AMREP CORP. — Interim / Quarterly Report 1997

Mar 14, 1997

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 1997 ------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to _____ Commission File Number 1-4702 -------------------------------- AMREP Corporation - ------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Oklahoma 59-0936128 - ------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 641 Lexington Avenue, Sixth Floor, New York, New York 10022 - ------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 705-4700 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of Shares of Common Stock, par value $.10 per share, outstanding at March 12, 1997 - 7,368,650. FORM 10-Q AMREP CORPORATION AND SUBSIDIARIES INDEX ----- PART I PAGE NO. - ------ -------- Consolidated Financial Statements: Balance Sheets January 31, 1997 (Unaudited) and April 30, 1996 (Audited) 1 Statements of Operations and Retained Earnings (Unaudited) Nine Months Ended January 31, 1997 and 1996 2 Statements of Operations and Retained Earnings (Unaudited) Three Months Ended January 31, 1997 and 1996 3 Statements of Cash Flows (Unaudited) Nine Months Ended January 31, 1997 and 1996 4 Notes to Consolidated Financial Statements 5 Management's Discussion and Analysis 6-7 PART II - ------- Other Information 8 Signatures 9 Exhibit Index 10 FORM 10-Q AMREP CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets January 31, 1997 and April 30, 1996 (Thousands, except par value and number of shares) January 31, April 30, 1997 1996 ----------- ----------- (Unaudited) (Audited) ASSETS - ------ Cash and cash equivalents $ 6,952 $ 7,607 Receivables, net: Real estate operations 9,470 11,371 Magazine circulation operations 44,695 38,234 Real estate inventory 88,558 71,916 Rental and other real estate 5,812 8,211 investments Investment property 7,288 8,042 Property, plant and equipment, at cost, net of accumulated depreciation and amortization of $13,050 at January 31, 1997 and $11,796 at 18,197 16,995 April 30, 1996 Other assets 14,549 14,215 Excess of cost of subsidiary over net assets acquired 5,191 5,205 ---------- ---------- $ 200,712 $ 181,796 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Account payable, deposits and $ 27,550 $ 33,013 accrued expenses Notes payable: Amounts due within one year 14,431 17,146 Amounts subsequently due 62,876 35,036 Collateralized mortgage obligations 531 2,209 Deferred income taxes 25,840 25,840 ---------- ---------- 131,228 113,244 ---------- ---------- Shareholders' equity: Common stock, $.10 par value; shares authorized -- 20,000,000 shares issued and outstanding -- 7,398,650 at January 31, 1997 and April 30, 1996 740 740 Capital contributed in excess of par value 44,928 44,928 Retained earnings 23,996 23,064 Treasury stock, at cost; 30,000 shares (180) (180) ---------- ---------- 69,484 68,552 ---------- ---------- $ 200,712 $ 181,796 ========== ========== See notes to consolidated financial statements. FORM 10-Q AMREP CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings (Unaudited) Nine Months Ended January 31, 1997 and 1996 (Thousands, except per share amounts) 1997 1996 ----------- ---------- REVENUES - -------- Real estate operations: Home and condominium sales $ 47,977 $ 68,365 Land sales 10,848 4,840 ----------- ---------- 58,825 73,205 Magazine circulation operations 40,671 43,210 Interest and other operations 4,903 4,861 ----------- ---------- 104,399 121,276 ----------- ---------- COST AND EXPENSES - ----------------- Real estate cost of sales 46,844 58,434 Operating expenses: Magazine circulation operations 33,393 34,331 Real estate commissions and selling 4,840 4,701 Other operations 4,908 4,757 General and administrative: Real estate operations and corporate 5,145 6,585 Magazine circulation operations 4,711 5,140 Interest, net 3,005 3,072 ----------- ---------- 102,846 117,020 ----------- ---------- Income before income taxes 1,553 4,256 PROVISION FOR INCOME TAXES 621 1,702 ----------- ---------- NET INCOME 932 2,554 RETAINED EARNINGS, beginning of period 23,064 20,279 ----------- ---------- RETAINED EARNINGS, end of period $ 23,996 $ 22,833 =========== ========== NET INCOME PER SHARE $ 0.13 $ 0.35 =========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,369 7,390 =========== ========== See notes to consolidated financial statements. FORM 10-Q AMREP CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings (Unaudited) Three Months Ended January 31, 1997 and 1996 (Thousands, except per share amounts) 1997 1996 ----------- ---------- REVENUES - -------- Real estate operations: Home and condominium sales $ 17,652 $ 20,814 Land sales 3,935 1,384 ----------- ---------- 21,587 22,198 Magazine circulation operations 13,763 14,145 Interest and other operations 1,411 1,601 ----------- ---------- 36,761 37,944 ----------- ---------- COST AND EXPENSES - ----------------- Real estate cost of sales 17,267 17,720 Operating expenses: Magazine circulation operations 11,334 11,265 Real estate commissions and selling 1,769 1,465 Other operations 1,457 1,577 General and administrative: Real estate operations and 1,680 2,286 corporate Magazine circulation operations 1,631 1,788 Interest, net 1,178 1,019 36,316 37,120 Income before income taxes 445 824 PROVISION FOR INCOME TAXES 178 330 NET INCOME 267 494 RETAINED