 31, 2005, and
has reclassified prior periods to conform to this presentation. 6
Item 2. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations
-------------------------
INTRODUCTION
- ------------
The Company is primarily engaged in three business segments: the Real Estate
business operated by AMREP Southwest Inc. and its various subsidiaries and the
Fulfillment Services and Newsstand Distribution Services businesses operated by
Kable News Company, Inc. and its various subsidiaries. The Company operates
primarily 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. The Company's fiscal
year ends on April 30, and all references in this Item 2 to the third quarter or
first nine months of 2005 and 2004 mean the three or nine month periods ended
January 31, 2005 and January 31, 2004, respectively.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
- ------------------------------------------
Management's discussion and analysis of financial condition and results of
operations is based on the accounting policies used and disclosed in the 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 nine months of 2005
that had a material impact on its financial condition, liquidity or results of
operations.
RESULTS OF OPERATIONS
- ---------------------
As discussed in more detail below, the Company has begun accounting for its
water utility subsidiary as a "discontinued operation" in the quarter ended
January 31, 2005. Accordingly, financial information from prior periods has been
reclassified to conform to this presentation.
For the third quarter of fiscal 2005, net income from continuing operations was
$2,511,000, or $0.38 per share, compared to net income from continuing
operations of $3,341,000, or $0.50 per share, in the same period of fiscal 2004.
Revenues were $31,486,000 in the third quarter this year versus $32,969,000 in
the same period last year. For the first nine months of fiscal 2005, the Company
reported revenues of $98,354,000 and net income from continuing operations of
$10,822,000, or $1.64 per share. For the comparable period last year, the
Company had revenues of $98,203,000 and net income from continuing operations of
$9,280,000, or $1.41 per share. Net income from discontinued operations was
$50,000 in the third quarter of 2005 and $42,000 in the same period of 2004, or
$0.01 per share in each period. For the nine month period, there was a net loss
from discontinued operations of $40,000 in 2005, or $0.01 per share, compared to
net income of $350,000, or $0.05 per share, in the first nine months of 2004.
7
Revenues from the Company's Kable News Company subsidiary were $24,126,000 in
the third quarter of 2005 compared to $24,914,000 in the same quarter last year.
This decrease of 3.2% was the result of a 4.2% revenue decline in Kable's
Fulfillment Services segment offset in part by a 4.8% revenue increase in its
Newsstand Distribution Services business. For the nine month period ended
January 31, Kable's revenues decreased from $76,107,000 last year to $72,875,000
this year, primarily due to a 5.2% decline in revenues from the Fulfillment
Services segment which was offset in part by a 2.6% increase in Newsstand
Distribution Services revenues. The decline in Fulfillment Services revenues in
both the three and nine month periods was principally the result of customer
losses at Kable's Colorado fulfillment business which had been identified and
known prior to Kable's acquisition of that business in 2003, while the increase
in revenues of Newsstand Distribution Services in both periods resulted from
additional business obtained in connection with the purchase of certain
distribution contracts in the third quarter of 2005. Kable's total operating
expenses decreased 6.7% and 6.1% in the third quarter and first nine months of
2005 compared to the same periods last year, with the operating expenses of
Fulfillment Services decreasing 10.3% and 7.4% in the third quarter and first
nine months of 2005 compared to the same periods of the prior year. This was due
in part to decreases in payroll and other variable expenses resulting from the
revenue decrease, reduced third-party charges for outsourced computer processing
and the inclusion in the prior year of approximately $700,000 of costs of
relocating and centralizing certain fulfillment operations. Fulfillment
operating expenses amounted to 84.7% of related revenues in the third quarter
and 84.1% for the first nine months of 2005 compared to 90.4% and 86.1% for
these periods in 2004. Operating costs for Newsstand Distribution Services
increased 27.4% and 6.5% in the third quarter and first nine months 2005
compared to the same periods last year, due to additional market study costs
incurred in the third quarter of 2005. These higher market study costs are also
expected to continue through the fourth quarter.
Revenues from land sales at the Company's AMREP Southwest subsidiary decreased
from $7,738,000 in the third quarter of 2004 to $6,996,000 in the same quarter
this year, primarily because the prior year quarter included the sale of a
relatively large tract of undeveloped residential lots to a homebuilder, whereas
the current year's sales activity consisted of a higher proportion of recurring
sales of developed residential lots to various homebuilders. Since these
recurring sales of residential lots generally contribute lower gross profit
percentages than large bulk sales, the gross profit on land sales decreased from
50% in last year's third quarter to 48% in the same quarter this year. For the
nine month period, land sale revenues increased from $20,876,000 last year to
$24,482,000 this year, primarily because this year's sales included more
developed residential lots. The overall gross profit percentage improved from
53% in the first nine months last year to 55% for the same period this year due
to better margins this year on both developed and undeveloped residential 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, so that prior results are not
necessarily a good indication of what may occur in future periods.
Real estate commissions and selling expenses increased as a percentage of
related revenues from 2.1% and 3.1% for the third quarter and first nine months
of 2004 to 3.0% and 5.1% for the same periods of 2005 due to closing more land
sales this year with 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 increased in the third quarter and
first nine months of 2005 versus the same period of 2004 principally because the
prior year included the net benefit of an actuarial gain associated with the
curtailment of future benefits under the Company's pension plan. Kable's general
and administrative costs increased during both the third quarter and first nine
8
months of 2005 compared to the same periods of 2004 mainly because of its
allocable share of the benefit of the actuarial gain referred to above. Interest
expense increased in the third quarter of 2005 compared to 2004 because of
slightly higher average borrowings in magazine operations as well as an increase
in the interest rate on these borrowings, but decreased for the first nine
months of 2005 versus 2004 because of lower borrowing requirements in all
segments of the Company's operations.
