SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-1
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2001 Commission File Number 1-4702
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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 _______________
AMREP CORPORATION
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(Exact name of registrant as specified in its Charter)
Oklahoma 59-0936128
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
641 Lexington Ave., 6th Floor
New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 705-4700
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Aggregate market value of Common Stock held by non-affiliates of the Registrant,
computed by reference to the last sales price of such Common Stock on July 26,
2001, on the New York Stock Exchange Composite Tape - $14,646,586.
Number of shares of Common Stock, par value $.10 per share, outstanding at July
26, 2001 - 6,573,586.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents of the Registrant are incorporated by
reference into the indicated parts of this report: Definitive Proxy Statement
for 2001 Annual Meeting - Part III.
PART I
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Item 1. Business
------- -------- GENERAL
The Company* is primarily engaged in two unrelated businesses, each operated by
a wholly-owned subsidiary: the Real Estate business operated by AMREP Southwest
Inc., and the Fulfillment Services and Magazine Distribution business operated
by Kable News Company, Inc. ("Kable"). The Company's foreign sales and
activities are not significant.
Data concerning Industry Segments is set forth in Note 14 of Notes to
Consolidated Financial Statements. The Company's foreign sales and activities
are not significant.
REAL ESTATE OPERATIONS
Recent Developments
For many years, the Company was both a real estate developer and a builder of
single-family homes, originally in Rio Rancho, New Mexico and more recently in
the Denver, Colorado, Sacramento, California and Portland, Oregon metro areas.
In the early 1960s, the Company established the community that now is the City
of Rio Rancho, New Mexico, and until 1999 was the predominant builder of housing
there. Rio Rancho, which adjoins Albuquerque, now has a population of over
50,000. The Company entered the Denver market in 1993, and in 1997 it purchased
the assets of a land developer and homebuilder with operations in the Sacramento
and Portland markets. However, two years ago the Company decided to (i) cease
all homebuilding operations and (ii) sell its landholdings in California,
Colorado and Oregon. It now is out of the homebuilding business and, as noted
below, has sold, entered into agreements of sale or is offering for sale all of
its landholdings outside of New Mexico.
Land Development Operations
Prior to fiscal 1999, the Company developed both residential and commercial
sites at Rio Rancho and from time to time bought acreage in Colorado, California
and Oregon for its own homebuilding operations and to develop for sale to other
builders. As discussed above, the Company currently is performing development
work only at Rio Rancho.
Rio Rancho (including the City) consists of 91,049 contiguous acres in Sandoval
County, New Mexico, near Albuquerque, of which some 72,700 acres have been
platted into approximately 112,100 homesite and commercial lots and 16,300 acres
are dedicated to community facilities, roads and drainage with the remainder
consisting of unplatted land. At April 30, 2001, a total of approximately 82,100
of the lots had been sold. The Company currently owns approximately 22,000 acres
in Rio Rancho, of which approximately 7,000 acres are in contiguous blocks
suitable for development. The balance is in scattered lots which may require the
purchase of a sufficient number of adjoining lots to create tracts suitable for
development or which may be sold individually or in small groups.
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* As used herein, "Company" includes the Registrant and its subsidiaries unless
the context requires or indicates otherwise.
2
The development activity includes the obtaining of necessary governmental
approvals ("entitlements"), installation of utilities and necessary storm
drains, and building or improving of roads. At Rio Rancho, the Company is
developing both residential lots and sites for commercial and industrial use as
the demand warrants, and also is securing entitlements for large development
tracts for sale to homebuilders. The engineering work at Rio Rancho is performed
by both Company employees and outside firms, but development work is performed
by outside contractors. Land at Rio Rancho is marketed by Company personnel,
both directly and through brokers. The Company competes with other owners of
land in the Albuquerque area who offer for sale developed residential lots and
sites for commercial and industrial use.
The commercial areas in Rio Rancho presently include more than 500 businesses
and professional offices, as well as 15 shopping centers with approximately 1.25
million square feet of retail space and office space, including a 55,000 square
foot office building owned by the Company. The industrial areas have
approximately 80 buildings with over 3.2 million square feet, including a
manufacturing facility containing approximately 2.1 million square feet which is
owned and occupied by Intel Corporation. Intel, Rio Rancho's largest employer,
has recently started construction on a 1 million square foot expansion of its
plant which is expected to create 2,000 construction jobs over the next two
years and employ an additional 1,000 people after completion of the project in
late 2002 or early 2003.
Since early 1977, no individual lots without homes at Rio Rancho have been sold
by the Company to consumers. Over 50,000 lots were sold prior to 1977, and most
of these are in areas where utilities have not yet been installed. However,
under certain of the contracts pursuant to which the lots were sold, if
utilities have not reached the respective lot when the purchaser is ready to
build a home, the Company is obligated to exchange a lot in an area then
serviced by water, telephone and electric utilities for the lot of the
purchaser, without cost to the purchaser. The Company has not incurred
significant costs related to such exchanges.
At April 30, 2001, the Company owned two tracts of land in Colorado, consisting
of approximately 335 acres planned for approximately 900 homes. One of these
tracts, consisting of approximately 170 acres planned for approximately 534
homes, was under contract for sale and subsequently closed in August 2001. The
Company is in process of obtaining entitlements for the other tract, which is
being offered for sale subject to obtaining all necessary approvals. In
California, it owned one tract of land in the Sacramento area zoned for
approximately 420 units of multi-family residential housing, which was under
contract for sale and subsequently closed in July 2001.
Home Building Operations
In fiscal 2001, the Company substantially completed all homebuilding activities.
The Company closed a total of 18 homes in the Portland area in fiscal 2001 at an
average selling price of approximately $256,000 per home. At April 30, 2001, the
Company owned 3 lots in the Portland area on which homes were built. Of this
total, 2 were under contract for sale. The Company expects all to be sold in
fiscal 2002. Although the Company has no present plans to do any further
homebuilding, the decision to change its real estate focus to emphasize land
development operations in New Mexico and wind-down homebuilding operations is
not considered to be a permanent change of strategy.
Other Real Estate Projects
The Company developed the Eldorado at Santa Fe, New Mexico subdivision which had
approximately 2,400 homes as of April 30, 2001. The Company sold 20 lots there
in fiscal 2001, and 31 lots remained to be sold at the end of fiscal 2001. The
Company also owns and operates a water utility company which serves the
subdivision.
The Company also owns approximately 14 acres in the Orlando, Florida area which
is being offered for sale.
3
FULFILLMENT SERVICES AND MAGAZINE DISTRIBUTION OPERATIONS
Through its wholly-owned subsidiary, Kable News Company, Inc., the Company (i)
performs fulfillment and related services for publishers and other customers and
(ii) distributes periodicals nationally and in Canada and, to a small degree, in
other foreign countries. As of July 1, 2001, Kable employed approximately 900
persons, of whom approximately 740 were involved in its fulfillment activities
and 160 in distribution activities.
Fulfillment Services
Kable's Fulfillment Services division performs a number of fulfillment and
fulfillment-related activities, principally magazine subscription fulfillment
services, list services and product fulfillment services. The division accounted
for 71% of Kable's total revenues in 2001, 70% in 2000 and 64% in 1999.
In the magazine subscription fulfillment service operation, Kable processes new
orders, receives and accounts for payments, prepares and sends to each publisher
printer labels or tapes containing the names and addresses of subscribers for
mailing each issue, handles subscriber telephone inquiries and correspondence,
prepares and mails renewal and statement notifications, maintains subscriber
lists and databases, generates marketing and statistical reports, processes
Internet orders and prints forms and promotional materials. Kable performs all
of these services for many clients, but some clients utilize only certain of
them. Although by far the largest number of magazine titles for which Kable
performs fulfillment services are consumer publications, Kable also performs
services for a number of trade (business) publications, membership organizations
and government agencies which utilize the broad capabilities of Kable's
extensive database system.
List services clients are primarily publishers. In this activity, Kable
maintains client customer lists, selects names for client's who rent their
lists, merges rented lists with a client's list to eliminate duplication for the
client's promotional mailings, and sorts and sequences mailing labels to provide
optimum postal discounts for clients.
Product fulfillment services are provided for Kable's publisher clients and
other direct marketers. In this activity, the division receives, warehouses,
processes and ships merchandise.
Kable plans to expand these ancillary services, including lettershop, list
services and product fulfillment services, to other, non-publisher clients.
Kable now performs fulfillment services for approximately 630 different magazine
titles for approximately 240 clients and maintains almost 14 million active
subscriber names for its client publishers. In a typical month, Kable produces
over 15 million mailing labels for its client publishers and also produces and
mails approximately 4.1 million billing and renewal statements.
There are a large number of companies that perform fulfillment services for
publishers and with which Kable competes, two of which are much larger than
Kable. Since publishers often utilize only a single fulfillment company for a
particular publication, there is intense competition to obtain fulfillment
contracts with publishers. Competition for non-publisher clients is also
intense. Kable has a staff whose primary task is to solicit fulfillment
business.
Distribution Services
In its distribution operation, Kable distributes magazines for over 180
publishers. Among the titles are many special interest magazines, including
automotive, crossword puzzles, men's sophisticates, comics, romance and sports.
In a typical month, Kable distributes to wholesalers over 26.5 million copies of
various titles. Kable purchases the publications from its publishers and sells
them to approximately 56 independent wholesalers. The wholesalers in turn sell
the publications to individual retail outlets. All parties generally have full
return rights for unsold copies. For reasons set forth below, Distribution
4
revenues have been declining for several years and accounted for 29% of Kable's
revenues in fiscal 2001, 30% in fiscal 2000 and 36% in fiscal 1999.
While the Kable Distribution division does not handle all publications of all of
its publisher clients, it usually is the exclusive distributor for the
publications it distributes. Kable has a distribution sales and marketing force
that works with wholesalers and retailers to promote product sales and assist in
determining the number of copies of product to be delivered to each retailer.
Kable generally does not physically handle any product. It determines, in
consultation with the wholesalers and publishers, the number of copies of each
issue to be distributed, and generates and delivers to each publisher's printer
shipping instructions with the addresses of the wholesalers and the number of
copies of product to be shipped to each. All magazines have an "off sale" date
(generally the on-sale date of the next issue) following which the retailers
return unsold copies to the wholesalers, who destroy them after accounting for
returned merchandise in a manner satisfactory to Kable.