EARNINGS, beginning of period 23,729 22,339 ----------- ---------- RETAINED EARNINGS, end of period $ 23,996 $ 22,833 =========== ========== NET INCOME PER SHARE $ 0.04 $ 0.07 =========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,369 7,379 =========== ========== See notes to consolidated financial statements. FORM 10-Q AMREP CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended January 31, 1997 and 1996 (Thousands) 1997 1996 -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 932 $ 2,554 -------- ------- Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 1,966 1,647 Changes in assets and liabilities - Receivables (4,560) 1,287 Real estate inventory (16,758) (581) Rental and other real estate projects 2,399 2,460 Investment property 754 282 Other assets (976) (1,339) Accounts payable, deposits and accrued expenses (4,663) (2,431) Deferred income taxes - 1,680 Gain from sale of real estate inventory related to reduction in accounts payable (579) - -------- ------- Total adjustments (22,417) 3,005 -------- ------- Net cash provided (used) by operating activities (21,485) 5,559 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (2,617) (4,328) -------- ------- Net cash used by investing activities (2,617) (4,328) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt financing 54,622 21,247 Principal debt payments (31,175) (23,931) Proceeds from exercise of stock options - 27 -------- ------- Net cash provided by financing activities 23,447 (2,657) -------- ------- Decrease in cash and cash equivalents (655) (1,426) CASH AND CASH EQUIVALENTS, beginning of period 7,607 9,266 ------- ------- CASH AND CASH EQUIVALENTS, end of period $ 6,952 $ 7,840 ======= ======= SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid - net of amounts capitalized $ 4,142 $ 3,014 ======= ======= Income taxes paid $ 2,430 $ 22 ======= ======= SUPPLEMENTAL INFORMATION REGARDING NON-CASH OPERATING ACTIVITIES: Reduction in accounts payable related to sale of real estate inventory $ 800 $ - ======= ======= See notes to consolidated financial statements. FORM 10-Q AMREP CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Nine Months Ended January 31, 1997 and 1996 Note 1: - ------- The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to reflect a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. Note 2: - ------- Certain amounts in the January 31, 1996 Statement of Cash Flows have been reclassified to conform to the presentation used at January 31, 1997. FORM 10-Q AMREP CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Page 1 of 2) January 31, 1997 FINANCIAL CONDITION - ------------------- Notes payable, which are collateralized by real estate inventory and magazine circulation accounts receivable, increased by approximately $25 million from April 30, 1996 to January 31, 1997, resulting from corresponding increases in both real estate inventory and magazine circulation operation receivables. RESULTS OF OPERATIONS - --------------------- Total revenues for the nine months and third quarter ended January 31, 1997, decreased 14% and 3%, respectively, from the similar periods last year, reflecting lower revenues from both housing sales and magazine circulation operations, partially offset by higher revenues from land sales. Revenues from housing sales decreased approximately 30% and 15% for the nine and three month periods, respectively, resulting from a decrease in housing unit deliveries from 601 to 403 in the nine months and from 175 to 154 in the third quarter this year, as compared to the similar periods last year, which is due in part to the lengthening of the regulatory approval process and resultant delays in opening subdivisions for sale, as well as a soft real estate market in Rio Rancho in 1997 compared to 1996. In addition, the average selling price of homes closed declined moderately in the third quarter this year, as compared to the third quarter last year, from $118,900 to $114,600. The decrease in the average selling price in the third quarter was primarily due to a high portion of home closings this year in a lower priced project in Rio Rancho, compared to the third quarter last year. The decrease in revenues in the nine months this year was partially offset by an increase in the average selling price of homes closed to $119,100 from $113,800 in the nine months last year. The increase in the average selling prices on homes closed in the nine months resulted both from price increases and a favorable product mix at both Rio Rancho and the Company's Colorado home-building division, as compared to the nine months last year. The gross margin on housing sales decreased by approximately $5.8 million and $1.7 million in the nine months and third quarter, respectively, as compared to the similar periods last year, resulting primarily from lower revenues on decreased unit deliveries, and, in addition, in the third quarter this year the decrease in the average selling price of homes closed discussed above. Revenues and related gross profit from land sales increased primarily due to an increase in the level of commercial and industrial lot sales. Land sale revenues and related gross profits can vary from year to year as a result of the nature and timing of specific transactions, and thus prior results are not an indication of amounts that