SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31 , 2003
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________
Commission File Number 1-4702
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AMREP Corporation
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(Exact name of registrant as specified in its charter)
Oklahoma 59-0936128
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
641 Lexington Avenue, Sixth Floor, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 705-4700
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
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Number of Shares of Common Stock, par value $.10 per share, outstanding at July
31, 2003 - 6,590,112.
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements:
Consolidated Balance Sheets
July 31, 2003 and April 30, 2003 1
Consolidated Statements of Operations and Retained Earnings
Three Months Ended July 31, 2003 and 2002 2
Consolidated Statements of Cash Flows
Three Months Ended July 31, 2003 and 2002 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis 5 - 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 8
Item 4. Controls and Procedures 8
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
EXHIBIT INDEX 11
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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AMREP CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands, except par value and number of shares)
July 31, 2003 April 30, 2003
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(Unaudited) (Audited)
ASSETS
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Cash and cash equivalents $ 17,683 $ 16,443
Receivables, net:
Magazine circulation operations 47,792 36,464
Real estate operations 6,180 5,830
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53,972 42,294
Real estate inventory 62,442 63,084
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization of $16,775 at July 31, 2003
and $15,840 at April 30, 2003 17,327 16,614
Assets held for sale - net 5,968 5,819
Other assets 9,784 9,901
Goodwill 5,191 5,191
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Total Assets $ 172,367 $ 159,346
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Accounts payable and accrued expenses $ 40,348 $ 37,897
Dividend payable 1,648 -
Notes payable:
Amounts due within one year 3,103 4,124
Amounts subsequently due 20,230 14,303
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23,333 18,427
Taxes payable 2,724 605
Deferred income taxes 1,506 1,506
Accrued pension cost 7,083 7,083
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Total Liabilities 76,642 65,518
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Shareholders' equity:
Common stock, $.10 par value;
shares authorized - 20,000,000;
shares issued -7,408,704 at July 31,
2003 and 7,406,704 at April 30, 2003 741 741
Capital contributed in excess of par value 45,006 44,992
Retained earnings 61,669 59,786
Accumulated other comprehensive loss, net ( 6,034) ( 6,034)
Treasury stock, at cost; 818,592 shares
at July 31, 2003 and April 30, 2003 ( 5,657) ( 5,657)
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Total Shareholders' Equity 95,725 93,828
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Total Liabilities and
Shareholders' Equity $ 172,367 $ 159,346
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See notes to consolidated financial statements.
1
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended July 31, 2003 and 2002
(Thousands, except per share amounts)
2003 2002
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REVENUES
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Magazine operations $ 25,993 $ 12,166
Real estate operations 6,394 2,493
Interest and other operations 1,230 1,351
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33,617 16,010
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COSTS AND EXPENSES
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Magazine operating expenses 20,734 9,872
Real estate cost of sales 2,613 1,433
Real estate commissions and selling 202 130
Other operations 607 671
General and administrative:
Magazine operations 2,584 1,732
Real estate operations and corporate 998 714
Interest expense, net 273 133
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28,011 14,685
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Income before income taxes 5,606 1,325
PROVISION FOR INCOME TAXES 2,075 530
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NET INCOME 3,531 795
RETAINED EARNINGS, beginning of period 59,786 53,513
DIVIDEND PAYABLE ($0.25 per share) ( 1,648) -
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RETAINED EARNINGS, end of period $ 61,669 $ 54,308
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NET INCOME PER SHARE - BASIC AND DILUTED $ 0.54 $ 0.12
=============== ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,589 6,576
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See notes to consolidated financial statements.