Revenues associated with interest and other operations increased in the third
quarter of 2005 as compared to the same period in 2004 as a result of increased
interest on higher levels of cash equivalents and mortgage note receivables, but
decreased for the first nine months of 2005 because the prior year included the
recovery of past due interest on a large delinquent mortgage.
During the quarter ended January 31, 2004, the Company recorded a pretax gain of
approximately $1,700,000 from the accelerated recognition of a deferred
actuarial gain due to the curtailment of future service benefits under the
Company's pension plan as approved by the Board of Directors. In addition, the
Company recorded a Comprehensive Loss of $1,700,000, net of $638,000 of deferred
taxes, related to this amortization.
DISCONTINUED OPERATION
- ----------------------
In September 2004, a jury verdict was reached in court proceedings in connection
with the condemnation of the Company's El Dorado water utility subsidiary (the
"Utility") in Santa Fe, New Mexico which valued the Utility at $11 million. The
condemning authority, the Eldorado Water & Sanitation District (the "District"),
had proposed a $6.2 million valuation, which the Company had contested. On
November 9, 2004, the Court entered its Judgment confirming the jury verdict in
the condemnation case, and required the District to deposit $7 million into the
Court's account by December 1, 2004. The Court granted the District possession
of the Utility fifteen days after the date of the deposit, and required that the
remaining balance of the verdict be deposited with interest no later than June
1, 2005. The District made the initial required $7 million deposit on November
15, 2004 and took possession of the Utility's assets on December 1, 2004. The
Utility applied to withdraw these monies from the account, but distribution was
withheld by the Court pending its determination of whether certain third-party
claims against the Utility in the Court could involve a claim against the
proceeds under New Mexico condemnation law. On March 8, 2005, the Court ordered
the funds released to the Utility. If the District does not deposit the
remaining balance of $4 million before June 1, 2005, the condemnation is
considered abandoned, the District must return the Utility's assets to the
Utility and the Utility must return the funds which have now been released to
it. The Company believes that the District is seeking the additional financing
that it requires to complete the condemnation, but the Company is unable to
predict whether the District will obtain this financing or whether it will
complete the condemnation in accordance with the Court's order. The Company will
not record the effect of this transaction, which is estimated to result in a net
gain after taxes of approximately $3,400,000, or the equivalent of $0.51 per
share, unless and until the remaining amount due from the District is received.
If this payment is not received in accordance with the Court's Order, the
Utility will regain ownership of its assets and must return the $7 million
deposit to the District.
As a result of the above, the Company began accounting for the operations of the
Utility as a "Discontinued Operation" in the quarter ended January 31, 2005, and
has reclassified prior periods to conform to this presentation.
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
- ------------------------------------
Kable has a line of credit with a bank which allows it to borrow up to
$30,000,000 based upon a prescribed percentage of eligible accounts receivable,
9
as defined. At January 31, 2005, borrowing availability was approximately
$21,510,000, against which $11,254,000 was outstanding. This line of credit
bears interest at the bank's prime rate (5.25% at January 31, 2005) plus 0.25%,
is collateralized by substantially all of Kable's assets and contains various
performance and other covenants. Kable also has other borrowing arrangements
with another lender to finance capital expenditures which allow borrowings
totaling approximately $4,335,000 against which $3,910,000 was outstanding at
January 31, 2005 at a weighted average interest rate of 5.3%. Both agreements
mature on May 1, 2005, and Kable has been conducting discussions with the
current lenders as well as with other potential lenders for financing beyond
this date.
AMREP Southwest has a loan agreement with a bank providing a maximum borrowing
capacity of approximately $6,000,000 to support its operations in New Mexico.
Loans under this facility bear interest at the prime rate (5.25% at January 31,
2005) less 0.50%, are collateralized by certain real estate assets and are
subject to available collateral and various financial performance and other
covenants. At January 31, 2005, the borrowing availability under this agreement
was approximately $4,751,000, and no amounts were outstanding.
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. 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
- ------------------------------------
Real estate inventory was $57,357,000 at January 31, 2005 compared to
$58,221,000 at April 30, 2004. Kables receivables increased from $42,768,000 at
April 30, 2004 to $49,745,000 at January 31, 2005 as the result of the timing
and seasonality of billings.
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
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.
10
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 January 31, 2005,
approximately $11,254,000 of the Company's total debt of $15,164,000 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
- ------- -----------------------
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of our 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 our disclosure controls and procedures as of the end of
the period covered by this report are functioning effectively to provide
reasonable assurance that the information required to be disclosed by us in
reports filed under the Securities Exchange Act of 1934(i) is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and (ii) accumulated and
communicated to our management, including our chief financial officer and the
other executive officers whose certificates accompanying this report, as
appropriate, to allow timely decisions regarding disclosure. A controls system
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.
11
PART II. OTHER INFORMATION
Item 6. Exhibits
- ------- --------
Exhibits
--------
31.1 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934.
31.2 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934.
31.3 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934.
32 Certification required pursuant to 18 U.S.C. Section 1350.
12
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: March 15, 2005 By: /s/ Peter M. Pizza
---------------------
Peter M. Pizza
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
13
EXHIBIT INDEX
-------------
Exhibit
No. Description
------- -----------
31.1 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934.
31.2 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934.
31.3 Certification required by Rule 13a - 14 (a) under the Securities
Exchange Act of 1934.
32 Certification required pursuant to 18 U.S.C. Section 1350.
14