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, 1999
______________________________________
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
___________
AMREP Corporation
_______________________________________________________________________________
(Exact name of registrant as specified in its charter)
Oklahoma 59-0936128
_______________________________________________________________________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
641 Lexington Avenue, Sixth Floor, New York, New York 10022
_______________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 705-4700
_________________
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 subject to such
filing requirements for the past 90 days.
Yes X No
____________ ___________
Number of Shares of Common Stock, par value $.10 per share, outstanding at
September 10, 1999 - 7,314,450.
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
INDEX
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PART I PAGE NO.
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Consolidated Financial Statements:
Balance Sheets
July 31, 1999 (Unaudited) and
April 30, 1999 (Audited) 1
Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended July 31, 1999 and 1998 2
Statements of Cash Flows (Unaudited)
Three Months Ended July 31, 1999 and 1998 3
Notes to Consolidated Financial Statements 4
Management's Discussion and Analysis 5-8
PART II
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Other Information 9
Signatures 10
Exhibit Index 11
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1999 and April 30, 1999
(Thousands, except par value and number of shares)
July 31, April 30,
1999 1999
----------- -----------
(Unaudited) (Audited)
ASSETS
- ------
Cash and cash equivalents $ 12,292 $ 23,553
Receivables, net:
Real estate operations 9,287 10,846
Magazine circulation operations 54,697 53,822
Real estate inventory 75,189 89,723
Other real estate investments 1,956 2,401
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization of $14,216 at July 31, 1999
and $14,443 at April 30, 1999. 18,010 18,360
Other assets 13,906 13,881
Excess of cost of subsidiary over net
assets acquired 5,191 5,191
---------- ----------
$ 190,528 $ 217,777
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Accounts payable, deposits and accrued $ 28,312 $ 36,182
expenses
Notes payable:
Amounts due within one year 14,794 26,769
Amounts subsequently due 40,178 47,896
Taxes payable:
Amounts due within one year 1,355 2,513
Amounts subsequently due 11,825 11,825
Deferred income taxes 1,339 1,015
---------- ----------
97,803 126,200
---------- ----------
Shareholders' equity:
Common stock, $.10 par value;
shares authorized -- 20,000,000 shares
authorized -- 7,398,650 shares issued
at July 31, 1999 and April 30, 1999 740 740
Capital contributed in excess of par value 44,930 44,928
Retained earnings 47,402 46,089
Treasury stock, at cost; 55,827 shares at
July 31, 1999 and 30,027 shares at April
30, 1999 (347) (180)
---------- ----------
92,725 91,577
---------- ----------
$ 190,528 $ 217,777
========== ==========
See notes to consolidated financial statements.
1
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended July 31, 1999 and 1998
(Thousands, except per share amounts)
1999 1998
---------- ----------
REVENUES
- --------
Real estate operations:
Home and condominium sales $ 18,711 $ 20,848
Land sales 8,226 9,673
----------- ----------
26,937 30,521
Magazine circulation operations 13,000 14,250
Interest and other operations 2,098 1,452
----------- ----------
42,035 46,223
----------- ----------
COSTS AND EXPENSES
- ------------------
Real estate cost of sales:
Home and condominium sales 16,493 18,147
Land sales 5,863 5,089
Operating expenses:
Magazine circulation operations 10,466 10,903
Real estate commissions and selling 1,590 1,776
Other operations 1,011 864
General and administrative:
Real estate operations and corporate 1,942 1,831
Magazine circulation operations 1,569 1,682
Interest, net 913 1,128
----------- ----------
39,847 41,420
----------- ----------
Income before income taxes 2,188 4,803
PROVISION FOR INCOME TAXES 875 1,921
----------- ----------
NET INCOME 1,313 2,882
RETAINED EARNINGS, beginning of
period 46,089 38,552
----------- ----------
RETAINED EARNINGS, end of period $ 47,402 $ 41,434
=========== ==========
EARNINGS PER SHARE - BASIC AND
DILUTED $ 0.18 $ 0.39
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 7,362 7,369
=========== ==========
See notes to consolidated financial statements.
