UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2006
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-4702
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AMREP Corporation
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(Exact name of registrant as specified in its charter)
Oklahoma 59-0936128
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
212 Carnegie Center, Suite 302, Princeton, New Jersey 08540
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (609) 716-8200
-----------------------------
641 Lexington Avenue, Sixth Floor, New York, New York 10022
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(Former address of principal executive offices, (Zip Code)
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check
one):
Large accelerated filer Accelerated filer Non-accelerated filer X
--- --- -----
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
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Number of Shares of Common Stock, par value $.10 per share, outstanding at
January 31, 2006 - 6,636,112.
AMREP CORPORATION AND SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
January 31, 2006 and April 30, 2005 1
Consolidated Statements of Operations and Retained Earnings
(Unaudited) Three Months Ended January 31, 2006 and 2005 2
Consolidated Statements of Operations and Retained Earnings
(Unaudited) Nine Months Ended January 31, 2006 and 2005 3
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended January 31, 2006 and 2005 4
Notes to Consolidated Financial Statements 5 - 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures 11 - 12
PART II. OTHER INFORMATION
Item 6. Exhibits 12
SIGNATURE 13
EXHIBIT INDEX 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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AMREP CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets ( Unaudited )
(Thousands, except par value and number of shares)
January 31, April 30,
2006 2005
------------------ -------------------
ASSETS:
Cash and cash equivalents $ 22,247 $ 37,743
Receivables, net:
Media services operations 50,579 51,348
Real estate operations 5,669 6,277
------------------ -------------------
56,248 57,625
Real estate inventory 53,563 52,906
Investment assets - net 11,192 11,356
Property, plant and equipment, at cost, net of accumulated
depreciation and amortization of $23,033 at January 31, 2006
and $19,972 at April 30, 2005 12,262 11,600
Other assets, net 14,575 12,347
Assets of discontinued operations - 5,541
Goodwill 5,191 5,191
------------------ -------------------
TOTAL ASSETS $ 175,278 $ 194,309
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued expenses $ 42,266 $ 50,720
Liabilities of discontinued operations - 13
Notes payable:
Amounts due within one year 1,738 2,099
Amounts subsequently due 9,926 9,955
------------------ -------------------
11,664 12,054
Taxes payable 2,219 2,220
Deferred income taxes 6,754 6,117
Accrued pension cost 5,934 5,780
------------------ -------------------
TOTAL LIABILITIES 68,837 76,904
------------------ -------------------
Shareholders' equity:
Common stock, $.10 par value;
shares authorized - 20,000,000; 7,417,204 shares issued
at January 31, 2006 and 7,414,704 at April 30, 2005 741 741
Capital contributed in excess of par value 45,588 45,395
Retained earnings 71,486 82,695
Accumulated other comprehensive loss, net (5,976) (5,976)
Treasury stock, at cost; 781,092 shares at January 31, 2006
and 788,592 shares at April 30, 2005 (5,398) (5,450)
------------------ -------------------
TOTAL SHAREHOLDERS' EQUITY 106,441 117,405
------------------ -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 175,278 $ 194,309
================== ===================
See notes to consolidated financial statements.
1
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended January 31, 2006 and 2005
(Thousands, except per share amounts)
2006 2005
----------------- -------------------
REVENUES:
Media services operations $ 22,449 $ 24,126
Real estate operations - land sales 12,621 6,996
Interest and other 519 364
----------------- -------------------
35,589 31,486
----------------- -------------------
COSTS AND EXPENSES:
Media services operating expenses 18,989 20,430
Real estate cost of sales 6,618 3,650
Real estate commissions and selling 480 208
Other operations 311 286
General and administrative:
Media services operations 1,782 1,860
Real estate operations and corporate 1,039 848
Interest expense, net
78 220
----------------- -------------------
29,297 27,502
----------------- -------------------
Income before income taxes 6,292 3,984
PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS 1,051 1,473
----------------- -------------------
NET INCOME FROM CONTINUING OPERATIONS 5,241 2,511
INCOME FROM OPERATIONS OF DISCONTINUED BUSINESS (NET OF INCOME TAXES) - 50
----------------- -------------------
NET INCOME 5,241 2,561
DIVIDENDS PAID (23,226) -
RETAINED EARNINGS, beginning of period 89,471 75,391
----------------- -------------------
RETAINED EARNINGS, end of period $ 71,486 $ 77,952
================= ===================
EARNINGS PER SHARE - BASIC AND DILUTED:
CONTINUING OPERATIONS $ 0.79 $ 0.38
DISCONTINUED OPERATIONS 0.00 0.01
----------------- -------------------
EARNINGS PER SHARE - BASIC AND DILUTED $ 0.79 $ 0.39
================= ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,635 6,619
================= ===================
See notes to consolidated financial statements.