A realignment of industry relationships in the distribution of magazines started
during fiscal 1996 and rapidly grew to major proportions. It was triggered by
the decision of certain major retailers with multiple outlets to sharply reduce
the number of wholesalers with whom the retailers would deal. This action has
led to the erosion of wholesaler profit margins and to a substantial continuing
reduction in the number of wholesalers through the merger of certain
wholesalers, the formation by certain other wholesalers of cooperatives to bid
for the business of such retailers, and the complete retirement from the
business by a number of wholesalers. The consolidation has reduced the number of
Kable's wholesale customers by approximately 60% since fiscal 1995, which has
increased the concentration of its revenue source and trade accounts receivable;
at April 30, 2001, approximately 56% of Kable's distribution accounts receivable
was due from three customers. These changes also contributed to demands by most
remaining wholesalers to purchase magazines at lower prices which many
publishers, including some of Kable's, have accepted. In addition, many
wholesalers have instituted programs to eliminate low volume titles and reduce
circulation volume retail outlets. The objective of wholesalers was to reduce
their handling costs and improve sales. Kable feels these programs have had
limited success.
Financial pressures on wholesalers and publishers arising from these adverse
business conditions continued in fiscal 2001. Consequently, Kable increased its
accounts receivable reserves during 2001 by approximately $2.3 million in
anticipation of uncollectible balances from certain publisher and wholesaler
customers. Management believes that industry changes will continue with the
potential for further adverse consequences for publishers and their national
distributors, including Kable.
Kable generally makes substantial cash advances to publishers against future
sales, which publishers may use to help pay for printing, paper and production
costs prior to the product going on sale. Kable is usually not paid by
wholesalers for product until some time after the product has gone on sale, and
is therefore exposed to potential credit risks with both the publishers and the
wholesalers. Its ability to make a profit is dependent in part on its skill in
estimating the number of copies of an issue which should be printed and
distributed and on limiting its advances to the publisher accordingly.
Kable competes primarily with four national distributors, all of whom are
substantially larger than Kable. Each of these large competitors is owned by or
affiliated with a magazine publishing company. Such companies publish a
substantial portion of all magazines published in the United States, and the
competition for the distribution rights to the remaining publications is
intense.
COMPANY OFFICES
The Company's principal executive offices are in New York City. Kable has an
executive and sales office in New York City, and its operations are centered in
both owned and leased facilities in Mt. Morris, Illinois and Marion, Ohio. Real
estate operations are headquartered in Rio Rancho, New Mexico in a modern office
building owned by the Company.
5
EMPLOYEES
The Company has approximately 925 employees as of July 1, 2001. The Company
provides retirement, health and other benefits to its employees and considers
its employee relations to be good.
Item 2. Properties
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The information contained in Item 1 of this report with respect to properties
owned by the Company is hereby incorporated herein by reference.
Item 3. Legal Proceedings
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In the civil action entitled United Magazine Company, Inc., et al. v. Murdoch
Magazines Distribution, Inc., et al., reported in the Registrant's Report on
Form 10-Q for the quarterly period ended October 31, 2000, motions by the
defendants to dismiss the Amended Complaint were granted, with leave to the
plaintiffs to replead specified claims. On or about June 21, 2001, a Second
Amended Complaint was filed which includes two claims against Kable (i)
violation of the Robinson-Patman Act, which generally prohibits discriminatory
pricing, and (ii) breach of fiduciary duty. The defendants have moved to dismiss
the Second Amended Complaint with the exception of claims by three plaintiffs
under one section of the Robinson-Patman Act. Those motions are pending.
The Registrant and/or its subsidiaries are involved in various other claims and
legal actions incident to their operations, which in the opinion of management,
based in part upon advice of counsel, will not materially affect the
consolidated financial position or results of operations of the Registrant and
its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
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Not Applicable.
Executive Officers of the Registrant
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Set forth below is certain information concerning persons who are the executive
officers of the Company.
Name Office Held/Principal Occupation for Past Five Years Age
---- ---------------------------------------------------- ---
James Wall Senior Vice President of the Company since 1991; 64
Chief Executive Officer of AMREP Southwest Inc.,
a wholly-owned subsidiary of the Company, since 1991.
Peter M. Pizza Vice President-Chief Financial Officer since May 2001; 50
Controller of the Company since 1995;
Vice President-Controller of the Company from 1997 to 2001.
Michael P. Duloc President and Chief Operating Officer of Kable News 45
Company, Inc. since November 2000;
President and Chief Operating Officer of Kable
Distribution Services from 1996 to November 2000.
The executive officers are elected or appointed by the Board of Directors of the
Company or its appropriate subsidiary to serve until the appointment or election
and qualification of their successors or their earlier death, resignation or
removal.
6
PART II
Item 5. Market for Registrant's Common Equity and
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Related Stockholder Matters
---------------------------
The Company's common stock is traded on the New York Stock Exchange under the
symbol "AXR". On July 26, 2001, there were approximately 2,250 holders of record
of the common stock. The Company has historically not paid cash dividends. The
range of high and low closing prices for the last two fiscal years by quarter is
presented below:
FIRST SECOND THIRD FOURTH
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
2001 $ 7.37 $ 4.94 $ 5.50 $ 4.56 $ 4.75 $ 4.00 $ 4.00 $ 3.60
2000 $ 7.25 $ 5.37 $ 6.56 $ 4.44 $ 5.12 $ 3.06 $ 5.94 $ 4.50
Item 6. Selected Financial Data
The following selected consolidated financial data of the Company is qualified
by reference to and should be read in conjunction with the consolidated
financial statements, related notes thereto and other financial data elsewhere
herein. These historical results are not necessarily indicative of the results
to be expected in the future.
(In thousands of dollars except per share amounts)
Year Ended April 30,
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2001(a) 2000 1999 (b) 1998 1997 (c)
-------------- --------------- --------------- --------------- -------------
Revenues $ 73,209 $ 119,833 $ 190,291 $ 171,368 $ 146,389
Net Income $ 2,557 $ 1,169 $ 7,537 $ 8,206 $ 7,282
Earnings Per Share -
Basic and Diluted $ 0.38 $ 0.16 $ 1.02 $ 1.11 $ 0.99
Total Assets $ 164,844 $ 172,436 $ 217,777 $ 229,768 $ 205,311
Notes Payable $ 44,260 $ 46,911 $ 74,665 $ 84,248 $ 79,824
Shareholders' Equity $ 89,781 $ 91,981 $ 91,577 $ 84,040 $ 75,834
Cash Dividends $ - $ - $ - $ - $ -
(a) Includes a tax benefit in the amount of $3,500,000 (the equivalent of $.52
per share) to reflect the settlement of 1993 and 1994 IRS tax examinations.
(b) Includes a tax benefit in the amount of $2,400,000 (the equivalent of $.33
per share) to reflect the settlement of 1990 through 1992 IRS tax
examinations.
(c) Includes a tax benefit in the amount of $6,250,000 (the equivalent of $.85
per share) to reflect the settlement of 1984 through 1989 IRS tax
examinations.
7
Item 7. Management's Discussion and Analysis of Financial
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Condition and Results of Operations
-----------------------------------
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
-------------------------------------------
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 and in
reports to the Company's shareholders and news releases. All statements that
express expectations, estimates, forecasts and 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 assumptions
which are difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in or suggested by such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
A wide range of factors could materially affect the Company's future performance
and financial and competitive position, including the following: (i) the level
of demand for land in Rio Rancho and the other markets in which the Company
sells land; (ii) the possibility of further adverse changes in the magazine
distribution system for magazines which the Company distributes; (iii) possible
future litigation and governmental proceedings; (iv) the availability of
financing and financial resources in the amounts, at the times and on the terms
required to support the Company's future business, including possible
acquisitions; (v) changes in U.S. financial markets, including significant
interest rate fluctuations; (vi) the failure to carry out marketing and sales
plans; (vii) the failure to successfully integrate acquired business, if any,
into the Company without substantial costs, delays or other operational or
financial problems; and (viii) changes in economic or business conditions,
including general economic and business conditions that are less favorable than
expected.
This list of factors that may affect the Company's future performance and its
financial and competitive position and also the accuracy of forward-looking
statements is illustrative, but by no means exhaustive. Accordingly, all
forward-looking statements should be evaluated with the understanding of their
inherent uncertainty.
RESULTS OF OPERATIONS
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Year Ended April 30, 2001 ("2001" ) Compared to Year Ended April 30, 2000
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("2000")
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Consolidated revenues for the year ended April 30, 2001 were $73.2 million
compared to $119.8 million for the year ended April 30, 2000. This reduction in
consolidated revenues in 2001 was principally due to the decrease in total real
estate revenues from $62.7 million in 2000 to $21.0 million in 2001, resulting
from the previously announced restructuring of the Company's real estate
operations, including the completion of the wind-down of homebuilding
activities.
Revenues from home and condominium sales decreased from $30.1 million in 2000
(representing 193 homes delivered) to $4.6 million in 2001 (representing 18
homes delivered) as the Company completed delivery of nearly all homes available
for sale. In addition, results for 2001 and 2000 include approximately $1.1
million and $3.2 million, respectively, of impairment and other charges
associated with the wind-down of homebuilding projects. There was no other
significant effect on net income resulting from the withdrawal from homebuilding
between these periods, however, as the decline in homebuilding revenues and
related gross profits in 2001 was offset by a moderately higher decrease in
homebuilding-related commissions, selling and general and administrative
expenses.
8
Revenues from land sales decreased from $32.6 million in 2000 to $16.4 million
in 2001, primarily as a result of decreased sales of residential lots to
homebuilders in markets outside of New Mexico as well as a decrease of
commercial and industrial property sales in New Mexico. During 2000, as part of
its restructuring plan to sell its landholdings outside of New Mexico, the
Company closed several transactions in Colorado involving approximately 650 lots
at an aggregate sales price of $10.2 million, to other homebuilders, whereas
there were no similar transactions outside of New Mexico in 2001. In addition,
revenues from commercial and industrial property sales declined from $6.7
million in fiscal 2000 to $1.0 million in fiscal 2001 due in part to the
availability of competing commercial sites. The average gross profit percentage
on land sales increased from 36% in 2000 to 47% in 2001, primarily because
substantially all of the current year land sales were from the New Mexico
market, where gross profits have historically been higher than in other markets.
In addition, results for 2001 and 2000 include approximately $1.0 million and
$.6 million, respectively, of impairment and other charges associated with the
restructuring of real estate operations. Revenues and related gross profits from
land sales can vary from period to period as a result of many factors, including
the nature and timing of specific transactions, and thus prior results are not
necessarily an indication of amounts that may be expected to occur in future
periods.
Total revenues from magazine circulation operations decreased approximately $4.0
million (8%) in 2001. Revenues from Fulfillment Services decreased approximately
$2.0 million (5%) due primarily to the loss of sweepstakes processing business
for one customer, which was partly offset by increased revenues from core
fulfillment and other continuing services to other customers. Revenues from
Distribution Services also decreased approximately $2.0 million (13%) in 2001,
primarily as the result of customer losses and decreased magazine sales for
existing customers, which reflects a continuation of adverse business conditions
within the wholesaler and publisher ranks that has existed for the past several
years. Industry sales decreased approximately 7% in the 12 month period ended
December 2000, and certain publishers, including clients of Kable, have either
vacated newsstand distribution or discontinued the production of a number of
titles, thus adversely affecting overall sales. In addition, Kable determined
that certain wholesaler and publisher customers had been impacted by these
industry changes and were encountering financial difficulties and, accordingly,
provided additional allowances for doubtful accounts of approximately $2.3
million in 2001 and $1.8 million in 2000.
