UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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 JanuaryJuly 31, 2018
2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________________________ to _________________________________
Commission File NumberNumber: 1-4702
AMREP Corporation
(Exact Name of Registrant as Specified in its Charter)
Oklahoma | 59-0936128 | |
State or Other Jurisdiction of Incorporation or Organization | I.R.S. Employer Identification No. | |
850 West Chester Pike, Suite 205, Havertown, PA | 19083 | |
Address of Principal Executive Offices | Zip Code |
(610) 487-0905 |
Registrant’s Telephone Number, Including Area Code |
| ||
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report |
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock $0.10 par value | | AXR | | New York Stock Exchange |
Registrant’s telephone number, including area code:(610) 487-0905
Indicate by check mark whether the Registrantregistrant (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 Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrantregistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐ | Accelerated filer | |||
Non-accelerated filer☒ | Smaller reporting company | |||
Emerging growth company☐ |
If an emerging growth company, indicate by check mark if the Registrantregistrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨☐
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Number of Shares of Common Stock, par value $.10 per share, outstanding at March 15, 2018September 2, 2022 – 8,098,704.5,254,909.
AMREP CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Balance SheetsCONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par valueshare and per share amounts)
| January 31, 2018 | April 30, 2017 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 13,854 | $ | 11,811 | ||||
| Receivables, net | 6,918 | 6,379 | ||||||
| Real estate inventory | 58,271 | 56,090 | ||||||
| Investment assets | 9,714 | 9,715 | ||||||
| Property, plant and equipment, net | 10,028 | 10,852 | ||||||
| Other assets | 2,238 | 2,310 | ||||||
| Deferred income taxes, net (Note 9) | 4,815 | 9,519 | ||||||
| TOTAL ASSETS | $ | 105,838 | $ | 106,676 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 9,187 | $ | 7,035 | ||||
| Notes payable | 638 | - | ||||||
| Taxes payable, net | 41 | 465 | ||||||
| Other liabilities and deferred revenue | 1,653 | 3,376 | ||||||
| Accrued pension costs | 9,707 | 10,967 | ||||||
| TOTAL LIABILITIES | 21,226 | 21,843 | ||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Common stock, $.10 par value; shares authorized – 20,000,000; shares issued – 8,323,954 at January 31, 2018 and 8,303,204 at April 30, 2017 | 832 | 830 | ||||||
| Capital contributed in excess of par value | 50,922 | 50,694 | ||||||
| Retained earnings | 45,639 | 46,764 | ||||||
| Accumulated other comprehensive loss, net | (8,566 | ) | (9,240 | ) | ||||
| Treasury stock, at cost; 225,250 shares at January 31, 2018 and April 30, 2017 | (4,215 | ) | (4,215 | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY | 84,612 | 84,833 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 105,838 | $ | 106,676 | ||||
| | | | | | |
| | July 31, | | April 30, | ||
| | 2022 | | 2022 | ||
|
| (Unaudited) |
| | ||
ASSETS |
| |
|
| |
|
Cash and cash equivalents | | $ | 15,915 | | $ | 15,721 |
Real estate inventory | |
| 68,604 | |
| 67,249 |
Investment assets | |
| 8,961 | |
| 9,017 |
Other assets | |
| 2,082 | |
| 1,882 |
Deferred income taxes, net | | | 928 | | | 958 |
Prepaid pension costs | |
| 311 | |
| 90 |
TOTAL ASSETS | | $ | 96,801 | | $ | 94,917 |
| | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
|
| |
|
|
LIABILITIES: | |
|
| |
|
|
Accounts payable and accrued expenses | | $ | 4,976 | | $ | 6,077 |
Notes payable | |
| 2,080 | |
| 2,030 |
Taxes payable, net | |
| 4,428 | |
| 3,648 |
TOTAL LIABILITIES | |
| 11,484 | |
| 11,755 |
| | | | | | |
SHAREHOLDERS' EQUITY: | |
|
| |
|
|
Common stock, $.10 par value; shares authorized – 20,000,000; shares issued – 5,254,909 at July 31, 2022 and 5,240,309 at April 30, 2022 | |
| 526 | | | 524 |
Capital contributed in excess of par value | |
| 32,558 | |
| 32,383 |
Retained earnings | |
| 56,740 | |
| 54,828 |
Accumulated other comprehensive loss, net | |
| (4,507) | |
| (4,573) |
TOTAL SHAREHOLDERS’ EQUITY | |
| 85,317 | |
| 83,162 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 96,801 | | $ | 94,917 |
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated financial statements.
2
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Januaryended July 31, 20182022 and 20172021
(Amounts in thousands, except per share amounts)
| 2018 | 2017 | |||||||
| REVENUES: | ||||||||
| Fulfillment services | $ | 7,676 | $ | 8,222 | ||||
| Real estate land sales | 2,510 | 1,461 | ||||||
| Other | 193 | 94 | ||||||
| 10,379 | 9,777 | |||||||
| COSTS AND EXPENSES: | ||||||||
| Real estate land sales | 2,109 | 848 | ||||||
| Operating and selling expenses: | ||||||||
| Fulfillment services | 6,338 | 6,855 | ||||||
| Real estate | 470 | 370 | ||||||
| General and administrative expenses: | ||||||||
| Fulfillment services | 313 | 345 | ||||||
| Real estate | 156 | 130 | ||||||
| Corporate | 690 | 787 | ||||||
| Impairment of real estate assets | - | 150 | ||||||
| Interest expense | 18 | 22 | ||||||
| 10,094 | 9,507 | |||||||
| Income before income taxes | 285 | 270 | ||||||
| Provision for income taxes (Note 9) | 3,136 | 96 | ||||||
| Net income (loss) | (2,851 | ) | 174 | |||||
| Retained earnings, beginning of period | 48,490 | 47,521 | ||||||
| Retained earnings, end of period | $ | 45,639 | $ | 47,695 | ||||
| Earnings (loss) per share, net - basic and diluted | $ | (0.35 | ) | $ | 0.02 | |||
| Weighted average number of common shares outstanding – basic | 8,075 | 8,053 | ||||||
| Weighted average number of common shares outstanding – diluted | 8,075 | 8,080 | ||||||
| | | | | | |
| | Three Months ended | ||||
| | July 31, | ||||
|
| 2022 |
| 2021 | ||
REVENUES: |
| |
|
| |
|
Land sale revenues | | $ | 5,172 | | $ | 7,190 |
Home sale revenues | | | 5,439 | | | 2,411 |
Other revenues | |
| 621 | |
| 906 |
Total revenues | |
| 11,232 | |
| 10,507 |
| | | | | | |
COSTS AND EXPENSES: | |
|
| |
| |
Land sale cost of revenues | |
| 3,832 | |
| 5,610 |
Home sale cost of revenues | | | 3,663 | | | 1,914 |
General and administrative expenses | |
| 1,171 | |
| 1,188 |
Total costs and expenses | |
| 8,666 | |
| 8,712 |
Operating income | | | 2,566 | | | 1,795 |
| | | | | | |
Interest income, net | |
| 7 | |
| 1 |
Other income | |
| — | |
| 230 |
Income before income taxes | | | 2,573 | | | 2,026 |
| | | | | | |
Provision for income taxes | | | 661 | | | 389 |
Net income | | $ | 1,912 | | $ | 1,637 |
| | | | | | |
Basic earnings per share | | $ | 0.36 | | $ | 0.22 |
Diluted earnings per share | | $ | 0.36 | | $ | 0.22 |
Weighted average number of common shares outstanding – basic | |
| 5,274 | |
| 7,346 |
Weighted average number of common shares outstanding – diluted | |
| 5,296 | |
| 7,373 |
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated financial statements.
3
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of OperationsCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months ended July 31, 2022 and Retained Earnings (Unaudited)
Nine Months Ended January 31, 2018 and 20172021
(Amounts in thousands, except per share amounts)thousands)
| 2018 | 2017 | |||||||
| REVENUES: | ||||||||
| Fulfillment services | $ | 22,592 | $ | 23,908 | ||||
| Real estate land sales | 6,603 | 7,710 | ||||||
| Other | 1,685 | 1,832 | ||||||
| 30,880 | 33,450 | |||||||
| COSTS AND EXPENSES: | ||||||||
| Real estate land sales | 4,471 | 6,370 | ||||||
| Operating and selling expenses: | ||||||||
| Fulfillment services | 18,415 | 20,235 | ||||||
| Real estate | 1,563 | 1,188 | ||||||
| General and administrative expenses: | ||||||||
| Fulfillment services | 970 | 1,025 | ||||||
| Real estate | 356 | 433 | ||||||
| Corporate | 2,194 | 2,364 | ||||||
| Impairment of real estate assets | - | 150 | ||||||
| Interest expense | 49 | 328 | ||||||
| 28,018 | 32,093 | |||||||
| Income before income taxes | 2,862 | 1,357 | ||||||
| Provision for income taxes (Note 9) | 3,987 | 441 | ||||||
| Net income (loss) | (1,125 | ) | 916 | |||||
| Retained earnings, beginning of period | 46,764 | 46,779 | ||||||
| Retained earnings, end of period | $ | 45,639 | $ | 47,695 | ||||
| Earnings (loss) per share, net - basic and diluted | $ | (0.14 | ) | $ | 0.11 | |||
| Weighted average number of common shares outstanding – basic | 8,070 | 8,048 | ||||||
| Weighted average number of common shares outstanding – diluted | 8,070 | 8,074 | ||||||
| | | | | | |
| | Three Months ended | ||||
| | July 31, | ||||
|
| 2022 |
| 2021 | ||
Net income | | $ | 1,912 | | $ | 1,637 |
Other comprehensive income, net of tax: | |
|
| |
|
|
Decrease in pension liability | |
| 97 | |
| 97 |
Income tax effect | | | (31) | | | (31) |
Decrease in pension liability, net of tax | | | 66 | | | 66 |
Other comprehensive income | |
| 66 | |
| 66 |
Total comprehensive income | | $ | 1,978 | | $ | 1,703 |
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated financial statements.
