UNITED STATES
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, 2006
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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.)
212 Carnegie Center, Suite 302, Princeton, New Jersey 08540
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (609) 716-8200
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Not Applicable
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(Former name,former address and former fiscal year,if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------------- ------------
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer X
--- --- -----
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
-------------- -----------
Number of Shares of Common Stock, par value $.10 per share, outstanding at
July 31, 2006 - 6,645,112.
AMREP CORPORATION AND SUBSIDIARIES
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
July 31, 2006 and April 30, 2006 1
Consolidated Statements of Operations and Retained Earnings
(Unaudited) Three Months Ended July 31, 2006 and 2005 2
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended July 31, 2006 and 2005 3
Notes to Consolidated Financial Statements 4 - 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 11
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 12
EXHIBIT INDEX 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
------- --------------------
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Thousands, except par value and number of shares)
July 31, April 30,
2006 2006
------------------ -------------------
ASSETS:
Cash and cash equivalents $ 95,181 $ 46,882
Restricted cash 7,783 -
Receivables, net:
Real estate operations 10,097 14,592
Media services operations 43,252 37,140
------------------ -------------------
53,349 51,732
Real estate inventory 42,098 47,533
Investment assets - net 9,634 11,586
Property, plant and equipment, net 10,401 10,879
Other assets, net 16,057 15,238
Goodwill 5,191 5,191
------------------ -------------------
TOTAL ASSETS $ 239,694 $ 189,041
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued expenses $ 70,916 $ 39,382
Deferred revenue 7,928 7,741
Dividends payable 5,648 -
Notes payable:
Amounts due within one year 1,653 1,673
Amounts subsequently due 2,744 4,343
------------------ -------------------
4,397 6,016
Taxes payable 7,517 4,548
Deferred income taxes 10,865 9,150
Accrued pension cost 3,284 3,234
------------------ -------------------
TOTAL LIABILITIES 110,555 70,071
------------------ -------------------
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value;
Shares authorized - 20,000,000; 7,418,704 shares issued
at July 31, 2006 and 7,417,204 at April 30, 2006 741 741
Capital contributed in excess of par value 45,785 45,772
Retained earnings 92,031 81,875
Accumulated other comprehensive loss, net (4,072) (4,072)
Treasury stock, at cost; 773,592 shares at July 31, 2006
and at April 30, 2006 (5,346) (5,346)
------------------ -------------------
TOTAL SHAREHOLDERS' EQUITY 129,139 118,970
------------------ -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 239,694 $ 189,041
================== ===================
See notes to consolidated financial statements.
1
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended July 31, 2006 and 2005
(Thousands, except per share amounts)
2006 2005
----------------- -------------------
REVENUES:
Real estate operations - land sales $ 32,490 $ 7,409
Media services operations 20,827 22,155
Interest and other 4,952 450
----------------- -------------------
58,269 30,014
----------------- -------------------
COSTS AND EXPENSES:
Real estate cost of sales - land sales 11,467 4,763
Operating expenses:
Media services operating expenses 18,162 18,505
Real estate commissions and selling 424 266
Other operations 327 309
General and administrative:
Media services operations 1,730 2,162
Real estate operations and corporate 982 1,009
Interest expense 91 140
----------------- -------------------
33,183 27,154
----------------- -------------------
Income from continuing operations before income taxes 25,086 2,860
PROVISION FOR INCOME TAXES FROM CONTINUING
OPERATIONS 9,282 1,058
----------------- -------------------
INCOME FROM CONTINUING OPERATIONS 15,804 1,802
INCOME FROM OPERATIONS OF DISCONTINUED BUSINESS
(NET OF INCOME TAXES) - 3,562
----------------- -------------------
NET INCOME 15,804 5,364
RETAINED EARNINGS, beginning of period 81,875 82,695
DIVIDEND PAYABLE (5,648) (3,644)
----------------- -------------------
RETAINED EARNINGS, end of period $ 92,031 $ 84,415
================= ===================
EARNINGS PER SHARE - BASIC AND DILUTED:
CONTINUING OPERATIONS $ 2.38 $ 0.27
DISCONTINUED OPERATIONS - 0.54
----------------- -------------------
EARNINGS PER SHARE - BASIC AND DILUTED $ 2.38 $ 0.81
================= ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,644 6,626
================= ===================
See notes to consolidated financial statements.
