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, 2009
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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.)
300 Alexander Park, Suite 204, 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
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Not Applicable
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(Former name,former address and former fiscal year,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 (the
"Exchange Act") 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 has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (paragraph
232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the Registrant was required to submit and post such files).
Yes No
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Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer X
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Non-accelerated filer Smaller reporting company
--- ---
(Do not check if a smaller reporting company)
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
November 30, 2009 - 5,996,212.
AMREP CORPORATION AND SUBSIDIARIES
INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
October 31, 2009 and April 30, 2009 1
Consolidated Statements of Operations and Retained Earnings
(Unaudited) Three Months Ended October 31, 2009 and 2008 2
Consolidated Statements of Operations and Retained Earnings
(Unaudited) Six Months Ended October 31, 2009 and 2008 3
Consolidated Statements of Cash Flows
(Unaudited) Six Months Ended October 31, 2009 and 2008 4
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits 20
SIGNATURE 21
EXHIBIT INDEX 22
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)
October 31, April 30,
2009 2009
------------------ ------------------
ASSETS:
Cash and cash equivalents $ 33,381 $ 29,018
Receivables, net:
Real estate operations 1,311 3,367
Media services operations 41,493 34,614
------------------ ------------------
42,804 37,981
Income taxes receivable 3,560 3,009
Real estate inventory 83,021 81,561
Investment assets, net 12,483 11,389
Property, plant and equipment, net 32,186 34,656
Intangible and other assets, net 24,238 26,145
Goodwill 3,893 3,893
------------------ ------------------
TOTAL ASSETS $ 235,566 $ 227,652
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable, net and accrued expenses $ 96,097 $ 81,699
Notes payable:
Amounts due within one year 26,188 25,770
Amounts subsequently due 4,622 12,166
------------------ ------------------
30,810 37,936
Deferred income taxes and other long-term liabilities 3,488 1,071
Accrued pension cost 10,931 10,665
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TOTAL LIABILITIES 141,326 131,371
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SHAREHOLDERS' EQUITY:
Common stock, $.10 par value;
Shares authorized - 20,000,000; 7,420,704 shares issued 742 742
Capital contributed in excess of par value 46,100 46,100
Retained earnings 82,901 84,942
Accumulated other comprehensive loss, net (8,846) (8,846)
Treasury stock, at cost; 1,424,492 shares (26,657) (26,657)
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TOTAL SHAREHOLDERS' EQUITY 94,240 96,281
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 235,566 $ 227,652
================== ===================
See notes to consolidated financial statements.
1
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended October 31, 2009 and 2008
(Thousands, except per share amounts)
2009 2008
------------------ ------------------
REVENUES:
Real estate land sales $ 1,670 $ 4,810
Media Services operations 30,625 35,254
Interest and other 38 226
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32,333 40,290
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COSTS AND EXPENSES:
Real estate land sales 1,005 154
Operating expenses:
Media Services operations 26,327 30,289
Real estate commissions and selling 84 91
Restructuring and fire recovery costs 1,087 125
Other 912 279
General and administrative:
Media services operations 2,867 3,471
Real estate operations and corporate 1,033 985
Interest expense, net of capitalized amounts 407 147
------------------ ------------------
33,722 35,541
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INCOME (LOSS) BEFORE INCOME TAXES (1,389) 4,749
PROVISION (BENEFIT) FOR INCOME TAXES (404) 1,854
------------------ ------------------
NET INCOME (LOSS) (985) 2,895
RETAINED EARNINGS, beginning of period 83,886 128,479
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RETAINED EARNINGS, end of period $ 82,901 $ 131,374
================== ===================
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED $ (0.16) $ 0.48
================== ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,996 5,996
================== ===================
See notes to consolidated financial statements.
2
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Six Months Ended October 31, 2009 and 2008
(Thousands, except per share amounts)
2009 2008
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REVENUES:
Real estate land sales $ 3,155 $ 6,073
Media Services operations 61,393 69,277
Interest and other 242 510
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64,790 75,860
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COSTS AND EXPENSES:
Cost of sales - real estate land sales 1,647 520
Operating expenses:
Media Services operations 54,273 60,450
Real estate commissions and selling 165 169
Restructuring and fire recovery costs 1,753 712
Other 1,351 534
General and administrative:
Media services operations 5,839 6,280
Real estate operations and corporate 2,154 2,075
Interest expense, net of capitalized amounts 609 259
------------------ ------------------
67,791 70,999
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INCOME (LOSS) BEFORE INCOME TAXES (3,001) 4,861
PROVISION (BENEFIT) FOR INCOME TAXES (960) 1,895
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NET INCOME (LOSS) (2,041) 2,966
RETAINED EARNINGS, beginning of period 84,942 128,408
------------------ ------------------
RETAINED EARNINGS, end of period $ 82,901 $ 131,374
================== ===================
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED $ (0.34) $ 0.49
================== ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,996 5,996
================== ===================
See notes to consolidated financial statements.
3
AMREP CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended October 31, 2009 and 2008
(Thousands)
2009 2008
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,041) $ 2,966
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 5,041 4,818
Non-cash credits and charges:
Pension accrual (benefit) 266 (97)
Provision for doubtful accounts (18) 51
(Gain) loss on disposition of assets, net 15 (3)
Changes in assets and liabilities:
Receivables (6,962) 2,589
Income taxes (551) (1,950)
Real estate inventory and investment assets (405) (4,192)
Intangible and other assets (26) (762)
Accounts payable and accrued expenses 14,398 (13,376)
Deferred income taxes and other long-term liabilities 2,417 2,159
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Total adjustments 14,175 (10,763)
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Net cash provided by (used in) operating activities 12,134 (7,797)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - property, plant and equipment (645) (660)
Restricted cash - (3,840)
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Net cash used in investing activities (645) (4,500)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options - 15
Proceeds from debt financing 13,491 37,997
Principal debt payments (20,617) (28,459)
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Net cash provided by (used in) financing activities (7,126) 9,553
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,363 (2,744)
CASH AND CASH EQUIVALENTS, beginning of period 29,018 32,608
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CASH AND CASH EQUIVALENTS, end of period $ 33,381 $ 29,864
================== ===================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amounts capitalized $ 565 $ 222
================== ===================
Income taxes paid - net of refunds $ 72 $ 1,590
================== ===================
Non-cash transactions:
Transfer to real estate inventory from receivables $ 1,040 $ 1,962
================== ===================
Transfer to real estate investment assets from receivables $ 1,117 $ -
================== ===================
See notes to consolidated financial statements.