4
AMREP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three Months ended July 31, 2022 and Nine Months Ended January 31, 2018 and 20172021
(Amounts in thousands)
| Three Months Ended January 31, | ||||||||
| 2018 | 2017 | |||||||
| Net income (loss) | $ | (2,851 | ) | $ | 174 | |||
| Other comprehensive income (loss), net of tax: | ||||||||
| Decrease in pension liability, net of tax ($98 in 2018 and $153 in 2017) | 225 | 248 | ||||||
| Other comprehensive income (loss) | 225 | 248 | ||||||
| Total comprehensive income (loss) | $ | (2,626 | ) | $ | 422 | |||
| | | | | | | | | | | | | | | | | |
| | | | | | | Capital | | | | | Accumulated | | | | ||
| | | | | | | Contributed | | | | | Other | | | | ||
| | Common Stock | | in Excess of | | Retained | | Comprehensive | | | | ||||||
|
| Shares |
| Amount |
| Par Value |
| Earnings |
| Loss |
| Total | |||||
Balance, May 1, 2022 |
| 5,240 | | $ | 524 | | $ | 32,383 | | $ | 54,828 | | $ | (4,573) | | $ | 83,162 |
Issuance of restricted common stock | | 15 | | | 2 | | | 162 | | | — | | | — | | | 164 |
Issuance of option to purchase common stock | | — | | | — | | | 13 | | | — | | | — | | | 13 |
Net income | | — | | | — | | | — | | | 1,912 | | | — | | | 1,912 |
Other comprehensive income |
| — | | | — | |
| — | |
| — | |
| 66 | |
| 66 |
Balance, July 31, 2022 |
| 5,255 | | $ | 526 | | $ | 32,558 | | $ | 56,740 | | $ | (4,507) | | $ | 85,317 |
| | | | | | | | | | | | | | | | | |
Balance, May 1, 2021 | | 7,323 | | $ | 730 | | $ | 45,072 | | $ | 47,710 | | $ | (4,623) | | $ | 88,889 |
Issuance of restricted common stock | | 13 | | | 1 | | | 149 | | | — | | | — | | | 150 |
Net income | | — | | | — | | | — | | | 1,637 | | | — | | | 1,637 |
Other comprehensive income | | — | | | — | | | — | | | — | | | 66 | | | 66 |
Balance, July 31, 2021 |
| 7,336 | | $ | 731 | | $ | 45,221 | | $ | 49,347 | | $ | (4,557) | | $ | 90,742 |
| Nine Months Ended January 31, | ||||||||
| 2018 | 2017 | |||||||
| Net income (loss) | $ | (1,125 | ) | $ | 916 | |||
| Other comprehensive income (loss), net of tax: | ||||||||
| Decrease in pension liability, net of tax ($296 in 2018 and $456 in 2017) | 674 | 746 | ||||||
| Other comprehensive income (loss) | 674 | 746 | ||||||
| Total comprehensive income (loss) | $ | (451 | ) | $ | 1,662 | |||
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated financial statements.
5
AMREP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Consolidated Statements of Cash Flows from Operations (Unaudited)
NineThree Months Ended Januaryended July 31, 20182022 and 20172021
(Amounts in thousands)
| 2018 | 2017 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) from operations | $ | (1,125 | ) | $ | 916 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 954 | 1,058 | ||||||
| Impairment of real estate assets | - | 150 | ||||||
| Non-cash credits and charges: | ||||||||
| Non-cash gain on settlement | (1,318 | ) | - | |||||
| Non-cash deferred revenue recognized | (61 | ) | - | |||||
| Provision for (recovery of) doubtful accounts | 28 | (5 | ) | |||||
| Stock-based compensation | 136 | 99 | ||||||
| Pension accrual | 750 | 944 | ||||||
| Changes in assets and liabilities: | ||||||||
| Receivables | (567 | ) | 86 | |||||
| Real estate inventory and investment assets | (2,180 | ) | 4,958 | |||||
| Other assets | 146 | 701 | ||||||
| Accounts payable and accrued expenses | 2,172 | (1,490 | ) | |||||
| Taxes payable | (424 | ) | (124 | ) | ||||
| Other liabilities and deferred revenue | (344 | ) | (248 | ) | ||||
| Deferred income taxes | 4,408 | 562 | ||||||
| Accrued pension costs | (1,040 | ) | - | |||||
| Total adjustments | 2,660 | 6,691 | ||||||
| Net cash provided by operating activities | 1,535 | 7,607 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Capital expenditures – property, plant and equipment | (130 | ) | (63 | ) | ||||
| Net cash used in investing activities | (130 | ) | (63 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from debt financing | 638 | 340 | ||||||
| Principal debt payments | - | (895 | ) | |||||
| Principal debt payments – related party | - | (10,798 | ) | |||||
| Net cash provided by (used in) financing activities | 638 | (11,353 | ) | |||||
| Increase (decrease) in cash and cash equivalents | 2,043 | (3,809 | ) | |||||
| Cash and cash equivalents, beginning of period | 11,811 | 14,562 | ||||||
| Cash and cash equivalents, end of period | $ | 13,854 | $ | 10,753 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Interest paid, net of amounts capitalized | $ | 42 | $ | 314 | ||||
| Income taxes paid, net | $ | 7 | $ | 4 | ||||
| | | | | | |
| | Three Months ended July 31, | ||||
|
| 2022 |
| 2021 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
Net income | | $ | 1,912 | | $ | 1,637 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
|
| |
|
|
Depreciation | |
| 8 | |
| 104 |
Amortization of debt issuance costs | |
| — | |
| 34 |
Non-cash credits and charges: | |
| | |
| |
Stock-based compensation | |
| 36 | |
| 16 |
Deferred income tax provision | |
| — | |
| 456 |
Net periodic pension cost | |
| (124) | |
| (123) |
Gain on debt forgiveness | | | — | | | (45) |
Changes in assets and liabilities: | |
|
| |
|
|
Real estate inventory and investment assets | |
| (1,299) | |
| (5,709) |
Other assets | |
| 56 | |
| (12) |
Accounts payable and accrued expenses | |
| (1,107) | |
| (758) |
Taxes payable (receivable), net | |
| 780 | |
| (66) |
Net cash provided by (used in) operating activities | |
| 262 | |
| (4,466) |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | |
| |
Capital expenditures | |
| (118) | |
| (1) |
Net cash used in investing activities | |
| (118) | |
| (1) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| |
Proceeds from debt financing | |
| 50 | |
| 6,857 |
Principal debt payments | |
| — | |
| (3,867) |
Payments for debt issuance costs | |
| — | |
| (50) |
Net cash provided by financing activities | |
| 50 | |
| 2,940 |
| | | | | | |
Increase (decrease) in cash and cash equivalents | |
| 194 | |
| (1,527) |
Cash and cash equivalents, beginning of period | |
| 15,721 | |
| 24,801 |
Cash and cash equivalents, end of period | | $ | 15,915 | | $ | 23,274 |
| | | | | | |
SUPPLEMENTAL CASH FLOW INFORMATION: | |
|
| |
|
|
Income taxes refunded, net | | $ | — | | $ | (3) |
Interest paid | | $ | 16 | | $ | 40 |
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated financial statements.
6
AMREP CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NineThree Months Ended JanuaryJuly 31, 20182022 and 20172021
The accompanying unaudited condensed consolidated financial statements have been prepared by AMREP Corporation (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) 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. The Company, through its subsidiaries, is primarily engaged in two business segments: land development and homebuilding. The Company has no foreign sales or activities outside the real estate business operated by AMREP Southwest Inc. (“AMREP Southwest”)United States. Unless the context otherwise indicates, all references to the Company in this quarterly report on Form 10-Q include the Company and its subsidiaries and the fulfillment services business operated by Palm Coast Data LLC (“Palm Coast”) and its affiliates. The Company’s foreign sales are insignificant.subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, considered 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 indicative of what may occur in future periods. Unless the context otherwise qualified,indicates, all references to 20182023 and 20172022 are to the fiscal years ending April 30, 20182023 and 2017 and all references to the third quarter and first nine months of 2018 and 2017 mean the fiscal three month and nine month periods ended January 31, 2018 and 2017.2022.
The unaudited condensed 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, 2017,2022, which was filed with the SEC on July 18, 201721, 2022 (the “2017“2022 Form 10-K”). Certain 20172022 balances in these condensed consolidated financial statements have been reclassified to conform to the current year presentation with no effect on either net income or shareholders’ equity.
Summary of Significant Accounting Policies
Recently IssuedThe significant accounting policies used in preparing these condensed consolidated financial statements are consistent with the accounting policies described in the 2022 Form 10-K.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with Customers. SinceThere are no new accounting standards or updates to be adopted that date, the FASB has issued additional ASUs providing further revenue recognition guidance (collectively, “Topic 606”). Topic 606 clarifies the principles for recognizing revenues and costs related to obtaining and fulfilling customer contracts, with the objective of improving financial reporting. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. Topic 606 definescurrently believes might have a five-step process to achieve this core principle, and more judgment and estimates may be required under Topic 606 than are currently required under generally accepted accounting principles. The two permitted transition methods under Topic 606 are (i) the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or (ii) the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of adoption. The Company intends to use the modified retrospective transition method upon adoption. In August 2015, the FASB issued ASU No. 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the required adoption date until May 1, 2018 for the Company, although an earlier adoption is permitted. The Company does not intend to early adopt Topic 606.
The Company has established an implementation team to evaluate thesignificant impact of Topic 606 on the Company’s accounting policies, processes and system requirements, as well as its condensed consolidated financial statements. Depending on the results
(2) REAL ESTATE INVENTORY
Real estate inventory consists of the evaluation, there could be changes to the timing(in thousands):
| | | | | | |
| | July 31, | | April 30, | ||
|
| 2022 |
| 2022 | ||
Land held for development or sale in New Mexico | | $ | 60,528 | | $ | 59,374 |
Land held for development or sale in Colorado | |
| 3,435 | |
| 3,434 |
Homebuilding finished inventory | | | 1,005 | | | 1,135 |
Homebuilding construction in process | | | 3,636 | | | 3,306 |
| | $ | 68,604 | | $ | 67,249 |
(3)INVESTMENT ASSETS
Investment assets consist of recognitionland held for long-term investment.
7
Receivables, net consist of:
| January 31, 2018 | April 30, 2017 | |||||||
| (in thousands) | ||||||||
| Fulfillment services | $ | 7,269 | $ | 6,725 | ||||
| Real estate | 19 | - | ||||||
| Corporate | 6 | 2 | ||||||
| 7,294 | 6,727 | |||||||
| Less allowance for doubtful accounts | (376 | ) | (348 | ) | ||||
| $ | 6,918 | $ | 6,379 | |||||
During the first nine months of 2018, revenues from one major customer of the Company’s fulfillment services business totaled $3,189,000 or approximately 10.3% of total revenues for the Company. As of January 31, 2018, the Company’s fulfillment services business had $682,000 of outstanding accounts receivable from this customer, which was collected in full by March 16, 2018. This customer has given the Company’s fulfillment services business notice that a significant portion of its business will be transferred from Palm Coast at the end of 2018.
Property, plant and equipment, net consist of:
| January 31, | April 30, | |||||||
| 2018 | 2017 | |||||||
| (in thousands) | ||||||||
| Land, buildings and improvements | $ | 15,925 | $ | 15,995 | ||||
| Furniture and equipment | 18,473 | 18,350 | ||||||
| 34,398 | 34,345 | |||||||
| Less accumulated depreciation | (24,370 | ) | (23,493 | ) | ||||
| $ | 10,028 | $ | 10,852 | |||||
Depreciation of property, plant and equipment charged to operations was $319,000 and $954,000 for the three and nine month periods ended January 31, 2018 and $341,000 and $1,051,000 for the three and nine month periods ended January 31, 2017.
