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 October 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.)
300 Alexander Park , Suite 204, 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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212 Carnegie Center, Suite 302, Princeton, New Jersey 08540
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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 (the
"Exchange Act") 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
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Number of Shares of Common Stock, par value $.10 per share, outstanding at
October 31, 2006 - 6,652,612.
AMREP CORPORATION AND SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
October 31, 2006 and April 30, 2006 1
Consolidated Statements of Operations and Retained Earnings
(Unaudited) Three Months Ended October 31, 2006 and 2005 2
Consolidated Statements of Operations and Retained Earnings
(Unaudited) Six Months Ended October 31, 2006 and 2005 3
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended October 31, 2006 and 2005 4
Notes to Consolidated Financial Statements 5 - 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. Controls and Procedures 13 - 14
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits 14 - 15
SIGNATURE 15
EXHIBIT INDEX 16
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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AMREP CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Thousands, except par value and number of shares)
October 31, April 30,
2006 2006
------------------ -------------------
ASSETS:
Cash and cash equivalents $ 110,167 $ 46,882
Restricted cash 4,232 -
Receivables, net:
Real estate operations 16,574 14,592
Media services operations 42,510 37,140
------------------ -------------------
59,084 51,732
Real estate inventory 40,583 47,533
Investment assets, net 11,992 11,586
Property, plant and equipment, net 9,790 10,879
Other assets, net 16,921 15,238
Goodwill 5,191 5,191
------------------ -------------------
TOTAL ASSETS $ 257,960 $ 189,041
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued expenses $ 79,481 $ 39,382
Deferred revenue 6,547 7,741
Notes payable:
Amounts due within one year 1,644 1,673
Amounts subsequently due 2,827 4,343
------------------ -------------------
4,471 6,016
Taxes payable 5,108 4,548
Deferred income taxes 13,490 9,150
Accrued pension cost 3,334 3,234
------------------ -------------------
TOTAL LIABILITIES 112,431 70,071
------------------ -------------------
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value;
Shares authorized - 20,000,000; 7,418,704 shares issued
at October 31, 2006 and 7,417,204 at April 30, 2006 741 741
Capital contributed in excess of par value 46,061 45,772
Retained earnings 108,093 81,875
Accumulated other comprehensive loss, net (4,072) (4,072)
Treasury stock, at cost; 766,092 shares at October 31, 2006
and 773,592 shares at April 30, 2006 (5,294) (5,346)
------------------ -------------------
TOTAL SHAREHOLDERS' EQUITY 145,529 118,970
------------------ -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 257,960 $ 189,041
================== ===================
See notes to consolidated financial statements.
1
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended October 31, 2006 and 2005
(Thousands, except per share amounts)
2006 2005
----------------- -------------------
REVENUES:
Real estate operations - land sales $ 31,707 $ 11,650
Media services operations 22,913 22,695
Interest and other 1,435 502
----------------- -------------------
56,055 34,847
----------------- -------------------
COSTS AND EXPENSES:
Real estate cost of sales - land sales 8,017 5,365
Operating expenses:
Media services operating expenses 18,663 18,477
Real estate commissions and selling 490 312
Other operations 225 307
General and administrative:
Media services operations 1,587 1,982
Real estate operations and corporate 1,495 1,120
Interest expense 83 69
----------------- -------------------
30,560 27,632
----------------- -------------------
Income from continuing operations before income taxes 25,495 7,215
PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS 9,433 2,153
----------------- -------------------
INCOME FROM CONTINUING OPERATIONS 16,062 5,062
(LOSS) FROM OPERATIONS OF DISCONTINUED BUSINESS
(NET OF INCOME TAXES) - (6)
----------------- -------------------
NET INCOME 16,062 5,056
RETAINED EARNINGS, beginning of period 92,031 84,415
----------------- -------------------
RETAINED EARNINGS, end of period $ 108,093 $ 89,471
================= ===================
EARNINGS PER SHARE - BASIC AND DILUTED:
CONTINUING OPERATIONS $ 2.42 $ 0.76
DISCONTINUED OPERATIONS - 0.00
----------------- -------------------
EARNINGS PER SHARE - BASIC AND DILUTED $ 2.42 $ 0.76
================= ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,649 6,630
================= ===================
See notes to consolidated financial statements.