Magazine circulation operating expenses decreased approximately $3.1 million
(7%) in 2001 compared to the prior year, with such decrease being directly
related to lower revenues. Real estate commissions and selling expenses
decreased $2.5 million (67%) as a direct result of the wind-down of homebuilding
operations. Real estate and corporate general and administrative expenses also
decreased $1.9 million (32%) due to the effects of the Company's real estate
restructuring and related downsizing of administrative functions. General and
administrative costs of magazine circulation operations increased approximately
$300,000 (4%) over the prior year due to increased technology staffing costs and
legal and consulting fees incurred in connection with the modification of
Kable's credit arrangement. Interest expense-net decreased $200,000 (6%) as a
result of lower borrowing requirements in the real estate business which saved
$300,000, while interest related to magazine circulation operations increased by
$100,000 due to higher interest rates during the earlier months of 2000.
During the quarter ended January 31, 2001, the Company received final
notification from the Internal Revenue Service ("IRS") of the amount due with
respect to certain outstanding tax issues related to IRS examinations of the
Company's 1993 and 1994 tax returns. The Company paid approximately $700,000 in
March 2001 representing all Federal taxes and interest related to this matter,
which is less than the amount which the Company had previously accrued on
account thereof. At the same time the Company received final notification from
the IRS that the outstanding tax issues related to IRS examinations of the
Company's 1995 and 1996 tax returns were resolved. As a result, the Company
recognized a tax benefit of $3.5 million in the quarter ended January 31, 2001.
In addition, the Company has reclassified the remaining liability balance of
"Taxes Payable-Amounts subsequently due," which principally represents an
estimate of additional state taxes and interest due resulting from adjustments
on IRS audits, to "Taxes Payable-Amounts due within one year."
9
Year Ended April 30, 2000 ("2000") Compared to Year Ended April 30, 1999
--------------------------------------------------------------------------------
("1999")
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Consolidated revenues for the year ended April 30, 2000 decreased to $119.8
million from $190.3 million in 1999, principally reflecting the effects of the
restructuring of real estate operations begun in the fourth quarter of 1999 and
continuing into 2000.
Revenues from real estate operations decreased to $62.7 million in 2000 from
$127.0 million in 1999, principally due to decreased housing sale revenues. This
revenue reduction reflected the decision made by the Company in 1999 to
wind-down homebuilding operations in all of its markets, to sell its
landholdings in Colorado and California, and to concentrate on more rapidly
developing its substantial land holdings in Rio Rancho, New Mexico.
Revenues from housing sales decreased to $30.1 million in 2000 from $90.9
million in 1999 which resulted from the decision to wind-down homebuilding
operations in all markets, as evidenced by the decrease in the number of home
deliveries from 711 in 1999 to 193 in 2000. Revenues and related gross profit
from land sales decreased by approximately $3.4 million and $2.6 million,
respectively, in 2000 from 1999, primarily due to a decrease in commercial and
industrial property land sales. The average gross profit percentage on land
sales decreased from 39% in 1999 to 36% in 2000 because certain sales of
residential land to builders in 2000 were from different projects and at lower
gross profit percentages than sales in the prior year. In addition, the results
for 2000 and 1999 include impairment and other restructuring-related charges of
approximately $3.8 million and $3.3 million, respectively, associated with the
wind-down of homebuilding activities and the restructuring of real estate
operations.
Revenues from magazine circulation operations, consisting of both magazine
distribution and fulfillment operations, decreased approximately $4.8 million
(8%) from 1999 to 2000. Revenues from the Fulfillment Services division
decreased approximately $400,000 (1%) from 1999 due primarily to a lower volume
of business in sweepstakes processing for one large customer. Revenues from
Distribution Services decreased approximately $4.4 million (22%) in the same
period as a result of decreased newsstand magazine sales as well as a reduction
in gross billings due to the loss of certain publisher clients. In addition,
Kable continued to feel the effects of the realignment of industry relationships
in the distribution of magazines which started in 1996 and which subsequently
led to a substantial reduction in the number of wholesalers. In many cases, this
situation adversely impacted wholesaler profits and liquidity, which resulted in
wholesaler consolidations and sometimes bankruptcies. Due to concerns about the
financial strength of certain customers, Kable increased its reserve for
uncollectible accounts by approximately $1.8 million in 2000 and $5.0 million in
1999. In addition, Kable's operating expenses in 2000 included a charge of
approximately $735,000 resulting from the impairment of assets no longer
required due to the impending loss of sweepstakes processing business for a
large fulfillment client. As a result of these factors, magazine circulation
operating expenses decreased $4.0 million (8%) in fiscal 2000 compared to the
prior year, primarily due to the effect of the reduced bad debt reserve offset
in part by the impairment charge in the sweepstakes processing business.
Revenues from "Interest and other operations" decreased from 1999 to 2000
principally because the prior year included amounts recorded as management fees
and equity income from several joint ventures in which the Company participated.
Real estate commissions and selling expenses decreased by $4.0 million (52%) and
real estate and corporate general and administrative expenses decreased by $1.6
million (21%) from 1999 to 2000, principally as a result of the restructuring of
the real estate operations. General and administrative costs of magazine
circulation operations increased by approximately $300,000 (4%) in the same
period, reflecting increased legal costs associated with the investigation of
new business opportunities.
Interest expense - net decreased from approximately $4.7 million in 1999 to
approximately $2.9 million in 2000. Interest related to real estate operations
decreased as a result of the reduction of real estate debt through the use of
proceeds generated from land sales, while interest related to magazine
10
circulation operations decreased due to lower borrowing requirements associated
with lower revenues and related accounts receivable balances in the Newsstand
division.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During the past several years the Company has financed its operations from
internally generated funds and from borrowings under its various lines-of-credit
and other loan agreements.
Cash Flows from Financing Activities
------------------------------------
The Company's subsidiaries have several line of credit arrangements with several
financial institutions, which are collateralized by various assets. Based upon
collateral availability, the Company had an aggregate borrowing availability of
$40.7 million at April 30, 2001 against which $37.8 million was borrowed.
Kable had a $40 million line-of-credit with a group of banks which, as a result
of a modification agreement entered into in March 2001, was reduced to $30
million and was fully borrowed at April 30, 2001. At April 30, 2001, Kable was
not in compliance with a financial covenant of the modified agreement and
subsequently agreed to another modification in June 2001, which provided for a
further reduction of the commitment amount to $25.6 million on July 31, 2001,
increased the interest rate from prime plus 1/2% to prime plus 1% and extended
the maturity date until September 30, 2001. In addition, subject to the Company
repaying $4.4 million of intercompany debt due to Kable by September 30, 2001
the loan would be automatically extended to May 1, 2002 with the commitment
amount reduced to $23.5 million at December 31, 2001. This condition was
satisfied in August 2001 and the loan extended until May 1, 2002. The loan is
collateralized 125% or more by certain Kable accounts receivable (increasing to
142% at December 31, 2001) and prohibits the payment of dividends by, and the
making of loans from, Kable to the Company. The Registrant has guaranteed
Kable's repayment obligations under this arrangement. Management believes that
the line-of-credit, as modified, is sufficient for Kable's requirements through
May 1, 2002.
Kable has been advised by its lending group that participants representing
approximately 50% of the committed credit do not wish to participate in an
extension beyond May 1, 2002. The Company has initiated discussions with the
lead bank to explore a modification and/or reformulation of the lending group,
and is also in discussions with other potential lenders; however, no agreements
have been reached at this time and there are no assurances that Kable will be
able to renegotiate or extend the terms of the credit agreement or find
replacement lenders beyond May 1, 2002.
The Company has several loans with one financial institution to support real
estate operations. These loans had a total maximum amount available of
approximately $10.7 million, at April 30, 2001, of which borrowings of
approximately $7.8 million were outstanding. These borrowings, which have
maturities ranging from 2001 through 2003, bear interest at the prime rate (7.5%
at April 30, 2001), are collateralized by certain real estate assets and are
subject to certain financial performance and other covenants. The Chief
Executive Officer of the real estate subsidiary, who is also a member of the
Board of Directors of the Company, serves as a member of the board of directors
of the financial institution from which these loans were obtained. Management
believes that its real estate borrowings are sufficient for its requirements.
Cash Flows From Operating Activities
------------------------------------
Real estate inventories amounted to $71.2 million at April 30, 2001 compared to
$70.5 million at April 30, 2000. This change is net of a $4.4 million decrease
in inventories outside of New Mexico, where the Company is winding-down its
activities, and a $5.1 million increase in New Mexico, where several sites are
presently under development.
Receivables from magazine circulation operations decreased by approximately $7.8
million compared to the prior year primarily as the result of a reduction in the
level of activity of newsstand operations.
11
Cash Flows From Investing Activities
------------------------------------
Capital expenditures have remained comparable on a year to year basis. The
Company believes that it has adequate financing capability to provide for
anticipated capital expenditures.
The Company has from time to time reacquired its shares to be held as treasury
stock as part of a stock repurchase program. During fiscal 2000, the Company
reacquired 143,000 of its common shares at a cost of approximately $857,000.
During fiscal 2001, the Board of Directors authorized an additional repurchase
of stock by means of a self-tender "Dutch Auction" for 725,000 shares of the
Company's stock at a price not to exceed $7.00 per share and not lower than
$5.25 per share. As a result of this program and other repurchases, the Company
reacquired a total of approximately 668,000 shares in fiscal 2001, at an
aggregate cost of approximately $4.8 million.
As discussed in Note 8 to the consolidated financial statements, during 2001 the
Company reached an agreement with the IRS to resolve all issues resulting from
the IRS's examination of tax years 1993 through 1996, and paid all tax
liabilities due. In previous years, the Company had established a liability for
Taxes Payable (including anticipated interest thereon through the expected date
of payment) to cover the expected amount due for this matter, as well as other
IRS examinations for tax years 1984 through 1992 (which have all since been
resolved). This examination resulted in an amount of tax payable that was less
than the Company had believed would be required and accrued, and accordingly the
Company reduced the amount of Taxes Payable during the third quarter of 2001 by
$3.5 million. In addition, the Company has reclassified the remaining liability
balance of "Taxes Payable-Amounts subsequently due," which represents an
estimate of state taxes and interest due resulting from adjustments to the
aforementioned IRS audits, to "Taxes Payable - Amounts due within one year." For
tax years beginning in 1996, the Company believes its taxes have been calculated
in a manner consistent with IRS regulations and in the manner in which tax
examinations for the years 1984 through 1995 have been completed.