4
AMREP CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended October 31, 2009 and 2008
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been prepared
by AMREP Corporation (the "Registrant" or the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC") for interim
financial information, and do not include all the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. The Company, through its
subsidiaries, is primarily engaged in four business segments: the Real Estate
business operated by AMREP Southwest Inc. and its subsidiaries (collectively,
"AMREP Southwest") and the Subscription Fulfillment Services, Newsstand
Distribution Services and Product Fulfillment Services businesses operated by
Kable Media Services, Inc. and its subsidiaries (collectively, "Kable" or "Media
Services").
In the opinion of management, these unaudited consolidated financial statements
include all adjustments, which are of a normal recurring nature, considered
necessary to reflect a fair presentation of the results for the interim periods
presented. The results of operations for such interim periods are not
necessarily indicative of what may occur in future periods. Unless otherwise
qualified, all references to 2010 and 2009 are to the fiscal years ending April
30, 2010 and 2009 and all references to the second quarter or first six months
of 2010 and 2009 mean the fiscal three and six month periods ended October 31,
2009 and 2008.
The unaudited consolidated financial statements herein should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
April 30, 2009, which was filed with the SEC on July 14, 2009 (the "2009 Form
10-K").
New Accounting Pronouncements
-----------------------------
In June 2009, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 168, "The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles-a Replacement of FASB Statement
No. 162". SFAS No. 168 replaces SFAS No. 162 and establishes the FASB Accounting
Standards Codification (the "ASC") as the single source of authoritative
generally accepted accounting principles ("U.S. GAAP") recognized by the FASB to
be applied by nongovernmental entities. Rules and interpretive releases of the
SEC under authority of the federal securities laws are also sources of
authoritative U.S. GAAP for SEC registrants. The ASC, which modified structure
hierarchy and referencing of financial standards, is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The ASC supersedes all existing non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting literature not
included in the ASC has become non-authoritative. The ASC is not intended to
change or alter U.S. GAAP and has not had an impact on the Company's results of
operations or financial position.
Subsequent Events
-----------------
In accordance with ASC 855, the Company has evaluated transactions through
December 10, 2009 for recognition as subsequent events and has determined that
no additional transactions need to be disclosed or given recognition to in the
financial statements.
5
(2) Receivables, Net
----------------
Receivables, net consist of the following accounts receivable (in thousands):
October 31, April 30,
2009 2009
----------------- ----------------
Real estate operations:
Mortgage notes and other receivables $ 1,348 $ 3,457
Less allowance for doubtful accounts (37) (90)
----------------- ----------------
$ 1,311 $ 3,367
================= ================
Media Services operations:
Subscription Fulfillment Services $ 23,712 $ 24,711
Newsstand Distribution Services,
net of estimated returns 16,933 8,970
Product Fulfillment Services and other 1,761 1,863
----------------- ----------------
42,406 35,544
Less allowance for doubtful accounts (913) (930)
----------------- ----------------
$ 41,493 $ 34,614
================= ================
Newsstand Distribution Services accounts receivable are net of estimated
magazine returns of $52,957,000 at October 31, 2009 and $55,212,000 at April 30,
2009. In addition, pursuant to an arrangement with one publisher customer of the
Newsstand Distribution Services business, the publisher bears the ultimate
credit risk of non-collection of amounts due from the customers to which the
Company distributed the publisher's magazines under this arrangement. Accounts
receivable subject to this arrangement ($14,251,000 at October 31, 2009 and
$28,565,000 at April 30, 2009) were netted against the related accounts payable
due the publisher on the accompanying consolidated balance sheets.
(3) Investment Assets, Net
----------------------
Investment assets, net consist of the following (in thousands):
October 31, April 30,
2009 2009
----------------- -----------------
Land held for long-term investment $ 11,982 $ 10,879
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Other 794 794
Less accumulated depreciation (284) (293)
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501 510
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$ 12,483 $ 11,389
================ =================
Land held for long-term investment represents property located in areas that are
not planned to be developed in the near term and thus has not been offered for
sale.
6
(4) Property, Plant and Equipment, Net
----------------------------------
Property, plant and equipment, net consist of the following (in thousands):
October 31, April 30,
2009 2009
----------------- ----------------
Land, buildings and improvements $ 27,877 $ 27,397
Furniture, equipment and other 41,762 41,950
----------------- ----------------
69,639 69,347
Less accumulated depreciation (37,453) (34,691)
----------------- ----------------
$ 32,186 $ 34,656
================= ================
(5) Intangible and Other Assets, Net
--------------------------------
Intangible and other assets, net consist of the following (in thousands):
October 31, 2009 April 30, 2009
-------------------------------------- --------------------------------------
Cost Accumulated Cost Accumulated
Amortization Amortization
-------------- ------------------ -------------- ------------------
Software development costs $ 10,056 $ 7,284 $ 10,056 $ 6,156
Deferred order entry costs 3,671 - 4,835 -
Prepaid expenses 4,879 - 3,681 -
Customer contracts and relationships 15,000 3,487 15,000 2,863
Other 2,750 1,347 2,775 1,183
-------------- ------------------ -------------- ------------------
$ 36,356 $ 12,118 $ 36,347 $ 10,202
============== ================== ============== ==================
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 database
files and are charged directly to operations over a twelve-month period.
Customer contracts and relationships are amortized over twelve years.