2
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Six Months Ended October 31, 2006 and 2005
(Thousands, except per share amounts)
2006 2005
----------------- -------------------
REVENUES:
Real estate operations - land sales $ 64,197 $ 19,059
Media services operations 43,740 44,850
Interest and other 6,387 952
----------------- -------------------
114,324 64,861
----------------- -------------------
COSTS AND EXPENSES:
Real estate cost of sales - land sales 19,484 10,128
Operating expenses:
Media services operating expenses 36,825 36,982
Real estate commissions and selling 914 578
Other operations 552 616
General and administrative:
Media services operations 3,317 4,144
Real estate operations and corporate 2,477 2,129
Interest expense 174 209
----------------- -------------------
63,743 54,786
----------------- -------------------
Income from continuing operations before income taxes 50,581 10,075
PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS 18,715 3,211
----------------- -------------------
INCOME FROM CONTINUING OPERATIONS 31,866 6,864
INCOME FROM OPERATIONS OF DISCONTINUED BUSINESS
(NET OF INCOME TAXES) - 3,556
----------------- -------------------
NET INCOME 31,866 10,420
RETAINED EARNINGS, beginning of period 81,875 82,695
DIVIDEND PAID (5,648) (3,644)
----------------- -------------------
RETAINED EARNINGS, end of period $ 108,093 $ 89,471
================= ===================
EARNINGS PER SHARE - BASIC AND DILUTED:
CONTINUING OPERATIONS $ 4.79 $ 1.04
DISCONTINUED OPERATIONS - 0.53
----------------- -------------------
EARNINGS PER SHARE - BASIC AND DILUTED $ 4.79 $ 1.57
================= ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,646 6,628
================= ===================
See notes to consolidated financial statements.
3
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended October 31, 2006 and 2005
(Thousands)
2006 2005
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,866 $ 10,420
----------------- ------------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,937 2,618
Non-cash credits and charges:
Pension expense accrual 107 102
Provision for doubtful accounts 80 (65)
Stock based compensation - Directors' Plan 327 212
Gain on disposition of assets (4,112) (5,516)
Changes in assets and liabilities:
Receivables (7,432) 6,243
Real estate inventory 6,991 (280)
Other assets (2,416) (1,670)
Accounts payable and accrued expenses 40,092 (2,934)
Deferred revenue (1,194) -
Taxes payable 560 (340)
Deferred income taxes 4,340 2,048
----------------- ------------------
Total adjustments 40,280 418
----------------- ------------------
Net cash provided by operating activities 72,146 10,838
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures:
Property, plant, and equipment (1,098) (1,694)
Investment assets (2,492) -
Proceeds from disposition of assets 6,140 4,047
Restricted cash (4,232) -
----------------- ------------------
Net cash provided (used) by investing activities (1,682) 2,353
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 12,181 14,259
Principal debt payments (13,726) (12,332)
Exercise of stock options 14 -
Dividends paid (5,648) (3,644)
----------------- ------------------
Net cash (used) by financing activities (7,179) (1,717)
----------------- ------------------
Increase in cash and cash equivalents 63,285 11,474
CASH AND CASH EQUIVALENTS, beginning of period 46,882 37,743
----------------- ------------------
CASH AND CASH EQUIVALENTS, end of period $ 110,167 $ 49,217
================= ==================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amounts capitalized $ 169 $ 222
================= ==================
Income taxes paid - net of refunds $ 13,814 $ 3,592
================= ==================
See notes to consolidated financial statements.