SEGMENT INFORMATION
-------------------
Information by industry segment is presented in Note 14 to the consolidated
financial statements. This information has been prepared in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Disclosures", which requires that industry
segment information be prepared in a manner consistent with the manner in which
financial information is prepared and evaluated by management for making
operating decisions. A number of assumptions and estimations are required to be
made in the determination of segment data, including the need to make certain
allocations of common costs and expenses among segments. On an annual basis,
management has evaluated the basis upon which costs are allocated, and has
periodically made revisions to these methods of allocation. Accordingly, the
determination of "pretax income (loss) contribution" of each segment as
summarized in Note 14 to the consolidated financial statements is presented for
informational purposes, and is not necessarily the amount that would be reported
if the segment were an independent company.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"),
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. The
Company adopted SFAS No. 133 in fiscal 2001. The Company does not engage in
investments or activity of this nature, and thus SFAS No. 133 had no effect on
its consolidated financial statements.
12
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) 101, "Revenue Recognition," which outlines the basic criteria
that must be met to recognize revenue and provides guidance for presentation of
revenue and for disclosure related to revenue recognition policies in financial
statements filed with the Securities and Exchange Commission. The Company
conformed to the guidelines of this pronouncement in 2001, and there was no
effect on the financial position or results of operations of the Company.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" ("SFAS No. 141") and SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that the purchase
method is used for all business combinations initiated after June 30, 2001 and
prohibits the use of the pooling of interest method. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment approach.
The Company will be required to adopt SFAS No. 142 on May 1, 2002, however,
early adoption as of May 1, 2001 is permitted. The Company has not amortized
goodwill because it arose in connection with an acquisition made prior to the
effective date of ABP No. 17 for which, in the opinion of management, there has
been no diminution of value. The Company has not yet evaluated the effect of
SFAS No. 142 on its consolidated financial statements.
IMPACT OF INFLATION
-------------------
Operations of the Company can be impacted by inflation. Within the industries in
which the Company operates, inflation can cause increases in the cost of
materials, services, interest and labor. Unless such increased costs are
recovered through increased sale prices, operating margins will decrease. Within
the land development industry, the Company encounters particular risks. A large
part of the Company's real estate sales are to homebuilders who face their own
inflationary concerns that rising housing costs, including interest costs, may
substantially outpace increases in the income of potential purchasers and make
it difficult for them to finance the purchase of a new home or sell their
existing home. If this situation were to exist, the demand for the Company's
land by these homebuilder customers could decrease. In general, in prior years,
interest and price increases have been commensurate with the general rate of
inflation in the Company's markets, and the Company has not found the inflation
risk to be a significant problem in its real estate or magazine circulation
operations.
Item 7(A). Quantitative and Qualitative Disclosures About Market Risk
---------- ----------------------------------------------------------
The primary market risk facing the Company is interest rate risk on its
long-term debt. The Company does not hedge interest rate risk using financial
instruments. The Company is also subject to foreign currency risk, but this risk
is not material. The following table sets forth as of April 30, 2001 the
Company's long term debt obligations by scheduled maturity, weighted average
interest rate and estimated Fair Market Value ("FMV") (amounts in thousands):
Year ended April 30,
There- FMV @
2002 2003 2004 2005 2006 after Total 4/30/01
---- ---- ---- ---- ---- ----- ----- -------
Fixed rate debt $3,285 $ 327 $ 777 $ 175 $ 147 $ 1,452 $ 6,163 $ 6,284
Weighted average
interest rate 10.5% 8.7% 7.9% 8.3% 7.9% 7.9% 9.3% -
Variable rate debt $6,205 $31,892 $ - $ - $ - $ - $38,097 $38,097
Weighted average
interest rate 8.3% 7.5% - - - - 8.3% -
13
Item 8. Financial Statements and Supplementary Data
------- -------------------------------------------
Report of Independent Public Accountants
----------------------------------------
To AMREP Corporation:
We have audited the accompanying consolidated balance sheets of AMREP
Corporation (an Oklahoma corporation) and subsidiaries as of April 30, 2001 and
2000, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended April 30, 2001.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AMREP Corporation and
subsidiaries as of April 30, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
2001 in conformity with accounting principles generally accepted in the United
States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II accompanying the consolidated
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
August 13, 2001
14
AMREP CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED BALANCE SHEETS (Page 1 of 2)
-----------------------------------------
APRIL 30, 2001 AND 2000
-----------------------
(Dollar amounts in thousands)
ASSETS 2001 2000
------ ---------- ----------
CASH AND CASH EQUIVALENTS $ 15,941 $ 12,934
RECEIVABLES, net:
Real estate operations 7,070 9,108
Magazine circulation operations 37,533 45,366
---------- ----------
44,603 54,474
REAL ESTATE INVENTORY 71,194 70,548
PROPERTY, PLANT AND EQUIPMENT,
at historical cost, net of accumulated
depreciation and amortization 16,467 17,852
OTHER ASSETS, net of accumulated amortization 11,448 11,437
EXCESS OF COST OF SUBSIDIARY
OVER NET ASSETS ACQUIRED 5,191 5,191
---------- ----------
TOTAL ASSETS $ 164,844 $ 72,436
========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
15
AMREP CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED BALANCE SHEETS (Page 2 of 2)
-----------------------------------------
APRIL 30, 2001 AND 2000
-----------------------
(Dollar amounts in thousands, except par value)
LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000
------------------------------------ ---------- ----------
ACCOUNTS PAYABLE, DEPOSITS AND
ACCRUED EXPENSES $ 27,326 $ 25,920
NOTES PAYABLE:
Amounts due within one year 9,490 15,599
Amounts subsequently due 34,770 31,312
---------- ----------
44,260 46,911
TAXES PAYABLE:
Amounts due (receivable) within one year 1,595 (1,002)
Amounts subsequently due (including interest) - 5,999
---------- ----------
1,595 4,997
DEFERRED INCOME TAXES 1,882 2,627
---------- ----------
TOTAL LIABILITIES 75,063 80,455
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value;
shares authorized--20,000,000;
shares issued - 7,399,677 in 2001
and 7,398,677 in 2000 740 740
Capital contributed in excess of par value 44,935 44,930
Retained earnings 49,815 47,258
Treasury stock, at cost; 826,091 shares
at April 30, 2001 and 158,327 shares
at April 30, 2000 (5,709) (947)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 89,781 91,981
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 164,844 $ 172,436
========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
16
AMREP CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Amounts in thousands, except per share amounts)
Year Ended April 30,
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
REVENUES:
Magazine circulation operations $ 48,570 $ 52,548 $ 57,354
Real estate operations-
Home and condominium sales 4,611 30,079 90,947
Land sales 16,386 32,637 36,033
------------ ------------ ------------
20,997 62,716 126,980
Interest and other operations 3,642 4,569 5,957
------------ ------------ ------------
73,209 119,833 190,291
------------ ------------ ------------
COSTS AND EXPENSES:
Real estate cost of sales-
Home and condominium sales 6,083 28,735 79,494
Land sales 9,588 21,084 21,869
Operating expenses-
Magazine circulation operations 41,128 44,184 48,181
Real estate commissions and selling 1,218 3,670 7,689
Other operations 2,836 4,560 3,960
General and administrative-
Real estate operations and corporate 4,121 6,026 7,643
Magazine circulation operations 6,934 6,680 6,408
Interest, net 2,771 2,946 4,743
Restructuring costs - - 2,108
------------ ------------ ------------
74,679 117,885 182,095
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ( 1,470) 1,948 8,196
BENEFIT (PROVISION) FOR INCOME TAXES 4,027 (779) (659)
------------ ------------ ------------
NET INCOME $ 2,557 $ 1,169 $ 7,537
============ ============ =============
EARNINGS PER SHARE - BASIC AND DILUTED $ .38 $ .16 $ 1.02
============ ============ =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,681 7,285 7,369
============ ============ =============
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
17
AMREP CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
(Amounts in thousands)
Capital
Contributed
Common Stock In Excess Treasury
of Retained Stock at
Shares Amount Par Value Earnings Cost Total
------ ------ ------------ -------- ---------- --------
BALANCE, April 30, 1998 7,399 $ 740 $ 44,928 $ 38,552 $ (180) $ 84,040
Net income - - - 7,537 - 7,537
------ ------ ------------ -------- ---------- --------
BALANCE, April 30, 1999 7,399 740 44,928 46,089 (180) 91,577
Net income - - - 1,169 - 1,169
Purchase of treasury stock - - - - (857) (857)
Issuance of treasury stock - - 2 - 90 92
------ ------ ------------ -------- ---------- --------
BALANCE, April 30, 2000 7,399 740 44,930 47,258 (947) 91,981
Net income - - - 2,557 - 2,557
Purchase of treasury stock - - - - (4,762) (4,762)
Exercise of stock options 1 - 5 - - 5
------ ------ ------------ -------- ---------- --------
BALANCE, April 30, 2001 7,400 $ 740 $ 44,935 $ 49,815 $ (5,709) $ 89,781
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
18
AMREP CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Amounts in thousands)
Year Ended April 30,
------------------------------------
2001 2000 1999
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,557 $ 1,169 $ 7,537
Adjustments to reconcile net income
to net cash provided by operating activities-
Depreciation and amortization 3,033 4,104 4,830
Non-cash credits and charges:
Loss (gain) on disposition of fixed assets (211) 167 218
Provision for doubtful accounts 2,265 1,806 5,025
Impairment of long-lived assets 2,265 4,543 1,213
Pension benefit accrual (603) (573) (487)
Issuance of treasury stock charged to expense - 92 -
Changes in assets and liabilities,
excluding the effect of acquisition-
Receivables 7,606 8,388 (1,178)
Real estate inventory (2,085) 19,164 8,968
Other real estate investments - 1,089 (150)
Other assets (634) 1,145 (385)
Accounts payable, deposits and accrued expenses 1,406 (11,708) (3,019)
Taxes payable (3,402) (9,341) (5,352)
Deferred income taxes (745) 1,612 (1,573)
---------- ---------- ----------
Net cash provided by operating activities 11,443 21,657 15,647
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,045) (2,659) (3,305)
Proceeds from disposition of property, plant and equipment 1,017 227 277
Amount received for acquisition - 873 -
---------- ---------- ----------
Net cash used by investing activities (1,028) (1,559) (3,028)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt financing 24,843 25,424 61,647
Principal debt payments (27,494) (55,284) (71,230)
Exercise of Stock Option 5 - -
Purchase of treasury stock (4,762) (857) -
---------- ---------- ----------
Net cash used by financing activities (7,408) (30,717) (9,583)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,007 (10,619) 3,036
CASH AND CASH EQUIVALENTS, beginning of year 12,934 23,553 20,517
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year $ 15,941 $ 12,934 $ 23,553
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid - net of amounts capitalized $ 4,354 $ 3,759 $ 4,802
========== ========== ==========
Income taxes paid $ 1,173 $ 8,403 $ 7,716
========== ========== ==========
Income taxes received $ 1,073 $ 40 $ 60
========== ========== ==========
Non Cash Transaction
Transfer to Inventory from Fixed Assets $ 317 $ - $ -
========== ========== ==========
Acquisition of real estate assets:
Identifiable assets acquired $ - $ 1,408 $ -
Liabilities assumed - 2,281 -
---------- ---------- ----------
Net cash (received) paid for acquisition $ - $ (873) $ -
========== ========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
19
AMREP CORPORATION AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES:
-------------------------------------------------------------------
Organization and principles of consolidation
--------------------------------------------
The consolidated financial statements include the accounts of AMREP Corporation,
an Oklahoma corporation, and its subsidiaries (individually and collectively, as
the context requires, the "Company"). The Company, through its principal
subsidiaries, is engaged in two unrelated businesses. Kable News Company, Inc.