2
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended July 31, 2003 and 2002
(Thousands)
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,531 $ 795
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Adjustments to reconcile net income
to net cash used by operating activities -
Depreciation and amortization 1,276 740
Non-cash credits and charges:
Pension expense (benefit) 208 ( 4)
Bad debt reserve 39 16
Changes in assets and liabilities -
Receivables ( 11,837) ( 1,365)
Real estate inventory 642 ( 603)
Other assets ( 141) ( 26)
Accounts payable and accrued expenses 2,187 ( 5,629)
Taxes payable 2,119 584
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Total adjustments ( 5,507) ( 6,287)
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Net cash used by operating activities ( 1,976) ( 5,492)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 1,704) ( 384)
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Net cash used by investing activities ( 1,704) ( 384)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 13,412 7,745
Principal debt payments ( 8,506) ( 2,598)
Proceeds from exercise of stock options 14 26
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Net cash provided by financing
activities 4,920 5,173
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Increase (decrease) in cash
and cash equivalents 1,240 ( 703)
CASH AND CASH EQUIVALENTS,
beginning of period 16,443 15,744
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CASH AND CASH EQUIVALENTS,
end of period $ 17,683 $ 15,041
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SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amounts
capitalized $ 138 $ 152
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Income taxes ( refunds ) - net $ ( 44) $ ( 54)
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See notes to consolidated financial statements.
3
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Three Months Ended July 31, 2003 and 2002
(1) BASIS OF PRESENTATION
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The accompanying unaudited financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission for interim financial information. The April 30, 2003
balance sheet amounts have been derived from the April 30, 2003 audited
financial statements of the Registrant. Since the accompanying consolidated
financial statements do not include all the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements, it is suggested that they be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Registrant's 2003 Annual Report on Form 10-K. In the opinion of management, the
accompanying unaudited financial statements include all adjustments, which are
of a normal recurring nature, necessary to reflect a fair presentation of the
results for the interim periods presented. The results of operations for such
interim periods are not necessarily indicative of the results to be expected for
the full fiscal year.
(2) INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT
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INDUSTRY SEGMENTS
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The following tables set forth summarized data relative to the industry segments
in which the Company operates for the three month periods ended July 31, 2003
and 2002. Certain amounts included in "Interest and other operations" on the
Consolidated Statements of Operations are classified below within the land
operations segment. In addition, prior year amounts have been restated to
reflect corporate management fees as well as the reclassification of certain
revenues and expenses between the Distribution and Fulfillment segments in order
to conform to the current year presentation.
THREE MONTHS Newsstand Fulfillment Corporate
Land Sales Distribution Services and Other Consolidated
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July 2003 (Thousands):
Revenues $ 6,887 $ 3,249 $ 22,744 $ 737 $ 33,617
Operating expenses 3,447 2,858 20,460 973 27,738
Management fees 193 48 135 ( 376) -
Interest expense, net - 5 213 55 273
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Pretax income (loss) $ 3,247 $ 338 $ 1,936 $ 85 $ 5,606
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Identifiable assets $ 71,438 $ 41,388 $ 34,925 $ 19,425 $ 167,176
Intangible assets $ - $ 3,893 $ 1,298 - $ 5,191
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July 2002 (Thousands):
Revenues $ 2,829 $ 3,382 $ 8,784 $ 1,015 $ 16,010
Operating expenses 2,096 2,841 8,763 852 14,552
Management fees 175 45 130 ( 350) -
Interest expense, net - 64 10 59 133
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Pretax income (loss) $ 558 $ 432 $ ( 119) $ 454 $ 1,325
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Identifiable assets $ 73,408 $ 32,444 $ 21,131 $ 18,441 $ 145,424
Intangible assets $ - $ 3,893 $ 1,298 - $ 5,191
4
AMREP CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
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and Results of Operations
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RESULTS OF OPERATIONS
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The following provides information that management believes is relevant to an
assessment and understanding of the consolidated results of operations and
financial condition. The discussion should be read in conjunction with the
consolidated financial statements and accompanying notes. All references to the
first three months or first quarter of 2004 and 2003 mean the fiscal quarters
ended July 31, 2003 and July 31, 2002, respectively.
Three Months ended July 31, 2003 Compared to Three Months ended July 31, 2002
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Consolidated revenues for the Company's fiscal 2004 first quarter were $33.6
million compared to $16.0 million in the first quarter last year. Net income was
$3,531,000, or $0.54 per share, for the first three months of 2004 versus
$795,000, or $0.12 per share, in the first quarter of 2003.
Revenues from the Company's Kable News Company subsidiary were $26.0 million for
the first quarter of the current fiscal year compared to $12.2 million in the
same period last year. Revenues from Kable's Fulfillment Services business
increased from $8.8 million in the first quarter of 2003 to $22.7 million in the
first quarter of 2004 as a result of the acquisition by Kable in April 2003 of
the subscription fulfillment business of Electronic Data Systems Corporation.