4
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended October 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 consolidated 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 were received in
connection with (i) sales of non-inventory assets that are identified as "1031
Exchange assets" and which are restricted pending the purchase or identification
of replacement assets ($3,916,000) and (ii) certain land sales accounted for
under the "percentage of completion method" and which are restricted for the
payment of land development work that the Company is required to complete
($316,000).
(3) Receivables
-----------
Media services operations accounts receivable, net consist of the following (in
thousands):
October 31, April 30,
2006 2006
--------------- ----------------
Fulfillment Services $ 22,858 $ 20,266
Newsstand Distribution Services,
net of estimated returns 21,164 18,409
--------------- ----------------
44,022 38,675
Allowance for doubtful accounts (1,512) (1,535)
--------------- ----------------
$ 42,510 $ 37,140
=============== ================
Newsstand Distribution Services accounts receivable are net of estimated
magazine returns of $55,584,000 and $54,071,000 at October 31, 2006 and April
30, 2006. In addition, pursuant to an arrangement with one publisher customer of
the Newsstand Distribution Services segment that commenced in April 2006, the
publisher bears the ultimate credit risk of non-collection of amounts due from
the customers to which the Company distributed the publisher's magazines under
this arrangement. Accounts receivable subject to this arrangement ($33,567,000
and $20,368,000 at October 31, 2006 and April 30, 2006) are netted against the
related accounts payable due the publisher on the accompanying consolidated
balance sheets.
5
(4) Property, plant and equipment
-----------------------------
Property, plant and equipment, net consist of the following (in thousands):
October 31, April 30,
2006 2006
---------------- ----------------
Land, buildings and improvements $ 4,304 $ 4,397
Furniture and equipment 31,098 30,117
Other 77 96
---------------- ----------------
35,479 34,610
Less accumulated depreciation (25,689) (23,731)
---------------- ----------------
$ 9,790 $ 10,879
================ ================
(5) Other Assets
------------
Other assets, net consist of the following (in thousands):
October 31, April 30,
2006 2006
---------------- ----------------
Software development costs $ 8,868 $ 7,787
Deferred order entry costs 4,029 3,872
Prepaid expenses 2,681 2,137
Other 4,523 3,841
---------------- ----------------
20,101 17,637
Less accumulated amortization (3,180) (2,399)
---------------- ----------------
$ 16,921 $ 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):
October 31, April 30,
2006 2006
---------------- ----------------
Publisher payables, net $ 66,531 $ 27,273
Accrued expenses 5,617 4,320
Trade payables 2,440 2,602
Other 4,893 5,187
---------------- ----------------
$ 79,481 $ 39,382
================ ================
Publisher payables increased from April 30, 2006 to October 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,
pursuant to this arrangement the Company has netted $33,567,000 and $20,368,000
6
of accounts receivable against the related accounts payable at October 31, 2006
and April 30, 2006.
(7) Discontinued operations
-----------------------
Net income (loss) from discontinued operations in the three and six month
periods ended October 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 and six
month periods ended October 31, 2006 and 2005.