(6) Accounts Payable, Net and Accrued Expenses
------------------------------------------
Accounts payable, net and accrued expenses consist of the following (in
thousands):
October 31, April 30,
2009 2009
----------------- ----------------
Publisher payables, net $ 79,505 $ 63,074
Accrued expenses 4,495 4,473
Trade payables 3,434 3,772
Other 8,663 10,380
----------------- ----------------
$ 96,097 $ 81,699
================= ================
Pursuant to an arrangement with a publisher customer of the Newsstand
Distribution Services business, the Company has netted $14,251,000 and
$28,565,000 of accounts receivable against the related accounts payable at
October 31, 2009 and April 30, 2009 (see Note 2).
7
(7) Notes Payable
-------------
Notes payable consist of the following (in thousands):
October 31, April 30,
2009 2009
----------------- ----------------
Notes payable:
Line-of-credit borrowings:
Real estate operations and other $ 24,000 $ 24,000
Media services operations 1,908 8,866
Other notes payable 4,902 5,070
----------------- ----------------
$ 30,810 $ 37,936
================= ================
AMREP Southwest has a revolving credit facility, originally for $25,000,000,
with a bank that was scheduled to expire in September 2009. The facility has
been extended to December 17, 2009 on certain revised terms to provide the
parties with additional time to attempt to negotiate the terms of a replacement
facility. The significant terms of the original facility are described in Note 8
of the Notes to the Company's consolidated financial statements included in the
2009 Form 10-K. The changes to the terms that were effected in connection with
the extension are that (i) the outstanding amount under the facility may not
exceed $24,000,000 (which is its present outstanding principal amount), (ii) the
interest rate per annum on borrowings was increased to LIBOR plus 3.5%, but not
less than 5%, (iii) the facility has been collateralized by mortgages on certain
real property of AMREP Southwest with an appraised value of not less than 2.5
times the outstanding amount under the facility, and (iv) distributions to the
Company have been limited to payment of management fees of up to $87,500 per
month.
On December 9, 2009, the lender issued a commitment letter for a credit facility
to replace the existing facility. The replacement facility is a $22,500,000
non-revolving loan maturing in 364 days under which (i) certain defined excess
cash generated by the operations of AMREP Southwest is required to be applied to
pay down the loan balance, (ii) a cash reserve, originally $1,100,000, to fund
interest is to be established, and (iii) the Company is required to contribute
$2,500,000 to the capital of AMREP Southwest to be used to pay down the
presently outstanding loan balance to $22,500,000 and to substantially fund the
initial interest reserve. The terms of the replacement facility are to be
otherwise not materially different from those of the expiring facility as
changed in connection with the extension.
There can be no assurance that AMREP Southwest will be able to obtain financing
for its operating needs or for its anticipated future capital expenditures.
AMREP Southwest is considering the terms of the replacement facility proposed in
the lender's commitment letter and no replacement loan agreement has as yet been
entered into. The lender has not extended the maturity date of the existing
facility and if it does not do so, but demands repayment of amounts due under
that facility, AMREP Southwest would not have sufficient funds to satisfy such
demand.
During July 2009, Kable and certain of its direct and indirect subsidiaries
entered into an Amended and Restated Loan and Security Agreement (the "Media
Credit Agreement") with a bank that further amended and restated an earlier
agreement with the bank's predecessor. The Media Credit Agreement provides for:
(i) a revolving credit loan and letter of credit facility of up to $20,000,000
("Facility A") that may be used for general business purposes, including the
payment of expenses and other costs associated with the consolidation of Kable's
Subscription Fulfillment Services business in Florida; and (ii) a second
revolving credit loan facility of up to $5,000,000 ("Facility D") that may be
used exclusively for the payment of accounts payable under a distribution
agreement with a customer of Kable's Distribution Services business. At the
borrowers' option, up to $2,500,000 of the bank's lending commitment for
8
Facility D may be transferred to Facility A. At October 31, 2009, no Facility A
or D loans were outstanding. Term borrowings for capital expenditures of
approximately $1,908,000 ("Facilities B and C") were outstanding at October 31,
2009, bearing interest from 4.79% to 6.40% per annum and are included in the
borrowings under the Media Credit Agreement in addition to Facilities A and D.
The revolving credits mature on May 1, 2010 and the term borrowings are due in
installments through that date. The borrowers' obligations are collateralized by
substantially all of their assets other than (i) real property and (ii) any
borrower's interest in the capital securities of any other borrower or any
subsidiary of any borrower.
The revolving loans under the Media Credit Agreement bear interest at the
borrowers' option at fluctuating rates that are either (i) a LIBOR-based rate
(0.243% at October 31, 2009) plus 3.25%, or (ii) the bank's prime rate (3.25% at
October 31, 2009) plus 1.75%. The agreement also requires the borrowers to
maintain certain financial ratios and contains other customary covenants and
restrictions, the most significant of which limit the ability of the borrowers
to declare or pay dividends or make other distributions to the Company, limit
the annual amount that may be incurred for capital expenditures and other
purposes and impose certain minimum EBITDA requirements on the borrowers.
(8) Taxes
-----
Unrecognized tax benefits were $1,585,000 at October 31, 2009 and April 30,
2009. As a result of either the expiration of statutes of limitations or the
recognition and measurement considerations under ASC 740-10 (formerly FIN 48),
the Company believes that it is reasonably possible that the amount of
unrecognized tax benefits will decrease within the next twelve months.
(9) Fair Value Measurements
-----------------------
ASC 820 provides a common definition for fair value to be applied to U.S. GAAP
requiring use of fair value, establishes a framework for measuring fair value,
and expands disclosure about such fair value measurements, and is effective for
financial assets and financial liabilities for fiscal years beginning after
November 15, 2007. The adoption of ASC 820 for financial assets and financial
liabilities, effective May 1, 2008, did not have an impact on the Company's
consolidated financial position or results of operations.
The estimated fair value of financial instruments is determined by reference to
various market data and other valuation techniques as appropriate. The carrying
amounts of cash and cash equivalents, media services trade receivables and trade
payables approximate fair value because of the short maturity of these financial
instruments. Debt that bears variable interest rates indexed to prime or LIBOR
also approximates fair value as it reprices when market interest rates change.