Other assets consist of:of (in thousands):
| January 31, | April 30, | |||||||
| 2018 | 2017 | |||||||
| (in thousands) | ||||||||
| Prepaid expenses | $ | 1,426 | $ | 1,491 | ||||
| Deferred order entry costs | 533 | 553 | ||||||
| Other | 279 | 266 | ||||||
| $ | 2,238 | $ | 2,310 | |||||
| | | | | | |
|
| July 31, |
| April 30, | ||
| | 2022 | | 2022 | ||
Prepaid expenses | | $ | 501 | | $ | 366 |
Miscellaneous assets | | | 204 | | | 249 |
Property | | | 1,250 | | | 1,247 |
Equipment | | | 355 | | | 240 |
Less accumulated depreciation | | | (228) | | | (220) |
Property and equipment, net | | | 1,377 | | | 1,267 |
| | $ | 2,082 | | $ | 1,882 |
Deferred order entry costs represent costs incurred in connectionPrepaid expenses as of July 31, 2022 primarily consist of stock compensation, insurance and real estate taxes. Prepaid expenses as of April 30, 2022 primarily consist of insurance, stock compensation, real estate taxes and utility deposits. Amortized lease cost for right-of-use assets associated with the data entryleases of customer subscription information to database filesoffice facilities was $6,000 and are charged directly to operations generally over a twelve month period.$24,000 for the three months ended July 31, 2022 and July 31, 2021. Depreciation expense associated with property and equipment was $8,000 and less than $1,000 for the three months ended July 31, 2022 and July 31, 2021.
(5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
Accounts payable and accrued expenses consist of:of (in thousands):
| January 31, | April 30, | |||||||
| 2018 | 2017 | |||||||
| (in thousands) | ||||||||
| Fulfillment services | $ | 5,420 | $ | 5,637 | ||||
| Real estate | 3,356 | 1,138 | ||||||
| Corporate | 411 | 260 | ||||||
| $ | 9,187 | $ | 7,035 | |||||
| | | | | | |
|
| July 31, |
| April 30, | ||
| | 2022 | | 2022 | ||
Real estate operations | | | | | | |
Accrued expenses | | $ | 845 | | $ | 1,238 |
Trade payables | |
| 1,561 | |
| 3,026 |
Customer deposits | | | 2,175 | | | 1,357 |
| | | 4,581 | | | 5,621 |
Corporate operations | | | 395 | | | 456 |
| | $ | 4,976 | | $ | 6,077 |
Fulfillment Services:
8
(6) NOTES PAYABLE
The following tables present information on the Company’s notes payable during the three months ended July 31, 2022 (dollars in thousands):
| | | | | | | | | | | | | | |
| | |
| Principal Amount |
| | |
| | |
| | | |
| | | | Available for | | Outstanding | | Principal | ||||||
| | | | New Borrowings | | Principal Amount | | Repayments | ||||||
| | | | July 31, | | July 31, | | April 30, | | Three Months ended | ||||
Loan Identifier | | Lender | | 2022 | | 2022 | | 2022 | | July 31, 2022 | ||||
Revolving Line of Credit | | BOKF |
| $ | 2,427 |
| $ | — |
| $ | — | | $ | — |
La Mirada | | BOKF | |
| 1,877 | |
| 2,030 | |
| 2,030 | |
| — |
Equipment Financing | | DC | | | — | | | 50 | | | — | | | — |
| | | |
| | | $ | 2,080 | | $ | 2,030 | |
| |
| | | | | | | | | | |
|
| |
| Mortgaged Property |
| Capitalized Interest | | | ||
| | Interest Rate | | Book Value | | and Fees | | | ||
| | | | | | Three Months ended | | Scheduled Maturity | ||
Loan Identifier | | July 31, 2022 | | July 31, 2022 | | July 31, 2022 | | as of July 31, 2022 | ||
Revolving Line of Credit |
| 5.36 | % | $ | 1,693 | | $ | — | | February 2024 |
La Mirada |
| 5.36 | % |
| 9,076 | |
| 16 | | June 2024 |
Equipment Financing |
| 2.35 | % |
| 50 | |
| — | | June 2028 |
As of JanuaryJuly 31, 2018,2022, the accounts payable and accrued expenses totalCompany was in compliance with the financial covenants contained in the loan documentation for the Company’s fulfillment services business included customer postage depositsthen outstanding notes payable. Except as described below, refer to Note 6 to the consolidated financial statements contained in the 2022 Form 10-K for additional detail about each of $3,362,000, accrued expenses of $496,000, trade payables of $443,000 and other of $1,119,000. As of April 30, 2017, the accounts payable and accrued expenses total for the Company’s fulfillment services business included customer postage deposits of $3,178,000, accrued expenses of $488,000, trade payables of $617,000 and other of $1,354,000.above notes payable.
Real Estate: As of January 31, 2018, the accounts payable and accrued expenses total for the Company’s real estate business included accrued expenses of $900,000, trade payables of $1,961,000, real estate customer deposits of $490,000 and other of $5,000. As of April 30, 2017, the accounts payable and accrued expenses total for the Company’s real estate business included accrued expenses of $967,000, trade payables of $0, real estate customer deposits of $155,000 and other of $16,000.
Notes payable consist of:
| January 31, | April 30, | |||||||
| 2018 | 2017 | |||||||
| (in thousands) | ||||||||
| Real estate | $ | 638 | $ | - | ||||
| $ | 638 | $ | - | |||||
During December 2017, Lomas Encantadas Development CompanyEquipment Financing. In June 2022, Rioscapes LLC (“LEDC”Rioscapes”), an indirecta subsidiary of AMREP Corporation,the Company, entered into a Development Loan Contract-Security Agreement with BOKF, NA dba Bank of AlbuquerqueDeere & Company (“Lender”DC”). The Development Loan Agreement is evidenced by a Non-Revolving Line of Credit Promissory Note, dated December 18, 2017, andloan is secured by a Mortgage, Security Agreement and Financing Statement, between LEDC and Lender, dated November 16, 2017, with respectsecurity interest in certain construction equipment. DC lent $50,000 to 343 planned residential lots within the Lomas Encantadas subdivision (the “Mortgaged Property”) located in Rio Rancho, New Mexico. Pursuant to a Guaranty Agreement, dated December 18, 2017, entered into by AMREP Southwest in favor of Lender, AMREP Southwest has guaranteed LEDC’s obligations under each of the above agreements. The Development Loan Agreement, Non-Revolving Line of Credit Promissory Note, Mortgage, Security Agreement and Financing Statement, Guaranty Agreement and other related transaction documents are collectively referred to as the “Loan Documentation.”
Pursuant to the Loan Documentation, Lender agrees to lend up to $4,750,000 to LEDCRioscapes on a non-revolving line of credit basis to partially fund the developmentacquisition of the Mortgaged Property. LEDC expects to fully utilizeconstruction equipment. AMREP Southwest Inc. (“ASW”), a subsidiary of AMREP Corporation, guaranteed Rioscapes’s obligations under the $4,750,000 for its land development activities.loan. The outstanding principal amount of the loan may be prepaid at any time without penalty. Interest on the outstanding principal amount of the loan is payable monthly at the annual rate equal to the London Interbank Offered Rate for a thirty-day interest period plus a spread of 3.0%, adjusted monthly. Lender is required to release the lien of its mortgage on any lot included in the Mortgaged Property upon LEDC making a principal payment of $43,000 or $53,000 depending on the location of the lot. LEDC is required to make periodic principal repayments to the extent not previously paid as follows: $1,370,000 on or before August 18, 2019, $599,000 on or before November 18, 2019, $599,000 on or before February 18, 2020, $599,000 on or before May 18, 2020, $599,000 on or before August 18, 2020 and $599,000 on or before November 18, 2020. The outstanding principal amount of the loan as of January 31, 2018 was $638,000. The outstanding principal amount of the loan may be prepaid at any time without penalty. The loan is scheduled to mature on December 18, 2021. LEDC incurred certain customary costs and expenses and paid certain fees to Lender in connection with the loan.
LEDC and AMREP Southwest have2.35%. Rioscapes made certain representations and warranties in the Loan Documentationconnection with this loan and areis required to comply with various covenants, reporting requirements and other customary requirements for similar loans. The Loan Documentationloan documentation contains customary events of default for similar financing transactions, including: LEDC’sRioscapes’s failure to make principal, interest or other payments when due; the failure of LEDC or AMREP SouthwestRioscapes to observe or perform their respectiveits covenants under the Loan Documentation;loan documentation; the representations and warranties of LEDC or AMREP SouthwestRioscapes being false; the insolvency or bankruptcy of LEDCRioscapes or AMREP Southwest;ASW; the merger by Rioscapes or ASW into another entity; and the failuresale by Rioscapes or ASW of AMREP Southwest to maintain a tangible net worthsubstantially all of at least $35 million.their assets. Upon the occurrence and during the continuance of an event of default, LenderDC may declare the outstanding principal amount and all other obligations under the Loan Documentationloan immediately due and payable. At January 31, 2018, both LEDCRioscapes incurred customary costs and AMREP Southwest wereexpenses and paid certain fees to DC in complianceconnection with the covenants contained withinloan.
As of July 31, 2022, the Loan Documentation.Company had a letter of credit outstanding under its Revolving Line of Credit in the principal amount of $1,323,000 in favor of a municipality guarantying the completion of improvements in a subdivision being constructed by the Company. As of July 31, 2022, the Company had loan reserves outstanding under its note payable for La Mirada in the aggregate principal amount of $2,364,000 in favor of a municipality guarantying the completion of improvements in a subdivision being constructed by the Company. The amounts under the letter of credit and loan reserves are not reflected as outstanding principal in notes payable.
The following table summarizes the notes payable scheduled principal repayments subsequent to July 31, 2022 (in thousands):
| | | |
Fiscal Year |
| Scheduled Payments | |
2023 | | $ | 6 |
2024 | |
| 8 |
2025 | |
| 2,038 |
Thereafter | |
| 28 |
Total | | $ | 2,080 |
9
Land sale revenues. Substantially all of the land sale revenues were received from two customers for the three months ended July 31, 2022 and three customers for the three months ended July 31, 2021. There were no outstanding receivables from these customers as of July 31, 2022 or July 31, 2021.
