UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2005
----------------
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
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(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
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(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 been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ 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 ]
Number of Shares of Common Stock, par value $.10 per share, outstanding at
October 31, 2005 - 6,634,112.
1
AMREP CORPORATION AND SUBSIDIARIES
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
October 31, 2005 and April 30, 2005 3
Consolidated Statements of Operations and Retained Earnings
(Unaudited) Three Months Ended October 31, 2005 and 2004 4
Consolidated Statements of Operations and Retained Earnings
(Unaudited) Six Months Ended October 31, 2005 and 2004 5
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended October 31, 2005 and 2004 6
Notes to Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 12 - 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits 13
SIGNATURE 14
EXHIBIT INDEX 15
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------ --------------------
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets ( Unaudited )
(Thousands, except par value and number of shares)
October 31, April 30,
2005 2005
----------------------
ASSETS:
Cash and cash equivalents .................................... $ 49,217 $ 37,743
Receivables, net:
Magazine service operations ................................ 44,433 51,348
Real estate operations ..................................... 7,014 6,277
----------------------
51,447 57,625
Real estate inventory ........................................ 53,186 52,906
Investment assets - net ...................................... 11,265 11,356
Property, plant and equipment, at cost, net of accumulated
depreciation and amortization of $21,993 at October 31, 2005
and $19,972 at April 30, 2005 .............................. 11,264 11,600
Other assets, net ............................................ 13,530 12,347
Assets of discontinued operations ............................ -- 5,541
Goodwill ..................................................... 5,191 5,191
----------------------
TOTAL ASSETS ......................................... $ 195,100 $ 194,309
======================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued expenses ........................ $ 40,799 $ 50,720
Liabilities of discontinued operations ....................... -- 13
Notes payable:
Amounts due within one year ................................ 1,964 2,099
Amounts subsequently due ................................... 12,017 9,955
----------------------
13,981 12,054
Taxes payable ................................................ 1,880 2,220
Deferred income taxes ........................................ 8,165 6,117
Accrued pension cost ......................................... 5,882 5,780
----------------------
TOTAL LIABILITIES .................................... 70,707 76,904
----------------------
Shareholders' equity:
Common stock, $.10 par value;
shares authorized - 20,000,000; 7,415,204 shares issued
at October 31, 2005 and 7,414,704 at April 30, 2005 ...... 741 741
Capital contributed in excess of par value ................. 45,555 45,395
Retained earnings .......................................... 89,471 82,695
Accumulated other comprehensive loss, net .................. (5,976) (5,976)
Treasury stock, at cost; 781,092 shares at October 31, 2005
and 788,592 shares at April 30, 2005 ..................... (5,398) (5,450)
----------------------
TOTAL SHAREHOLDERS' EQUITY ........................... 124,393 117,405
----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........... $ 195,100 $ 194,309
======================
See Notes to Consolidated Financial Statements.
3
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended October 31, 2005 and 2004
(Thousands, except per share amounts)
2005 2004
--------------------
REVENUES:
Magazine service operations ......................................... $ 22,695 $ 25,099
Real estate operations - land sales ................................. 11,650 7,804
Interest and other .................................................. 502 327
--------------------
34,847 33,230
--------------------
COSTS AND EXPENSES:
Magazine service operating expenses ................................. 18,477 20,333
Real estate cost of sales ........................................... 5,365 2,847
Real estate commissions and selling ................................. 312 389
Other operations .................................................... 307 586
General and administrative:
Magazine service operations ....................................... 1,982 1,848
Real estate operations and corporate .............................. 1,120 890
Interest expense, net................................................ 69 176
--------------------
27,632 27,069
--------------------
Income before income taxes .................................. 7,215 6,161
PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS ............. 2,153 1,791
--------------------
NET INCOME FROM CONTINUING OPERATIONS ............................... 5,062 4,370
(LOSS) FROM OPERATIONS OF DISCONTINUED BUSINESS (NET OF INCOME TAXES) (6) (175)
--------------------
NET INCOME .......................................................... 5,056 4,195
RETAINED EARNINGS, beginning of period .............................. 84,415 71,196
--------------------
RETAINED EARNINGS, end of period .................................... $ 89,471 $ 75,391
====================
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED:
CONTINUING OPERATIONS ............................................. $ 0.76 $ 0.66
DISCONTINUED OPERATIONS ........................................... 0.00 (0.03)
--------------------
EARNINGS PER SHARE - BASIC AND DILUTED .............................. $ 0.76 $ 0.63
====================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ................................................ 6,630 6,615
====================
See Notes to Consolidated Financial Statements.