Newsstand Distribution Services' revenues decreased 4%, from $3.4 million in the
first quarter last year to $3.2 million in the current year, principally as the
result of a decline in magazine sales percentages for existing customers.
Operating margins for Kable News improved in the first quarter this year versus
a year ago, as operating costs decreased from 81.1% of related revenues in the
first quarter of 2003 to 79.8% in the same period this year.
As a result of customer losses that were identified and known prior to the
acquisition of the EDS subscription fulfillment business and which will occur
throughout fiscal 2004, it is anticipated that the revenues and net income of
the acquired subscription fulfillment business in future periods of 2004 will be
reduced from historical levels, including results of the first quarter. By the
fourth quarter of 2004, the revenue decline on a quarterly basis is currently
expected to be approximately $2.5 million as compared to the first quarter, with
a decrease in quarterly net income of approximately $750,000. Accordingly,
results for Kable's Fulfillment Services business for the first quarter are not
necessarily an indication of what may be expected to occur in future periods.
Revenues from land sales at the Company's AMREP Southwest subsidiary also rose
significantly, from $2.5 million in the first quarter of 2003 to $6.4 million in
the first quarter of 2004. This was the result of increased sales of residential
lots in the Company's principal market of Rio Rancho, New Mexico, including the
bulk sale of 265 unimproved lots for $1.9 million where there was no comparable
transaction in the first quarter of 2003. The first quarter gross profit on land
5
sales also increased from 43% in 2003 to 59% in 2004 because of the increased
number of unimproved lots sold, including the bulk sale discussed above, which
generally have higher gross profit margins than developed lots. Revenues and
related gross profits from land sales can vary significantly from period to
period as a result of many factors, including the nature and timing of specific
transactions, and prior results are not necessarily an indication of what may be
expected to occur in future periods.
Operating expenses for Kable's fulfillment services, newsstand distribution and
other operations increased from $9.9 million in the first quarter last year to
$20.7 million in the first quarter of 2004 as a result of the acquisition in
April 2003 of the subscription fulfillment business of Electronic Data Systems
Corporation ("EDS"), decreasing from 81.1% to 79.8% of related revenues in
fiscal 2003 and 2004, respectively. With respect to the real estate business,
commissions and selling expenses increased to $202,000 in the first quarter of
the current year compared to $130,000 in the same period last year due to the
additional land sales, but decreased from 5.2% to 3.2% of related revenues as
such costs generally vary depending upon the terms of specific sale
transactions. Real estate and corporate general and administrative expenses
increased from $714,000 in the first quarter of 2003 to approximately $1.0
million in the same period of 2004, principally as a result of increased pension
expense. General and administrative costs of magazine operations increased from
$1.7 million in the first quarter of 2003 to $2.6 million in the same period of
the current year, but decreased as a percentage of sales from 14.2% in 2003 to
9.9% in 2004, due to the expansion of operations resulting from the acquisition.
Interest expense increased from $133,000 in the first quarter of 2003 to
$273,000 in the first quarter of 2004 as a result of additional borrowings
incurred in connection with the acquisition.
Revenues associated with interest and other operations decreased from $1.3
million in the first quarter last year to $1.2 million in the same period of
2004, while the related costs of these other operations also decreased a
comparable amount, from $671,000 in the first quarter of 2003 to $607,000 in the
same period this year.
LIQUIDITY AND CAPITAL RESOURCES
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During the past several years, the Company has financed its operations from
internally generated funds from real estate sales and magazine operations, and
from borrowings under its various lines-of credit and development loan
agreements.
Cash Flows From Financing Activities
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The Company's subsidiaries have line of credit arrangements with several
financial institutions which are collateralized by various assets. Based upon
collateral availability, the Company's subsidiaries had an aggregate borrowing
availability of $41.3 million at July 31, 2003 against which $18.9 million had
been borrowed.
Kable has an agreement with a bank which allows the company to borrow up to $30
million based upon a prescribed percentage of eligible accounts receivable, as
6
defined. At July 31, 2003, Kable had borrowing availability of $29.7 million,
against which $16.7 million was outstanding.