2
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended July 31, 2006 and 2005
(Thousands)
2006 2005
----------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,804 $ 5,364
----------------- -------------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,447 1,267
Non-cash credits and charges:
Pension expense accrual 50 51
Provision for doubtful accounts 74 74
Gain on disposition of assets (4,107) (5,516)
Changes in assets and liabilities:
Receivables (1,691) 7,228
Real estate inventory 5,435 (1,669)
Other assets (1,186) (1,266)
Accounts payable and accrued expenses 31,534 (670)
Deferred revenue 187 -
Taxes payable 2,969 (649)
Deferred income taxes 1,715 1,968
----------------- -------------------
Total adjustments 36,427 818
----------------- -------------------
Net cash provided by operating activities 52,231 6,182
----------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures:
Property, plant, and equipment (608) (740)
Investment assets (70) (3)
Proceeds from disposition of assets 6,135 4,047
Restricted cash (7,783) -
----------------- -------------------
Net cash provided (used) by investing activities (2,326) 3,304
----------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 6,232 4,822
Principal debt payments (7,851) (8,710)
Exercise of stock options 13 -
----------------- -------------------
Net cash (used) by financing activities (1,606) (3,888)
----------------- -------------------
Increase in cash and cash equivalents 48,299 5,598
CASH AND CASH EQUIVALENTS, beginning of period 46,882 37,743
----------------- -------------------
CASH AND CASH EQUIVALENTS, end of period $ 95,181 $ 43,341
================= ===================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amounts capitalized $ 91 $ 186
================= ===================
Income taxes paid - net of refunds $ 4,598 $ 1,831
================= ===================
Non-cash transaction - Dividend payable $ 5,648 $ 3,644
================= ===================
See notes to consolidated financial statements.
3
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Three Months Ended July 31, 2006 and 2005
(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, 2006 that was previously filed with the Securities and Exchange
Commission.
(2) Restricted Cash
---------------
Restricted cash consists of amounts held in escrow that was received in
connection with (i) sales of non-inventory assets that are identified as "1031
Exchange assets" and which amount is restricted pending the purchase or
identification of replacement assets ($6,162,000) and (ii) certain land sales
accounted for under the "percentage of completion method" and which amount is
restricted for the payment of land development work that the Company is required
to complete ($1,621,000).
(3) Receivables
-----------
Media services operations accounts receivable, net consist of the following (in
thousands):
July 31, April 30,
2006 2006
--------------- ----------------
Fulfillment Services $ 20,201 $ 20,266
Newsstand Distribution Services,
net of estimated returns 24,557 18,409
--------------- ----------------
$ 44,758 $ 38,675
Allowance for doubtful accounts (1,506) (1,535)
--------------- ----------------
$ 43,252 $ 37,140
=============== ================
Newsstand Distribution Services accounts receivable are net of estimated
magazine returns of $49,574,000 and $54,071,000 at July 31, 2006 and April 30,
2006. In addition, pursuant to an arrangement with one publisher customer of the
Newsstand Distribution Services segment under which the publisher has guaranteed
the Company's credit risk with respect to the collection of related accounts
receivable from wholesalers to whom the Company has distributed the publisher's
magazines by allowing an offset of past due or uncollectible amounts (as
defined) from wholesalers against amounts due the publisher, the Company has the
ultimate right of offset, and has offset $26,283,000 and $20,368,000 of accounts
receivable against the related accounts payable at July 31, 2006 and April 30,
2006.