4
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Six Months Ended October 31, 2005 and 2004
(Thousands, except per share amounts)
2005 2004
--------------------
REVENUES:
Magazine service operations ................................................ $ 44,850 $ 48,749
Real estate operations - land sales ........................................ 19,059 17,486
Interest and other ......................................................... 952 633
--------------------
64,861 66,868
--------------------
COSTS AND EXPENSES:
Magazine service operating expenses ........................................ 36,982 39,250
Real estate cost of sales .................................................. 10,128 7,325
Real estate commissions and selling ........................................ 578 1,038
Other operations ........................................................... 616 861
General and administrative:
Magazine service operations .............................................. 4,144 3,914
Real estate operations and corporate ..................................... 2,129 1,744
Interest expense, net ...................................................... 209 320
--------------------
54,786 54,452
--------------------
Income before income taxes ......................................... 10,075 12,416
PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS .................... 3,211 4,105
--------------------
NET INCOME FROM CONTINUING OPERATIONS ...................................... 6,864 8,311
INCOME (LOSS) FROM OPERATIONS OF DISCONTINUED BUSINESS (NET OF INCOME TAXES) 3,556 (90)
--------------------
NET INCOME ................................................................. 10,420 8,221
DIVIDENDS PAID.............................................................. (3,644) (2,645)
RETAINED EARNINGS, beginning of period ..................................... 82,695 69,815
--------------------
RETAINED EARNINGS, end of period ........................................... $ 89,471 $ 75,391
====================
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED:
CONTINUING OPERATIONS .................................................... $ 1.04 $ 1.26
DISCONTINUED OPERATIONS .................................................. 0.53 (0.02)
--------------------
EARNINGS PER SHARE - BASIC AND DILUTED ..................................... $ 1.57 $ 1.24
====================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ....................................................... 6,628 6,611
====================
See Notes to Consolidated Financial Statements.
5
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended October 31, 2005 and 2004
(Thousands)
2005 2004
--------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 10,420 $ 8,221
--------------------
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization ........................... 2,618 2,436
Non-cash credits and charges:
Pension expense accrual ............................... 102 60
Bad debt reserve ...................................... (65) (141)
Stock based compensation - Directors' Plan .............. 212 135
Gain on condemnation of utility company ................. (5,516) --
Changes in assets and liabilities -
Receivables ........................................... 6,243 (9,833)
Real estate inventory ................................. (280) 1,853
Other assets .......................................... (1,670) (725)
Accounts payable and accrued expenses ................. (2,934) 867
Taxes payable ......................................... (340) (1,306)
Deferred income taxes ................................. 2,048 868
--------------------
Total adjustments ................................. 418 (5,786)
--------------------
Net cash provided by operating activities ......... 10,838 2,435
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ...................................... (1,694) (1,982)
Proceeds from sale of property, plant and equipment ....... -- 180
Proceeds from condemnation of utility company ............. 4,047 --
--------------------
Net cash provided (used) by investing activities .. 2,353 (1,802)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing .............................. 14,259 7,189
Principal debt payments ................................... (12,332) (3,118)
Proceeds from exercise of stock options ................... -- 35
Dividends paid ............................................ (3,644) (2,645)
--------------------
Net cash provided (used) by financing activities .. (1,717) 1,461
--------------------
Increase in cash and cash equivalents ............. 11,474 2,094
CASH AND CASH EQUIVALENTS, beginning of period .............. 37,743 26,805
--------------------
CASH AND CASH EQUIVALENTS, end of period .................... $ 49,217 $ 28,899
====================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amounts capitalized ................ $ 222 $ 273
====================
Income taxes paid - net of refunds ........................ $ 3,592 $ 4,490
====================
See Notes to Consolidated Financial Statements.
