AMREP Corp. 10-Q Summary: Quarter Ended July 31, 2011
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for AMREP Corporation for the three-month period ended July 31, 2011 (First Quarter of Fiscal 2012). The Company operates four primary segments: Subscription Fulfillment Services, Newsstand Distribution Services, Product Services and Other (collectively "Media Services"), and Real Estate operations. The Company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | Q1 2012 (Jul 31, 2011) | Q1 2011 (Jul 31, 2010) |
|---|---|---|
| Total Revenues | $21,493,000 | $25,087,000 |
| Net Loss | $(279,000) | $(498,000) |
| Loss Per Share (Basic/Diluted) | $(0.05) | $(0.08) |
| Net Cash from Operating Activities | $2,629,000 | $1,639,000 |
| Cash and Cash Equivalents (End of Period) | $27,288,000 | $26,297,000 |
| Total Debt (Notes Payable) | $23,320,000 | $23,985,000 |
| EBITDA (Consolidated) | $1,323,000 | $1,221,000 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 14.3% year-over-year. Media Services revenues dropped from $24.2M to $21.4M due to reduced subscription and newsstand sales driven by recessionary effects and competition from new media. Real estate land sales revenue fell significantly from $824,000 to $108,000 due to a severe decline in the Rio Rancho, New Mexico market.
- Improved Profitability: Despite lower revenues, the Net Loss improved by 44% (from $(498k) to $(279k)). This was driven by a $2.85M reduction in Media Services operating expenses, primarily due to payroll reductions and efficiencies from consolidating fulfillment operations into a single Florida location.
- Cash Flow: Operating cash flow increased by $990,000 to $2.6M, aided by a $2.2M decrease in receivables and improved working capital management.
- Debt Reduction: Total notes payable decreased by $665,000 to $23.3M. The Company had no outstanding borrowings under its Media Services revolving credit facility at period end, though it utilized up to $3.4M during the quarter.
Outlook, Risks, and Contingencies
- Pension Plan Contingency: A significant risk exists regarding the Company's defined benefit pension plan. Following the consolidation of operations, the Pension Benefit Guaranty Corporation (PBGC) calculated an unfunded liability of approximately $16M on a "termination basis," potentially requiring a contribution or escrow of approximately $12M. The Company is negotiating an alternative arrangement, but failure to reach an agreement could have a material adverse effect.
- Real Estate Market: Land sales remain depressed in the Company's core market of Rio Rancho, NM. Results are volatile and dependent on specific transaction timing.
- Media Industry Headwinds: Continued pressure from magazine publishers closing titles and seeking favorable terms due to the shift to digital media.
- State Grant Liability: The Company holds a $3M long-term liability related to a State of Florida award. This amount must be returned if specific job retention and capital investment objectives are not met by December 31, 2012.
Investor Verification Checklist
- PBGC Negotiation Status: Verify the outcome of discussions regarding the potential $12M pension funding requirement.
- Real Estate Inventory Valuation: Assess the carrying value of the $75.4M real estate inventory against current market conditions in Rio Rancho.
- Florida Grant Compliance: Monitor progress toward the job retention and capital investment milestones required to retain the $3M state award.
- Media Services Volume Trends: Confirm if the rate of customer attrition and title closures in the media sector is stabilizing.
- Debt Covenant Compliance: Ensure continued compliance with the ASW Credit Facility covenants, specifically the tangible net worth requirement and collateral coverage ratio.