THREE MONTHS: Newsstand
Real Estate Fulfillment Distribution
Operations Services Services Corporate Consolidated
-------------- ------------- ------------- ------------- ------------
October 2006 (Thousands):
Revenues $ 32,430 $ 18,969 $ 4,187 $ 469 $ 56,055
Operating and G&A expenses 9,380 17,371 2,878 848 30,477
Management fee (income) 248 207 43 (498) -
Interest expense - 167 (84) - 83
-------------- ------------- ------------- ------------- ------------
Pretax income contribution
from continuing operations $ 22,802 $ 1,224 $ 1,350 $ 119 $ 25,495
============== ============= ============= ============= ============
--------------------------------------------------------------------------------------------------------------
October 2005 (Thousands):
Revenues $ 11,975 $ 19,514 $ 3,181 $ 177 $ 34,847
Operating and G&A expenses 6,401 17,623 2,835 704 27,563
Management fee (income) 249 213 36 (498) -
Interest expense - 117 (48) - 69
-------------- ------------- ------------- ------------- ------------
Pretax income contribution from
continuing operations $ 5,325 $ 1,561 $ 358 $ (29) $ 7,215
============== ============= ============= ============= ============
7
SIX MONTHS: Newsstand
Real Estate Fulfillment Distribution
Operations Services Services Corporate Consolidated
-------------- ------------- ------------- ------------- ------------
October 2006 (Thousands):
Revenues $ 69,522 $ 36,541 $ 7,442 $ 819 $ 114,324
Operating and G&A expenses 21,979 34,364 5,777 1,449 63,569
Management fee (income) 498 413 85 (996) -
Interest expense - 292 (118) - 174
-------------- ------------- ------------- ------------- ------------
Pretax income contribution from
continuing operations $ 47,045 $ 1,472 $ 1,698 $ 366 $ 50,581
============== ============= ============= ============= ============
Identifiable assets $ 79,954 $ 46,067 $ 65,213 $ 61,535 $ 252,769
Intangible assets $ - $ 1,298 $ 3,893 $ - $ 5,191
--------------------------------------------------------------------------------------------------------------
October 2005 (Thousands):
Revenues $ 19,664 $ 38,058 $ 6,792 $ 347 $ 64,861
Operating and G&A expenses 12,112 35,468 5,657 1,340 54,577
Management fee (income) 498 426 72 (996) -
Interest expense - 227 (18) - 209
-------------- ------------- ------------- ------------- ------------
Pretax income contribution from
continuing operations $ 7,054 $ 1,937 $ 1,081 $ 3 $ 10,075
============== ============= ============= ============= ============
Identifiable assets $ 75,039 $ 44,907 $ 35,244 $ 34,719 $ 189,909
Intangible assets $ - $ 1,298 $ 3,893 $ - $ 5,191
--------------------------------------------------------------------------------------------------------------
(9) New and Emerging Accounting Standards
-------------------------------------
In June 2006, the Financial Accounting Standards Board ("FASB") 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.
In September 2006, the FASB issued Statement No. 158 ("SFAS No. 158"),
"Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans - an amendment of FASB Statement Nos. 87, 88, 106, and 132(R)". SFAS No.
158 requires a company that sponsors a postretirement benefit plan to fully
recognize, as an asset or liability, the overfunded or underfunded status of its
benefit plan in its balance sheet. The funded status is measured as the
difference between the fair value of the plan's assets and its benefit
obligation. This provision is effective for public companies for fiscal years
ending after December 15, 2006. In addition, SFAS No. 158 also requires a
company to measure its plan assets and benefit obligations as of its year-end
balance sheet date. Currently, a company is permitted to choose a measurement
date up to three months prior to its year-end to measure plan assets and
obligations. This provision is effective for all companies for fiscal years
ending after December 15, 2008. The Company does not expect the adoption of this
Statement will have a material impact on its financial position, results of
operations or cash flows.
8
(10) Pending Acquisition
-------------------
On November 7, 2006, the Company's Kable Media Services, Inc. subsidiary entered
into an agreement to acquire Palm Coast Data, LLC, a company in the fulfillment
services industry. The total transaction value is approximately $92 million,
subject to working capital and other adjustments. Kable plans to finance the
acquisition using a combination of internal funds and borrowings. The closing of
the transaction is subject to customary closing conditions and is expected to
occur early in calendar 2007.
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. All references in this
Item 2 to the second quarter or first six months of 2007 and 2006 mean the
fiscal three or six month periods ended October 31, 2006 and October 31, 2005,
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 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
Item 7 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 an accounting policy in the first six months of fiscal 2007 that
had a material impact on its financial condition, liquidity or results of
operations.