Other revenues. Other revenues for the third quarter and first nine monthsconsist of 2018 and 2017 consist of:(in thousands):
| Third Quarter of 2018 | Third Quarter of 2017 | |||||||
| (in thousands) | ||||||||
| Deferred revenue and other | $ | 193 | $ | 94 | ||||
| $ | 193 | $ | 94 | |||||
| | | | | | |
| | Three Months | ||||
| | ended July 31, | ||||
|
| 2022 |
| 2021 | ||
Oil and gas royalties | | $ | 57 | | $ | 135 |
Infrastructure reimbursements | |
| 525 | | | 606 |
Miscellaneous other revenues | |
| 39 | |
| 165 |
| | $ | 621 | | $ | 906 |
| First Nine Months of 2018 | First Nine Months of 2017 | |||||||
| (in thousands) | ||||||||
| Settlement gain | $ | 1,318 | $ | - | ||||
| Sale of commercial building | - | 1,496 | ||||||
| Deferred revenue and other | 367 | 336 | ||||||
| $ | 1,685 | $ | 1,832 | |||||
Deferred revenue and other includes the recognition of deferred revenue related to an oil and gas lease noted below, as well as fees and forfeited deposits from customers earned by AMREP Southwest, together with miscellaneous other income items.
Refer to Note 97 to the consolidated financial statements contained in the 20172022 Form 10-K for additional detail about each category of other revenues. Miscellaneous other revenues for the settlement agreement entered into betweenthree months ended July 31, 2022 primarily consist of a non-refundable option payment and a forfeited deposit. Miscellaneous other revenues for the three months ended July 31, 2021 primarily consist of rent received from a tenant at a building in Palm Coast, Florida, a non-refundable option payment and proceeds from the Statesale of Floridaequipment.
Major customers. There were two customers with revenues in the first quarterexcess of 2018. In June 2009, Palm Coast received $3,000,000 pursuant to an agreement with the State of Florida (the “Award Agreement”) as part of the incentives made available in connection with the consolidation10% of the Company’s fulfillment services operations at its Palm Coast, Florida location. The Award Agreement included certain performance requirements in terms of job retention, job creation and capital investment which, if not met by Palm Coast, entitled the State of Florida to obtain the return of a portion, or all, of the $3,000,000. Palm Coast had not met certain of the performance requirements in the Award Agreement. During the first quarter of 2018, Palm Coast entered into a Settlement Agreement and Mutual General Release (the “Settlement Agreement”) with the State of Florida. Pursuant to the Settlement Agreement, (1) the Award Agreement was terminated, (2) each of the parties released all claims relating to the Award Agreement that the releasing party may have had against the other party and (3) Palm Coast agreed to pay the State of Florida $1,763,000 as follows: (a) $163,000 during the first quarter of 2018 and (b) 40 quarterly payments of $40,000 each, without interest, on the first business day of each calendar quarter starting on October 1, 2017 and ending on July 1, 2027. Palm Coast timely paid the State of Florida $163,000 during the first quarter of 2018, $40,000 during the second quarter of 2018 and $40,000 during the third quarter of 2018, leaving a balance owed to the State of Florida of $1,520,000 as of January 31, 2018.
In the Company’s consolidated financial statements and as a result of entering into the Settlement Agreement, Palm Coast reduced its previously recorded liability of $3,000,000 and a related $26,000 interest accrual by $1,620,000 to $1,406,000 by recognizing a pre-tax gain of $1,318,000 and recording deferred revenue of $302,000. The $1,318,000 pre-tax gain was determined based on depreciation previously taken on assets acquired with Award Agreement funds that were retained by Palm Coast and was recognized in Other revenues during the first ninethree months of 2018.ended July 31, 2022. The $302,000 deferred revenue will be recognized overrevenues for each such customer during the remaining lifethree months ended July 31, 2022 were as follows: $2,360,000 and $2,341,000, with each of these assets (approximately seven years from January 31, 2018),revenues reported in the Company’s land development business segment. There were two customers with $61,000 having been recognizedrevenues in excess of 10% of the Company’s revenues during the first ninethree months of 2018 resulting in a deferred revenue balance of $241,000 as of Januaryended July 31, 2018. As a result of paying the State of Florida $163,0002021. The revenues for each such customer during the first quarter of 2018, $40,000 during the second quarter of 2018three months ended July 31, 2021 were as follows: $4,200,000 and $40,000 during the third quarter of 2018, Palm Coast recognized $41,000 of imputed interest expense and reduced its remaining balance sheet liability of $1,406,000 as of the date of the Settlement Agreement to $1,204,000 as of January 31, 2018. These balance sheet liability numbers are less than the amounts owed to the State of Florida of $1,763,000 as of the date of the Settlement Agreement and $1,520,000 as of January 31, 2018 because they have been adjusted to reflect the present values$1,700,000, with each of these deferred non-interest bearing obligations. In February 2018,revenues reported in the Company, Palm CoastCompany’s land development business segment.
(8) GENERAL AND ADMINISTRATIVE EXPENSES
General and the Stateadministrative expenses consist of Florida entered into an agreement with respect to the remaining payment obligations under the Settlement Agreement (see Note 10).(in thousands):
| | | | | | |
| | Three Months ended July 31, | ||||
|
| 2022 |
| 2021 | ||
Land development | | $ | 607 | | $ | 584 |
Homebuilding | |
| 257 | |
| 187 |
Corporate | |
| 307 | |
| 417 |
| | $ | 1,171 | | $ | 1,188 |
In addition, refer
(9) BENEFIT PLANS
Pension plan
Refer to Note 1011 to the consolidated financial statements contained in the 20172022 Form 10-K for detail aboutregarding the Oil and Gas Lease and the Addendum thereto with Thrust Energy, Inc. and Cebolla Roja, LLC. No royalties under the Lease were received during the first nine months of 2018. Revenue from this transaction is being recorded over the lease term and approximately $57,000 and $171,000 was recognized during the third quarter and first nine months of each of 2018 and 2017. At January 31, 2018, there was approximately $133,000 of deferred revenue remaining to be recognized before the end of the lease term in September 2018.
During the first quarter of 2017, a subsidiary of AMREP Southwest sold a single tenant retail commercial building in Rio Rancho, New Mexico, which resulted in a pre-tax gain of $1,496,000 that was recognized in Other revenues during the first nine months of 2018.
Retirement plan
The Company has aCompany’s defined benefit retirement plan for which accumulated benefits were frozen and future service credits were curtailed as of March 1, 2004. The Company has secured $4,535,000 of accrued pension-related obligations with first lien mortgages on certain real property in favor of the Pension Benefit Guaranty Corporation (the “PBGC”). On an annual basis, the Company is required to provide updated appraisals on each mortgaged property and, if the appraised value of the mortgaged properties is less than two times the amount of the accrued pension-related obligations secured by the mortgages, the Company is required to make a payment to its pension plan in an amount equal to one-half of the amount of the shortfall. During the third quarter of 2018, there was no change in the appraised value of the mortgaged properties that required the Company to make any additional payments to its pension plan.
The Company recognizes the known changes in the funded status of the pension plan in the period in which the changes occur through other comprehensive income, (loss) net of the related deferred income tax effect. The Company recognizedrecorded, net of tax, other comprehensive income of $225,000$66,000 during each of the three months ended July 31, 2022 and $674,000July 31, 2021 to account for the three and nine months ended January 31, 2018, and $248,000 and $746,000 for the same periodsnet effect of 2017, relatedchanges to the amortizationunfunded portion of the plan’s unrecognized net loss included in the Accumulated other comprehensive loss, net in the accompanying financial statements.
pension liability. The Company funds the pension plan in compliance with IRS funding requirements. The Company contributed $1,040,000did not make any contributions to the pension plan during the ninethree months ended JanuaryJuly 31, 2018 and none for the same period2022 or July 31, 2021.
10
Equity compensation plan
In September 2016,Refer to Note 11 to the consolidated financial statements contained in the 2022 Form 10-K for detail regarding the AMREP Corporation 2016 Equity Compensation Plan (the “2016 Equity“Equity Plan”) replaced the AMREP Corporation 2006 Equity Compensation Plan (together with the 2016 Equity Plan, the “Equity Plans”). The Company issued 25,750 sharessummary of the restricted common stock under the 2016 Equity Planshare award activity during the first ninethree months ended July 31, 2022 presented below represents the maximum number of 2018. In addition, 5,000 shares of restricted common stock issued under the 2006 Equity Plan prior to 2018 were returned to the Company during the second quarter of 2018 and will not vest due to the retirement of an employee. During the first nine months of 2018, 10,500 shares of restricted common stock previously issued under the Equity Plansthat could become vested leaving 34,750 restricted shares issued under the Equity Plans that had not vested as of January 31, 2018. For the third quarter and first nine months of 2018,after these dates:
| | |
| | |
| | Number of |
Restricted share awards | | Shares |
Non-vested as of April 30, 2022 | 21,500 | |
Granted during the three months ended July 31, 2022 | 14,600 | |
Vested during the three months ended July 31, 2022 | (9,833) | |
Forfeited during the three months ended July 31, 2022 | — | |
Non-vested as of July 31, 2022 | 26,267 |
The Company recognized $31,000 and $76,000 of non-cash compensation expense related to the vesting of restricted shares of common stock issued,net of forfeitures of $22,000 and $19,000$16,000 during the three months ended July 31, 2022 and $48,000 for the same periods of 2017.July 31, 2021. As of JanuaryJuly 31, 2018,2022, there was $138,000$221,000 of unrecognized compensation expense related to restricted shares of common stock previously issued under the Equity Plans whichPlan that had not vested as of that date,those dates, which is expected to be recognized over the remaining vesting term not to exceed three years.
On the last trading day of calendar year 2017, and based upon days of service, each non-employee member of the Company’s Board of Directors was issued the number of deferred common share units of the Company under the 2016 Equity Plan equal to $20,000 divided by the closing price per share of common stock reported on the New York Stock Exchange on such date. Based on the closing price per share of $7.02 on December 29, 2017, the Company issued a total of 11,396 deferred common share units to members of the Company’s Board of Directors. Director compensation non-cash expense, which is recognized for the expected annual grant of deferred common share units to non-employee members of the Company’s Board of Directors ratably over the director’s service in office during the calendar year.Duringyear, was $23,000 during each of the first ninethree months ended July 31, 2022 and July 31, 2021. As of 2018,the total non-cash director feeJuly 31, 2022, there was $53,000 of accrued compensation expense related to the deferred common sharestock units was $60,000.
The U.S. Tax Cuts and Jobs Act (the “Act”) was signed into lawexpected to be issued in December 2017. The Act significantly revised2022. As of July 31, 2021, there was $53,000 of accrued compensation expense related to the future ongoing U.S. corporatedeferred stock units issued in December 2021.
(10) OTHER INCOME
There was no other income tax by, among other things, lowering U.S. corporatefor the three months ended July 31, 2022. Other income tax rates. The Act reducesfor the federal corporate tax ratethree months ended July 31, 2021 consists of $185,000 received in connection with a bankruptcy of a warranty provider and $45,000 of debt forgiveness with respect to 21.0% effective January 1, 2018. Asa note payable.