6
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Three and Six Months Ended October 31, 2005 and 2004
(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
-----------
Magazine service operations accounts receivable, net consist of the following
(in thousands):
October 31, 2005 April 30, 2005
----------------------------------
Fulfillment Services ................... $22,537 $24,487
Distribution Services .................. 21,896 26,861
-------------------------
$44,433 $51,348
=========================
(3) Other Assets
------------
Other assets, net consist of the following (in thousands):
October 31, 2005 April 30, 2005
----------------------------------
Software development costs .............. $ 9,190 $ 7,296
Deferred Order Entry costs .............. 3,524 3,745
Prepaid Expenses ........................ 1,432 1,587
Other ................................... 3,939 3,674
--------------------------
18,085 16,302
Less accumulated amortization ........... (4,555) (3,955)
--------------------------
$ 13,530 $ 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.
(4) Accounts Payable and Accrued Expenses
-------------------------------------
Accounts payable and accrued expenses consist of the following (in thousands):
October 31, 2005 April 30, 2005
----------------------------------
Publisher payables ....................... $26,138 $27,722
Deposit on utility company ............... -- 7,000
Accrued expenses ......................... 5,554 6,849
Trade payables ........................... 3,219 3,827
Other .................................... 5,888 5,322
------------------------
$40,799 $50,720
========================
7
(5) Discontinued Operation
----------------------
Net income from discontinued operations in the first six months of fiscal 2006
reflects the gain from the sale of the primary assets of the Company's El
Dorado, New Mexico water utility subsidiary ("Utility"), which were disposed
through condemnation proceedings in the first quarter of fiscal 2006. Financial
information for operations of this subsidiary for prior periods has been
reclassified to conform to this presentation.
Revenues of the Utility were $513,000 and $1,108,000 for the three and six month
periods ended October 31, 2004; possession of the Utility's assets was
transferred December 1, 2004, accordingly, there were no revenues for the same
periods of fiscal 2005. Pretax income (loss) of the Utility was ($9,000) and
$5,645,000 for the three and six months ended October 31, 2005, and ($278,000)
and ($143,000) for the same three and six month periods ended October 31, 2004.
(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
six-month periods ended October 31, 2005 and 2004.
THREE MONTHS:
Newsstand Fulfillment Real Estate
Distribution Services Operations Corporate Consolidated
-----------------------------------------------------------------
October 2005 (Thousands):
Revenues ............................. $ 3,181 $ 19,514 $ 11,975 $ 177 $ 34,847
Operating and G&A expenses ........... 2,835 17,623 6,401 704 27,563
Management fee ....................... 36 213 249 (498) --
Interest expense, net ................ (48) 117 -- -- 69
--------------------------------------------------------------
Pretax income (loss)
contribution from continuing
operations ........................ $ 358 $ 1,561 $ 5,325 $ (29) $ 7,215
==============================================================
- ------------------------------------------------------------------------------------------------------------
October 2004 (Thousands):
Revenues ............................. $ 3,132 $ 21,967 $ 8,101 $ 30 $ 33,230
Operating and G&A expenses ........... 2,474 19,707 4,212 500 26,893
Management fee ....................... 29 196 225 (450) --
Interest expense, net ................ 1 153 -- 22 176
-------------------------------------------------------------
Pretax income (loss)
contribution from continuing
operations ........................ $ 628 $ 1,911 $ 3,664 $ (42) $ 6,161
=============================================================
- ------------------------------------------------------------------------------------------------------------
SIX MONTHS:
October 2005 (Thousands):
Revenues ............................. $ 6,792 $ 38,058 $ 19,664 $ 347 $ 64,861