2
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Nine Months Ended January 31, 2006 and 2005
(Thousands, except per share amounts)
2006 2005
----------------- -------------------
REVENUES:
Media services operations $ 67,299 $ 72,875
Real estate operations - land sales 31,680 24,482
Interest and other 1,471 997
----------------- -------------------
100,450 98,354
----------------- -------------------
COSTS AND EXPENSES:
Media services operating expenses 55,971 59,680
Real estate cost of sales 16,746 10,976
Real estate commissions and selling 1,058 1,246
Other operations 927 1,146
General and administrative:
Media services operations 5,926 5,774
Real estate operations and corporate 3,168 2,592
Interest expense, net 287 540
----------------- -------------------
84,083 81,954
----------------- -------------------
Income before income taxes 16,367 16,400
PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS 4,262 5,578
----------------- -------------------
NET INCOME FROM CONTINUING OPERATIONS 12,105 10,822
INCOME (LOSS) FROM OPERATIONS OF DISCONTINUED
BUSINESS (NET OF INCOME TAXES) 3,556 (40)
----------------- -------------------
NET INCOME 15,661 10,782
DIVIDENDS PAID (26,870) (2,645)
RETAINED EARNINGS, beginning of period 82,695 69,815
----------------- -------------------
RETAINED EARNINGS, end of period $ 71,486 $ 77,952
================= ===================
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED:
CONTINUING OPERATIONS $ 1.83 $ 1.64
DISCONTINUED OPERATIONS 0.53 (0.01)
----------------- -------------------
EARNINGS PER SHARE - BASIC AND DILUTED $ 2.36 $ 1.63
================= ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,631 6,613
================= ===================
See notes to consolidated financial statements.
3
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended January 31, 2006 and 2005
(Thousands)
2006 2005
----------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,661 $ 10,782
----------------- -------------------
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization 4,055 3,763
Non-cash credits and charges:
Pension expense accrual 154 90
Bad debt reserve (116) (207)
Stock based compensation - Directors' Plan 205 135
Gain on condemnation of utility company (5,516) -
Changes in assets and liabilities -
Receivables (302) (7,150)
Real estate inventory 1,161 864
Other assets (3,029) (1,510)
Accounts payable and accrued expenses (1,467) 796
Taxes payable (1) (1,212)
Deferred income taxes 637 1,121
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Total adjustments (4,219) (3,310)
----------------- -------------------
Net cash provided by operating activities 11,442 7,472
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,765) (4,041)
Proceeds from sale of property, plant and equipment - 180
Acquisition of distribution contracts - (100)
Proceeds from condemnation of utility company 4,047 -
----------------- -------------------
Net cash provided (used) by investing activities 282 (3,961)
----------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 24,139 11,004
Principal debt payments (24,529) (8,483)
Proceeds from exercise of stock options 40 35
Dividends paid (26,870) (2,645)
----------------- -------------------
Net cash (used) by financing activities (27,220) (89)
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Increase (decrease) in cash and cash equivalents (15,496) 3,422
CASH AND CASH EQUIVALENTS, beginning of period 37,743 26,805
----------------- -------------------
CASH AND CASH EQUIVALENTS, end of period $ 22,247 $ 30,227
================= ===================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amounts capitalized $ 294 $ 465
================= ===================
Income taxes paid - net of refunds $ 5,713 $ 5,646
================= ===================
Non-cash Transaction: Note payable for acquisition of
Distribution Contracts $ - $ 1,170
================= ===================
See notes to consolidated financial statements.