The estimated fair value of the Company's fixed-rate mortgage receivables was
$1,150,000 and $2,914,000 versus carrying amounts of $1,158,000 and $3,176,000
at October 31, 2009 and April 30, 2009. The estimated fair value of the
Company's fixed-rate notes payable was $7,342,000 and $8,524,000 versus carrying
amounts of $6,810,000 and $7,869,000 at October 31, 2009 and April 30, 2009.
(10) Restructuring and Fire Recovery Costs
-------------------------------------
In 2009, the Company announced a project to consolidate its Subscription
Fulfillment Services business operations from three locations in Colorado,
Florida and Illinois into one existing location at Palm Coast, Florida, which is
expected to streamline operations, improve service to clients and create cost
efficiencies through reduced overhead costs and the elimination of operating
redundancies. This project, which is now well underway and is scheduled to be
substantially complete by October 31, 2010, is expected to require capital
9
expenditures of approximately $12,000,000 and may involve approximately
$7,000,000 of non-recurring cash costs for severance, training and transition,
facility closings and equipment relocation. As of October 31, 2009, the Company
has cumulatively incurred approximately $4,400,000 for capital expenditures and
$4,150,000 of non-recurring cash costs related to the consolidation project. The
State of Florida and the City of Palm Coast have agreed to provide incentives
for the project, including cash and employee training grants and tax relief,
which are largely contingent on existing job retention, new job creation and
capital investment. The Company recognized $21,000 and $81,000 of income for the
second quarter and first six months of 2010 for certain incentives related to
the consolidation project, which are netted against restructuring costs of
$1,085,000 and $1,973,000 for the same periods, principally for severance. As a
result, the Company reported net charges to operations of $1,064,000 and
$1,892,000 related to the consolidation project for the second quarter and first
six months of 2010 compared to net charges of $75,000 and $573,000 for the same
periods in 2009, principally for severance and consulting costs. There were no
incentives recognized in first six months of 2009. The items of income for
incentives and costs related to the consolidation project are included in
Restructuring and fire recovery costs in the Company's consolidated statements
of operations and retained earnings.
In December 2007, a warehouse leased by a Kable subsidiary in Oregon, Illinois
and its contents were totally destroyed by fire. The warehouse was used
principally to store back issues of magazines published by certain customers for
whom the Company filled back-issue orders as part of its services. The Company
was required to provide insurance for that property of certain of those
customers. Through October 31, 2009, the Company's insurance carrier had paid
approximately $268,000 to customers for lost materials. The Company believes
that the resolution of other pending or unasserted claims related to materials
of certain publishers for whom it was required to provide insurance after taking
into account the proceeds from its property insurance claims, will not have a
material effect on its consolidated financial position, results of operations or
cash flows.
The Company has filed various claims with its insurance provider related to the
fire. As of November 30, 2009, the Company had been reimbursed a total of
approximately $1,068,000 for assets lost in the fire, other expenses of
relocation and professional fees. During 2010, the Company recorded charges to
operations totaling approximately $23,000 for the second quarter and, as a
result of reimbursements received during the six months ended October 31, 2009,
the Company reported a net gain of $139,000 related to fire recovery costs. For
the same periods in 2009, the Company recorded net charges of $50,000 and
$139,000. The items of income and expense related to insurance proceeds and the
fire recovery costs are included in Restructuring and fire recovery costs in the
Company's consolidated statements of operations and retained earnings.
In addition, the Company recorded other income for business interruption claims
resulting from the fire that totaled $31,000 for the second quarter of 2010 and
$173,000 for the first quarter of 2009. These income amounts are included in
Media Services operations revenue in the Company's consolidated statements of
operations and retained earnings.
(11) Information About the Company's Operations in Different Industry Segments
-------------------------------------------------------------------------
As a result of the purchase of assets of certain businesses in November 2008,
the Company reclassified certain revenues, expenses and capital expenditures for
2009 previously reported as part of its Subscription Fulfillment Services
segment and has reported them with revenues, expenses and capital expenditures
of those businesses since the date of purchase as a separate segment, "Product
Fulfillment Services and Other". The following tables set forth summarized data
relative to the industry segments in which the Company operated for the three
and six month periods ended October 31, 2009 and 2008 (in thousands):
10
Product
Subscription Newsstand Fulfillment
Real Estate Fulfillment Distribution Services and
Operations Services Services Other Other Consolidated
----------------------------------------------------------------------------------------
Three months ended October 31, 2009:
Revenues $ 1,765 $ 24,230 $ 3,595 $ 2,799 $ (56) $ 32,333
Net income (loss) (716) (1,261) 615 86 291 (985)
Provision (benefit) for income taxes (330) (657) 392 53 138 (404)
Interest expense (income), net (a) 207 691 (332) 25 (184) 407
Depreciation and amortization 26 2,225 149 56 38 2,494
---------------------------------------------------------------------------------------
EBITDA (b) $ (813) $ 998 $ 824 $ 220 $ 283 $ 1,512
---------------------------------------------------------------------------------------
Capital expenditures $ - $ 130 $ - $ - $ - 130
------------------------------------------------------------------------------------------------------------------------------------
Three months ended October 31, 2008:
Revenues $ 5,001 $ 31,334 $ 3,096 $ 824 $ 35 $ 40,290
Net income (loss) 2,361 (53) 210 30 347 2,895
Provision (benefit) for income taxes 1,534 (31) 195 18 138 1,854
Interest expense (income), net (a) - 849 (312) - (390) 147
Depreciation and amortization 11 2,250 145 9 - 2,415
---------------------------------------------------------------------------------------
EBITDA (b) $ 3,906 $ 3,015 $ 238 $ 57 $ 95 $ 7,311
---------------------------------------------------------------------------------------
Capital expenditures $ 7 $ 463 $ 5 $ - $ - $ 475
------------------------------------------------------------------------------------------------------------------------------------
Product
Subscription Newsstand Fulfillment
Real Estate Fulfillment Distribution Services and
Operations Services Services Other Other Consolidated
----------------------------------------------------------------------------------------
Six months ended October 31, 2009:
Revenues $ 3,511 $ 49,357 $ 6,800 $ 5,235 $ (113) $ 64,790
Net income (loss) (796) (2,739) 875 90 529 (2,041)
Provision (benefit) for income taxes (343) (1,525) 583 55 270 (960)
Interest expense (income), net (a) 249 1,249 (561) 41 (369) 609
Depreciation and amortization 52 4,526 278 110 75 5,041
---------------------------------------------------------------------------------------
EBITDA (b) $ (838) $ 1,511 $ 1,175 $ 296 $ 505 $ 2,649
---------------------------------------------------------------------------------------
Capital expenditures $ - $ 609 $ 15 $ 11 $ 10 $ 645
------------------------------------------------------------------------------------------------------------------------------------
Six months ended October 31, 2008:
Revenues $ 6,530 $ 61,176 $ 6,451 $ 1,650 $ 53 $ 75,860
Net income (loss) 2,460 (809) 580 86 649 2,966
Provision (benefit) for income taxes 1,592 (475) 413 50 315 1,895
Interest expense (income), net (a) - 1,681 (618) - (804) 259
Depreciation and amortization 20 4,492 285 18 3 4,818
---------------------------------------------------------------------------------------
EBITDA (b) $ 4,072 $ 4,889 $ 660 $ 154 $ 163 $ 9,938
---------------------------------------------------------------------------------------
Capital expenditures $ 8 $ 641 $ 10 $ - $ 1 $ 660
11
(a) Interest expense, net includes inter-segment interest income and
expense that is eliminated in consolidation.