("Kable") operates in the magazine distribution and fulfillment services
industries, and AMREP Southwest Inc. operates predominately in the real estate
industry, principally in New Mexico.
The Company's investments in partnerships (and similar entities), in which the
Company's interest is 50% or less, or in which the Company does not effectively
control the joint venture, are accounted for by the equity method. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The consolidated balance sheets are presented in an unclassified format, since
the Company has substantial operations in the real estate industry and its
operating cycle is greater than one year.
Revenue recognition
-------------------
Revenues from magazine circulation operations include revenues from the
distribution of periodicals and subscription fulfillment activities.
Distribution revenues represent commissions earned from the distribution of
publications for client publishers which are recorded at the time the
publications go on sale. The publications generally are sold on a fully
returnable basis, which is in accordance with prevailing trade practice.
Accordingly, the Company provides for estimated returns by charges to income
which are based on experience. Revenues from subscription fulfillment activities
represent fees earned from the maintenance of computer files for customers,
which are billed and earned monthly, and other fulfillment activities including
sweepstakes mail processing, customer telephone support, product fulfillment,
and graphic arts and lettershop services, all of which are billed and earned as
the services are provided.
Land sales are recognized when the parties are bound by the terms of the
contract, all consideration (including adequate cash) has been exchanged and
title and other attributes of ownership have been conveyed to the buyer by means
of a closing. Profit is recorded either in its entirety or on the installment
method depending upon, among other things, the ability to estimate the
collectibility of the unpaid sales price. In the event the buyer defaults on the
obligation, the property is taken back and recorded as inventory at the unpaid
receivable balance, net of any deferred profit, but not in excess of fair market
value less estimated costs to sell.
Sales of homes and condominiums are recognized when title and other attributes
of ownership have been conveyed to the buyer by means of a closing.
Cash and cash equivalents
-------------------------
Cash equivalents consist of short term, highly liquid investments which have an
original maturity of ninety days or less, and that are readily convertible into
cash.
20
Real estate inventory
---------------------
Land and improvements for completed real estate projects, as well as those held
for future development or sale, are stated at the lower of accumulated cost
(except in certain instances where property is repossessed as discussed above
under "Revenue recognition") which includes the development cost, certain
amenities, capitalized interest and capitalized real estate taxes, or fair
market value less estimated costs to sell.
Homes and condominiums completed or under construction are stated at the lower
of accumulated cost, including interest costs capitalized during construction,
or fair market value less estimated costs to sell.
Property, plant and equipment
-----------------------------
Items capitalized as part of property, plant and equipment are recorded at cost.
Expenditures for maintenance and repair and minor renewals are charged to
expense as incurred, while those expenditures which improve or extend the useful
life of existing assets are capitalized. Upon sale or other disposition of
assets, their cost and the related accumulated depreciation or amortization are
removed from the accounts and the resulting gain or loss, if any, is reflected
in operations.
Depreciation and amortization of property, plant and equipment are provided
principally by the straight-line method at various rates calculated to amortize
the book values of the respective assets over their estimated useful lives which
range from 5 to 50 years for utility plant and equipment and 3 to 40 years for
all other property, plant and equipment.
Excess of cost of subsidiaries over net assets acquired
-------------------------------------------------------
The excess of amounts paid for business acquisitions over the net fair value of
the assets acquired and liabilities assumed ("goodwill") is carried as an asset.
Goodwill arose in connection with the acquisition of Kable during 1969 and is
not being amortized to operations, since this acquisition was made prior to the
effective date of Accounting Principles Board Opinion ("APB") No. 17 and
management is of the opinion that there has been no diminution of value.
Long-lived assets
-----------------
Long-lived assets, including real estate inventory and goodwill, are evaluated
when indicators of impairment are present. Provisions for possible losses are
recorded when undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount. See Notes 3 and 4.
Income taxes
------------
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities, and are measured by
using currently enacted tax rates expected to apply to taxable income in the
years in which those differences are expected to reverse.
Earnings per share
------------------
Basic earnings per share is based on the weighted average number of common
shares outstanding during each year. Diluted earnings per share is computed
assuming the issuance of common shares for all dilutive stock options
outstanding (using the treasury stock method) during the reporting period.
Stock options
-------------
The Company accounts for stock option grants in accordance with APB No. 25,
"Accounting for Stock Issued to Employees." The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation" (see Note 7).
21
Comprehensive income
--------------------
The Company is required to report components of comprehensive income in an
annual financial statement that is displayed with the same prominence as other
financial statements. The Company's comprehensive income and net income are the
same.
Management's estimates and assumptions
--------------------------------------
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. The significant estimates that
affect the financial statements include, but are not limited to, inventory
valuation, magazine returns, the recoverability of long-term assets and
amortization periods. Actual results could differ from those estimates.
New accounting pronouncements
-----------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"),
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. The
Company adopted SFAS No. 133 in fiscal 2001. The Company does not engage in
investments or activity of this nature, and thus SFAS No. 133 had no effect on
its consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) 101, "Revenue Recognition," which outlines the basic criteria
that must be met to recognize revenue and provides guidance for presentation of
revenue and for disclosure related to revenue recognition policies in financial
statements filed with the Securities and Exchange Commission. The Company
conformed to the guidelines of this pronouncement in fiscal 2001, and there was
no effect on the financial position or results of operations of the Company.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" ("SFAS No. 141") and SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that the purchase
method is used for all business combinations initiated after June 30, 2001 and
prohibits the use of the pooling of interest method. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment approach.
The Company will be required to adopt SFAS No. 142 on May 1, 2002, however,
early adoption as of May 1, 2001 is permitted. The Company has not amortized
goodwill because it arose in connection with an acquisition made prior to the
effective date of ABP No. 17 for which, in the opinion of management, there has
been no diminution of value. The Company has not yet evaluated the effect of
SFAS No. 142 on its consolidated financial statements.
Financial statement presentation
--------------------------------
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the 2001 presentation.
22
(2) RECEIVABLES:
------------
Receivables consist of: April 30,
---------------------------------
2001 2000
-------------- --------------
(Thousands)
Real estate operations-
Mortgage and other receivables $ 7,243 $ 9,469
Allowance for doubtful accounts (173) (361)
-------------- --------------
$ 7,070 $ 9,108
Magazine circulation operations-
Accounts receivable (maturing
within one year) $ 87,946 $ 109,994
Allowances for-
Estimated returns (49,201) (62,978)
Doubtful accounts (1,212) (1,650)
-------------- --------------
$ 37,533 $ 45,366
Mortgage and other receivables bear interest at rates ranging from 8.0% to 12.0%
and result primarily from land sales. Magazine circulation operations
receivables collateralize a general purpose line-of-credit utilized for the
magazine circulation operations (see Note 6).
The Company extends credit to various companies in the real estate and magazine
circulation industries which may be affected by changes in economic or other
external conditions. Financial instruments that may potentially subject the
Company to a significant concentration of risk primarily consist of trade
accounts receivable from wholesalers in the magazine distribution industry. As
industry practices allow, the Company's policy is to manage its exposure to
credit risk through credit approvals and limits and, where appropriate, to be
secured by collateral. The Company also provides an allowance for doubtful
accounts for potential losses based upon factors surrounding the credit risk of
specific customers, historical trends and other financial and non-financial
information. In recent years, as a result of changes within the magazine
distribution industry there has been a major consolidation and reduction in the
number of wholesalers to whom Kable distributes magazines and, as a result, at
April 30, 2001 approximately 40% of Kable's accounts receivable were due from
three customers. In addition, Kable determined that certain wholesaler and
publisher customers had been impacted by these industry changes and were
encountering financial difficulties and, accordingly, provided additional
allowances for doubtful accounts of approximately $2.3 million in 2001 and $1.8
million in 2000.
Maturities of principal on real estate receivables at April 30, 2001 are as
follows (in thousands): 2002 - $2,963; 2003 - $2,824; 2004 - $632; 2005 - $268;
2006 - $4; 2007 and thereafter - $552.
(3) REAL ESTATE INVENTORY:
----------------------
Real estate inventory consists of:
April 30,
---------------------------------
2001 2000
-------------- --------------
(Thousands)
Land and improvements held for sale
or development $ 70,501 $ 64,571
Homes and condominiums -
land and construction costs 693 5,694
Other - 283
-------------- --------------
$ 71,194 $ 70,548
============== ==============
Accumulated capitalized interest costs included in real estate inventory at
April 30, 2001 and 2000 were $4,867,000 and $3,934,000, respectively. Interest
costs capitalized during 2001, 2000 and 1999 were $1,533,000, $1,371,000 and
23
$3,348,000, respectively. Accumulated capitalized real estate taxes included in
the inventory of land and improvements at April 30, 2001 and 2000 were
$4,751,000 and $4,501,000, respectively. Real estate taxes capitalized during
2001, 2000 and 1999 were $425,000, $182,000 and $217,000, respectively.
Previously capitalized interest costs and real estate taxes charged to real
estate cost of sales were $775,000, $2,375,000 and $4,903,000 in 2001, 2000 and
1999, respectively.
During 2001, 2000 and 1999, the Company determined that certain real estate
assets were impaired primarily due to conditions associated with the
restructuring of real estate operations. The Company recognized an impairment
for long-lived assets of approximately $1,750,000, $3,800,000 and $1,200,000
based upon an estimate of the future cash flows to be generated by those assets
compared to the remaining carrying value of those assets.
In prior years the Company had participated in a number of real estate joint
ventures in which it did not have management control. Condensed financial
information concerning these unconsolidated joint venture activities for the
year ended April 30, 2000 is as follows: total assets - $429,000; total
liabilities - $146,000; equity of the Company - $283,000; revenues -
$27,661,000; expenses - $26,779,000; income - $882,000 of which the Company's
share was $353,000 (including management fees). As part of the restructuring of
its real estate operations, the Company substantially completed the development,
construction and sales for those joint ventures in which it had participated
during 2000, and, accordingly, there were no significant operations during 2001
and no significant assets or liabilities remained in these joint ventures at
April 30, 2001.