(11) RISKS AND UNCERTAINTIES
During the three months ended July 31, 2022, the Company has an April 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal corporate tax rate of approximately 29.7% for our fiscal year ending April 30, 2018, and a 21% rate for subsequent fiscal years. The 29.7% federal corporate tax rate is a blended rate for the April 30, 2018 fiscal year-end based on a prorated percentage of the number of days prior and subsequent to the January 1, 2018 effective date.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changesexperienced supply chain constraints, increases in the Act. SAB 118 providesprices of building materials, shortages of skilled labor and delays in municipal approvals and inspections in both the land development business segment and homebuilding business segment, which have caused delays in construction and the realization of revenues and increases in cost of revenues. In addition, a significant increase in mortgage interest rates during the first half of 2022 has tempered demand for a measurement period that should not extend beyond one year fromnew homes. The rising cost of housing due to increases in average sales prices in recent years and the Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”). In accordancerecent increases in mortgage interest rates, coupled with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be includedgeneral inflation in the financial statements. If a company cannot determine a provisional estimateU.S. economy, have placed additional pressure on overall housing affordability and have caused many potential home buyers to be included inpause and reconsider their housing choices. Given the financial statements, it should continue to apply ASC 740affordability challenges described above and the resulting impact on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act.
As of January 31, 2018,demand, the Company had not completed its accounting for the tax effects of the Act, but was able to make reasonable estimates of the impact of the reductionhas increased sales incentives on certain homes classified as homebuilding finished inventory or homebuilding construction in corporate tax rate and the re-measurement of deferred tax balances:
The Company’s effective tax rate for the third quarter and first nine months was increased by the effect of a net income tax expense increase of $3,057,000 related to accounting for the tax effects of the Act. Excluding this increase, the Company’s effective tax rate was 27.7% and 32.5% for the third quarter and first nine months of 2018 compared to 35.5% and 32.5% for the same periods of 2017. The difference between the statutory rate and the effective rate of the tax provision after excluding the $3,057,000 was primarily due to state taxes.
The total tax effect of gross unrecognized tax benefits in the accompanying financial statements at both January 31, 2018 and April 30, 2017 was $58,000, which, if recognized, would have an impact on the effective tax rate.process. The Company believes it is reasonably possible thatthese conditions will continue to impact the liabilityland development and homebuilding industries for unrecognized tax benefits will not change inat least the next twelve months.remainder of 2022.
Refer to Note 7 for detail about the Settlement Agreement between the State of Florida and Palm Coast entered into in the first quarter of 2018. In February 2018, Palm Coast and the Company entered into a Release Agreement (the “Release Agreement”) with the State of Florida. Pursuant to the Release Agreement, (1) Palm Coast paid the State of Florida $956,000, (2) each of the parties released all claims relating to the guaranty agreement (the “Guaranty Agreement”) between the Company and the State of Florida entered into in the first quarter of 2018 and the payment obligations under the Settlement Agreement that the releasing party may have had against each of the other parties and (3) each of the Guaranty Agreement and the payment obligations under the Settlement Agreement shall be deemed terminated and none of the parties shall have any further liabilities or obligations with respect thereto. The Company expects to recognize a gain related to the Release Agreement of approximately $257,000 during the fourth quarter of 2018.
11
The following tables set forth summarized data relative to the industry segments in which the Company operated for the three and nine month periods ended January 31, 2018 and 2017indicated (in thousands):
| Real Estate | Fulfillment Services (c) | Corporate and Other | Consolidated | |||||||||||||
| Three months ended January 31, 2018 (a): | ||||||||||||||||
| Revenues | $ | 2,671 | $ | 7,676 | $ | 32 | $ | 10,379 | ||||||||
| Net income (loss) from operations | $ | (727 | ) | $ | (2,043 | ) | $ | (81 | ) | $ | (2,851 | ) | ||||
| Provision for income taxes | 29 | 2,539 | 568 | 3,136 | ||||||||||||
| Interest expense (income), net | 575 | 288 | (845 | ) | 18 | |||||||||||
| Depreciation and amortization | 30 | 289 | - | 319 | ||||||||||||
| EBITDA (b) | $ | (93 | ) | $ | 1,073 | $ | (358 | ) | 622 | |||||||
| Capital expenditures | $ | 52 | $ | 49 | $ | - | $ | 101 | ||||||||
| Three months ended January 31, 2017 (a): | ||||||||||||||||
| Revenues | $ | 1,518 | $ | 8,222 | $ | 37 | $ | 9,777 | ||||||||
| Net income (loss) from operations | $ | (425 | ) | $ | 95 | $ | 504 | $ | 174 | |||||||
| Provision (benefit) for income taxes | (249 | ) | 54 | 291 | 96 | |||||||||||
| Interest expense (income), net | 521 | 274 | (773 | ) | 22 | |||||||||||
| Depreciation and amortization | 20 | 321 | - | 341 | ||||||||||||
| Impairment of real estate assets | 150 | - | - | 150 | ||||||||||||
| EBITDA (b) | $ | 17 | $ | 744 | $ | 22 | $ | 783 | ||||||||
| Capital expenditures | $ | - | $ | 14 | $ | - | $ | 14 | ||||||||
| Nine months ended January 31, 2018 (a): | ||||||||||||||||
| Revenues | $ | 6,894 | $ | 23,910 | $ | 76 | $ | 30,880 | ||||||||
| Net income (loss) from operations | $ | (1,124 | ) | $ | (443 | ) | $ | 442 | $ | (1,125 | ) | |||||
| Provision (benefit) for income taxes | (175 | ) | 3,364 | 798 | 3,987 | |||||||||||
| Interest expense (income), net | 1,623 | 884 | (2,458 | ) | 49 | |||||||||||
| Depreciation and amortization | 65 | 889 | - | 954 | ||||||||||||
| EBITDA (b) | $ | 389 | $ | 4,694 | $ | (1,218 | ) | $ | 3,865 | |||||||
| Capital expenditures | $ | 52 | $ | 78 | $ | - | $ | 130 | ||||||||
| Total assets, as of January 31, 2018 | $ | 74,519 | $ | 22,312 | $ | 9,007 | $ | 105,838 | ||||||||
| Nine months ended January 31, 2017 (a): | ||||||||||||||||
| Revenues | $ | 9,485 | $ | 23,908 | $ | 57 | $ | 33,450 | ||||||||
| Net income (loss) from operations | $ | (580 | ) | $ | 21 | $ | 1,475 | $ | 916 | |||||||
| Provision (benefit) for income taxes | (340 | ) | 16 | 765 | 441 | |||||||||||
| Interest expense (income), net | 1,742 | 811 | (2,225 | ) | 328 | |||||||||||
| Depreciation and amortization | 64 | 994 | - | 1,058 | ||||||||||||
| Impairment of real estate assets | 150 | - | - | 150 | ||||||||||||
| EBITDA (b) | $ | 1,036 | $ | 1,842 | $ | 15 | $ | 2,893 | ||||||||
| Capital expenditures | $ | - | $ | 63 | $ | - | $ | 63 | ||||||||
| Total assets, as of January 31, 2017 | $ | 75,294 | $ | 28,531 | $ | 5,714 | $ | 109,539 | ||||||||
| | | | | | | | | | | | |
|
| Land |
| | |
| | |
| | | |
| | Development | | Homebuilding | | Corporate | | Consolidated | ||||
Three months ended July 31, 2022 (a) |
| |
|
| |
|
| |
|
| |
|
Revenues | | $ | 6,691 | | $ | 4,541 | | $ | — | | $ | 11,232 |
Net income (loss) | |
| 1,262 | |
| 1,003 | |
| (353) | |
| 1,912 |
Capital expenditures | | | 117 | | | — | | | — | | | 117 |
Total assets as of July 31, 2022 | | | 87,671 | | | 6,068 | | | 3,062 | | | 96,801 |
| | | | | | | | | | | | |
Three months ended July 31, 2021 (a) | |
|
| |
|
| |
|
| |
|
|
Revenues | | $ | 8,461 | | $ | 1,950 | | $ | 96 | | $ | 10,507 |
Net income (loss) | |
| 1,807 | |
| 178 | |
| (348) | |
| 1,637 |
Capital expenditures | | | — | | | 1 | | | — | | | 1 |
| | | | | | | | | | | | |
Total assets as of April 30, 2022 | | | 86,991 | | | 5,631 | | | 2,295 | | | 94,917 |
| (a) | Revenue information provided for each segment |
INTRODUCTION(13) SUBSEQUENT EVENTS
Refer to Note 6 to the consolidated financial statements contained in the 2022 Form 10-K for detail regarding the Loan Agreement (the “Loan Agreement”) entered into between BOKF, NA dba Bank of Albuquerque (“BOKF”) and ASW, in which BOKF agrees to lend up to $4,000,000 to ASW on a revolving line of credit basis for general corporate purposes. In August 2022, ASW and BOKF entered into the Third Modification Agreement to the Loan Agreement and ASW entered into the First Amended and Restated Revolving Line of Credit Promissory Note in favor of BOKF. These documents resulted in the following changes to the revolving line of credit financing facility: (a) the maximum amount available for borrowing increased by $1,750,000 to a new total maximum amount of $5,750,000, (b) the interest rate on borrowed amounts is equal to the one-month secured overnight financing rate as administered by the CME Group Benchmark Administration Limited plus a spread of 3.15%, adjusted monthly, and (c) the scheduled maturity date of the loan is August 15, 2025. ASW incurred customary costs and expenses and paid certain fees to BOKF in connection with this modification.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
AMREP Corporation (the “Company”), through its subsidiaries, is primarily engaged in two business segments: land development and homebuilding. The Company has no foreign sales or activities outside the real estate business operated by AMREP Southwest Inc. (“AMREP Southwest”) and its subsidiaries andUnited States. Unless the fulfillment services business operated by Palm Coast Data LLC (“Palm Coast”) and its affiliates. Information concerning industry segments is set forth in Note 11 of the notescontext otherwise indicates, all references to the consolidated financial statements includedCompany in this quarterly report on Form 10-Q. All significant intercompany accounts10-Q include the Company and transactions have been eliminated in consolidation. The Company’s foreign sales and activities are not significant.
its subsidiaries. The following provides information that management believes is relevant to an assessment and understanding of the Company’s condensed consolidated results of operations and financial condition. The information contained in this sectionItem 2 should be read in conjunction with the unauditedcondensed consolidated financial statements and related notes thereto appearing elsewhereincluded in this quarterly report on Form 10-Q and with the Company’s annual report on Form 10-K for the year ended April 30, 2017,2022, which was filed with the Securities and Exchange Commission on July 18, 201721, 2022 (the “2017“2022 Form 10-K”). Many of the amounts and percentages presented in this Item 2 have been rounded for convenience of presentation. Unless the context otherwise qualified,indicates, all references to 20182023 and 20172022 are to the fiscal years ending April 30, 20182023 and 2017 and all references to the third quarter and first nine months of 2018 and 2017 mean the fiscal three month and nine month periods ended January 31, 2018 and 2017.