Operating and G&A expenses ........... 5,657 35,468 12,112 1,340 54,577
Management fee ....................... 72 426 498 (996) --
Interest expense, net ................ (18) 227 -- -- 209
-------------------------------------------------------------
Pretax income contribution from
continuing operations ............. $ 1,081 $ 1,937 $ 7,054 $ 3 $ 10,075
=============================================================
Identifiable assets .................. $ 35,244 $ 44,907 $ 75,039 $ 34,719 $ 189,909
Intangible assets .................... $ 3,893 $ 1,298 $ -- $ -- $ 5,191
- ------------------------------------------------------------------------------------------------------------
October 2004 (Thousands):
Revenues ............................. $ 6,313 $ 42,436 $ 18,066 $ 53 $ 66,868
Operating and G&A expenses ........... 5,116 38,048 10,013 955 54,132
Management fee ....................... 58 392 450 (900) --
Interest expense, net ................ (3) 280 -- 43 320
-------------------------------------------------------------
Pretax income (loss)
contribution from continuing
operations ........................ $ 1,142 $ 3,716 $ 7,603 $ (45) $ 12,416
=============================================================
Identifiable assets .................. $ 39,531 $ 42,005 $ 74,507 $ 20,237 $ 176,280
Intangible assets .................... $ 3,893 $ 1,298 $ -- $ -- $ 5,191
- ------------------------------------------------------------------------------------------------------------
8
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 second quarter
or first six months of 2006 and 2005 mean the three or six month periods ended
October 31, 2005 and October 31, 2004.
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
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 the 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 an accounting policy in the first six months of fiscal 2006 that
had a material impact on its financial condition, liquidity or results of
operations.
RESULTS OF OPERATIONS
For the second quarter of fiscal 2006, net income was $5,056,000, or $0.76 per
share, compared to net income of $4,195,000, or $0.63 per share, in the second
quarter of the prior fiscal year. This consisted of 2006 second quarter net
income from continuing operations of $5,062,000, or $0.76 per share, and a loss
from discontinued operations of $6,000, which had no effect on earnings per
share, versus net income from continuing operations of $4,370,000, or $0.66 per
share, and a loss from discontinued operations of $175,000, or $0.03 per share,
in the same period last year. Revenues were $34,847,000 in the second quarter
this year versus $33,230,000 in the second quarter of fiscal 2005.
For the first six months of fiscal 2006, net income was $10,420,000, or $1.57
per share, compared to net income of $8,221,000, or $1.24 per share, in the same
period of the prior fiscal year. This consisted of 2006 net income from
continuing operations of $6,864,000, or $1.04 per share, and net income from
discontinued operations of $3,556,000, or $0.53 per share, versus net income
from continuing operations of $8,311,000, or $1.26 per share, and a loss from
discontinued operations of $90,000, or $0.02 per share, in the same period last
year. Revenues were $64,861,000 in the first six months this year versus
$66,868,000 in the same period of fiscal 2005.
9
Net income from discontinued operations in the first six months of fiscal 2006
reflects the gain from the sale of the primary assets of the Company's El
Dorado, New Mexico water utility subsidiary, which was disposed through
condemnation proceedings in the first quarter of fiscal 2006. 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 magazine service operations were $22,695,000 in the second
quarter of 2006 compared to $25,099,000 in the same quarter last year, and for
the six-month period ended October 31, decreased from $48,749,000 last year to
$44,850,000 this year. The revenue decline in both the second quarter and first
six months of 2006 was principally caused by customer losses at Kable's Colorado
fulfillment services business that resulted in an 11% and 10% revenue decrease
in the Fulfillment Services segment in these periods, offset in part by slight
revenue increases in Newsstand Distribution Services revenues in both periods.