2
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended July 31, 1999 and 1998
(Thousands)
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,313 $ 2,882
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 1,158 775
Changes in assets and liabilities -
Receivables 684 (5,395)
Real estate inventory 14,534 (6,476)
Other real estate projects 445 731
Other assets (629) 570
Accounts payable, deposits and accrued
expenses (7,870) (1,932)
Taxes payable (1,158) (1,896)
Deferred income taxes 323 (80)
Loss (gain) on disposition of fixed assets 17 -
Expense recorded on issuance of treasury stock 92 -
-------- --------
Total adjustments 7,596 (13,703)
-------- --------
Net cash provided (used) by operating
activities 8,909 (10,821)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (220) (464)
-------- --------
Net cash used by investing activities (220) (464)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 3,520 21,930
Principal debt payments (23,213) (15,973)
Purchase of Treasury stock (257) -
-------- --------
Net cash (used) provided by financing
activities (19,950) 5,957
-------- --------
Increase (decrease) in cash and cash equivalents (11,261) (5,328)
CASH AND CASH EQUIVALENTS,
beginning of period 23,553 20,517
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $ 12,292 $ 15,189
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amounts capitalized $ 1,025 $ 1,096
======== ========
Income taxes paid $ 1,698 $ 3,969
======== ========
See notes to consolidated financial statements.
3
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Three Months Ended July 31, 1999 and 1998
(1) BASIS OF PRESENTATION
---------------------
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, 1999 balance sheet amounts have been
derived from the April 30, 1999 audited financial statements of the
Registrant. Since the accompanying consolidated financial statements
do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements, it is
suggested that they be read in conjunction with the financial
statements and notes thereto included in the Registrant's April 30,
1999 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.
Certain amounts in the July 31, 1998 Statement of Operations and
Retained Earnings and Statement of Cash Flows have been reclassified to
conform to the presentation used at July 31, 1999.
(2) INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT
-------------------------------------------------------
INDUSTRY SEGMENTS:
------------------
The following schedules set forth summarized data relative to the
industry segments in which the Company operates for the three month
periods ended July 31, 1999 and 1998.
Land Home Corporate
Sales Building Distribution Fulfillment and Other Consolidated
July 1999 (Thousands):
Revenues $ 8,876 $ 19,473 $ 4,655 $ 8,345 $ 686 $ 42,035
Expenses (excluding
interest) 6,599 18,918 3,763 8,272 1,382 38,934
Interest expense, net 129 196 419 152 17 913
-------- -------- -------- -------- -------- --------
Pretax income (loss)
contribution $ 2,148 $ 359 $ 473 $ (79) $ (713) $ 2,188
======== ======== ======== ======== ======== ========
Identifiable assets $ 57,865 $ 40,033 $ 54,633 $ 19,441 $ 18,556 $190,528
- -----------------------------------------------------------------------------------------------------
July 1998 (Thousands):
Revenues $ 9,858 $ 21,229 $ 5,395 $ 8,855 $ 886 $ 46,223
Expenses (excluding
interest) 5,712 20,879 3,966 8,619 1,116 40,292
Interest expense, net 124 285 504 192 23 1,128
-------- -------- -------- -------- -------- --------
Pretax income (loss)
contribution $ 4,022 $ 65 $ 925 $ 44 $ (253) $ 4,803
======== ======== ======== ======== ======== ========
Identifiable assets $ 63,237 $ 70,897 $ 63,982 $ 20,754 $ 15,829 $234,699
- ----------------------------------------------------------------------------------------------------
4
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
July 31, 1999
Results of Operations
---------------------
Revenues
- --------
Total revenues for the quarter ended July 31, 1999 decreased $4.2 million (9%)
from the comparable period of the prior year, reflecting decreases in revenues
from both real estate and magazine circulation operations.
Revenues from real estate operations decreased $2.7 million (9%), consisting of
decreases from both land and homebuilding sales, partly offset by increased
revenues from other operations. This decrease partially reflects decisions made
by the Company during the prior fiscal year to wind-down a significant portion
of its homebuilding operations and to sell all of its land holdings in Colorado
and California. As part of this process, the Company has entered into
option-like contracts for the sale of homebuilding lots to several national and
local builders in Rio Rancho, New Mexico.