4
(4) Property, plant and equipment
-----------------------------
Property, plant and equipment, net consists of the following (in thousands):
July 31, April 30,
2006 2006
---------------- ----------------
Land, buildings and improvements $ 4,257 $ 4,397
Furniture and equipment 30,669 30,117
Other 84 96
---------------- ----------------
35,010 34,610
Less accumulated depreciation (24,609) (23,731)
---------------- ----------------
$ 10,401 $ 10,879
================ ================
(5) Other Assets
------------
Other assets, net consist of the following (in thousands):
July 31, April 30,
2006 2006
---------------- ----------------
Software development costs $ 8,129 $ 7,787
Deferred order entry costs 3,850 3,872
Prepaid expenses 2,820 2,137
Other 4,032 3,841
---------------- ----------------
18,831 17,637
Less accumulated amortization (2,774) (2,399)
---------------- ----------------
$ 16,057 $ 15,238
================ ================
Software development costs include internal and external costs of the
development of new or enhanced software programs and are generally amortized
over five years. Deferred order entry costs represent costs incurred in
connection with the data entry of customer subscription information to data base
files and are charged directly to operations over a 12-month period. Other
includes the acquisition costs of certain customer contracts that are amortized
over periods that generally range from three to five years.
(6) Accounts Payable and Accrued Expenses
-------------------------------------
Accounts payable and accrued expenses consist of the following (in thousands):
July 31, April 30,
2006 2006
---------------- ----------------
Publisher payables, net $ 59,310 $ 27,273
Accrued expenses 4,279 4,320
Trade payables 2,246 2,602
Other 5,081 5,187
---------------- ----------------
$ 70,916 $ 39,382
================ ================
Publisher payables increased from April 30, 2006 to July 31, 2006 as a result of
additional magazine purchases by the Company under an arrangement with a
publisher customer of the Newsstand Distribution Services business that
commenced in April 2006. In addition, as discussed more fully in note 3,
5
pursuant to this arrangement the Company has offset $26,283,000 and $20,368,000
of accounts receivable against the related accounts payable at July 31, 2006 and
April 30, 2006.
(7) Discontinued operations
-----------------------
Net income from discontinued operations in the three months ended July 31, 2005
reflects the gain from the disposition of the primary assets of the Company's El
Dorado, New Mexico water utility subsidiary, which were taken through
condemnation proceedings.
(8) Information About the Company's Operations in Different Industry
----------------------------------------------------------------
Segments
--------
The following tables set forth summarized data relative to the industry segments
for continuing operations in which the Company operated for the three-month
periods ended July 31, 2006 and 2005.
THREE MONTHS: Newsstand
Real Estate Fulfillment Distribution
Operations Services Services Corporate Consolidated
-------------- ------------- ------------- ------------- ------------
July 2006 (Thousands):
Revenues $ 37,092 $ 17,572 $ 3,255 $ 350 $ 58,269
Operating and G&A expenses 12,599 16,993 2,899 601 33,092
Management fee (income) 250 206 42 (498) -
Interest expense, net - 125 (34) - 91
-------------- ------------- ------------- ------------- ------------
Pretax income contribution
from continuing operations $ 24,243 $ 248 $ 348 $ 247 $ 25,086
============== ============= ============= ============= ============
Identifiable assets $ 82,140 $ 43,437 $ 57,557 $ 51,369 $ 234,503
Intangible assets $ - $ 1,298 $ 3,893 $ - $ 5,191
July 2005 (Thousands):
Revenues $ 7,689 $ 18,544 $ 3,611 $ 170 $ 30,014
Operating and G&A expenses 5,711 17,845 2,822 636 27,014
Management fee (income) 249 213 36 (498) -
Interest expense, net - 110 30 - 140
-------------- ------------- ------------- ------------- ------------
Pretax income contribution
from continuing operations $ 1,729 $ 376 $ 723 $ 32 $ 2,860
============== ============= ============= ============= ============
Identifiable assets $ 76,510 $ 43,189 $ 32,036 $ 32,559 $ 184,294
Intangible assets $ - $ 1,298 $ 3,893 $ - $ 5,191
(9) New and Emerging Accounting Standards
-------------------------------------
The Financial Accounting Standards Board ("FASB") has issued FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"). FIN 48 clarifies
the accounting for uncertainty in income taxes recognized in the Company's
financial statements in accordance with FASB Statement No. 109, Accounting for
Income Taxes, and provides guidance for recognizing and measuring tax positions
taken or that are expected to be taken in a tax return that directly or
indirectly affect amounts reported in the financial statements. FIN 48 also
provides accounting guidance for related income tax effects of tax positions
that do not meet the recognition threshold specified in this interpretation. FIN
48 is effective for fiscal years beginning after December 15, 2006. The Company
is currently evaluating the application of FIN 48 to determine the potential
impact on its financial statements.