4
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Three and Nine Months Ended January 31, 2006 and 2005
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements included herein
have been prepared by AMREP Corporation (the "Registrant" or the "Company")
pursuant to the rules and regulations of the Securities and Exchange Commission
for interim financial information, and do not include all the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, the accompanying unaudited financial statements include all
adjustments, which are of a normal recurring nature, necessary to reflect a fair
presentation of the results for the interim periods presented. The results of
operations for such interim periods are not necessarily a good indication of
what may occur in future periods.
The unaudited consolidated financial statements herein should be read in
conjunction with the Company's annual report on Form 10-K, as amended, for the
year ended April 30, 2005 that was previously filed with the Securities and
Exchange Commission.
(2) Receivables
-----------
Media services operations accounts receivable, net consist of the following (in
thousands):
January 31, 2006 April 30, 2005
--------------------- ------------------
Fulfillment services $ 22,866 $ 24,487
Newsstand Distribution services 27,713 26,861
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$ 50,579 $ 51,348
===================== ==================
(3) Other Assets
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Other assets, net consist of the following (in thousands):
January 31, 2006 April 30, 2005
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Software development costs $ 7,410 $ 7,296
Deferred order entry costs 3,633 3,745
Prepaid expenses 1,970 1,587
Other 3,601 3,674
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16,614 16,302
Less accumulated amortization ( 2,039) (3,955)
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$ 14,575 $ 12,347
===================== ==================
Software development costs include internal and external costs of the
development of new or enhanced software programs and are generally amortized
over five years. Deferred order entry costs represent costs incurred in
connection with the data entry of customer subscription information to data base
files and are charged directly to operations over a 12-month period. Other
includes the acquisition costs of certain customer contracts that are amortized
over periods that generally range from three to five years.
5
(4) Accounts Payable and Accrued Expenses
-------------------------------------
Accounts payable and accrued expenses consist of the following (in thousands):
January 31, 2006 April 30, 2005
-------------------- ------------------
Publisher payables $ 28,624 $ 27,722
Deposit on utility company
condemnation - 7,000
Accrued expenses 5,823 6,849
Trade payables 2,507 3,827
Other 5,312 5,322
-------------------- ------------------
$ 42,266 $ 50,720
==================== ==================
(5) Discontinued Operation
----------------------
Net income from discontinued operations in the first nine months of fiscal 2006
reflects the gain from the disposition of the primary assets of the Company's El
Dorado, New Mexico water utility subsidiary ("Utility"), which were taken
through condemnation proceedings. Financial information for operations of this
subsidiary for prior periods has been reclassified to conform to this
presentation.
Revenues from the Utility were $102,000 and $1,210,000 for the three and nine
month periods ended January 31, 2005; possession of the Utility's assets was
transferred on December 1, 2004, and therefore, there were no revenues for the
Utility in fiscal 2006. Pretax income (loss) of the Utility was $79,000 and
($63,000) for the three and nine months ended January 31, 2005, and zero and
$5,645,000 for the same periods ended January 31, 2006.
(6) Information About the Company's Operations in Different Industry
----------------------------------------------------------------
Segments
--------
The following tables set forth summarized data relative to the industry segments
for continuing operations in which the Company operated for the three and
nine-month periods ended January 31, 2006 and 2005.