Substantially all of the Company's real estate assets are located in New Mexico.
As a result of this geographic concentration, the Company could be affected by
economic conditions in this region.
(4) PROPERTY, PLANT AND EQUIPMENT:
------------------------------
Property, plant and equipment consists of:
April 30,
---------------------------------
2001 2000
-------------- --------------
(Thousands)
Land, buildings and improvements $ 9,588 $ 10,907
Furniture and fixtures 12,170 11,140
Utility plant and equipment 9,859 9,020
Other 136 817
-------------- ---------------
31,753 31,884
Accumulated depreciation and
amortization (15,286) (14,032)
-------------- ---------------
$ 16,467 $ 17,852
============== ===============
During 2000, the Company determined that certain property and specialized
equipment utilized in its fulfillment operations would no longer be utilized due
to the impending loss of a large customer, and the Company recognized an
impairment for long-lived assets of approximately $735,000 based upon an
estimate of the future cash flows to be generated by those assets compared to
the remaining carrying value of those assets. During 2001 the Company provided
an impairment reserve of $500,000 for the potential loss on the sale of certain
property, plant and equipment.
Depreciation charged to operations amounted to $1,807,000, $2,230,000, and
$2,109,000 in 2001, 2000, and 1999, respectively.
24
(5) OTHER ASSETS:
-------------
Other assets consist of:
April 30,
-------------------------------
2001 2000
-------------- -------------
(Thousands)
Prepaid expenses and other deferred charges, net $ 5,118 $ 5,274
Purchased magazine distribution contracts,
net of accumulated amortization of $3,316 and
$2,889 in 2001 and 2000, respectively 963 1,390
Security and other deposits 2,635 2,301
Prepaid pension (Note 7) 2,623 2,020
Other 109 452
-------------- -------------
$ 11,448 $ 11,437
============== =============
Included in other assets at April 30, 2001 is Kable's 50% interest of $400,000
in a joint venture accounted for the equity method. Total assets of the joint
venture at April 30, 2001 were $880,000, and Kable's share of the joint
venture's start-up losses of $234,000 in 2001 was $117,000, which is included in
Operating expenses.
Amortization related to deferred charges and distribution contracts was
$1,226,000, $1,874,000, and $1,622,000 for the years ended April 30, 2001, 2000
and 1999, respectively.
(6) DEBT FINANCING:
---------------
Debt financing consists of:
April 30,
-------------------------------
2001 2000
------------ ------------
(Thousands)
Notes payable -
Line-of-credit borrowings -
Real estate operations and other $ 7,758 $ 9,991
Magazine circulation operations 29,975 27,713
Other 105 521
------------ ------------
$ 44,260 $ 46,911
============ ============
Maturities of principal on notes outstanding at April 30, 2001 are as follows
(in thousands): 2002 - $9,490; 2003 - $32,219; 2004 - $777; 2005 - $175; 2006 -
$147; 2007 and thereafter - $1,452.
Line-of-credit borrowings
-------------------------
The Company has several loans with one financial institution to support real
estate operations. These loans have a total maximum amount available of
approximately $10.7 million, of which borrowings of approximately $7.8 million
were outstanding as of April 30, 2001. These borrowings, which have maturities
ranging from 2002 through 2007, bear interest at the prime rate (7.5% at April
30, 2001), are collateralized by certain real estate assets and are subject to
certain financial performance and other covenants. The Chief Executive Officer
of the real estate subsidiary, who is also a member of the Board of Directors of
the Company, serves as a member of the board of directors of the financial
institution from which these loans were obtained.
25
Kable had a $40 million line-of-credit with a group of banks which, as a result
of a modification of the agreement entered into in March 2001, was reduced to
$30 million and which was fully borrowed at April 30, 2001. At April 30, 2001,
Kable was not in compliance with a financial covenant of the modified agreement
and subsequently agreed to another modification, which provided for a further
reduction of the commitment amount to $25.6 million at July 31, 2001, increased
the interest rate from prime plus 1/2% to prime plus 1% and extended the
maturity date until September 30, 2001. In addition, subject to the Company
repaying $4.4 million of intercompany debt due to Kable by September 30, 2001,
the loan would automatically be extended to May 1, 2002 with the commitment
amount reduced to $23.5 million at December 31, 2001. This condition was
satisfied in August 2001 and the loan extended until May 1, 2002. The loan is
collateralized 125% or more by certain Kable accounts receivable (increasing to
142% at December 31, 2001) and prohibits the payment of dividends by, and the
making of loans from, Kable to the Company. The Registrant has guaranteed
Kable's repayment obligations under this arrangement.
Kable has been advised by its lending group that participants representing
approximately 50% of the committed credit do not wish to participate in an
extension beyond May 1, 2002. The Company has initiated discussions with the
lead bank to explore a modification and/or reformulation of the lending group,
and is also in discussions with other potential lenders; however, no agreements
have been reached at this time and there are no assurances that Kable will be
able to renegotiate or extend the terms of the credit agreement or find
replacement lenders beyond May 1, 2002.
In connection with the restructuring of its real estate operations and to
facilitate the wind-down of its California operation, a subsidiary of the
Company has guaranteed a $6.4 million line-of-credit for an unaffiliated entity
for the ongoing development of a project in which the subsidiary had been a
joint venture participant, of which approximately $5.1 million was outstanding
at April 30, 2001.
Mortgages and other notes payable
---------------------------------
Mortgages and other notes payable had interest rates ranging from 7.5% to 12% at
April 30, 2001, and are primarily collateralized by property, plant and
equipment and certain land inventory. These borrowings mature through fiscal
2013.
(7) BENEFIT PLANS:
--------------
Stock option plans
------------------
Under the Company's 1992 Stock Option Plan, 311,750 shares are reserved for
issuance to officers and other key employees. Options may be granted in such
amounts, at such times, and with such exercise prices as the stock option
committee may determine. The Non-Employee Directors Option Plan has 36,000
shares reserved for issuance and provides for an automatic issuance of options
to purchase 500 shares of common stock to each non-employee director annually at
the fair market value at the date of grant. The options are exercisable in one
year and expire five years after the date of grant.
26
A summary of activity in the Company's stock option plans is as follows:
Year Ended April 30,
------------------------------------------------------------------------------
2001 2000 1999
------------------------------- ---------------------------------- -----------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
Options outstanding at
beginning of year 12,000 $ 6.27 43,500 $ 6.20 50,500 $ 6.18
Granted 2,500 5.88 2,500 5.84 2,500 7.75
Exercised (1,000) 5.53 - -
Expired or canceled (1,500) 5.88 (34,000) 7.50 (9,500) 6.50
----------------- ------------- -----------
Options outstanding at
end of year 12,000 6.30 12,000 6.27 43,500 6.20
================= ============= ===========
Available for grant at
end of year 335,750 337,750 308,750
================= ============= ===========
Options exercisable at
end of year 8,250 8,250 18,417
================= ============= ===========
Range of exercise prices
for options exercisable
at end of year $5.19 to $7.75 $5.19 to $7.75 $5.19 to $7.50
============== ============== ==============
Options outstanding at April 30, 2001 are exercisable over a four year period
beginning one year from date of grant. The weighted average remaining
contractual life of options outstanding at April 30, 2001, 2000, and 1999 is
3.1, 3.1, and 2.4 respectively. The weighted average fair value of options
granted during the year was $1.08 in 2001, $.97 in 2000, $1.48 in 1999. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 2000 and 2001, respectively: expected
volatility of 38%, 41%, and 34% risk-free interest rates of 5.5%, 6.6%, and 4.4%
and expected lives of 3 years.
Stock options granted have been issued with an exercise price at the fair market
value of the Company's stock at the date of grant. Accordingly, no compensation
expense has been recognized with respect to the stock option plans. Further, the
amount of additional compensation disclosable under the disclosure-only
provisions of SFAS No. 123 is immaterial for all periods presented.
Savings plan
------------
The Company has a savings plan to which the Company makes contributions. The
plan provides for standard contributions of 33.3% of eligible employees' defined
contributions up to a maximum of 2% of such employees' compensation. Additional
amounts may be contributed with the approval of the Company's Board of
Directors. The Company's contribution to the plan amounted to approximately
$252,000, $254,000 and $216,000 in 2001, 2000 and 1999, respectively.
27
Retirement plan
---------------
The Company has a retirement plan which covers substantially all full-time
employees and which provides benefits based upon a percentage of the employee's
annual salary. No contribution to the plan was required in 2001 and 2000;
$12,000 was contributed in 1999. Assets are invested primarily in United States
Treasury obligations, equity and debt securities and money market funds.