(b) The Company uses EBITDA (which the Company defines as income before
interest expense, net, income taxes and depreciation and amortization)
in addition to net income (loss) as key measures of profit or loss for
segment performance and evaluation purposes.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
------- ------------------------------------------------------------------------
of Operations
-------------
INTRODUCTION
------------
The Company, through its subsidiaries, is primarily engaged in four business
segments: the Real Estate business operated by AMREP Southwest Inc. and its
subsidiaries (collectively, "AMREP Southwest") and the Subscription Fulfillment
Services, Newsstand Distribution Services and Product Fulfillment Services
businesses operated by Kable Media Services, Inc. and its subsidiaries
(collectively, "Kable" or "Media Services"). 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
April 30, 2009 consolidated financial statements and accompanying notes. Unless
otherwise qualified, all references in this Item 2 to 2010 and 2009 are to the
fiscal years ending April 30, 2010 and 2009 and all references to the second
quarter or first six months of 2010 and 2009 mean the fiscal three and six-month
periods ended October 31, 2009 and 2008.
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 2009
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 for the
year ended April 30, 2009 (the "2009 Form 10-K"). The preparation of those
consolidated financial statements required management to make estimates and
assumptions that affected the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual amounts or results could differ from those
estimates.
The critical accounting policies, assumptions and estimates are described in
Part II, "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Critical Accounting Assumptions and Estimates" in the
Company's 2009 Form 10-K. There have been no changes in these accounting
policies.
The significant accounting policies of the Company are described in Note 1 to
the 2009 consolidated financial statements contained in the Company's 2009 Form
10-K. Information concerning the Company's implementation and the impact of
recent accounting standards issued by the Financial Accounting Standards Board
is included in the notes to the 2009 consolidated financial statements and also
in Note 1 to the consolidated financial statements contained in this quarterly
report on Form 10-Q. The Company did not adopt any accounting policy during the
first six months of 2010 that had a material impact on its consolidated
financial statements.
12
RESULTS OF OPERATIONS
---------------------
For the second quarter of 2010, the Company had a net loss of $985,000, or $0.16
per share, compared to net income of $2,895,000, or $0.48 per share, for the
second quarter of 2009. For the first six months of 2010, the Company had a net
loss of $2,041,000, or $0.34 per share, compared to net income of $2,966,000, or
$0.49 per share, for the same period of 2009. Revenues were $32,333,000 and
$64,790,000 in the second quarter and first six months of 2010 compared to
$40,290,000 and $75,860,000 for the same periods last year.
Revenues from land sales at AMREP Southwest were $1,670,000 and $3,155,000 for
the three and six month periods ended October 31, 2009 compared to $4,810,000
and $6,073,000 for the same periods of the prior year. These decreases in
revenues in 2010 primarily reflected the second quarter 2009 sale of
approximately 50 acres of undeveloped land for $3,849,000 to one purchaser with
no similar sale in the first six months of 2010. In Rio Rancho, the Company
offers for sale both developed and undeveloped lots to national, regional and
local home builders, commercial and industrial property developers and others.
For the second quarter and first six months of 2010 and 2009, the Company's land
sales in Rio Rancho were as follows:
--------------------------------------------------------------------------------------
Fiscal 2010 Fiscal 2009
--------------------------------------- -----------------------------------------
Revenues Revenues
Acres Revenues Per Acre Acres Revenues Per Acre
Sold (in 000s) (in 000s) Sold (in 000s) (in 000s)
---------- ----------- ----------- -------- ------------ -----------
Three months:
Developed
Residential 2.4 $ 775 $ 323 0.4 $ 86 $ 244
Commercial 1.7 895 526 - - -
---------- ----------- ----------- -------- ------------ -----------
Total Developed 4.1 1,670 407 0.4 86 244
Undeveloped - - - 87.1 4,724 54
---------- ----------- ----------- -------- ------------ -----------
Total 4.1 $ 1,670 $ 407 87.5 $ 4,810 $ 55
---------- ----------- ----------- -------- ------------ -----------
Six months:
Developed
Residential 5.2 $ 1,445 $ 278 1.8 $ 428 $ 238
Commercial 1.7 895 526 1.0 126 126
---------- ----------- ----------- -------- ------------ -----------
Total Developed 6.9 2,340 339 2.8 554 198
Undeveloped 26.0 815 31 131.9 5,519 42
---------- ----------- ----------- -------- ------------ -----------
Total 32.9 $ 3,155 $ 96 134.7 $ 6,073 $ 45
---------- ----------- ----------- -------- ------------ -----------
The average selling price of land sold by the Company in Rio Rancho in recent
years has fluctuated, as the Company offers for sale developed and undeveloped
land in Rio Rancho from a number of different projects, and selling prices may
vary from project to project and within projects depending on location, the
stage of development and other factors. The revenue per acre of developed land
for the second quarter of 2010 was higher compared to the same period in 2009
primarily resulting from the sales in 2010 of commercial acreage which generally
has a higher average selling price per acre compared to non-commercial acreage.