RESULTS OF OPERATIONS
---------------------
For the second quarter of fiscal 2007, net income was $16,062,000, or $2.42 per
share, compared to net income of $5,056,000, or $0.76 per share, in the second
9
quarter of the prior fiscal year. For the first six months of fiscal 2007, net
income was $31,866,000, or $4.79 per share, compared to net income of
$10,420,000, or $1.57 per share, in the same period of fiscal 2006. Results for
the second quarter and first six months of 2007 were entirely from continuing
operations, whereas the prior year's results included a net gain (loss) from
discontinued operations of ($6,000) in the second quarter and $3,556,000, or
$0.53 per share, for the six month period. Revenues were $56,055,000 and
$114,324,000 in the current year's second quarter and first six months versus
$34,847,000 and $64,861,000 in the same periods last year.
Revenues from land sales at the Company's AMREP Southwest subsidiary increased
from $11,650,000 in the second quarter of fiscal 2006 to $31,707,000 in fiscal
2007's second quarter. For the six months ended October 31, these revenues
increased from $19,059,000 last year to $64,197,000 this year. The substantial
revenue increases in both periods of 2007 were primarily due to increased sales
of developed and undeveloped residential lots in the Company's principal market
of Rio Rancho, New Mexico, as well as from increased sales of land for
commercial use. The average gross profit percentage on land sales increased from
54% and 47% in the second quarter and first six months of 2006 to 75% and 70%
for the same periods of 2007, primarily reflecting a greater proportion of sales
of undeveloped lots in the first quarter and first six months of 2007 versus the
same periods last year. 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.
Revenues from the Company's Kable Media Services subsidiary increased from
$22,695,000 in the second quarter of 2006 to $22,913,000 in the same quarter of
the current year. For the six months ended October 31, these revenues decreased
from $44,850,000 last year to $43,740,000 this year. Revenues from Newsstand
Distribution Services operations increased by $763,000 (24%) and $407,000 (6%)
for the three and six month periods ended October 31, 2006 compared to the same
periods last year, principally from increased distribution volumes of magazines
and new business. Revenues from Fulfillment Services operations decreased by
$545,000 (3%) and $1,517,000 (4%) in these same three and six month periods of
2007 compared to the similar periods of 2006 primarily due to
previously-reported customer losses that occurred in earlier periods but that
continue to affect the current year's results. Kable's operating expenses
increased by $186,000 (1%) for the second quarter of 2007 and decreased by
$157,000 (0.4%) for the first six months of 2007 compared to the same periods of
the prior year as a result of the net effect of decreased expenses in the
Fulfillment Services business resulting in part from reductions in variable
expenses, including payroll and benefits, which were offset in part by an
increase in Newsstand Distribution Services operating expenses because of
additional costs, principally payroll, associated with the growth of that
business.
Interest and other revenues increased by $933,000 and $5,435,000 in the three
and six months ended October 31, 2006 compared to the same periods of the prior
year primarily as a result of increased interest income on invested cash
balances in the current year as well as from the sale in the first quarter of
fiscal 2007 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.
Real Estate commissions and selling expenses increased by $178,000 and $336,000
in the second quarter and first six months of 2007 compared to the prior year,
primarily due to costs incurred in relation to the higher revenues in real
estate land sales. Such costs generally vary depending upon the terms of
specific sale transactions. Real estate and corporate general and administrative
expenses in the second quarter and first six months of 2007 increased by
$375,000 and $348,000 over the same prior year periods as a result of an
increase in the Company's stock price which is used to value a portion of
directors' compensation paid in stock and also due to consulting expenses in the
Real Estate segment. General and administrative costs of magazine operations
decreased $395,000 and $827,000 in the second quarter and first six months of
2007 compared with the same prior year periods, primarily due to favorable
variances in payroll and related benefit costs.
10
The Company's effective tax rate is estimated to be 37% for the second quarter
and first six months of 2007 compared to 30% and 32% for the same periods last
year. The lower effective tax rates in 2006 versus 2007 were primarily due to
tax benefits associated with charitable contributions of land by the real estate
business in 2006.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During the past several years, the Company has financed its operations from
internally generated funds from real estate sales and media services operations,
and from borrowings under its various lines-of-credit and development loan
agreements.