THREE MONTHS:
Newsstand Fulfillment Real Estate
Distribution Services Operations Corporate Consolidated
-------------- ------------- ------------- ------------- ------------
January 2006 (Thousands):
Revenues $ 3,264 $ 19,185 $ 12,943 $ 197 $ 35,589
Operating and G&A expenses 2,800 17,972 7,787 660 29,219
Management fee (income) 36 212 250 (498) -
Interest expense, net (36) 114 - - 78
-------------- ------------- ------------- ------------- ------------
Pretax income contribution from
continuing operations $ 464 $ 887 $ 4,906 $ 35 $ 6,292
============== ============= ============= ============= ============
- --------------------------------------------------------------------------------------------------------------
January 2005 (Thousands):
Revenues $ 3,122 $ 21,004 $ 7,306 $ 54 $ 31,486
Operating and G&A expenses 3,212 19,078 4,521 471 27,282
Management fee (income) 29 196 225 (450) -
Interest expense, net 31 179 - 10 220
-------------- ------------- ------------- ------------- ------------
Pretax income (loss)
contribution from
continuing operations $ (150) $ 1,551 $ 2,560 $ 23 $ 3,984
============== ============= ============= ============= ============
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6
NINE MONTHS:
Newsstand Fulfillment Real Estate
Distribution Services Operations Corporate Consolidated
-------------- ------------- ------------- ------------- ------------
January 2006 (Thousands):
Revenues $ 10,056 $ 57,243 $ 32,607 $ 544 $ 100,450
Operating and G&A expenses 8,457 53,440 19,899 2,000 83,796
Management fee (income) 108 638 748 (1,494) -
Interest expense, net (54) 341 - - 287
-------------- ------------- ------------- ------------- ------------
Pretax income contribution from
continuing operations $ 1,545 2,824 $ 11,960 $ 38 $ 16,367
============== ============= ============= ============= ============
Identifiable assets $ 33,757 $ 45,197 $ 78,566 $ 12,567 $ 170,087
Intangible assets $ 3,893 $ 1,298 $ - $ - $ 5,191
- --------------------------------------------------------------------------------------------------------------
January 2005 (Thousands):
Revenues $ 9,435 $ 63,440 $ 25,372 $ 107 $ 98,354
Operating and G&A expenses 8,328 57,126 14,532 1,428 81,414
Management fee (income) 87 588 675 (1,350) -
Interest expense, net 28 459 - 53 540
-------------- ------------- ------------- ------------- ------------
Pretax income (loss)
contribution from
continuing operations $ 992 $ 5,267 $ 10,165 $ (24) $ 16,400
============== ============= ============= ============= ============
Identifiable assets $ 41,322 $ 41,269 $ 75,068 $ 21,138 $ 178,797
Intangible assets $ 3,893 $ 1,298 $ - $ - $ 5,191
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Item 2. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations
-------------------------
INTRODUCTION
The Company, through its subsidiaries, is primarily engaged in three business
segments: the Real Estate business operated by AMREP Southwest Inc. and its
subsidiaries (collectively, "AMREP Southwest") and the Fulfillment Services and
Newsstand Distribution Services businesses operated by Kable Media Services,
Inc. and its subsidiaries (collectively, "Kable"). The Company's foreign sales
and activities are not significant.
The following provides information that management believes is relevant to an
assessment and understanding of the Company's consolidated results of operations
and financial condition. The discussion should be read in conjunction with the
consolidated financial statements and accompanying notes. The Company's fiscal
year ends on April 30, and all references in this Item 2 to the third quarter or
first nine months of 2006 and 2005 mean the three or nine month periods ended
January 31, 2006 and January 31, 2005.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's discussion and analysis of financial condition and results of
operations is based on the accounting policies used and disclosed in the 2005
consolidated financial statements and accompanying notes that were prepared in
7
accordance with accounting principles generally accepted in the United States of
America and included as part of the Company's annual report on Form 10-K, as
amended, for the year ended April 30, 2005 (the "2005 Form 10-K"). The
preparation of those financial statements required management to make estimates
and assumptions that affected the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual amounts or results could differ from those estimates.
The significant accounting policies of the Company are described in Note 1 to
the 2005 consolidated financial statements, and the critical accounting policies
and estimates are described in Management's Discussion and Analysis included in
the 2005 Form 10-K. There have been no changes in the critical accounting
policies. Information concerning the implementation and impact of new accounting
standards issued by the Financial Accounting Standards Board is included in the
notes to the 2005 consolidated financial statements. The Company did not adopt
any accounting policy in the first nine months of fiscal 2006 that had a
material impact on its financial condition, liquidity or results of operations.
RESULTS OF OPERATIONS
For the third quarter of fiscal 2006, net income was $5,241,000, or $0.79 per
share, compared to net income of $2,561,000, or $0.39 per share, in the third
quarter of the prior fiscal year. Results for the third quarter of 2006 were
entirely from continuing operations, while the prior year's results included net
income from discontinued operations of $50,000, or $0.01 per share. Revenues
were $35,589,000 in the third quarter this year versus $31,486,000 in the third
quarter of fiscal 2005.