The Company's real estate subsidiary, AMREP Southwest Inc., also has several
loans to support its operations in New Mexico. These loans are collateralized by
certain real estate assets and are subject to available collateral and various
financial performance and other covenants. At July 31, 2003, the maximum
available under real estate lines-of-credit totaled $11.6 million, of which
borrowings of $2.2 million were outstanding.
On July 9, 2003, the Company's Board of Directors declared a special dividend of
$0.25 per share payable on August 13, 2003 to shareholders of record on July 24,
2003. While this dividend was a one time event, the Board indicated that it may
consider special dividends from time-to-time in the future in light of
conditions then existing, including earnings, financial condition, cash
position, and capital requirements and other needs.
Cash Flows From Operating Activities
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Real estate inventory was $63.1 million at April 30, 2003 compared to $62.4
million at July 31, 2003. Receivables from Kable's operations increased from
$36.5 million at April 30, 2003 to $47.8 million at July 31, 2003 as the result
of the revenue growth attributable to the acquisition from EDS.
Application of Critical Accounting Policies
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The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of those financial statements and the reported amounts of revenues and
expenses during the reporting period. The significant estimates that affect the
financial statements of the Company include, but are not limited to: (i) revenue
recognition for the magazine distribution business/estimates of allowance for
magazine returns; (ii) allowances for bad debts; (iii) land development budgets
and costs to complete; (iv) cash flow and valuation assumptions in performing
asset impairment tests of long-lived assets and assets held for sale; (v)
pension plan assumptions; and (vi) legal contingencies. Actual results could
differ from those estimates. There has been no significant effect on the
financial condition or results of operations as a result of changes in policies
or estimates.
Statement of Forward-Looking Information
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Certain information included herein and in other Company statements, reports and
filings with the Securities and Exchange Commission, including statements
regarding revenue and profitability of the subscription fulfillment business
acquired from EDS, are forward-looking within the meaning of the Private
Securities Litigation Reform Act of 1995. Refer to Item 7 of the Annual Report
on Form 10-K for a discussion of the assumptions and factors on which these
statements are based. Any changes in the actual outcome of these assumptions and
factors could produce significantly different results; accordingly, all
forward-looking statements should be evaluated with the understanding of their
inherent uncertainty. AMREP disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
7
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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There have been no material changes to the Company's market risk for the three
month period ended July 31, 2003. Refer to Item 7(A) of the Company's Annual
Report on Form 10-K for the fiscal year ended April 30, 2003 for additional
information regarding quantitative and qualitative disclosures about market
risk.
Item 4. Controls and Procedures
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The Company's management, with the participation of the Company's chief
financial officer and the other executive officers whose certificates accompany
this quarterly report, in accordance with paragraph (b) of Rule 13a-15 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), have evaluated
the effectiveness of the Company' disclosure controls and procedures (within the
meaning of said Rule) as of the end of the period covered by this report. As a
result of such evaluation, the chief financial officer and other executive
officers have concluded that such disclosure controls and procedures are
effective, in all material respects, to ensure that the information required to
be disclosed in the reports the Company files or submits under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
There have been no changes in the Company's internal control over financial
reporting during the fiscal quarter covered by this quarterly report that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K
(i) On July 11, 2003, the Company filed a Current Report on Form 8-K
reporting under Item 9 the issuance by the Company of a news
release disclosing the Company's consolidated financial position
at April 30, 2003 and its consolidated results of operations for
the year and for the three months ended that date.
(ii) On July 18, 2003, the Company filed an Amendment on Form 8-K/A
reporting under Item 7. Included in the Amendment were the
following financial statements:
Financial Statements and Independent Auditor's Report on the
financial statements of the Subscription Fulfillment Business of
Electronic Data Systems Corporation as of December 31, 2002 and
2001 and for each of the three years in the period ending
December 31, 2002.
Unaudited Pro Forma Consolidated Balance Sheet of the Company as
of January 31, 2003.
Unaudited Pro Forma Consolidated Statements of Income of the
Company for the year ended April 30, 2002 and for the nine months
ended January 31, 2003.
9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMREP CORPORATION
(Registrant)
Dated: September 15, 2003 By: /s/ Peter M. Pizza
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Peter M. Pizza
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
10
AMREP CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
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Exhibit No. Description
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31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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