The average gross profit percentage on land sales decreased from 97% and 91% for
the second quarter and first six months of 2009 to 40% and 48% for the same
periods in 2010. This decrease was primarily attributable to a gross profit of
$3,825,000 (99%) on the previously mentioned second quarter 2009 sale of
approximately 50 acres of undeveloped land. Revenues, gross profits and related
gross profit percentages from land sales can vary significantly from period to
period as a result of many factors, including the nature and timing of specific
13
transactions, and prior results are not necessarily a good indication of what
may occur in future periods.
Revenues from Media Services decreased from $35,254,000 and $69,277,000 for the
second quarter and first six months of 2009 to $30,625,000 and $61,393,000 for
the same periods in 2010. Magazine publishers, who are the principal customers
of the Company's Media Services operations, have continued to suffer from
reduced advertising revenues and lower subscription and newsstand sales during
2010, which has caused certain publishers to close magazine titles or seek more
favorable terms from Kable or its competitors, all of which has led to reduced
business for the Company's Media Services operations. If these trends of reduced
advertising revenues and lower subscription and newsstand sales continue, the
Company's Media Services operations may experience further declines in revenues,
which may contribute to reduced earnings.
Revenues from Kable's Subscription Fulfillment Services operations decreased
from $31,334,000 and $61,176,000 for the second quarter and first six months of
2009 to $24,230,000 and $49,357,000 for the same periods of 2010 primarily due
to the industry factors noted above, partly offset by revenues from new and some
existing clients. Revenues from Kable's Newsstand Distribution Services
operations increased from $3,096,000 and $6,451,000 for the second quarter and
first six months of 2009 to $3,595,000 and $6,800,000 for the same periods of
2010 as a result of changes in product mix and magazine cover price increases.
The net decrease in the combined revenues from Subscription Fulfillment Services
and Newsstand Distribution Services was partly offset by increased revenues from
Kable's Product Fulfillment Services and Other business segment, which increased
from $824,000 and $1,650,000 for the second quarter and first six months of 2009
to $2,799,000 and $5,235,000 for the same periods in 2010, reflecting the
inclusion of the revenues of a product repackaging and fulfillment business and
a temporary staffing business which were acquired in the third quarter of 2009.
Kable's operating expenses decreased by $3,962,000 and $6,177,000 for the second
quarter and first six months of 2010 compared to the same periods in 2009,
primarily attributable to lower payroll and benefits costs and, to a lesser
extent, efficiencies related to the ongoing project to consolidate the
Subscription Fulfillment Services business from three locations in Colorado,
Florida and Illinois into one existing location at Palm Coast, Florida.
In 2009, the Company announced a project to consolidate its Subscription
Fulfillment Services business operations from three locations in Colorado,
Florida and Illinois into one existing location at Palm Coast, Florida, which is
expected to streamline operations, improve service to clients and create cost
efficiencies through reduced overhead costs and the elimination of operating
redundancies. This project, which is now well underway and is scheduled to be
substantially complete by October 31, 2010, is expected to require capital
expenditures of approximately $12,000,000 and may involve approximately
$7,000,000 of non-recurring cash costs for severance, training and transition,
facility closings and equipment relocation. As of October 31, 2009, the Company
has cumulatively incurred approximately $4,400,000 for capital expenditures and
$4,150,000 of non-recurring cash costs related to the consolidation project. The
State of Florida and the City of Palm Coast have agreed to provide incentives
for the project, including cash and employee training grants and tax relief,
which are largely contingent on existing job retention, new job creation and
capital investment. The Company recognized $21,000 and $81,000 of income for the
second quarter and first six months of 2010 for certain incentives related to
the consolidation project, which are netted against restructuring costs of
$1,085,000 and $1,973,000 for the same periods, principally for severance. As a
result, the Company reported net charges to operations of $1,064,000 and
$1,892,000 related to the consolidation project for the second quarter and first
six months of 2010 compared to net charges of $75,000 and $573,000 for the same
periods in 2009, principally for severance and consulting costs. There were no
incentives recognized in first six months of 2009. The items of income for
14
incentives and costs related to the consolidation project are included in
Restructuring and fire recovery costs in the Company's consolidated statements
of operations and retained earnings.
Interest and other revenues were $38,000 and $242,000 second quarter and first
six months of 2010 compared to $226,000 and $510,000 for the same periods in the
prior year. The decrease in the 2010 for both the second quarter and first six
months was the result of reduced interest income due to lower cash balances to
invest.
Real estate commissions and selling expenses for the second quarter and first
six months of 2010 were generally unchanged from the prior year periods, $84,000
and $165,000 compared to $91,000 and $169,000. Other operating expenses
increased $633,000 and $817,000 for the second quarter and first six months of
2010 compared to the same periods in 2009 primarily due to an increase in real
estate taxes at AMREP Southwest resulting from an increase in both tax rates and
assessed land values. Approximately $315,000 of the increase for the second
quarter and first six months of 2010 is attributable to the period prior to the
beginning of the second quarter. AMREP Southwest has filed an appeal related to
certain of the assessed land values that have contributed to the real estate tax
increase.
General and administrative expenses of Media Services operations decreased
$604,000 and $441,000 in the second quarter and first six months of 2010
compared to the same periods in 2009. The decrease in both the second quarter
and first six months was the result of efficiencies related to the ongoing
project to consolidate the Subscription Fulfillment Services business from three
locations in Colorado, Florida and Illinois into one existing location at Palm
Coast, Florida.