For the first nine months of fiscal 2006, net income was $15,661,000, or $2.36
per share, compared to net income of $10,782,000, or $1.63 per share, in the
same period last year. This consisted of net income from continuing operations
of $12,105,000, or $1.83 per share, and net income from discontinued operations
of $3,556,000, or $0.53 per share, in 2006 versus net income from continuing
operations of $10,822,000, or $1.64 per share, and a loss from discontinued
operations of $40,000, or $0.01 per share, in the same period last year.
Revenues were $100,450,000 in the first nine months this year versus $98,354,000
in the same period of fiscal 2005.
Net income from discontinued operations in the first nine months of 2006
reflects the gain from the disposition of the primary assets of the Company's El
Dorado, New Mexico water utility subsidiary, which were taken through
condemnation proceedings. Financial information for operations of this
subsidiary for periods prior to the disposal has been reclassified to conform to
this presentation.
Revenues from Kable's media services operations decreased from $24,126,000 and
$72,875,000 in the three and nine month periods ended January 31, 2005 to
$22,449,000 and $67,299,000 in the same periods of the current year. These
revenue declines were primarily due to decreases in Fulfillment Services
revenues of $1,819,000 (9%) and $6,197,000 (10%) for the three and nine month
periods ended January 31, 2006 compared to the same periods last year as a
result of the continuing effect of customer losses at Kable's Colorado
fulfillment services business that occurred in earlier periods. These revenue
declines in the Fulfillment Services segment were offset in part by increases in
Newsstand Distribution Services revenues of $142,000 (5%) and $621,000 (7%) in
the same three and nine month periods ended January 31, 2006, with such
increases being primarily due to additional revenues associated with the
acquisition of distribution contracts in the third quarter of fiscal 2005. Media
services operating expenses decreased by $1,441,000 (7%) and $3,709,000 (6%) for
the third quarter and first nine months of 2006 compared to the same periods of
2005, primarily as a result of decreased expenses in the Fulfillment Services
business of $994,000 (6%) and $3,853,000 (7%) in these periods. These decreased
expenses mostly resulted from reductions in variable expenses, primarily payroll
and benefits. Operating costs for Newsstand Distribution Services decreased
$447,000 (17%) in the third quarter of 2006 compared to the same period last
8
year, principally as a result of certain marketing costs incurred in the prior
year which did not occur in 2006, but increased $144,000 (2%) for the nine
months ended January 31, 2006 compared to the same period in 2005 because of the
additional costs of amortization of the purchase price of the distribution
contracts acquired in the third quarter of the prior year.
Revenues from land sales at the Company's AMREP Southwest subsidiary increased
from $6,996,000 and $24,482,000 in the three and nine month periods ended
January 31, 2005 to $12,621,000 and $31,680,000 in the same periods of the
current year. This improvement was the result of increased sales of both
developed and undeveloped residential lots and commercial properties in the
Company's principal market of Rio Rancho, New Mexico in fiscal 2006, due in part
to increased available developed lot inventory in residential areas as well as
the continuing strength of the Rio Rancho real estate market. The gross profit
on land sales was 48% for each of the three month periods ended January 31, 2006
and 2005, but decreased from 55% for the nine month period ended January 31,
2005 to 47% for the nine month period ended January 31, 2006 because a higher
proportion of developed lots, which generally have lower gross profit margins
than undeveloped lots, were sold in the current year. As a result of the
increased land sales in the current year, the gross profit contribution from
real estate operations improved significantly in the three and nine month
periods ended January 31, 2006 compared to the prior year. Revenues and related
gross profits from land sales can vary significantly from period to period as a
result of many factors, including the nature and timing of specific
transactions, and prior results are not necessarily a good indication of what
may occur in future periods.