2022.
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 20172022 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 20172022 Form 10-K.10-K and in Note 1 to the condensed consolidated financial statements included in this report on Form 10-Q. The preparation of those condensed consolidated 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts or results could differ from those estimates.estimates and assumptions.
12
The Company’s critical accounting policies, assumptions and estimates are described in Item 7 of Part II of the 20172022 Form 10-K. There have been no changes in these critical accounting policies.
The significant accounting policies of the Company are described in Note 1 to the consolidated financial statements contained in the 2017 Form 10-K. Information concerning the Company’s implementation and the impact of recent accounting standards or updates issued by the Financial Accounting Standards Board is included in the notes to the consolidated financial statements contained in the 20172022 Form 10-K and in the notes to the unaudited consolidated financial statements included in this quarterly report on Form 10-Q.10-K. The Company did not adopt any accounting policy in the first ninethree months of 2018ended July 31, 2022 that had a material impacteffect on its condensed consolidated financial statements.
RESULTS OF OPERATIONS
For the third quarter of 2018,three months ended July 31, 2022, the Company recorded ahad net lossincome of $2,851,000,$1,912,000, or $0.35$0.36 per diluted share, compared to net income of $174,000,$1,637,000, or $0.02$0.22 per diluted share, for the third quarter of 2017. For the first ninethree months of 2018, the Company recorded a net loss of $1,125,000, or $0.14 per share, compared to net income of $916,000, or $0.11 per share,ended July 31, 2021.
Revenues. The following presents information on revenues for the same period of 2017. Operating results included an increase in income tax expense of $3,057,000, or $0.38 per share, for the third quarter and first nine months of 2018 as a result federal tax law changes enacted during the third quarter of 2018.
Revenues were $10,379,000 and $30,880,000 for the third quarter and first nine months of 2018 compared to $9,777,000 and $33,450,000 for the same periods of the prior year.
Revenues from land sales at AMREP Southwest and its subsidiaries were $2,510,000 and $6,603,000 for the third quarter and first nine months of 2018 compared to $1,461,000 and $7,710,000 for the same periods of 2017. $2,044,000 of the $6,603,000 of revenues from land sales for the first nine months of 2018 was for an approximate five acre undeveloped commercial property in Colorado, which was sold in the first quarter of 2018 and had a gross profit percentage of 65%.
For the third quarter and first nine months of 2018 and 2017, the Company’s land sales in New Mexico were as followsoperations (dollars in thousands):
| Ended January 31, 2018 | Ended January 31, 2017 | |||||||||||||||||||||||
| Acres Sold | Revenue | Revenue Per Acre | Acres Sold | Revenue | Revenue Per Acre | |||||||||||||||||||
| Three months: | ||||||||||||||||||||||||
| Developed | ||||||||||||||||||||||||
| Residential | 7.2 | $ | 2,450 | $ | 340 | 2.8 | $ | 984 | $ | 351 | ||||||||||||||
| Commercial | - | - | - | 0.4 | 467 | 1,168 | ||||||||||||||||||
| Total Developed | 7.2 | 2,450 | 340 | 3.2 | 1,451 | 453 | ||||||||||||||||||
| Undeveloped | 4.8 | 60 | 13 | 2.0 | 10 | 5 | ||||||||||||||||||
| Total | 12.0 | $ | 2,510 | $ | 209 | 5.2 | $ | 1,461 | $ | 281 | ||||||||||||||
| Nine months: | ||||||||||||||||||||||||
| Developed | ||||||||||||||||||||||||
| Residential | 12.9 | $ | 4,459 | $ | 346 | 20.9 | $ | 7,124 | $ | 341 | ||||||||||||||
| Commercial | - | - | - | 0.4 | 467 | 1,168 | ||||||||||||||||||
| Total Developed | 12.9 | 4,459 | 346 | 21.3 | 7,591 | 356 | ||||||||||||||||||
| Undeveloped | 8.4 | 100 | 12 | 11.1 | 119 | 11 | ||||||||||||||||||
| Total | 21.3 | $ | 4,559 | $ | 214 | 32.4 | $ | 7,710 | $ | 238 | ||||||||||||||
| | | | | | | | | |
|
| Three Months ended July 31, | | % Increase |
| ||||
|
| 2022 |
| 2021 |
| (Decrease) |
| ||
Land sale revenues | | $ | 5,172 | | $ | 7,190 |
| (28) | % |
Home sale revenues | |
| 5,439 | |
| 2,411 |
| 126 | % |
Other revenues | |
| 621 | |
| 906 |
| (31) | % |
Total | | $ | 11,232 | | $ | 10,507 |
| 7 | % |
The average gross profit percentage on New MexicoDuring the three months ended July 31, 2022, the Company has experienced supply chain constraints, increases in the prices of building materials, shortages of skilled labor and delays in municipal approvals and inspections in both the land sales was 16%development business segment and 17% for the third quarter and first nine months of 2018 compared to 42% and 17% for the same periods of 2017. The profit percentage is attributable to the mix of lots sold with developed lots having a lower profit percentage compared to undeveloped lots. As a result of many factors, including the nature and timing of specific transactionshomebuilding business segment, which have caused delays in construction and the type and locationrealization of land being sold, revenues, average selling prices and related average gross profits from land sales can vary significantly from period to period and prior results are not necessarily a good indication of what may occur in future periods.
Operating and selling expenses for real estate increased from $370,000 and $1,188,000 for the third quarter and first nine months of 2017 to $470,000 and $1,563,000 for the same periods of 2018, primarily due to increased costs of storm water pollution prevention, broker commissions on sales activity and personnel costs, offset in part by lower consulting fees.
Revenues from the Company’s fulfillment services operations decreased from $8,222,000 and $23,908,000 for the third quarter and first nine months of 2017 to $7,676,000 and $22,952,000 for the same periods in 2018. The lower revenues were attributable to reduced business volumes from existing customers, certain price concessions on renewed contracts and lost business. Magazine publishers are one of the principal customers of the Company’s fulfillment services operations, and these customers have continued to be negatively impacted by increased competition from new media sources, alternative technologies for the distribution, storage and consumption of media content, weakness in advertising revenues and increases in paper costs, printing costscost of revenues per lot and postal rates.per home. In addition, a significant increase in mortgage interest rates during the first half of 2022 has tempered demand for new homes. The resultrising cost of housing due to increases in average sales prices in recent years and the recent increases in mortgage interest rates, coupled with general inflation in the U.S. economy, have placed additional pressure on overall housing affordability and have caused many potential home buyers to pause and reconsider their housing choices. Given the affordability challenges described above and the resulting impact on demand, the Company has been reduced subscriptionincreased sales incentives on certain homes classified as homebuilding finished inventory or homebuilding construction in process. The Company believes these conditions will continue to impact the land development and homebuilding industries for at least the remainder of 2022.
| ● | Land sale revenues for the three months ended July 31, 2022 were lower than the three months ended July 31, 2021 by $2,018,000 primarily due to reduced availability of developed residential lots for sale partially as a result of supply chain constraints, shortages of skilled labor and delays in municipal approvals and inspections. The Company’s land sale revenues were as follows (dollars in thousands): |
| | | | | | | | | | | | | | | | |
| | Three Months ended July 31, 2022 | | Three Months ended July 31, 2021 | ||||||||||||
|
| Acres Sold |
| Revenue |
| Revenue Per Acre1 |
| Acres Sold |
| Revenue |
| Revenue Per Acre1 | ||||
Developed | |
| |
| | |
| | |
| |
| | |
| |
Residential |
| 9.9 | | $ | 5,152 | | $ | 520 |
| 17.4 | | $ | 7,190 | | $ | 413 |
Commercial |
| — | |
| — | |
| — |
| — | |
| — | |
| — |
Total Developed |
| 9.9 | | $ | 5,152 | | $ | 520 |
| 17.4 | |
| 7,190 | |
| 413 |
Undeveloped |
| 2.9 | |
| 20 | |
| 7 |
| — | |
| — | |
| — |
Total |
| 12.8 | | $ | 5,172 | | $ | 404 |
| 17.4 | | $ | 7,190 | | $ | 413 |
1 Revenue per acre may not calculate precisely due to the rounding of revenues to the nearest thousand dollars.
13
The change in the average selling price per acre of developed residential land for the three months ended July 31, 2022 compared to the three months ended July 31, 2021 was primarily due to the location and mix of lots sold.
| ● | Home sale revenues for the three months ended July 31, 2022 were higher than the three months ended July 31, 2021 by $3,028,000 due to the growth of the Company’s homebuilding operations partially offset by supply chain constraints, shortages of skilled labor and delays in municipal approvals and inspections. The Company’s home sale revenues consist of: |
| | | | | | |
| | Three Months ended July 31, | ||||
|
| 2022 |
| 2021 | ||
Homes sold | | | 11 | | | 8 |
Average selling price | | $ | 494,000 | | $ | 301,000 |
As of July 31, 2022, the Company had 32 homes in production, including 13 homes under contract, which has caused publishershomes under contract represented $7,535,000 of expected home sale revenues when closed, subject to close some magazine titles,customer cancellations and change subscription fulfillment providers and seek more favorable terms from Palm Coast and its competitors when contracts are uporders.
| ● | Other revenues for the three months ended July 31, 2022 were lower than the three months ended July 31, 2021 by $285,000. Other revenues consist of (dollars in thousands): |
| | | | | | |
| | Three Months ended July 31, | ||||
|
| 2022 |
| 2021 | ||
Oil and gas royalties | | $ | 57 | | $ | 135 |
Infrastructure reimbursements | |
| 525 | |
| 606 |
Miscellaneous other revenues | |
| 39 | |
| 165 |
Total | | $ | 621 | | $ | 906 |
Refer to Note 7 to the consolidated financial statements contained in the 2022 Form 10-K for bid or renewal. One customeradditional detail about the categories of the fulfillment services business whose revenues were approximately 10.3% of the total Companyother revenues. Miscellaneous other revenues for the first ninethree months ended July 31, 2022 primarily consist of 2018 has given notice that a significant portionnon-refundable option payment and a forfeited deposit. Miscellaneous other revenues for the three months ended July 31, 2021 primarily consist of its business will be transferredrent received from a tenant at a building in Palm Coast, atFlorida, a non-refundable option payment and proceeds from the endsale of 2018. Operatingequipment.
