AXR

AMREP CORP. 10-K Summary: Fiscal Year Ended April 30, 2006

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended April 30, 2006, for AMREP Corporation. The Company operates through three primary segments: Real Estate (AMREP Southwest), Fulfillment Services, and Newsstand Distribution Services (collectively Kable Media Services). Real Estate operations are concentrated in Rio Rancho, New Mexico, focusing on land development and sales to homebuilders. Kable provides subscription fulfillment and magazine distribution services nationally.

Key Financial Metrics

Segment Performance: Real Estate revenues increased 60% to $57.8 million, driving the majority of profit growth. Media Services revenues declined 9% to $88.5 million due to customer losses in Fulfillment Services.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues rose 10.2% year-over-year, primarily driven by a 60% increase in land sales revenue ($36.2M to $57.8M) in the Rio Rancho market.
• Profitability: Net income increased 67.8% to $26.1 million. Income from continuing operations grew 44.3% to $22.5 million.
• Discontinued Operations: The Company recorded a $3.6 million gain from discontinued operations in 2006 related to the condemnation and disposition of its El Dorado, New Mexico water utility subsidiary assets. This contrasts with a $63,000 loss in the prior year.
• Debt Reduction: Total notes payable decreased by approximately $6 million (50%) as the Company paid down borrowings, leaving only $6.0 million outstanding, all related to Media Services operations.
• Dividends: The Company declared a special cash dividend of $0.85 per share in July 2006, following a $3.50 special dividend in December 2005.

Guidance, Outlook, Risks, and Contingencies

Management Commentary: Management attributes the strong 2006 results to the strength of the Rio Rancho real estate market and increased sales of developed lots to homebuilders. The decline in Media Services revenue is attributed to customer attrition in the Fulfillment segment, partially offset by new business in Newsstand Distribution.

Risks and Contingencies:

• Geographic Concentration: Substantially all real estate assets are in Rio Rancho, New Mexico, exposing the Company to local economic contraction.
• Asset Depletion: The Real Estate business relies on a depleting inventory of land acquired over 40 years ago; future growth requires new acquisitions or market expansion.
• Media Industry Shifts: Risks include the shift of advertising from print to digital media and intense competition from larger distributors.
• Credit Concentration: In Newsstand Distribution, three wholesalers accounted for 57% of gross billings and 47% of accounts receivable in 2006.
• Legal Proceedings: The Company is a defendant in a Robinson-Patman Act lawsuit (United Magazine Company v. Murdoch Magazines). While summary judgment was granted in the Company's favor in September 2005, the plaintiff has appealed. Potential damages could be trebled to approximately $45.6 million, though the plaintiff appears insolvent.
• Pension Liability: The defined benefit pension plan remains underfunded by approximately $3.2 million as of April 30, 2006.

Investor Verification Checklist

• Real Estate Inventory: Verify the remaining acreage and development status of the Rio Rancho land inventory to assess long-term revenue sustainability.
• Media Customer Concentration: Review the financial health of the top three wholesalers representing 57% of Newsstand Distribution billings.
• Legal Appeal Status: Monitor the status of the appeal in the United Magazine Company litigation to assess potential liability exposure.
• Pension Funding: Track the funded status of the pension plan and potential future cash contribution requirements.
• Dividend Policy: Confirm the Board's future dividend policy, noting the recent history of large special dividends funded by real estate cash flows.