AMREP Corporation — Form 10-K Summary
Reporting period: Fiscal year ended April 30, 2012. The supplied filing is not a 2011 Q4 filing; it is the fiscal 2012 Form 10-K and includes unaudited quarterly data for the quarter ended April 30, 2012.
Business Context
AMREP operates through four segments: Subscription Fulfillment Services, Newsstand Distribution Services, Product Services and Other, and Real Estate. Media Services generated $83.4 million of 2012 revenue, while real estate operations are concentrated primarily in Rio Rancho, New Mexico. The company employed approximately 1,100 full-time employees, including approximately 280 temporary staffing employees, as of July 1, 2012.
Financial Performance and Position
| Metric | FY 2012 | FY 2011 | Change |
|---|---|---|---|
| Revenue | $85.360 million | $96.837 million | Down 11.9% |
| Loss before taxes | $2.039 million | $10.773 million | Improved |
| Net loss | $1.143 million | $7.561 million | Improved |
| Basic and diluted loss per share | $0.19 | $1.26 | Improved |
| Net cash from operating activities | $5.812 million | $5.901 million | Down slightly |
| Capital expenditures | $1.073 million | $1.012 million | Up slightly |
| Cash and cash equivalents | $27.847 million | $25.756 million | Up $2.091 million |
| Total assets | $203.039 million | $206.614 million | Down $3.575 million |
| Shareholders’ equity | $74.645 million | $78.946 million | Down $4.301 million |
| Notes payable | $21.325 million | $23.985 million | Down $2.660 million |
Media Services operating expenses were $70.076 million, or 84.0% of Media Services revenue, compared with $77.972 million, or 82.1%, in 2011. Consolidated interest expense was $1.403 million. The filing does not provide a single consolidated operating-margin figure, but Media Services margins weakened as revenue declined faster than operating expenses.
Real estate inventory was $75.401 million at April 30, 2012, substantially unchanged from $75.247 million. The company sold 104 acres for $1.889 million, compared with 22 acres for $1.780 million in 2011. The 2012 average gross profit percentage on land sales was 67%, versus 37% in 2011, reflecting a highly different mix of properties sold.
Material Changes Versus Prior Period
- Media Services revenue declined $11.516 million, primarily because of customer losses, lower magazine volumes, title closures and continuing pressure from digital media.
- Subscription Fulfillment Services revenue decreased from $73.618 million to $62.230 million; Newsstand Distribution Services revenue declined from $11.030 million to $9.127 million.
- Product Services and Other revenue increased from $10.315 million to $12.090 million, primarily due to growth in temporary staffing, partly offset by lower product-services revenue.
- Media Services payroll, benefits, facilities and equipment costs declined following the consolidation of subscription fulfillment operations into Palm Coast, Florida.
- The company recorded a $570,000 pre-tax, non-cash real estate impairment charge in 2012, compared with $10.720 million of impairment charges in 2011, including a $3.893 million write-off of Newsstand Distribution goodwill.
- Excluding impairment charges, AMREP reported a 2012 net loss of $783,000, compared with adjusted net income of $632,000 in 2011.
- The frozen defined benefit pension plan became substantially more underfunded: the liability increased from $12.619 million to $17.677 million, despite $1.407 million of company contributions.
- Other comprehensive loss was $3.158 million in 2012, primarily reflecting the increase in the pension obligation.
- Fiscal 2012 quarterly revenue and net income were $19.092 million and a $1.631 million loss, respectively, for the quarter ended April 30, 2012. The quarter included a $359,000 after-tax real estate impairment charge.
Liquidity, Debt and Contingencies
- The Media Services revolving facility had a maximum commitment of $20.0 million, borrowing availability of $8.714 million and no outstanding borrowings at April 30, 2012. The highest borrowing during the year was $4.334 million.
- Media Services was not compliant with its minimum Fixed Charge Coverage Ratio at year-end. The lender waived the violation and agreed in principle to an amendment that would extend the facility to May 12, 2014 and modify the covenant, but the amendment was still being documented and future compliance was not assured.
- The AMREP Southwest credit facility had $16.839 million outstanding at year-end. A $625,000 principal payment was made on June 15, 2012, with the remaining balance due September 1, 2012. The filing states that the company could not satisfy this obligation without an extension, replacement financing or other capital if the facility was not renewed.
- The pension plan was underfunded by approximately $17.7 million. An agreement in principle with the PBGC contemplated a $3.0 million cash contribution, followed by payment or collateralization of the remaining accelerated obligation of approximately $11.7 million within specified time frames.
- Contractual obligations totaled $41.393 million, including $21.325 million of notes payable and $20.068 million of operating leases and other obligations. Amounts due within one year totaled $26.770 million.
- Palm Coast recorded the $3.0 million Florida economic-development award as a liability because certain job-retention, job-creation and capital-investment requirements had not been met. The company could be required to return some or all of the award.
- Operating cash flow was $5.812 million, but the company’s Media Services businesses operated with negative working capital and depended substantially on a material customer contract expiring in June 2014.
Outlook, Management Commentary and Risks
Management attributed the decline in Media Services results to the migration of consumers and advertising from print to digital media, publisher financial pressure, title attrition, intense price competition and industry consolidation. The company stated that substantial investment may be required to develop digital and internet-based capabilities, but its financial resources may limit that effort.
Real estate results remain dependent on a weak Rio Rancho and greater Albuquerque market. Residential building permits in Rio Rancho declined 15% in fiscal 2012, and management cautioned that future land sales, selling prices, gross margins and impairment charges may fluctuate significantly.
- Credit exposure is concentrated: approximately 53% of Newsstand Distribution accounts receivable were due from three wholesalers at April 30, 2012. Approximately 65% of magazines distributed in the preceding two fiscal years were ultimately returned for credit.
- Key accounting estimates include magazine-return reserves, doubtful-account allowances, real estate cost allocations, asset impairments, pension obligations, deferred tax assets and legal contingencies.
- The company faces litigation, including the Anderson News antitrust matter, a warehouse-fire arbitration with a potential insured loss range of zero to $425,000, and a Puerto Rico distribution lawsuit seeking $2.0 million. The company could not predict the outcomes of these matters.
- The company’s common stock is thinly traded and volatile. A shareholder and director, Nicholas G. Karabots, and affiliates owned approximately 46% of outstanding shares and had significant influence over corporate matters and customer relationships.
- No cash dividends have been paid since fiscal 2008, and the company has no regular dividend policy.
Most Important Facts to Verify
- Whether the proposed amendment to the Media Services credit facility was completed and whether subsequent covenant violations occurred.
- How AMREP Southwest refinanced or repaid the $16.214 million balance remaining after the June 2012 payment.
- The final agreement with the PBGC, actual pension contributions and the timing of any accelerated funding or collateral requirements.
- Whether Palm Coast was required to repay any portion of the $3.0 million Florida award.
- The development of the Anderson News litigation and the potential exposure in the Puerto Rico lawsuit and warehouse-fire arbitration.
- Whether Media Services revenue stabilized after the fiscal 2012 decline and whether digital initiatives required material additional investment.
- Subsequent Rio Rancho land sales, real estate valuations and any additional impairment charges.