Cost of Revenues. The following presents information on cost of revenues for the Company’s operations (dollars in thousands):
| | | | | | | | | |
| | Three Months ended July 31, | | % Increase | | ||||
|
| 2022 |
| 2021 |
| (Decrease) |
| ||
Land sale cost of revenues | | $ | 3,832 | | $ | 5,610 |
| (32) | % |
Home sale cost of revenues | |
| 3,663 | |
| 1,914 |
| 91 | % |
| ● | Land sale cost of revenues for the three months ended July 31, 2022 was lower than the three months ended July 31, 2021 by $1,778,000. Land sale gross margin was 26% for the three months ended July 31, 2022 compared to 22% for the three months ended July 31, 2021. The increase in gross margin was primarily due to the location, size and mix of property sold and the demand for lots by builders resulting in higher revenue per developed lot. As a result of many factors, including the nature and timing of specific transactions and the type and location of land being sold, revenues, average selling prices and related average gross margin from land sales can vary significantly from period to period and prior results are not necessarily a good indication of what may occur in future periods. |
| ● | Home sale cost of revenues for the three months ended July 31, 2022 were higher than the three months ended July 31, 2021 by $1,749,000 due to the growth of the Company’s homebuilding operations. Home sale gross margins were 33% for the three months ended July 31, 2022 compared to 21% for the three months ended July 31, 2021. The increase in gross margin was primarily due to the location and mix of homes sold and to efficiencies gained during the growth of the Company’s homebuilding operations. |
14
General and sellingAdministrative Expenses. The following presents information on general and administrative expenses for fulfillment services decreased from $6,855,000the Company’s operations (dollars in thousands):
| | | | | | | | | |
| | Three Months ended July 31, | | % Increase | | ||||
|
| 2022 |
| 2021 |
| (Decrease) |
| ||
Land development | | $ | 607 | | $ | 584 |
| 4 | % |
Homebuilding | |
| 257 | |
| 187 |
| 38 | % |
Corporate | |
| 307 | |
| 417 |
| (26) | % |
Total | | $ | 1,171 | | $ | 1,188 |
| (1) | % |
| ● | Land development general and administrative expenses for the three months ended July 31, 2022 were higher than the three months ended July 31, 2021 by $23,000 primarily due to hiring additional employees. The Company did not record any non-cash impairment charges on real estate inventory or investment assets for the three months ended July 31, 2022 or July 31, 2021. Due to volatility in market conditions and development costs, the Company may experience future impairment charges. |
| ● | Homebuilding general and administrative expenses for the three months ended July 31, 2022 were higher than the three months ended July 31, 2021 by $70,000 primarily due to hiring additional employees. |
| ● | Corporate general and administrative expenses for the three months ended July 31, 2022 were lower than the three months ended July 31, 2021 by $110,000 primarily due to a decline in depreciation as a result of building sales in prior periods. |
Interest income, net. Interest income, net was $7,000 and $20,235,000$1,000 for the third quarterthree months ended July 31, 2022 and first nine months of 2017 to $6,338,000 and $18,415,000 for the same periodsJuly 31, 2021. The change in 2018,interest income, net was primarily due to lower payroll and benefits and order entry costs, resulting from reduced business volumes, togetherinterest earned in connection with lower communications, software and equipment maintenance costs, offset in part by increased bad debt expense.a refund of federal income taxes.
Other revenues were $193,000 and $1,685,000 for the third quarter and first nine months of 2018 compared to $94,000 and $1,832,000 for the same periods of 2017. Other revenues for the first nine months of 2018 were primarily due to a pre-tax gain of $1,318,000 related to a settlement agreement with the State of Florida by Palm Coast (referincome. Refer to Note 7 of10 to the notes to thecondensed consolidated financial statements included in this report on Form 10-Q)10-Q for detail regarding other income.
Provision for income taxes. Other revenuesThe Company had a provision for income taxes of $661,000 and $389,000 for the first ninethree months ended July 31, 2022 and July 31, 2021. The provision for income taxes correlated to the amount of 2017 were primarily the resultincome before income taxes during each period.
LIQUIDITY AND CAPITAL RESOURCES
AMREP Corporation is a holding company that conducts substantially all of the sale ofits operations through subsidiaries. As a retail commercial propertyholding company, AMREP Corporation is dependent on its available cash and on cash from subsidiaries to pay expenses and fund operations. The Company’s liquidity is affected by AMREP Southwest, which resulted in a pre-tax gain of $1,496,000. In addition to these pre-tax gains, Other revenues includes the recognition of deferred revenue related to an oilmany factors, including some that are based on normal operations and gas lease, as well as fees and forfeited deposits from customers earned by AMREP Southwest, together with miscellaneous other income items.
Fulfillment services general and administrative expenses decreased from $345,000 and $1,025,000 for the third quarter and first nine months of 2017 to $313,000 and $970,000 for the same periods of 2018, primarily due to lower payroll and benefits, professional costs, bank fees and amortization of intangible assets. Real estate general and administrative expenses increased from $130,000 for the third quarter of 2017 to $156,000 for the same period of 2018, primarily due to an increase in payroll and benefit costs. Real estate general and administrative expenses decreased from $433,000 for the first nine months in 2017 to $356,000 for the same period of 2018, primarily due to reductions in rent, legal expense and insurance. Corporate general and administrative expenses decreased from $787,000 and $2,364,000 in the third quarter and first nine months of 2017 to $690,000 and $2,194,000 for the same periods of 2018, primarily due to lower pension costs, consulting fees and legal expenses, offset in part by higher payroll costs.
Interest expense was $18,000 and $49,000 for the third quarter and first nine months of 2018 compared to $22,000 and $328,000 for the same periods of 2017. Interest expense in 2018 was primarilysome that are related to the settlement and remaining liability with the State of Florida noted above and interest expense in 2017 was primarily related to two notes payable of AMREP Southwest that were paid in full during 2017. There was no capitalized interest for the first nine months of 2018 compared to $45,000 and $83,000 for the third quarter and first nine months of 2017.
The U.S. Tax Cuts and Jobs Act (the “Act”) was signed into law in December 2017. The Act significantly revised the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates. The Act reduces the federal corporate tax rate to 21.0% effective January 1, 2018. As the Company has an April 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal corporate tax rate of approximately 29.7% for our fiscal year ending April 30, 2018, and a 21% rate for subsequent fiscal years. The 29.7% federal corporate tax rate is a blended rate for the April 30, 2018 fiscal year-end based on a prorated percentage of the number of days prior and subsequent to the January 1, 2018 effective date.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Act. SAB 118 provides for a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act.
As of January 31, 2018, the Company had not completed its accounting for the tax effects of the Act, but was able to make reasonable estimates of the impact of the reduction in corporate tax ratereal estate industry and the re-measurement of deferred tax balances:
The Company’s effective tax rate for the third quarter and first nine months was increased by the effect of a net income tax expense increase of $3,057,000 related to accounting for the tax effects of the Act. Excluding this increase, the Company’s effective tax rate was 27.7% and 32.5% for the third quarter and first nine months of 2018 compared to 35.5% and 32.5% for the same periods of 2017. The difference between the statutory rate and the effective rate of the tax provision after excluding the $3,057,000 was primarily due to state taxes.
The total tax effect of gross unrecognized tax benefits in the accompanying financial statements at both January 31, 2018 and April 30, 2017 was $58,000, which, if recognized, would have an impact on the effective tax rate. The Company believes it is reasonably possible that the liability for unrecognized tax benefits will not change in the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
economy generally.
The Company’s primary sources of funding for working capital requirements are cash flow from operations, bank financing for specific real estate projects, a revolving line of credit and existing cash balances. The Company’s liquidity isLand and homebuilding properties generally cannot be sold quickly, and the ability of the Company to sell properties has been and will continue to be affected by many factors, including some that are based on normal operations and some that are related to the industries in whichmarket conditions. The ability of the Company operatesto generate cash flow from operations is primarily dependent upon its ability to sell the properties it has selected for disposition at the prices and within the economy generally.timeframes the Company has established for each property. The development of additional lots for sale, construction of homes or pursuing other real estate projects may require financing, which may not be available on acceptable terms (or at all). If the Company is unable to obtain such financing, the Company’s results of operations could be adversely affected. Except as described below, there have been no material changes to the Company’s liquidity and capital resources as reflected in the Liquidity and Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 20172022 Form 10-K.
15
Cash Flow. The following presents information on the cash flows for the Company (dollars in thousands):
| | | | | | | | | |
| | | | | | | | |
|
| | Three Months Ended July 31, | | % Increase | | ||||
|
| 2022 |
| 2021 |
| (Decrease) | | ||
Net cash provided by (used in) operating activities | | $ | 262 | | $ | (4,466) |
| (a) | |
Net cash used in investing activities | |
| (118) | |
| (1) |
| (a) | |
Net cash provided by financing activities | |
| 50 | |
| 2,940 |
| (98) | % |
Increase (decrease) in cash, cash equivalents and restricted cash | | $ | 194 | | $ | (1,527) |
| (a) | |
Operating Activities. Net cash provided by operating activities for the three months ended July 31, 2022 was higher than the three months ended July 31, 2021 by $4,728,000 primarily due to an increase in the Company’s net income and the amount of change during each period in real estate inventory and investment assets and in accounts payable and accrued expenses.
Investing Activities. Net cash used in investing activities for the three months ended July 31, 2022 was higher than the three months ended July 31, 2021 by $117,000 primarily due to the purchase of equipment.
Financing Activities. Net cash provided by financing activities for the three months ended July 31, 2022 was lower than the three months ended July 31, 2021 by $2,890,000 primarily due to a reduction in proceeds from debt financing partially offset by a reduction in principal debt repayments. Notes payable increased from $2,030,000 as of April 30, 2022 to $2,080,000 as of July 31, 2022 due to equipment purchases. Refer to Note 96 to the condensed consolidated financial statements included in this report on Form 10-Q and Note 6 to the consolidated financial statements contained in the 20172022 Form 10-K for detail about the settlement agreement entered into between Palm Coast and the State of Florida in the first quarter of 2018. In June 2009, Palm Coast received $3,000,000 pursuant to an agreement with the State of Florida (the “Award Agreement”) as part of the incentives made available in connection with the consolidationregarding each of the Company’s fulfillment services operations at its Palm Coast, Florida location.notes payable.
Asset and Liability Levels. The Award Agreement includedfollowing presents information on certain performance requirementsasset and liability levels (dollars in termsthousands):
| | | | | | | | | |
|
| July 31, |
| April 30, |
| % Increase |
| ||
| | 2022 | | 2022 | | (Decrease) |
| ||
Real estate inventory | | $ | 68,604 | | $ | 67,249 |
| 2 | % |
Investment assets | |
| 8,961 | |
| 9,017 |
| (1) | % |
Other assets | |
| 2,082 | |
| 1,882 |
| 11 | % |
Deferred income taxes, net | |
| 928 | |
| 958 |
| (3) | % |
Prepaid pension costs | |
| 311 | |
| 90 |
| (a) | |
Accounts payable and accrued expenses | |
| 4,976 | |
| 6,077 |
| (18) | % |
Taxes payable, net | |
| 4,428 | |
| 3,648 |
| 21 | % |
(a) Percentage not meaningful.