Net periodic pension cost for 2001, 2000 and 1999 was comprised of the following
components:
Year Ended April 30,
-------------------------------------------------------
2001 2000 1999
--------------- ------------------ --------------
(Thousands)
Service cost - benefits earned during the
period $ 571 $ 656 $ 645
Interest cost on projected
benefit obligation 1,738 1,611 1,617
Expected return on assets (2,560) (2,464) (2,385)
Amortization of prior service cost (352) (352) (352)
Recognized net actuarial loss - (24) (12)
--------------- ----------------- ---------------
Net periodic pension cost (income) $ (603) $ (573) $ (487)
=============== ================= ===============
Assumptions used in determining net periodic pension cost were:
Year Ended April 30,
-----------------------------------------------------------
2001 2000 1999
----------------- ----------------- -----------------
Discount rates 7.5% 7.25% 7.25%
Rates of increase in compensation
levels 4.5% 4.5% N/A
Expected long-term rate of return
on assets 9.0% 9.0% 8.0-9.0%
28
The following table sets forth changes in the plans' benefit obligations and
assets, and summarizes components of amounts recognized in the Company's
consolidated balance sheets:
April 30,
-------------------------------
2001 2000
------------- --------------
(Thousands)
Change in benefit obligations:
Benefit obligation at beginning of year $ 21,437 $ 23,641
Service cost (excluding expense component) 441 485
Interest cost 1,738 1,611
Actuarial (gain) loss 2,749 (2,891)
Benefits paid (1,744) (1,409)
------------- --------------
Benefit obligation at end of year $ 24,621 $ 21,437
============= ==============
Change in plan assets:
Fair value of plan assets at
beginning of year $ 29,240 $ 28,068
Actual return on plan assets 1,052 2,691
Employer contribution - -
Benefits paid (1,744) (1,409)
Expenses (137) (110)
------------- --------------
Fair value of plan assets at end of year $ 28,411 $ 29,240
============= ==============
Funded status $ 3,790 $ 7,803
Unrecognized net actuarial (gain) loss 1,516 (2,748)
Unrecognized prior service cost (2,683) (3,035)
------------- --------------
Prepaid pension cost $ 2,623 $ 2,020
============= ==============
(8) INCOME TAXES:
-------------
The provision (benefit) for income taxes consists of the following:
Year Ended April 30,
-----------------------------------------
2001 2000 1999
----------- ------------ ------------
(Thousands)
Current:
Federal $ (833) $ 1,946 $ 6,925
Current:
Federal $ (3,290) $ (833) $ 1,946
State and local 8 - 286
----------- ------------ ------------
(3,282) (833) 2,232
----------- ------------ ------------
Deferred:
Federal (847) 1,341 (1,397)
State and local 102 271 (176)
----------- ------------ ------------
(745) 1,612 (1,573)
----------- ------------ ------------
Total provision (benefit)
for income taxes $ (4,027) $ 779 $ 659
=========== ============ ============
29
The components of the net deferred income tax liability are as follows:
April 30,
-----------------------
2001 2000
--------- ---------
(Thousands)
Deferred income tax assets-
State tax loss carryforwards $ 4,732 $ 5,022
Real estate inventory valuation 623 1,037
Interest payable on tax settlements 622 1,614
Other 1,323 -
--------- ---------
Total deferred income tax assets 7,300 7,673
--------- ---------
Deferred income tax liabilities-
Real estate basis differences (683) 448
Reserve for periodicals and paperbacks (709) (964)
Gain on partnership restructuring - (473)
Depreciable assets (1,675) (2,791)
Differences related to timing of partnership income (142) 1,176
Capitalized costs for financial reporting
purposes, expensed for tax (1,358) (2,003)
Other - (1,034)
--------- ---------
Total deferred income tax liabilities (4,567) (5,641)
--------- ---------
Valuation allowance for realization of state tax
loss carryforwards (4,615) (4,659)
--------- ---------
Net deferred income tax liability $(1,882) $(2,627)
========= =========
The following table reconciles taxes computed at the U.S. federal statutory
income tax rate to the Company's actual tax provision (benefit):
Year Ended April 30,
----------------------------------
2001 2000 1999
---------- ---------- ----------
(Thousands)
Computed tax provision at
statutory rate $ (500) $ 662 $ 2,787
Increase (reduction) in tax resulting from:
State income taxes, net of federal
income tax effect 73 126 491
Net reduction in tax liability as a
result of IRS settlement (3,500) - (2,401)
Nondeductible meals and entertainment 57 71 90
Other (157) (80) (308)
---------- ---------- ----------
Actual tax provision (benefit) $ (4,027) $ 779 $ 659
========== ========== ==========
For many years, the Company has been involved in an ongoing process of audits of
its federal tax returns by the Internal Revenue Service ("IRS") for fiscal years
1984 through 1996. In prior years, the Company has reached various agreements
with the IRS for the years 1984 through 1992. During the year ended April 30,
30
1999, the Company recorded a tax benefit of approximately $2.4 million
representing the settlement of IRS examinations for the years 1990 through 1992
at an amount less than that which the Company believed would be required. During
the year ended April 30, 2000, the Company made a payment of $4.3 million of
taxes and interest in connection with the interim resolution of certain matters
related to the examination of the Company's tax returns for the years 1993
through 1996. During the year ended April 30, 2001, the Company received final
notification from the IRS of the amount due with respect to certain outstanding
tax issues related to IRS audits of the Company's 1993 and 1994 tax returns. In
March 1, 2001, the Company made a payment of approximately $700,000 for all
federal taxes and interest related to this matter, which is less than the amount
which the Company had previously accrued on account thereof. At the same time
the Company received final notification from the IRS that the outstanding tax
issues related to the IRS examinations of the Company's 1995 and 1996 tax
returns were resolved and as a result of the resolution of these matters, the
Company recognized a tax benefit of $3.5 million in the quarter ended January
31, 2001. In addition, the Company has reclassified the remaining liability
balance of "Taxes payable - Amounts subsequently due," which principally
represents an estimate of additional state taxes and interest due resulting from
adjustments on IRS audits, to "Taxes payable - Amounts due within one year."
(9) SHAREHOLDERS' EQUITY:
---------------------
The Company has from time to time reacquired its shares to be held as treasury
stock as part of a stock repurchase program. During fiscal 2000 the Company
reacquired 143,000 of its common shares at a cost of approximately $857,000.
During fiscal 2001, the Board of Directors authorized an additional repurchase
of stock by means of a self-tender "Dutch Auction" for 725,000 shares of the
Company's stock at a price not to exceed $7.00 per share and not lower than
$5.25 per share. As a result of this program and other repurchases, the Company
reacquired a total of approximately 668,000 shares at an aggregate cost of
approximately $4.8 million.
(10) RESTRUCTURING COSTS:
--------------------
During the fourth quarter of 1999, the Company implemented a plan to wind-down
its homebuilding operations, to sell all of its landholdings in Colorado and
California, and to concentrate its real estate activities on developing and
marketing its landholdings at Rio Rancho, New Mexico. As a result, the Company
incurred restructuring-related charges of approximately $1.1 million, including
severance and lease termination payments, and wrote-off unamortized goodwill and
acquisition-related costs of approximately $1.0 million incurred in connection
with its acquisition of certain real estate assets in California.
During 2001 and 2000, the Company recorded additional charges of approximately
$2.1 million and $3.8 million to provide for reserves and write-downs related to
the continuing wind-down of real estate projects in California and Colorado,
which was charged to cost of sales and other operations.
The Company's decision to change its real estate focus to emphasize land
development operations in New Mexico and wind-down homebuilding operations is
not considered to be a permanent change of strategy, and accordingly, the
Company has presented the results of operations for homebuilding activities in
continuing operations.
(11) COMMITMENTS AND CONTINGENCIES:
------------------------------
Land sale contracts
-------------------
The Company has entered into several conditional sales contracts for the sale of
approximately 1,300 lots in Rio Rancho and Colorado which would close at varying
times over the next several years; however, since each of the contracts permits
the purchaser to terminate its obligations by forfeiture of a relatively modest
deposit, there are no assurances that all, or even a substantial portion, of the
lots subject to the contracts will be sold pursuant to the contracts.
31
Non-cancelable leases
---------------------
The Company is obligated under long-term non-cancelable leases for equipment and
various real estate properties. Certain real estate leases provide that the
Company will pay for taxes, maintenance and insurance costs and include renewal
options. Rental expense (in thousands) for 2001, 2000 and 1999 was approximately
$3,767, $4,667 and $5,477, respectively.
The approximate minimum rental commitments for years subsequent to April 30,
2001, are as follows (in thousands): 2002 - $2,019; 2003 - $1,104; 2004 - $962;
2005 - $917; 2006 - $493; and the total future minimum rental payments - $4,015.
Rio Rancho lot exchanges
------------------------
In connection with homesite sales at Rio Rancho, New Mexico, made prior to 1977,
if water, electric and telephone utilities have not reached the lot site when a
purchaser is ready to build a home, the Company is obligated to exchange a lot
in an area then serviced by such utilities for a lot of the purchaser, without
cost to the purchaser. The Company has not incurred significant costs related to
the exchange of lots.
(12) LITIGATION:
-----------
The Company and/or its subsidiaries are involved in various claims and legal
actions incident to their operations, which in the opinion of management, based
upon advice of counsel, will not materially affect the consolidated financial
position or results of operations of the Company and its subsidiaries.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS:
------------------------------------
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 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 changes. The estimated fair value of
the Company's long-term, fixed-rate mortgage receivables is $5.0 million, versus
a carrying amount of $5.2 million, and $6.8 million versus $6.9 million,
respectively, at April 30, 2001 and April 30, 2000. The estimated fair value of
the Company's long-term, fixed-rate notes payable is $6.3 million versus a
carrying amount of $6.2 million as of April 30, 2001 and $7.5 million versus
$7.6 million as of April 30, 2000.
(14) INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT
-------------------------------------------------------
INDUSTRY SEGMENTS:
------------------
The Company has identified four segments in which it operates under the
definition established by this standard. The Company's real estate subsidiary
has two identified segments, Land Sale operations and Homebuilding operations.
Land Sale operations involve the obtaining of approvals, and development of
large tracts of land for sale to builders, commercial users and others, and
Homebuilding operations involve the construction and sale of single-family homes
and other projects. Magazine circulation operations also has two identified
segments, Distribution and Fulfillment operations. Distribution operations
involve the national and international distribution and sale of periodicals and
paperbacks to wholesalers, and Fulfillment operations involve the performance of
subscription and product fulfillment and other related activities on behalf of
various publishers and other clients. Corporate and other miscellaneous revenues
and expenses not identifiable with a specific segment are grouped together in
this presentation. Certain expenses are allocated among industry segments based
upon management's estimate of each segment's absorption.
Identifiable assets by industry are those assets that are used in the Company's
operations in each industry segment, which also is based upon certain estimates
and allocations among segments.