Real estate operations and corporate general and administrative expense
increased $48,000 and $79,000 in the second quarter and first six months of 2010
compared to the same periods in 2009, primarily related to depreciation expense
on a warehouse acquired in November 2008.
The effective rate of the Company's tax benefit was 29.1% and 32.0% for the
second quarter and first six months of 2010 compared to an effective rate of
39.0% for the tax provision in the same periods in 2009. The effective rate of
the tax benefit attributable to the pretax losses in 2010 was less than the
statutory rate primarily due to the tax provision for state taxes and interest
accrued for uncertain tax positions in accordance with the Financial Accounting
Standards Board Accounting Standards Codification 740-10, formerly FIN 48.
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.
Cash Flows From Operating Activities
------------------------------------
Real estate receivables decreased from $3,367,000 at April 30, 2009 to
$1,311,000 at October 31, 2009 primarily reflecting the net effect of the
reclassification of approximately $1,040,000 to real estate inventory and
$1,117,000 to investment assets from mortgage notes receivable resulting from
the Company's acceptance of deeds in lieu of foreclosure related to delinquent
mortgage notes receivables. The Company believes that the acceptance of deeds in
lieu of foreclosure has not had an impact on the Company's results of operations
or financial position. Receivables from Media Services operations increased from
$34,614,000 at April 30, 2009 to $41,943,000 at October 31, 2009, primarily due
15
to the effect of higher quarter-end billings at October 31, 2009 compared to
April 30, 2009.
Real estate inventory was $83,021,000 at October 31, 2009 compared to
$81,561,000 at April 30, 2009. Inventory in the Company's core real estate
market of Rio Rancho increased from $74,121,000 at April 30, 2009 to $75,524,000
at October 31, 2009. Both increases primarily reflect the reclassification of
mortgage notes receivable to inventory discussed above. The balance of real
estate inventory consisted of properties in Colorado.
Accounts payable and accrued expenses increased from $81,699,000 at April 30,
2009 to $96,097,000 at October 31, 2009, primarily as a result of reduced
receivables from customers for one publisher who bears the ultimate credit risk
of non-collection of amounts due from the customers to which the Company
distributed the publisher's magazines under this arrangement where accounts
receivable subject to this arrangement are netted against the related accounts
payable due the publisher on the accompanying consolidated balance sheets.
Deferred income taxes and other long-term liabilities increased from $1,071,000
at April 30, 2009 to $3,488,000 at October 31, 2009, primarily as a result of
Media Services having received a $3,000,000 award pursuant to an agreement with
the State of Florida as part of certain incentives made available to the Company
with the announced project to consolidate its magazine subscription, membership
and direct mail fulfillment locations into one location at Palm Coast, Florida
(the "Award Agreement"). The Award Agreement requires the Company to achieve
certain objectives in terms of existing job retention, new job creation and
capital investment through December 31, 2011; however, if the objectives are not
met, the Company may need to return a portion, or all, of the $3,000,000. As
such, the $3,000,000 has been recorded as a liability until the Company is
irrevocably entitled to retain the award, at which time the Company will record
income to the extent depreciation is taken on assets acquired with the grant
monies received.
Cash Flows From Investing Activities
------------------------------------
Capital expenditures totaled $645,000 and $660,000 for the first six months of
2010 and 2009, primarily for expenditures related to the consolidation of the
Subscription Fulfillment Services operations in 2010 and for computer hardware
and software development expenditures in 2009. The Company believes that it has
adequate cash and financing capability to provide for its anticipated future
capital expenditures.
Cash Flows From Financing Activities
------------------------------------
AMREP Southwest has a revolving credit facility, originally for $25,000,000,
with a bank that was scheduled to expire in September 2009. The facility has
been extended to December 17, 2009 on certain revised terms to provide the
parties with additional time to attempt to negotiate the terms of a replacement
facility. The significant terms of the original facility are described in Note 8
of the Notes to the Company's consolidated financial statements included in the
2009 Form 10-K. The changes to the terms that were effected in connection with
the extension are that (i) the outstanding amount under the facility may not
exceed $24,000,000 (which is its present outstanding principal amount), (ii) the
interest rate per annum on borrowings was increased to LIBOR plus 3.5%, but not
less than 5%, (iii) the facility has been collateralized by mortgages on certain
real property of AMREP Southwest with an appraised value of not less than 2.5
times the outstanding amount under the facility, and (iv) distributions to the
Company have been limited to payment of management fees of up to $87,500 per
month.
16
On December 9, 2009, the lender issued a commitment letter for a credit facility
to replace the existing facility. The replacement facility is a $22,500,000
non-revolving loan maturing in 364 days under which (i) certain defined excess
cash generated by the operations of AMREP Southwest is required to be applied to
pay down the loan balance, (ii) a cash reserve, originally $1,100,000, to fund
interest is to be established, and (iii) the Company is required to contribute
$2,500,000 to the capital of AMREP Southwest to be used to pay down the
presently outstanding loan balance to $22,500,000 and to substantially fund the
initial interest reserve. The terms of the replacement facility are to be
otherwise not materialy different from those of the expiring facility as changed
in connection with the extension.
There can be no assurance that AMREP Southwest will be able to obtain financing
for its operating needs or for its anticipated future capital expenditures.
AMREP Southwest is considering the terms of the replacement facility proposed in
the lender's commitment letter and no replacement loan agreement has as yet been
entered into. The lender has not extended the maturity date of the existing
facility and if it does not do so, but demands repayment of amounts due under
that facility, AMREP Southwest would not have sufficient funds to satisfy such
demand.
During July 2009, Kable and certain of its direct and indirect subsidiaries
entered into an Amended and Restated Loan and Security Agreement (the "Media
Credit Agreement") with a bank that further amended and restated an earlier
agreement with the bank's predecessor. The Media Credit Agreement provides for:
(i) a revolving credit loan and letter of credit facility of up to $20,000,000
("Facility A") that may be used for general business purposes, including the
payment of expenses and other costs associated with the consolidation of Kable's
Subscription Fulfillment Services business in `used exclusively for the payment
of accounts payable under a distribution agreement with a customer of Kable's
Distribution Services business. At the borrowers' option, up to $2,500,000 of
the bank's lending commitment for Facility D may be transferred to Facility A.