Cash Flows From Financing Activities
------------------------------------
In September 2006, AMREP Southwest entered into a new revolving credit agreement
with a bank with a maximum borrowing capacity of $25,000,000 that matures in
2008 and is used to support real estate development in New Mexico. Borrowings
bear interest at the borrower's option at (i) the prime rate less 1%, or (ii)
LIBOR plus 1.50% if borrowings are $10 million or above, and plus 1.65% if
borrowings are less than $10 million. There were no balances outstanding under
this arrangement at October 31, 2006. This credit facility contains a number of
restrictive covenants, including one that requires the borrower to maintain a
minimum tangible net worth.
The companies within the 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. This agreement, as amended in May 2006,
also provides an additional $10,000,000 revolving facility to a subsidiary of
the Distribution Services business that may be used only to pay accounts payable
under a magazine distribution agreement with one publisher customer. The
individual credit lines are collateralized by substantially all of the
respective borrower's assets (consisting principally of accounts receivable and
machinery and equipment) and bear interest at the bank's prime rate (8.25% at
October 31, 2006) or, at the borrower's option, a reserve adjusted overnight or
30-day LIBOR-based interest rate (5.34% at October 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. At October 31, 2006, no
balances were outstanding under this arrangement, and the full limits of the
credit lines were available to be borrowed. 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. An additional
$1,392,000 is available under this credit arrangement for capital expenditures.
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. Previously, the Board had declared
special dividends of $0.55, $0.40 and $0.25 per share following the close of
AMREP's fiscal years ending April 30, 2005, 2004 and 2003, and had declared an
additional special dividend of $3.50 per share in December 2005. 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 similar in amount or frequency with past
dividends.
11
Cash Flows From Operating Activities
------------------------------------
Real Estate inventory was $40,583,000 at October 31, 2006 compared to
$47,533,000 at April 30, 2006. Inventory in the Company's core real estate
market of Rio Rancho was $33,913,000 at October 31, 2006 and $40,981,000 at
April 30, 2006. The balance of inventory consisted of properties in Colorado.
Real Estate receivables increased from $14,592,000 at April 30, 2006 to
$16,574,000 at October 31, 2006 resulting from the net effect of mortgages
issued in connection with real estate sales that closed during the first six
months of 2007 offset in part by payments received on previously issued
mortgages. Receivables from Media Service operations increased from $37,140,000
at April 30, 2006 to $42,510,000 at October 31, 2006, primarily due to the
timing of quarter-end billings and cash collections.
Accounts payable and accrued expenses increased from $39,382,000 at April 30,
2006 to $79,481,000 at October 31, 2006 as a result of an increase in the
amounts due publishers under the distribution arrangement referred to above 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 the arrangement had been received by the
Company before payment to the publisher was due. In addition, pursuant to an
arrangement with one publisher customer of the Newsstand Distribution Services
segment that commenced in April 2006, the publisher bears the ultimate credit
risk of non-collection of amounts due from the customers to which the Company
distributed the publisher's magazines under this arrangement. Accounts
receivable subject to this arrangement ($33,567,000 and $20,368,000 at October
31, 2006 and April 30, 2006) are netted against the related accounts payable due
the publisher on the accompanying consolidated balance sheets.
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.
Cash Flows From Investing Activities
------------------------------------
On November 7, 2006, Kable entered into an agreement to acquire Palm Coast Data,
LLC, a company in the fulfillment services industry. The total transaction value
is approximately $92 million, subject to working capital and other adjustments.
Kable plans to finance the acquisition using a combination of internal funds and
borrowings. The closing of the transaction is subject to customary closing
conditions and is expected to occur early in calendar 2007.
Capital expenditures amounted to $3,590,000 and $1,694,000 in the first six
months of 2007 and 2006 and were primarily for the acquisition of Real Estate
investment property and computer hardware and software development expenditures
related to Kable's Fulfillment Services business. The Company believes that it
has adequate cash and financing capability to provide for its anticipated future
capital expenditures.