32
The following schedules set forth summarized data relative to the industry
segments (amounts in thousands):
Land Home Corporate
Sales Building Distribution Fulfillment and Other Consolidated
--------- --------- ------------ ----------- --------- ------------
Year ended April 30, 2001:
Revenues $ 17,914 $ 4,805 $ 13,899 $ 34,671 $ 1,920 $ 73,209
Operating expenses 12,808 6,900 15,963 32,099 4,138 71,908
Interest expense, net 350 42 1,740 472 167 2,771
--------- --------- ------------ ----------- --------- ------------
Pretax income (loss) contribution $ 4,756 $ (2,137) $ (3,804) $ 2,100 $ (2,385) $ (1,470)
========= ========= ============ =========== ========= ============
Depreciation and amortization $ 106 $ 150 $ 1,093 $ 1,311 $ 373 $ 3,033
Identifiable assets $ 79,032 $ 4,194 $ 42,937 $ 19,540 $ 19,141 $ 164,844
Capital expenditures $ - $ - $ 295 $ 1,020 $ 730 $ 2,045
------------------------------------------------------------------------------------------------------------------------
Year ended April 30, 2000:
Revenues $ 33,629 $ 30,674 $ 15,927 $ 36,621 $ 2,982 $ 119,833
Operating expenses 24,851 34,218 15,858 35,006 5,006 114,939
Interest expense, net 370 241 1,558 553 224 2,946
--------- --------- ------------ ----------- --------- ------------
Pretax income (loss) contribution $ 8,408 $ (3,785) $ (1,489) $ 1,062 $ (2,248) $ 1,948
========= ========= ============ =========== ========= ============
Depreciation and amortization $ 361 $ 860 $ 1,076 $ 1,585 $ 222 $ 4,104
Identifiable assets $ 77,808 $ 10,247 $ 43,157 $ 16,778 $ 24,446 $ 172,436
Capital expenditures $ 905 $ - $ 592 $ 1,159 $ 3 $ 2,659
-
------------------------------------------------------------------------------------------------------------------------
Year ended April 30, 1999:
Revenues $ 36,846 $ 92,637 $ 20,377 $ 36,977 $ 3,454 $ 190,291
Operating expenses 24,847 91,151 19,103 35,486 4,657 175,244
Restructuring costs - 2,108 - - - 2,108
Interest expense, net 459 1,394 1,954 731 205 4,743
--------- --------- ------------ ----------- --------- ------------
Pretax income (loss) contribution $ 11,540 $ 2,016) $ (680) $ 760 $ (1,408) $ 8,196
========= ========= ============ =========== ========= ============
Depreciation and amortization $ 362 $ 1,857 $ 891 $ 1,512 $ 208 $ 4,830
Identifiable assets $ 62,207 $ 55,310 $ 61,791 $ 18,528 $ 19,941 $ 217,777
Capital expenditures $ 1,043 $ 679 $ 168 $ 970 $ 445 $ 3,305
------------------------------------------------------------------------------------------------------------------------
33
Selected Quarterly Financial Data (Unaudited):
----------------------------------------------
(In thousands of dollars, except per share amounts)
Quarter Ended
----------------------------------------------------------------
July 31, October 31, January 31, April 30,
2000 2000 2001(a) 2001
-------------- -------------- --------------- --------------
Revenues $ 18,210 $ 17,391 $ 16,031 $ 21,577
Gross Profit 3,892 4,566 (31) 5,147
Net Income (Loss) $ (214) $ 554 $ 1,326 $ 891
============== ============== =============== ==============
Earnings (Loss) Per Share -
Basic and Diluted (b) $ (0.03) $ 0.08 $ 0.20 $ 0.14
============== ============== =============== ==============
Quarter Ended
-----------------------------------------------------------------
July 31, October 31, January 31, April 30,
1999 1999 2000 2000
-------------- -------------- --------------- --------------
Revenues $ 42,035 $ 34,313 $ 21,154 $ 22,331
Gross Profit 8,202 6,252 2,265 4,551
Net Income (Loss) $ 1,313 $ 642 $ (1,145) $ 359
============== ============== =============== ==============
Earnings (Loss) Per Share -
Basic and Diluted $ 0.18 $ 0.09 $ (0.16) $ 0.05
============== ============== =============== ==============
(a) Includes a tax benefit of $3.5 million to reflect the settlement of IRS tax
examinations. See Note 8.
(b) The sum of the quarters does not equal the year-to-date earnings per share,
due to the changes of average shares outstanding during the year.
Item 9. Changes in and Disagreements with Accountants on Accounting
------- -----------------------------------------------------------
and Financial Disclosure.
-------------------------
Not Applicable.
PART III
--------
The information called for by Part III is hereby incorporated by reference from
the information set forth and under the headings "Common Stock Ownership of
Certain Beneficial Owners and Management", "Election of Directors", and
"Executive Compensation" in Registrant's definitive proxy statement for the 2001
Annual Meeting of Shareholders, which meeting involves the election of
directors, such definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this Annual Report on Form 10-K. In addition,
information on Registrant's executive officers has been included in Part I above
under the caption "Executive Officers of the Registrant".
34
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
-------- ----------------------------------------------------------------
(a) 1. The following financial statements and supplementary financial
information are filed as part of this report:
AMREP Corporation and Subsidiaries:
o Report of Independent Public Accountants - Arthur Andersen LLP
o Consolidated Balance Sheets - April 30, 2001 and 2000
o Consolidated Statements of Operations for the Three Years Ended
April 30, 2001
o Consolidated Statements of Shareholders' Equity for the Three Years
Ended April 30, 2001
o Consolidated Statements of Cash Flows for the Three Years
Ended April 30, 2001
o Notes to Consolidated Financial Statements
o Selected Quarterly Financial Data
2. The following financial statement schedules are filed as part of this
report:
AMREP Corporation and Subsidiaries:
o Schedule II - Valuation and Qualifying Accounts
Financial statement schedules not included in this Annual Report on Form
10-K have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
3. Exhibits:
The exhibits filed in this report are listed in the Exhibit Index.
The Registrant agrees, upon request of the Securities and Exchange
Commission, to file as an exhibit each instrument defining the rights of holders
of long-term debt of the Registrant and its consolidated subsidiaries which has
not been filed for the reason that the total amount of securities authorized
thereunder does not exceed 10% of the total assets of the Registrant and its
subsidiaries on a consolidated basis.
(b) During the quarter ended April 30, 2001, Registrant filed no Current Report
on Form 8-K.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this amendment to its report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
AMREP CORPORATION
(Registrant)
Dated: August 13, 2001 By /s/Peter M. Pizza
Peter M. Pizza
Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment has been signed below by the following persons on behalf of Registrant
and in the capacities and on the dates indicated.
/s/Peter M. Pizza /s/Nicholas G. Karabots
Peter M. Pizza Nicholas G. Karabots
Vice President, Director
Principal Financial Officer Dated: August 13, 2001
and Principal Accounting Officer*
Dated: August 13, 2001
/s/Jerome Belson /s/Albert V. Russo
Jerome Belson Albert V. Russo
Director Director
Dated: August 13, 2001 Dated: August 13, 2001
/s/Edward B. Cloues, II /s/Samuel N. Seidman
Edward B. Cloues, II Samuel N. Seidman
Director Director
Dated: August 13, 2001 Dated: August 13, 2001
/s/Lonnie A. Coombs /s/James Wall
Lonnie A. Coombs James Wall
Director Director
Dated: August 13, 2001 Dated: August 13, 2001
*Also acting as Principal Executive Officer in the absence of a Chief Executive
Officer, solely for the purpose of signing this Annual Report.
36
AMREP CORPORATION AND SUBSIDIARIES
----------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
(Thousands)
Additions
-----------------------------
Charges Charged
Balance at (Credits) to (Credited) to
Beginning Costs and Other Balance at End
Description of Period Expenses Accounts Deductions of Period
----------- ----------- ------------- -------------- ------------ --------------
FOR THE YEAR ENDED
APRIL 30, 2001:
Allowance for doubtful
accounts (included in
receivables - real estate
operations on the
consolidated balance sheet) $ 361 $ (21) $ - $ 167 $ 173
----------- ------------- -------------- ------------ --------------
returns and doubtful accounts
(included in receivables -
magazine circulation
operations on the
consolidated balance sheet) $ 64,628 $ (11,509) $ - $ 2,706(A) $ 50,413
----------- ------------- -------------- ------------ --------------
FOR THE YEAR ENDED
APRIL 30, 2000:
Allowance for doubtful
accounts (included in
receivables - real estate
operations on the
consolidated balance sheet) $ 255 $ 106 $ - $ - $ 361
----------- ------------- -------------- ------------ --------------
Allowance for estimated
returns and doubtful accounts
(included in receivables -
magazine circulation
operations on the
consolidated balance sheet) $ 44,357 $ 41,387 $ - $ 21,116(A) $ 64,628
----------- ------------- -------------- ------------ --------------
FOR THE YEAR ENDED
APRIL 30, 1999:
Allowance for doubtful
accounts (included in
receivables - real estate
operations on the
consolidated balance sheet) $ 291 $ 74 $ - $ 110(A) $ 255
----------- ------------- -------------- ------------ --------------
Allowance for estimated
returns and doubtful accounts
(included in receivables -
magazine circulation
operations on the
consolidated balance sheet) $ 51,895 $ (3,528) $ - $ 4,010(A) $ 44,357
----------- ------------- -------------- ------------ --------------
NOTE: (A) Uncollectible accounts written off.
37
EXHIBIT INDEX
-------------
3 (a) (i) Articles of Incorporation, as amended - Incorporated by reference to
Exhibit (3) (a) (i) to Registrant's Annual Report on Form 10-K for
the fiscal year ended April 30, 1998.
3 (a) (ii) Certificate of Merger - Incorporated by reference to Exhibit (3) (a)
(ii) to Registrant's Annual Report on Form 10-K for the fiscal year
ended April 30, 1998.
3 (b) By-Laws as restated September 24, 1997 - Incorporated by reference to
Exhibit 3 (c) to Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended October 31, 1997.
4 (a) Loan Agreement dated as of September 15, 1998 between Kable News
Company, Inc., and American National Bank and Trust Company of
Chicago as Agent and the Lenders defined therein (the "Kable Loan
Agreement") - Incorporated by reference to Exhibit 4 (a) to
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended October 31, 1998.
4 (b) Modification Agreement dated as of July 7, 1999 to the Kable Loan
Agreement - Incorporated by reference to Exhibit 4(b) to Registrant's
Annual Report on Form 10-K for the fiscal year ended April 30, 2000.
4 (c) Second Modification Agreement dated as of June 29, 2000 to the Kable
Loan Agreement - Incorporated by reference to Exhibit 4(a) to
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended October 31, 2000.
4 (d) Third Modification Agreement dated as of December 15, 2000 to the
Kable Loan Agreement - Incorporated by reference to Exhibit 4(a) to
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended January 31, 2001.
4 (e) Fourth Modification Agreement dated as of March 16, 2001 to the
Kable Loan Agreement - Incorporated by reference to Exhibit 4(e) to
Registrant's Annual Report on Form 10-K for fiscal year ended
April 20, 2001.
4 (f) Fifth Modification Agreement dated as of June 11, 2001 to the Kable
Loan Agreement - Incorporated by reference to Exhibit 4(f) to
Registrant's Annual Report on Form 10-K for fiscal year ended
April 20, 2001.
4 (g) Master Loan Agreement dated July 31, 2000 between Amrep Southwest,
Inc. and Wells Fargo Bank New Mexico, N.A. and First Amendment dated
January 5, 2001 and Second Amendment dated June 15, 2001 thereto -
Incorporated by reference to Exhibit 4(g) to Registrant's Annual
Report on Form 10-K for fiscal year ended April 20, 2001.
10 (a) 1992 Stock Option Plan - Incorporated by reference to Exhibit 10 (h)
to Registrant's Annual Report on Form 10-K for the fiscal year ended
April 30, 1997.*
10 (b) Non-Employee Directors Option Plan, as amended - Incorporated by
reference to Exhibit 10 (i) to Registrant's Annual Report on Form
10-K for the fiscal year ended April 30, 1997.*
10 (c) Employment Termination and Consulting Agreement and General Release
dated July 28, 2000 between registrant and Kable News Company, Inc.
and Daniel Friedman - Incorporated by reference to Exhibit 10(a) to
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended July 31, 2000.*
10 (d) Employment Termination and Consulting Agreement and General Release
dated January 17, 2001 between Registrant and Mohan Vachani -
Incorporated by reference to Exhibit 10(a) to Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended January 31, 2001.*
21 Subsidiaries of Registrant - Incorporated by reference to Exhibit 21
to Registrant's Annual Report on Form 10-K for fiscal year ended
April 20, 2001.
23 Consent of Arthur Andersen LLP - Filed herewith.
_________________________________________
* Management contract or compensatory plan or arrangement in which directors
or officers participate.
38