At October 31, 2009, no Facility A or D loans were outstanding. Term borrowings
for capital expenditures of approximately $1,908,000 ("Facilities B and C") were
outstanding at October 31, 2009, bearing interest from 4.79% to 6.40% per annum
and are included in the borrowings under the Media Credit Agreement in addition
to Facilities A and D. The revolving credits mature on May 1, 2010 and the term
borrowings are due in installments through that date. The borrowers' obligations
are collateralized by substantially all of their assets other than (i) real
property and (ii) any borrower's interest in the capital securities of any other
borrower or any subsidiary of any borrower.
The revolving loans under the Media Credit Agreement bear interest at the
borrowers' option at fluctuating rates that are either (i) a LIBOR-based rate
(0.243% at October 31, 2009) plus 3.25%, or (ii) the bank's prime rate (3.25% at
October 31, 2009) plus 1.75%. The agreement also requires the borrowers to
maintain certain financial ratios and contains other customary covenants and
restrictions, the most significant of which limit the ability of the borrowers
to declare or pay dividends or make other distributions to the Company, limit
the annual amount that may be incurred for capital expenditures and other
purposes and impose certain minimum EBITDA requirements on the borrowers.
At October 31, 2009, AMREP Southwest and Kable were in compliance with the terms
of their respective bank covenants.
Future Payments Under Contractual Obligations
---------------------------------------------
The Company is obligated to make future payments under various contracts,
including its debt agreements and lease agreements, and is subject to certain
17
other commitments and contingencies. The table below summarizes significant
contractual obligations as of October 31, 2009 for the items indicated (in
thousands):
Less than 1 - 3 3 - 5 More than
Contractual Obligations Total 1 year years years 5 years
----------------------- ----- --------- ----- ----- ---------
Notes payable $ 30,810 $ 26,188 $ 249 $ 225 $ 4,148
Operating leases and other 11,236 3,600 6,251 935 450
----------- -------------- ------------- ------------- --------------
Total $ 42,046 $ 29,788 $ 6,500 $ 1,160 $ 4,598
=========== ============== ============= ============= ==============
Operating leases and other includes $2,372,000 of uncertain tax positions and
related accrued interest recorded in accordance with the Financial Accounting
Standards Board Accounting Standards Codification 740-10. The decrease in
contractual obligations for operating leases and other from $23,344,000 at April
30, 2009 to $11,236,000 at October 31, 2009 is primarily the result of Kable
exercising an option to early terminate the lease for its Colorado location
effective May 31, 2010 in connection with the project to consolidate its
subscription fulfillment services business operations at a single location. The
decrease in notes payable from April 30, 2009 was due to reduced borrowings by
Kable. Refer to Notes 8, 12, 16 and 17 to the consolidated financial statements
included in the 2009 Form 10-K for additional information on long-term debt,
taxes and commitments and contingencies.
Risk Factors
------------
In addition to the other information set forth in this report, the factors
discussed in Part I, "Item 1A. Risk Factors" in the 2009 Form 10-K, which could
materially affect the Company's business, financial condition or future results,
should be carefully considered. The risks described in the 2009 Form 10-K are
not the only risks facing the Company. Additional risks and uncertainties not
currently known to the Company or that currently are deemed to be immaterial
also may materially adversely affect the Company's business, financial condition
or operating results.
Statement of Forward-Looking Information
----------------------------------------
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by or on behalf of the Company. The
Company and its representatives may from time to time make written or oral
statements that are "forward-looking", including statements contained in this
report and other filings with the Securities and Exchange Commission, reports to
the Company's shareholders and news releases. All statements that express
expectations, estimates, forecasts or projections are forward-looking statements
within the meaning of the Act. In addition, other written or oral statements,
which constitute forward-looking statements, may be made by or on behalf of the
Company. Words such as "expects", "anticipates", "intends", "plans", "believes",
"seeks", "estimates", "projects", "forecasts", "may", "should", variations of
such words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and contingencies that are difficult to
predict. These risks and uncertainties include, but are not limited to, the
risks described above under the heading "Risk Factors". Many of the factors that
will determine the Company's future results are beyond the ability of management
to control or predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in or suggested by such
forward-looking statements. The forward-looking statements contained in this
report include, but are not limited to, statements regarding the consolidation
project of the Subscription Fulfillment Services business (including the
Company's estimated related capital expenditures, severance charges and
incentives anticipated to be received from the State of Florida and the City of
Palm Coast), future financing requirements and the status of negotiations with
18
the Company's existing real estate lender. The Company undertakes no obligation
to revise or update any forward-looking statements, or to make any other
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 two credit facilities 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, 2009, borrowings of $24,000,000
were subject to variable interest rates. Refer to Item 7(A) of the 2009 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 the
Company's management, including its principal executive and principal financial
officers, or persons performing similar functions, 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 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
The 2009 Annual Meeting of Shareholders of the Company was held on September 16,
2009. At the meeting, Edward B. Cloues, II and James Wall were re-elected
directors of the Company by the following votes:
For Withheld
--- --------
Edward B. Cloues, II 5,726,567 76,441
James Wall 5,500,071 302,937
19
Item 6. Exhibits
------- --------
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.
20
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 10, 2009 AMREP CORPORATION
(Registrant)
By: /s/ Peter M.Pizza
----------------------------------------------
Peter M. Pizza
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
21
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
31.1 Certification required by Rule 13a-14(a) under the Securities Exchange
Act of 1934 - Filed herewith.
31.2 Certification required by Rule 13a-14(a) under the Securities Exchange
Act of 1934 - Filed herewith.
31.3 Certification required by Rule 13a-14(a) under the Securities Exchange
Act of 1934 - Filed herewith.
32 Certification required pursuant to 18 U.S.C. Section 1350 - Filed
herewith.
22