Revenues and related gross profit from land sales decreased by approximately
$1.4 million (15%) and $2.2 million (48%), respectively, in the first quarter of
fiscal 2000 compared to the same period of fiscal 1999, primarily due to a
decrease in commercial and industrial land sales. During fiscal 1999,
approximately $7.2 million of land sale revenues were attributable to commercial
and industrial land sale activity, while this source of revenue decreased to
$1.5 million in fiscal 2000. The revenue decrease was partially offset by an
increase in revenues from homesite sales to other builders, which increased from
$2.5 million in fiscal 1999 to $6.8 million in the current year. The average
gross profit percentage on land sales decreased from 49% in fiscal 1999 to 30%
in fiscal 2000 because of the relative increase in the sale of land to other
builders, which have been at lower gross profit percentages than the commercial
and industrial sales have historically achieved. As a result of this factor, the
gross profit from land sales decreased by a higher amount than the related
revenue decreased. Land sale revenues and related gross profits can vary from
period to period as a result of the nature and timing of specific transactions,
and thus prior results are not an indication of amounts that may be expected to
occur in future periods.
Revenues and gross profit from housing sales decreased $2.1 million (10%) and
$.5 million (18%), primarily reflecting an decrease in total housing deliveries
from 163 to 127. This decrease reflects the effects of the restructuring of the
Company's real estate operations, as discussed above, and is expected to
continue as most homebuilding activities are completed.
Revenues from magazine circulation operations decreased approximately $1.2
million (9%) in the first quarter of fiscal 2000 compared to the comparable
period of the prior year,
5
reflecting decreases from both principal segments of its business. Revenues from
Fulfillment Services decreased approximately $.5 million (6%) due primarily to a
declining volume of business in sweepstakes processing for one large customer
which was offset by an increase in new business. Kable has been informed that
this customer, who represented approximately 14% of the Fulfillment division's
revenues in fiscal 1999, has changed its operational strategies and will
discontinue its use of Kable's services during fiscal 2000; Kable does not
expect a significant impact on earnings as a result of this change. Revenues
from the Newsstand Distribution Services decreased approximately $.7 million
(14%) in this year's first quarter compared to the prior year, resulting from
several customer losses. Kable's revenue decrease was partly offset by cost
reductions, principally payroll-related, and, as a result, magazines circulation
operating expenses decreased $.4 million (4%) compared to the prior year. As a
result of these factors, operating income from magazine circulation operations
decreased by approximately $.8 million (24%) this year.
Revenues from "Interest and other operations" increased by $.6 million from 1999
to fiscal 2000 principally because the current year includes the recognition of
management fee and equity income from the sale of a project in California in
which the Company was a joint venture participant.
Expenses
- --------
Real estate commissions and selling expenses decreased by approximately $.2
million (10%) resulting from the decrease in homebuilding revenues. Real estate
and corporate general and administrative expenses increased about $.1 million
(6%) in fiscal 2000 over fiscal 1999. General and administrative costs of
magazine circulation operations also decreased by approximately $.1 million
(7%), resulting from certain cost savings related to the reduced revenues.
Interest expense decreased moderately due to lower borrowing requirements.
During the fourth quarter of fiscal 1999, the Company incurred
restructuring-related charges of approximately $2.2 million, including severance
and lease termination payments and the write-off of goodwill and other
acquisition-related costs. The restructuring plan included the costs associated
with the termination of approximately 130 employees with related severance costs
of $800,000; as of July 31, 1999, 104 employees had been terminated, and
severance costs of $630,000 had been paid.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------
During the past several years, the Company has financed its operations from
internally generated funds from home and land sales and magazine circulation
operations, and from borrowings under its various lines-of-credit and
construction loan agreements.