6
Item 2. Management's Discussion and Analysis of Financial Condition
------- -----------------------------------------------------------
and Results of Operations
-------------------------
INTRODUCTION
------------
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 Media Services,
Inc. and its subsidiaries (collectively, "Kable"). 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. The Company's fiscal
year ends on April 30, and all references in this Item 2 to the first quarter or
first three months of 2007 and 2006 mean the three month periods ended July 31,
2006 and July 31, 2005.
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 2006
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, 2006 (the "2006 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 amounts or results could differ from those estimates.
The significant accounting policies of the Company are described in Note 1 to
the 2006 consolidated financial statements, and the critical accounting policies
and estimates are described in Management's Discussion and Analysis included in
the 2006 Form 10-K. There have been no changes in the critical accounting
policies. Information concerning the implementation and the impact of new
accounting standards issued by the Financial Accounting Standards Board is
included in the notes to the 2006 consolidated financial statements. The Company
did not adopt any accounting policy in the first three months of fiscal 2007
that had a material impact on its financial condition, liquidity or results of
operations.
RESULTS OF OPERATIONS
---------------------
For the first quarter of fiscal 2007, net income was $15,804,000, or $2.38 per
share, compared to net income of $5,364,000, or $0.81 per share, in the first
quarter of the prior fiscal year. Results for the first quarter of 2007 were
entirely from continuing operations, while last year's results consisted of net
income from continuing operations of $1,802,000, or $0.27 per share, and net
income from discontinued operations of $3,562,000, or $0.54 per share. Revenues
were $58,269,000 in the first quarter this year versus $30,014,000 in the first
quarter of fiscal 2006.
Revenues from land sales at AMREP Southwest were $32,491,000 in the first
quarter of 2007 compared to $7,409,000 in the same quarter last year. This
substantial revenue increase was primarily due to increased sales of both
developed and undeveloped lots in the Company's principal market of Rio Rancho,
7
New Mexico, where interest in the Company's landholdings did not appear to be
impacted by the slowdown in housing that has been reported in many parts of the
country. Revenues from the sale of developed and undeveloped lots increased from
$6,150,000 and $1,259,000 in the first quarter of 2006 to $14,503,000 and
$14,694,000 in the same period of 2007. In addition, revenues from the sale of
commercial and industrial properties were $3,293,000 in the first three months
of 2007 versus no sales of such properties in the first quarter of 2006. The
average gross profit percentage on land sales increased from 36% in the first
quarter of 2006 to 65% in the same period this year, primarily reflecting a
greater proportion of sales of undeveloped lots in the first quarter of 2007.
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.
Interest and other revenues increased from $450,000 in the first quarter of 2006
to $4,952,000 in the current year period as a result of the sale of certain of
AMREP Southwest's non-inventory real estate assets, including the Company's
office building in Rio Rancho, which in the aggregate contributed a pretax gain
of $4,107,000.
Revenues from Kable's Media Services operations decreased approximately 6%, from
$22,155,000 in the first quarter of 2006 to $20,827,000 in the same period of
the current year. This decrease was the combined result of a $972,000 revenue
decline (5%) in the Fulfillment Services segment and a $356,000 revenue decline
(10%) in the Newsstand Distribution Services segment. The revenue decline in the
Fulfillment Services segment was primarily due to previously-reported customer
losses at Kable's Colorado fulfillment operation that occurred in earlier
periods but that still affected the comparison with last year's first quarter.
The revenue decrease in the Newsstand Distribution Services segment reflected a
modest decrease in the distribution sales volume from existing customers and a
decrease in the average commission rate earned by Kable, partly offset by
commissions earned under a distribution arrangement with a new publisher
customer that commenced in the fourth quarter of 2006. Media services operating
expenses decreased by $343,000 (2%) for the first quarter of 2007 compared to
the same period of 2006, primarily due to decreased expenses in the Fulfillment
Services business of $497,000 (3%) relating in part to reductions in variable
expenses, including payroll and benefits, which were offset in part by an
increase in Newsstand Distribution Services operating costs of $154,000 (7%) in
the same period because of additional costs, principally payroll, associated
with the new distribution arrangement referred to above.