Real estate commissions and selling expenses increased from $208,000 in the
third quarter of 2005 to $480,000 in the third quarter of the current year as a
result of the increased land sales, representing approximately 3.0% and 3.8% of
related land sale revenues in each period. For the first nine months of the
year, these costs decreased from $1,246,000 in 2005 to $1,058,000 in 2006,
representing approximately 5.1% and 3.3% of the related land sale revenues; the
higher rate in 2005 was primarily due to legal and other closing costs incurred
in the first quarter of that year associated with condemnation proceedings
related to the Company's last parcel of land in Florida. Such costs generally
vary depending upon the terms of specific sale transactions. Real estate and
corporate general and administrative expenses increased by $191,000 (23%) and
$576,000 (22%) in the third quarter and first nine months of the current year
versus the same periods last year as a result of an increase in the Company's
stock price which is used to value the portion of directors' compensation paid
in stock, the addition of a corporate general counsel and the presence in the
prior year of a sublease on corporate office space which offset a portion of the
Company's rental expense. General and administrative costs of media services
operations decreased by $78,000 (4%) in the third quarter of 2006 compared to
the prior year period as a result of various cost reductions in both Fulfillment
Services and Newsstand Distribution Services, but for the nine months ended
January 31, 2006 increased by $152,000 (3%) over the same period of 2005
primarily due to an increase in health care costs resulting from adverse claims
experience.
The Company's effective tax rate from continuing operations was 17% for the
third quarter of 2006 compared to 37% for the same period last year. The lower
effective tax rate in this year's third quarter was primarily attributable to an
increase in the estimated benefit of a second quarter charitable contribution of
land by the real estate business based upon an appraisal of the land that was
concluded during the third quarter. The effective tax rate from continuing
operations for the nine month periods ended January 31 was 26% in 2006 and 34%
in 2005.
LIQUIDITY AND CAPITAL RESOURCES
During the past several years, the Company has financed its operations from
internally generated funds from real estate sales and media services operations,
and from borrowings under its various lines-of-credit and development loan
agreements.
9
Cash Flows From Financing Activities
- ------------------------------------
In April 2005, various of Kable's subsidiaries comprising its Fulfillment
Services and Newsstand Distribution Services businesses entered into a credit
arrangement with a bank that allows separate revolving credit borrowings for
each business with up to $11,000,000 for Fulfillment Services and up to
$9,000,000 for Newsstand Distribution Services based upon a prescribed
percentage of the borrower's eligible accounts receivable, as defined. At
January 31, 2006, the borrowing availability of the Fulfillment Services
business was $11,000,000, against which $2,691,000 was outstanding with interest
at a rate of approximately 6.5%, and the borrowing availability of the Newsstand
Distribution Services business was $9,000,000, against which $5,952,000 was
outstanding with interest at a rate of approximately 6.3%. An additional
$3,000,000 is available under the credit arrangement for capital expenditures.
AMREP Southwest has a loan agreement with a bank with a maximum borrowing
capacity of $10,000,000 that is used to support real estate development in New
Mexico. There were no balances outstanding under this arrangement at either
January 31, 2006 or April 30, 2005.
On December 7, 2005, the Board of Directors declared a special cash dividend of
$3.50 per common share payable on January 9, 2006 to shareholders of record at
the close of business on December 19, 2005. The Board indicated that the
Company's financial condition, substantial cash position and anticipated cash
flow, particularly from its real estate operations, in relation to its current
capital requirements were major factors in its determination to reward
shareholders with this special cash dividend, which followed a special dividend
of $0.55 declared on July 13, 2005, and other special dividends of $0.40 and
$0.25 per share that were declared following the close of AMREP's fiscal years
ending April 30, 2004 and 2003. The Company said that the Board 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
- ------------------------------------
Inventory amounted to $53,563,000 at January 31, 2006 compared to $52,906,000 at
April 30, 2005. Inventory in the Company's core real estate market of Rio Rancho
was $47,103,000 at January 31, 2006 and $46,674,000 at April 30, 2005. The
balance of inventory consisted of property in Colorado.
Receivables from media services operations decreased from $51,348,000 at April
30, 2005 to $50,579,000 at January 31, 2006, primarily due to the timing of
quarter-end billings and cash collections. Accounts payable and accrued expenses
decreased from $50,720,000 at April 30, 2005 to $42,266,000 at January 31, 2006
because a $7,000,000 deposit received in fiscal 2005 in connection with the
condemnation of the Company's El Dorado, New Mexico water utility subsidiary and
reflected as a liability at April 30, 2005 was applied to the total proceeds of
the transaction and recorded in the first quarter of fiscal 2006 upon receipt of
the final payment due.