16
In the Company’s consolidated financial statements and as a result of entering into the Settlement Agreement, Palm Coast reduced its previously recorded liability of $3,000,000 and a related $26,000 interest accrual by $1,620,000 to $1,406,000 by recognizing a pre-tax gain of $1,318,000 and recording deferred revenue of $302,000. The $1,318,000 pre-tax gain was determined based on depreciation previously taken on assets acquired with Award Agreement funds that were retained by Palm Coast and was recognized in Other revenues during the first nine months of 2018. The $302,000 deferred revenue will be recognized over the remaining life of these assets (approximately seven years from January 31, 2018), with $61,000 having been recognized during the first nine months of 2018 resulting in a deferred revenue balance of $241,000 as of January 31, 2018. As a result of paying the State of Florida $163,000 during the first quarter of 2018, $40,000 during the second quarter of 2018 and $40,000 during the third quarter of 2018, Palm Coast recognized $41,000 of imputed interest expense and reduced its remaining balance sheet liability of $1,406,000 as of the date of the Settlement Agreement to $1,204,000 as of January 31, 2018. These balance sheet liability numbers are less than the amounts owed to the State of Florida of $1,763,000 as of the date of the Settlement Agreement and $1,520,000 as of January 31, 2018 because they have been adjusted to reflect the present values of these deferred non-interest bearing obligations.
In February 2018, Palm Coast and the Company entered into a Release Agreement (the “Release Agreement”) with the State of Florida. Pursuant to the Release Agreement, (1) Palm Coast paid the State of Florida $956,000, (2) each of the parties released all claims relating to the guaranty agreement (the “Guaranty Agreement”) between the Company and the State of Florida entered into in the first quarter of 2018 and the payment obligations under the Settlement Agreement that the releasing party may have had against each of the other parties and (3) each of the Guaranty Agreement and the payment obligations under the Settlement Agreement shall be deemed terminated and none of the parties shall have any further liabilities or obligations with respect thereto. The Company expects to recognize a gain related to the Release Agreement of approximately $257,000 during the fourth quarter of 2018.
| ● | Real estate inventory increased from April 30, 2022 to July 31, 2022 by $1,355,000. Real estate inventory consists of (dollars in thousands): |
| | | | | | | | | |
|
| July 31, |
| April 30, |
| % Increase |
| ||
| | 2022 | | 2022 | | (Decrease) |
| ||
Land inventory in New Mexico | | $ | 60,528 | | $ | 59,374 |
| 2 | % |
Land inventory in Colorado | |
| 3,435 | |
| 3,434 |
| 0 | % |
Homebuilding finished inventory | |
| 1,005 | |
| 1,135 |
| (11) | % |
Homebuilding construction in process | |
| 3,636 | |
| 3,306 |
| 10 | % |
| | $ | 68,604 | | $ | 67,249 | | | |
Operating Activities
Accounts payable and accrued expensesLand inventory in New Mexico increased from $7,035,000 at April 30, 20172022 to $9,187,000 at JanuaryJuly 31, 2018,2022 by $1,154,000 primarily due to an increase inincreased land development activity in Rio Rancho, New Mexico.
Real estateand the acquisition of land. Homebuilding finished inventory increaseddecreased from $56,090,000 at April 30, 20172022 to $58,271,000 at JanuaryJuly 31, 2018, primarily due to an increase in land development activity in Rio Rancho, New Mexico, offset in part2022 by real estate land sales. Property, plant and equipment decreased from $10,852,000 at April 30, 2017 to $10,028,000 at January 31, 2018 due to normal depreciation of fixed assets.
Other liabilities and deferred revenue decreased from $3,376,000 at April 30, 2017 to $1,653,000 at January 31, 2018,$130,000 primarily due to the previously described settlement agreement between Palm Coast andsale of homes partially offset by the Statecompletion of Florida.
Accrued pension costs decreasedhomes not yet sold. Homebuilding construction in process increased from $10,967,000 at April 30, 20172022 to $9,707,000 at JanuaryJuly 31, 2018, primarily2022 by $330,000 due to $1,040,000 of Company contributionsincreased homebuilding activity.
| ● | Investment assets decreased from April 30, 2022 to July 31, 2022 by $56,000. Investment assets consist of (dollars in thousands): |
| | | | | | | | | |
|
| July 31, |
| April 30, |
| % Increase |
| ||
| | 2022 | | 2022 | | (Decrease) |
| ||
Land held for long-term investment | | $ | 8,961 | | $ | 9,017 |
| (1) | % |
| ● | Other assets increased from April 30, 2022 to July 31, 2022 by $200,000 primarily due to prepaid expenses of stock compensation, insurance and real estate taxes. |
| ● | Deferred income taxes, net decreased from April 30, 2022 to July 31, 2022 by $30,000 primarily due to the income tax effect of the decrease in pension liability. |
| ● | Accounts payable and accrued expenses decreased from April 30, 2022 to July 31, 2022 by $1,101,000 primarily due to the payment of invoices partially offset by an increase in customer deposits. |
| ● | Taxes payable, net increased from April 30, 2022 to July 31, 2022 by $780,000. |
| ● | Accrued pension costs of the Company’s frozen defined benefit pension plan decreased from April 30, 2022 to July 31, 2022 by $221,000 primarily due to the funding levels of the plan. The Company recorded, net of tax, other comprehensive income of $66,000 for each of the three months ended July 31, 2022 and July 31, 2021 reflecting the change in accrued pension costs during each period net of the related deferred tax and unrecognized prepaid pension amounts. |
Recent Accounting Pronouncements. Refer to Note 1 to the pension plan.
Investing Activities
Capital expenditures totaled $130,000 for the first nine months of 2018condensed consolidated financial statements included in this report on Form 10-Q and $63,000 for the same period of 2017, primarily for the fulfillment services business.
Financing Activities
During December 2017, Lomas Encantadas Development Company LLC (“LEDC”), an indirect subsidiary of AMREP Corporation, entered into a Development Loan Agreement with BOKF, NA dba Bank of Albuquerque (“Lender”). The Development Loan Agreement is evidenced by a Non-Revolving Line of Credit Promissory Note dated December 18, 2017, and is secured by a Mortgage, Security Agreement and Financing Statement, between LEDC and Lender, dated November 16, 2017, with respect to 343 planned residential lots within the Lomas Encantadas subdivision (the “Mortgaged Property”) located in Rio Rancho, New Mexico. Pursuant to a Guaranty Agreement, dated December 18, 2017, entered into by AMREP Southwest in favor of Lender, AMREP Southwest has guaranteed LEDC’s obligations under each of the above agreements. The Development Loan Agreement, Non-Revolving Line of Credit Promissory Note, Mortgage, Security Agreement and Financing Statement, Guaranty Agreement and other related transaction documents are collectively referred to as the “Loan Documentation.”
Pursuant1 to the Loan Documentation, Lender agrees to lend up to $4,750,000 to LEDC on a non-revolving line of credit basis to partially fundconsolidated financial statements contained in the development of the Mortgaged Property. LEDC expects to fully utilize the $4,750,000 for its land development activities. Interest on the outstanding principal amount of the loan is payable monthly at the annual rate equal to the London Interbank Offered Rate2022 Form 10-K for a thirty-day interest period plus a spreaddiscussion of 3.0%, adjusted monthly. Lender is required to release the lienrecently issued accounting pronouncements.
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LEDC and AMREP Southwest have made certain representations and warranties in the Loan Documentation and are required to comply with various covenants, reporting requirements and other customary requirements for similar loans. The Loan Documentation contains customary events of default for similar financing transactions, including: LEDC’s failure to make principal, interest or other payments when due; the failure of LEDC or AMREP Southwest to observe or perform their respective covenants under the Loan Documentation; the representations and warranties of LEDC or AMREP Southwest being false; the insolvency or bankruptcy of LEDC or AMREP Southwest; and the failure of AMREP Southwest to maintain a tangible net worth of at least $35 million. Upon the occurrence and during the continuance of an event of default, Lender may declare the outstanding principal amount and all other obligations under the Loan Documentation immediately due and payable. At January 31, 2018, both LEDC and AMREP Southwest were in compliance with the covenants contained within the Loan Documentation.
Statement of Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral statements that are “forward-looking”, including statements contained in this report and other filings with the Securities and Exchange Commission, reports to the Company’s shareholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Act.Private Securities Litigation Reform Act of 1995. In addition, other written or oral statements, which constitute forward-looking statements, may be made by or on behalf of the Company. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “projects”, “forecasts”, “may”, “should”, variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and contingencies that are difficult to predict. All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on behalf of the Company are qualified by the cautionary statements in this section. Many of the factors that will determine the Company’s future results are beyond the ability of management to control or predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements.
The forward-looking statements contained in this report include, but are not limited to, statements regarding (1) the Company’s ability to finance its future working capital, land development, homebuilding and capital expenditure needs, (2) the Company’s expected lossliquidity sources, (3) the utilization of a material customerexisting bank financing, (4) the market conditions impacting the land development and homebuilding industries for at least the remainder of 2022, (5) the backlog of homes under contract and in production and the effectdollar amount of expected sales revenues when such loss, the effect of recent accounting pronouncements on the Company,homes are closed, (6) the timing of recognizing unrecognized compensation expense related to shares of restricted common stock issued under the AMREP Corporation 2016 Equity Plans,Compensation Plan, (7) the liability for unrecognized tax benefits not changing in the next twelve months, the availabilityfuture issuance of bank financing for projects, the expected utilization of existing bank financing, the impactdeferred stock units to directors of the U.S. Tax CutsCompany and Jobs Act on the Company and(8) the future business conditions that may be experienced by the Company.
The Company undertakes no obligation to update or publicly release any revisions to any forward-looking statement to reflect events, circumstances or changes in expectations after the date of such forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
Item 4.Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s chief executive officerChief Executive Officer and chief financial officer,Vice President, Finance and Accounting, 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 Company’s chief executive officerChief Executive Officer and chief financial officerVice President, Finance and Accounting have concluded that such disclosure controls and procedures arewere effective as of July 31, 2022 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 chief executive officerthe Company’s Chief Executive Officer and chief financial officer,Vice President, Finance and Accounting, 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“financial reporting” (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 6.Exhibits |
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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: | AMREP CORPORATION | ||
| (Registrant) | ||
| | ||
| By: | /s/ | |
| | Name: Adrienne M. | |
| | Title: Vice President, Finance and | |
| | (Principal Accounting Officer) | |
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EXHIBIT INDEX
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