Real Estate commissions and selling expenses increased from $266,000 in the
first quarter of 2006 to $424,000 in the first quarter of the current year as a
result of the increased land sales, representing approximately 3.6% and 1.3% of
related land sale revenues in each period. Such costs generally vary depending
upon the terms of specific sale transactions. There was no significant variation
in the total of real estate and corporate general and administrative expenses
between the first quarters of 2006 and 2007, while general and administrative
costs of magazine operations decreased by $432,000 (20%) in the first quarter of
2007 compared to the prior year period as a result of cost reductions,
principally in the Fulfillment Services segment.
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 service
operations, and from borrowings under its various lines-of-credit and
development loan agreements.
Cash Flows From Financing Activities
------------------------------------
AMREP Southwest has a loan agreement with a bank with a maximum borrowing
capacity of $10,000,000 that may be used to support real estate development in
New Mexico. The loan is unsecured and bears interest at the bank's prime rate
8
less 0.75% or, at the borrower's option, a LIBOR-based interest rate plus 2.0%.
At July 31, 2006, there were no balances outstanding under this facility. The
credit agreement contains certain covenants, the most significant of which limit
other borrowings and require the maintenance of a minimum tangible net worth (as
defined) and a certain level of unencumbered inventory. This credit arrangement
expires in October 2008.
The companies within Kable's Media Services operations have a credit arrangement
with a bank that matures in 2010 and allows separate revolving credit borrowings
of up to $11,000,000 for Fulfillment Services and up to $9,000,000 for Newsstand
Distribution Services, in each case based upon a prescribed percentage of the
borrower's eligible accounts receivable. Each separate credit line is
collateralized by substantially all of the borrower's assets (consisting
principally of accounts receivable and machinery and equipment) and bears
interest at the bank's prime rate (8.25% at July 31, 2006) or, at the borrower's
option, a reserve adjusted overnight or 30-day LIBOR-based interest rate (5.34%
at July 31, 2006) plus, in either case, a margin established quarterly of from
1.75% to 2.50% depending upon the borrower's funded debt to EBITDA ratio, as
defined. The credit arrangement requires the maintenance or achievement of
certain financial ratios and contains certain financial covenants, the most
significant of which limit the amount of dividends and other payments that may
be made by the borrowers to their parent or other affiliates, as well as capital
expenditures and other borrowings. At July 31, 2006, the borrowing
availabilities of the Fulfillment Services and Newsstand Distribution Services
businesses were $10,285,000 and $9,000,000, against which no amounts were
outstanding.
In May, 2006, the Media Services operations credit agreement was amended to
provide for an additional $10,000,000 revolving facility to a subsidiary of the
Distribution Services business on the same terms (except for the amount
borrowable and the use of proceeds) as the credit arrangement described above
for that business. The proceeds of borrowings under this arrangement may be used
only to pay accounts payable under a magazine distribution agreement with one
publisher customer. Subject to such maximum loan amount, up to 40% of the amount
of the borrower's accounts receivable from the distribution of magazines covered
by the distribution agreement with that customer may be borrowed. There were no
outstanding borrowings under this arrangement at July 31, 2006.
In addition, the Media Services operations credit agreement provides for term
loans for capital expenditures also secured by substantially all of the
borrower's assets. At July 31, 2006, $3,182,000 of term loans with a weighted
average interest rate of 6.2% maturing in installments to 2010 were outstanding
and an additional $2,007,600 remained available for future borrowings.
On July 14, 2006, the Board of Directors declared a special cash dividend of
$0.85 per common share payable on August 16, 2006 to shareholders of record at
the close of business on July 31, 2006. The Board has stated 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. Notwithstanding such statement and the status of
such future conditions, no assurance is given that there will be any such future
dividends declared or that future dividend declarations, if any, will be
commensurate in amount or frequency with past dividends.