Cash Flows From Investing Activities
- ------------------------------------
Capital expenditures amounted to $3,765,000 and $4,041,000 in the first nine
months of 2006 and 2005, and were primarily related to computer hardware and
software development for Kable's Fulfillment Services business. The Company
believes that it has adequate cash and financing capability to provide for its
anticipated future capital expenditures.
The Company is obligated to make future payments under various contracts,
including its debt agreements and lease agreements, and it is subject to certain
other commitments and contingencies. The table below summarizes significant
contractual cash obligations as of January 31, 2006 for the items indicated (in
thousands):
10
Contractual Less than 1 - 3 3 - 5 More than
Obligations Total 1 year years years 5 years
- ------------------- ---------- ----------- ---------- ---------- ------------
Notes payable $ 11,664 $ 1,738 $ 1,283 $ 8,643 $ -
Operating leases 19,130 4,708 4,753 3,305 6,364
---------- ----------- ---------- ---------- ------------
Total $ 30,794 $ 6,446 $ 6,036 $ 11,948 $ 6,364
========== =========== ========== ========== ============
Refer to Notes 8, 13 and 14 to the consolidated financial statements included in
the 2005 Form 10-K for additional information on long-term debt and commitments
and contingencies.
Statement of Forward-Looking Information
- ----------------------------------------
Certain information included herein and in other Company statements, reports and
filings with the Securities and Exchange Commission is forward-looking within
the meaning of the Private Securities Litigation Reform Act of 1995. Refer to
Item 7 of the 2005 Form 10-K for a discussion of the assumptions and factors on
which these statements are based. Any changes in the actual outcome of these
assumptions and factors could produce significantly different results;
accordingly, all forward-looking statements should be evaluated with the
understanding of their inherent uncertainty. The Company disclaims any intention
or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------- ----------------------------------------------------------
The Company has several credit facilities or loans that require the Company to
pay interest at a rate that may change periodically. These variable rate
obligations expose the Company to the risk of increased interest expense in the
event of increases in short-term interest rates. At January 31, 2006,
approximately $8,643,000 of the total debt of $11,664,000 was subject to
variable interest rates. Refer to Item 7(A) of the Company's 2005 Form 10-K for
additional information regarding quantitative and qualitative disclosures about
market risk.
Item 4. Controls and Procedures
- ------- -----------------------
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's chief
financial officer and the other executive officers whose certifications
accompany this quarterly report, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934) as of the end of the period covered by this
report. As a result of such evaluation, the chief financial officer and such
other executive officers have concluded that such disclosure controls and
procedures are effective to provide reasonable assurance that the information
required to be disclosed in the reports the Company files or submits under the
Securities Exchange Act of 1934 is (i) recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and (ii) accumulated and communicated to
management, including the chief financial officer and the other executive
officers whose certificates accompany this quarterly report, 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.
11
Changes in Internal Control over Financial Reporting
No change in the Company's system of internal control over financial reporting
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 6. Exhibits
- ------- --------
Exhibits
- --------
31.1 Certification required by Rule 13a-14(a) under the Securities
Exchange Act of 1934.
31.2 Certification required by Rule 13a-14(a) under the Securities
Exchange Act of 1934.
31.3 Certification required by Rule 13a-14(a) under the Securities
Exchange Act of 1934.
32 Certification required pursuant to 18 U.S.C. Section 1350.
12
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: March 10, 2006 AMREP CORPORATION
(Registrant)
By: /s/ Peter M. Pizza
------------------------------
Peter M. Pizza
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
13
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
31.1 Certification required by Rule 13a-14(a) under the Securities
Exchange Act of 1934.
31.2 Certification required by Rule 13a-14(a) under the Securities
Exchange Act of 1934.
31.3 Certification required by Rule 13a-14(a) under the Securities
Exchange Act of 1934.
32 Certification required pursuant to 18 U.S.C. Section 1350.
14