During the quarter ended July 31, 1999, the Company continued its previously
announced restructuring program intended to, among other things, wind-down most
of its homebuilding operations and sell its land holdings in Colorado and
California. As a direct result of this initiative, inventories decreased by
approximately $14.5 million, to approximately $75.2 million at July 31, 1999
compared to $89.7 million at April 30, 1999 and $99.9 million at April 30,
6
1998. The Company utilized the cash provided by this inventory reduction, as
well as a portion of the April 30, 1999 cash balance, to reduce total debt by
approximately $19.6 million during the quarter, from $74.6 million at April 30,
1999 to $55.0 million at July 31, 1999, and also reduced accounts payable and
accrued expenses by approximately $7.9 million, from $36.2 million at April 30,
1999 to $28.3 million at July 31, 1999.
The Company anticipates that its borrowing requirements will be reduced,
commensurate with the reduction in construction activity, as it continues the
restructuring process.
In connection with a previously announced stock repurchase program, the Company
reacquired 40,800 shares of its stock to be held as treasury stock at a cost of
approximately $257,000 during the quarter ended July 31, 1999. The Company also
issued 15,000 shares of treasury stock during the quarter as compensation for
certain executive consulting services, and charged the fair market value of the
stock of approximately $92,000 to general and administrative expense.
The Company believes that cash provided from operations together with existing
cash balances, its lines-of-credit and land development loans will be sufficient
to maintain liquidity at a satisfactory level.
Year 2000 Readiness Disclosure
- ------------------------------
The Company has assessed and is continuing to assess its computer software,
hardware and other computer-related equipment to determine whether they are Year
2000 compliant, and, if not, what steps would be required to bring them into
compliance. The Company began this process in 1996, by establishing committees
consisting of information technology, operating and financial management at each
of the Company's three operating centers. The committees were under the overall
direction of two senior corporate employees, who have reported the status of
compliance to the Board of Directors on a quarterly basis.
The committees undertook a four phase program, consisting of (1) Identification
and ranking of material Y2K sensitive equipment and software, (2) Assessment of
the identified components, (3) Remediation and (4) Testing. As of July 31, 1999,
the Identification and Assessment phases were completed, and the Remediation and
Testing (which is undertaken as specific remediation is completed) phases were
approximately 95% complete. With minor exceptions, the Company estimates that
these phases will be completed by October 31, 1999.
The Company believes that its real estate segments consisting of land
development and homebuilding operations are not heavily dependent on Y2K
compliance and that, should a reasonably likely "worst case" situation develop,
the Company would not likely suffer a material loss or disruption in remedying
the problem. The potential risk is greater for the magazine circulation
operation segments, however, as the systems are substantial and complex. The
Company should complete full testing by October 31, 1999, however, and there is
expected to be sufficient time to correct any remaining deficiencies. There is
also
7
some "worst case" potential should major magazine clients and wholesaler
customers fail to be Y2K compliant. The Company has contacted this segment in
order to better evaluate risk, and responses received to date have been
positive.
The Company has been reviewing whether its significant vendors, suppliers,
financial institutions and other service providers ("third-party suppliers") are
Y2K compliant. The vast majority of responses to the Company's inquiries
indicate that these third-party suppliers are compliant or expect to be so by
the end of the year, however, the Company has no means of ensuring that such
third-party suppliers will be Y2K compliant. Although the Company does not
anticipate any material interruptions due to Y2K, it cannot be ruled out that
some unforeseen second or third party disruption might occur. The Company plans
to respond to any contingency arising from second or third-party suppliers by
seeking to utilize alternative sources for such goods and services, where
practicable. The Company is most at risk should widespread disruptions in the
regional or national economic or infrastructure occur; the likelihood and
effects of any such disruptions are not determinable at this time.
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 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.
8
PART II
Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the
Registrant during the quarter ended July 31, 1999.
9
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
SIGNATURES
----------
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 10, 1999 By: /s/ Mohan Vachani
-------------------
Mohan Vachani
Senior Vice President,
Chief Financial Officer
Dated: September 10, 1999 By: /s/ Peter M. Pizza
--------------------
Peter M. Pizza
Vice President,
Controller
10
FORM 10-Q
AMREP CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
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27 Financial Data Schedule
11