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 October 31, 2006 for the items indicated (in
thousands):
12
Contractual Less than 1 - 3 3 - 5 More than
Obligations Total 1 year years years 5 years
-------------- ---------- ----------- ---------- ---------- ------------
Notes payable $ 4,471 $ 1,644 $ 2,388 $ 439 $ -
Operating leases 23,482 5,515 6,293 4,712 6,962
---------- ----------- ---------- ---------- ------------
Total $ 27,953 $ 7,159 $ 8,681 $ 5,151 $ 6,962
========== =========== ========== ========== ============
Refer to Notes 9, 14 and 15 to the consolidated financial statements included in
the 2006 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 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. AMREP 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 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 October 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 $4,471,000 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
------- -----------------------
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.
13
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.
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
------- -----------------------------------------------------------
Pursuant to the Company's 2002 Non-Employee Directors' Stock Plan, the Company
issued an aggregate of 7,500 shares of its Common Stock to its six non-employee
directors on September 15, 2006, as partial payment for their services as
directors for the six months preceding such issuance. These issuances were not
registered under the Securities Act of 1933, as amended, by reason of the
exemption provided in Section 4(2) of such Act for transactions by an issuer not
involving any public offering.
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
The 2006 Annual Meeting of Shareholders of the Company (the "Meeting") was
held on September 20, 2006. At the Meeting, Edward B. Cloues, II and James Wall
were reelected directors of the Company by the following votes:
For Withheld
--- --------
Edward B. Cloues, II 5,858,422 388,657
James Wall 5,733,898 513,181
At the Meeting, the shareholders also voted in favor of the following two
proposals by the indicated votes:
Broker
Proposal For Against Abstain Non-Votes
-------- --- ------- ------- ---------
Approval of an amendment to the Company's Certificate 5,005,723 547,892 3,712 688,752
of Incorporation to allow vacancies in the Board of
Directors resulting from an increase in the number of
directors to be filled by the Board.
Approval of the adoption by the Board of Directors of 5,175,553 375,638 6,136 689,752
the Company's 2006 Equity Compensation Plan.
Item 6. Exhibits
------- --------
Exhibit No. Description
----------- -----------
3(a)(i) Certificate of Incorporation, as amended - Incorporated by reference to Exhibit
(3)(a)(i) to the Company's Annual Report on Form 10-K for the fiscal year ended April
30, 1998.
3(a)(ii) Certificate of Merger - Incorporated by reference to Exhibit (3)(a)(ii) to the Company's
Annual Report on Form 10-K for the fiscal year ended April 30, 1998.
14
3(a)(iii) Amended Certificate of Incorporation of the Company filed in Oklahoma on September 20,
2006 - Filed herewith.
3(b) By-Laws of the Company, as amended to September 20, 2006 - Filed herewith.
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 has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 14, 2006 AMREP CORPORATION
(Registrant)
By: /s/ Peter M. Pizza
--------------------------------------------
Peter M. Pizza
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
15
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
3(a)(i) Certificate of Incorporation, as amended - Incorporated by reference to Exhibit
(3)(a)(i) to the Company's Annual Report on Form 10-K for the fiscal year ended April
30, 1998.
3(a)(ii) Certificate of Merger - Incorporated by reference to Exhibit (3)(a)(ii) to the Company's
Annual Report on Form 10-K for the fiscal year ended April 30, 1998.
3(a)(iii) Amended Certificate of Incorporation of the Company filed in Oklahoma on September 20,
2006 - Filed herewith.
3(b) By-Laws of the Company, as amended to September 20, 2006 - Filed herewith.
31.1 Certification required by Rule 13a-14(a) under the Securities Exchange Act of 1934 -
Filed herewith.
31.2 Certification required by Rule 13a-14(a) under the Securities Exchange Act of 1934 -
Filed herewith.
31.3 Certification required by Rule 13a-14(a) under the Securities Exchange Act of 1934 -
Filed herewith.
32 Certification required pursuant to 18 U.S.C. Section 1350.
16