Cash Flows From Operating Activities
------------------------------------
Receivables from the Media Services operations increased from $37,140,000 at
April 30, 2006 to $43,252,000 at July 31, 2006, primarily due to the timing of
cash collections as well as an increase in gross billings in the first quarter
of 2007 compared to the fourth quarter of 2006.
Inventory amounted to $42,098,000 at July 31, 2006 compared to $47,533,000 at
April 30, 2006. Inventory in the Company's core real estate market of Rio Rancho
was $35,475,000 at July 31, 2006 and $40,820,000 at April 30, 2006. The balance
of inventory consisted of property in Colorado.
9
Investment assets, net decreased from $11,586,000 at April 30, 2006 to
$9,634,000 at July 31, 2006, primarily as the result of the sale of the
Company's office building in Rio Rancho, New Mexico.
Deferred revenue relates to consideration received on certain real estate land
sales which are accounted for under the percentage of completion method and
which will be recognized as revenue as the Company completes land development
work for which it remains obligated.
Accounts payable and accrued expenses increased from $39,382,000 at April 30,
2006 to $70,916,000 at July 31, 2006 as a result of an increase in the amounts
due publishers under a new distribution arrangement with a new publisher
customer of the Newsstand Distribution Services business that commenced in April
2006. This increase in accounts payable was offset by a corresponding increase
in cash, since collections for the related magazine distribution to wholesalers
under this arrangement had been received by the Company but had not been
remitted to the publisher customer at July 31, 2006. In addition, the publisher
has guaranteed the Company's ultimate credit risk resulting from the collection
of related accounts receivable from wholesalers to whom the Company has
distributed the publisher's magazines by allowing an offset of past due or
uncollectable amounts (as defined) from wholesalers against amounts due the
publisher. Pursuant to this arrangement, the Company has the right of offset and
has offset $26,283,000 and $20,368,000 of accounts receivable against the
related accounts payable at July 31, 2006 and April 30, 2006.
Cash Flows From Investing Activities
------------------------------------
Capital expenditures amounted to $678,000 and $743,000 in the first three months
of 2007 and 2006, and were primarily related to computer hardware and software
development costs related to Kable's Fulfillment Services business and to
capital additions to investment property. The Company believes that it has
adequate cash and financing capability to provide for its anticipated future
capital expenditures.
Future Payments Under Contractual Obligations
---------------------------------------------
The Company is obligated to make future payments under various contracts,
including its debt agreements and lease agreements, and it is subject to certain
other commitments and contingencies. The table below summarizes significant
contractual cash obligations as of July 31, 2006 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 $ 4,397 $ 1,653 $ 2,263 $ 481 $ -
Operating leases 24,902 5,648 6,970 4,786 7,498
-------------- ---------- ----------- ---------- ---------- ------------
Total $ 29,299 $ 7,301 $ 9,233 $ 5,267 $ 7,498
========== =========== ========== ========== ============
Risk Factors
------------
In addition to the other information set forth in this report, the factors
identified in Part 1, "Item 1A. Risk Factors" in the 2006 Form 10-K could
materially affect the business, financial condition or future results of the
Company. The risks described in the 2006 Form 10-K are not the only risks facing
the Company. Additional risks and uncertainties not currently known or that are
deemed to be immaterial also may materially affect the Company's business,
financial condition or operating results.
10
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 2006 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, 2006, there were no
outstanding borrowings under these variable rate arrangements so that, as a
result, none of the Company's total debt of $4,397,000 was subject to variable
interest rates. Refer to Item 7(A) of the Company's 2006 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
The Company's management, with the participation of the Company's chief
financial officer and the other executive officers whose certifications
accompany this quarterly report, has 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 such
other executive officers have concluded that such disclosure controls and
procedures are effective 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 (i) 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 the
Company's management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate, to allow
timely decisions regarding disclosure. The Company believes that a control
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.
Changes in Internal Control over Financial Reporting
No change in the Company's system of internal control over financial reporting
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
11
PART II. OTHER INFORMATION
Item 6. Exhibits
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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.
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.
Date: September 14, 2006 AMREP CORPORATION
(Registrant)
By: /s/ Peter M. Pizza
-------------------
Peter M. Pizza
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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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.
13