may be expected to occur in future periods. As a result of these factors, gross profit from combined housing and land sales decreased by approximately $2.8 million and $0.2 million in the nine months and third quarter this year, respectively, as compared to the similar periods last year. FORM 10-Q AMREP CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Page 2 of 2) January 31, 1997 Revenues from magazine circulation operations decreased approximately 6% in the nine months this year, as compared to the similar period last year, due to generally comparable decreases in both the Fulfillment Services and Newsstand Distribution Services. Revenues in the third quarter decreased approximately 3%, as compared to the similar period last year, due to decreases in the Fulfillment Services. Revenues from Fulfillment Services decreased approximately 4% in both periods of fiscal 1997, as a result of lower activity levels resulting from client losses in prior periods which were only partially offset by additional revenues associated with a new contract with a major publisher. Expenses of the Fulfillment Services division increased about 3% in the third quarter of 1997 compared to the prior year, principally as a result of additional staffing requirements for the new contract with a major publisher which were only partially offset by other reductions. For the nine months, Fulfillment related expenses have decreased 1%. Revenues from the Newsstand Distribution Services decreased approximately 8% in the nine months in fiscal 1997 compared to the prior year due to a lower volume of retail magazine sales, while revenues in the third quarter remained the same as last year. In addition, a major realignment of industry relationships in the distribution of magazines developed rapidly during 1996 which led to a substantial reduction in the number of wholesalers and has adversely impacted Kable's sales and profits. Newsstand's divisional expenses have decreased 8% and 6% in the nine and three month periods, which has been in response to and partially offset the revenue decreases discussed above. As a result of these factors, operating income from magazine circulation operations decreased by approximately $1,300,000 and $350,000 in the nine months and third quarter this year, respectively, as compared to last year. Real estate commissions and selling expenses increased approximately $140,000 and $300,000 in the nine months and third quarter this year, as compared to the similar periods last year, primarily because of marketing costs associated with the start-up of an additional number of projects open for sales in Colorado. Real estate and corporate general and administrative expenses decreased by approximately 22% and 27% from the nine months and third quarter last year, respectively, primarily as a result of the vacant Chief Executive Officer's position, staff reductions, and reductions in other general real estate and corporate expenses. Interest expense increased in the third quarter this year, compared to the similar period last year, due primarily to higher average borrowings partially offset by lower average interest rates, and an increase in capitalized interest primarily at the Colorado projects. FORM 10-Q AMREP CORPORATION AND SUBSIDIARIES PART II Other Information ----------------- Item 5. Other Matters ------- ------------- The Company has reached an agreement with the Internal Revenue Service (IRS) which resolves all outstanding issues (including those related to Section 458 of the Internal Revenue Code) resulting from the IRS's audit of the years 1984 through 1989. As a result, the Company has paid an assessment of approximately $200,000 for federal taxes (including interest), and anticipates no significant further payments for either state or federal taxes for those years. As previously announced, the IRS is also in the process of reviewing the Company's tax returns for the years 1990 through 1994, and, in due course, is expected to review the 1995 tax return. While the Company cannot be totally certain of the results of these audits, it currently estimates that the total additional amount that will be due for federal and state taxes, when the reviews of the tax returns for the years 1990 - 1995 are ultimately finalized, will be approximately $8.5 million plus interest (estimated to be approximately $3.3 million as of January 31, 1997), which amount is expected to be payable at varying times over the next several years. The Company has previously provided reserves to cover such additional taxes and the estimated interest thereon that will eventually be payable, and therefore does not expect that they will impact reported earnings. Item 6. Exhibits and Reports on Form 8-K ------- -------------------------------- (a) Exhibits: 27. Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended January 31, 1997. FORM 10-Q AMREP CORPORATION AND SUBSIDIARIES SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMREP Corporation (Registrant) Dated: March 12, 1997 By: /s/ Mohan Vachani ----------------------- Mohan Vachani Senior Vice President, Chief Financial Officer Dated: March 12, 1997 By: /s/ Peter M. Pizza ----------------------- Peter M. Pizza Controller FORM 10-Q AMREP CORPORATION AND SUBSIDIARIES EXHIBIT INDEX ------------- 27 Financial Data Schedule