Magazine service operating expenses decreased by $1,856,000 (9%) and $2,268,000
(6%) for the second quarter and first six months of 2006 compared to the same
periods last year, mainly due to decreased expense in the Fulfillment Services
business of $2,211,000 (12%) and $2,859,000 (8%) resulting in part from
reductions in variable expenses, primarily payroll, as well as the effect of
certain non-recurring consulting charges incurred in the second quarter of the
prior year. Operating costs for Newsstand Distribution Services increased
$355,000 (20%) and $591,000 (16%) in the second quarter and first six months of
2006 compared to the same periods last year as a result of several factors,
including increased benefit expenses caused by adverse health claims experience,
additional marketing expenses and the amortization of the costs of distribution
contracts acquired in the third quarter of fiscal 2005.
Revenues from land sales at the Company's AMREP Southwest subsidiary increased
from $7,804,000 in the second quarter of 2005 to $11,650,000 in the same quarter
of the current year. For the six month period ended October 31, 2005, these
revenues increased from $17,486,000 last year to $19,059,000 this year. These
improvements were the result of increased sales of both commercial properties
and developed residential lots in the Company's principal market of Rio Rancho,
New Mexico in fiscal 2006. The gross profit percentage on land sales decreased
from 64% and 58% in the second quarter and first six months of 2005 to 54% and
47% for the same periods of 2006 because a higher proportion of developed lots,
which generally have lower gross profit margins than undeveloped lots, were sold
in the current year. The gross profit contribution from real estate operations
improved significantly in the second quarter of 2006 compared to the prior year
period due to higher revenues in this year's period, but for the first six
months of this year the gross profit contribution decreased from the same period
last year, primarily because the prior year included the revenues and gross
profit contribution from condemnation proceedings on the Company's last parcel
of land in Florida. 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 decreased by $77,000 and $460,000
in the second quarter and first six months of 2006 due primarily to costs
incurred in the first quarter of last year associated with the condemnation
proceedings of the property in Florida referred to above. Such costs generally
vary depending upon the terms of specific sale transactions. Real estate and
corporate general and administrative expenses increased by $230,000 and $385,000
in the second quarter and first six months of the current year as a result of an
increase in the Company's stock price which is used to value a portion of
directors' compensation paid in stock, the expiration of a sublease on corporate
office space and the addition of a corporate general counsel. General and
administrative costs of magazine operations increased $134,000 and $230,000 in
the second quarter and first six months of the current year primarily due to an
increase in health care costs resulting from adverse claims experience.
The Company's effective tax rate was 30% for the second quarter of 2006 compared
to 29% for the same period last year, reflecting in each case the estimated tax
benefits associated with a charitable contribution of land by the real estate
business in the second quarter of both fiscal years. The effective tax rate was
32% for the first six months of 2006 versus 33% for the same period of 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 magazine service
operations, and from borrowings under its various lines-of-credit and
development loan agreements.
10
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 Distribution Services based upon a prescribed percentage of the
borrower's eligible accounts receivable, as defined. At October 31, 2005, the
borrowing availability of the Fulfillment Services business was $11,000,000,
against which $6,478,000 was outstanding with interest at a rate of
approximately 6.1%, and the borrowing availability of the Distribution Services
business was $9,000,000, against which $3,978,000 was outstanding with interest
at a rate of approximately 5.8%. 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 on October 31,
2005.
On December 7, 2005, the Company's 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 follows 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
- ------------------------------------
Inventories amounted to $53,186,000 at October 31, 2005 compared to $52,906,000
at April 30, 2005. Inventories in the Company's core real estate market of Rio
Rancho were $46,837,000 at October 31, 2005 and $46,674,000 at April 30, 2005.
The balance of inventory consisted of properties in Colorado.
Receivables from magazine service operations decreased from $51,348,000 at April
30, 2005 to $44,433,000 at October 31, 2005, 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 $40,799,000 at July 31, 2005
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 $1,694,000 and $1,982,000 in the first six
months of 2006 and 2005, and were primarily related to purchases of computer
hardware and software from Kable's Fulfillment Services business. The Company
believes that it has adequate cash and financing capability to provide for its
anticipated future capital expenditures.
The Company is obligated to make future payments under various contracts,
including its debt agreements and lease agreements, and it is subject to certain
other commitments and contingencies. The table below summarizes significant
contractual cash obligations as of October 31, 3005 for the items indicated (in
thousands):
Contractual Less than 1 - 3 3 - 5 More than
Obligations Total 1 year years years 5 years
- -------------------------------------------------------------------------------
Notes payable ........... $13,981 $ 1,964 $ 2,450 $ 7,505 $ 2,062
Operating leases ........ 20,925 5,836 5,799 3,332 5,958
---------------------------------------------------
Total ................... $34,906 $ 7,800 $ 8,249 $10,837 $ 8,020
===================================================
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.
11
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. AMREP disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------ ----------------------------------------------------------
The Company has several credit facilities 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 October 31, 2005,
approximately $10,456,000 of the total debt of $13,981,000 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.
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 1. Legal Proceedings
- ------ -----------------
Reference is made to the report of the legal proceeding entitled "United
Magazine Company, et al. v. Murdoch Magazines Distribution, Inc., et al." in
Item 3 of the Company's Annual Report on Form 10-K for the fiscal year ended
April 30, 2005, filed July 28, 2005. By Memorandum and Order dated September 22,
2005, the Court granted the motion for summary judgment of the defendants,
including the Company's subsidiary Kable News Company, Inc., referred to in the
report of such legal proceeding, and judgment in favor of the defendants was
entered on September 27, 2005. It is expected that the plaintiffs will appeal
the judgment.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
- ------ -----------------------------------------------------------
Pursuant to the Company's 2002 Non-Employee Directors' Stock Plan, the Company
issued an aggregate of 7,500 shares of its Common Stock to its six non-employee
directors on September 15, 2005, as partial payment for their services as
directors for the six months preceding such issuance. These issuances were not
registered under the Securities Act of 1933, as amended, by reason of the
exemption provided in Section 4(2) of such Act for transactions by an issuer not
involving any public offering.
12
The following table sets forth certain information concerning purchases of
outstanding Common Stock of the Company during the fiscal quarter covered by
this quarterly report on Form 10-Q.
Total Number of Maximum Number (or
Total Number Shares (or Units) Approximate Dollar Value)
of Shares Average Price Purchased as Part of of Shares (or Units) that
(or Units) Paid per Publicly Announced May Yet Be Purchased
Period Purchased Share (or Unit) Plans or Programs (1) Under the Plans or Programs (1)
- --------------------------------------------------------------------------------------------------------------------------
August 2005 ................ -- -- -- --
September 2005 ............. 7,500 (2) $28.50 -- --
October 2005 ............... -- -- -- --
--------------------------------------------------------------------------
Total ...................... 7,500 $28.50 -- --
==========================================================================
<FN>
- ----------------------------
(1) The Company has no pending publicly announced share repurchase plans or
programs.
(2) Purchased by an affiliate of the Company in the open market.
</FN>
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
The 2005 Annual Meeting of Shareholders of the Company was held on September 21,
2005. At the meeting, Elmer F. Hansen, Jr. was elected a director and Nicholas
G. Karabots and Albert V. Russo were reelected directors of the Company by the
following votes:
For Withheld
---------------------------
Elmer F. Hansen, Jr. 6,200,299 165,980
Nicholas G. Karabots 6,246,788 119,491
Albert V. Russo 6,352,899 13,380
Item 5. Other Information
- ------ -----------------
At its meeting held September 21, 2005, the Board of Directors of the Company
terminated the Company's Non-Employee Directors Option Plan effective
immediately following the grants of options made following the Company's Annual
Meeting of Shareholders held that date. Under the Plan, following each Annual
Meeting each non-employee director was granted a five-year option to purchase
500 shares of Common Stock of the Company at the fair market value at the time
of the grant.
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.
13
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: December 14, 2005 AMREP CORPORATION
(Registrant)
By: /s/ Peter M. Pizza
--------------------------------------------
Peter M. Pizza
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
14
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.
15