AMREP Corporation — Form 10-Q Summary
Business Context and Reporting Period
AMREP Corporation reported fiscal third-quarter and first-nine-month results for the periods ended January 31, 2013. The company operates Media Services businesses—Subscription Fulfillment, Newsstand Distribution, and Product Services—and a real estate business in New Mexico and Colorado. The filing is unaudited; amounts below are in thousands except per-share data.
Financial Results and Key Metrics
| Metric | Three Months Ended Jan. 31, 2013 | Three Months Ended Jan. 31, 2012 | Nine Months Ended Jan. 31, 2013 | Nine Months Ended Jan. 31, 2012 |
|---|---|---|---|---|
| Revenue | $21,752 | $21,424 | $62,665 | $66,268 |
| Income (loss) before taxes | $(223) | $(984) | $(634) | $455 |
| Net income (loss) | $3 | $(316) | $(329) | $488 |
| Basic and diluted EPS | $0.00 | $(0.05) | $(0.05) | $0.08 |
| Operating cash flow | Not separately provided for the quarter | $(13,114) | $3,903 |
- Third-quarter revenue increased 1.5% year over year, while nine-month revenue declined 5.4%.
- Media Services revenue was $21,225 for the quarter and $62,079 for the nine months, compared with $21,419 and $64,815, respectively, in the prior-year periods.
- Media Services operating expenses declined to 82.8% of related revenue in the quarter and 82.1% for the nine months, compared with 85.2% and 82.3% in the prior-year periods.
- Reported nine-month EBITDA was $3,366, compared with $5,488 in the prior-year period. The company defines EBITDA as income before net interest, taxes, depreciation and amortization, and non-cash impairment charges.
- Cash and cash equivalents were $17,970 at January 31, 2013, down from $27,847 at April 30, 2012. Total assets were $200,318 and shareholders’ equity was $74,316.
- Total notes payable were $26,430, including $5,961 under the Media Services credit facility and $16,083 owed under the AMREP Southwest real estate loan.
Material Changes Versus the Prior Comparable Period
- The quarter shifted from a $316 loss to $3 of net income, primarily reflecting lower Media Services operating and administrative expenses and a smaller real estate-related loss.
- The nine-month period shifted from $488 of net income to a $329 loss. Revenue declined by $3,603, and the 2013 results included a $169 non-cash impairment charge on a real estate investment asset.
- Subscription Fulfillment revenue declined to $15,011 for the quarter and $43,069 for the nine months, despite $611 of revenue from the newly acquired FulCircle business during January 2013.
- Product Services and Other revenue increased to $4,045 for the quarter and $12,215 for the nine months, while Newsstand Distribution revenue decreased modestly.
- On December 31, 2012, FulCircle Media acquired certain assets and liabilities of FulCircle, Inc. for preliminary consideration of $1,833, including $1,123 in cash, $400 held in escrow, and a $310 contingent payment liability. Additional contingent consideration could reach $1,000 depending on 2013 revenue targets.
- Operating cash flow deteriorated to a $13,114 use, driven principally by increases in receivables, lower accounts payable and accrued expenses, and a $4,322 reduction in accrued pension cost.
Liquidity, Debt, Outlook, and Risks
- The Media Services revolving credit facility was amended to extend its maturity to May 12, 2014 and reduce its borrowing limit from $20,000 to $15,000. At January 31, 2013, availability was $11,374 and outstanding borrowings were $5,961; the reported interest rate was 3.20%.
- The AMREP Southwest real estate loan was amended to mature December 1, 2017, bear interest at 8.5%, and prohibit additional borrowings. It is secured by real property with an aggregate book value of approximately $73,212 and by a pledge of the stock of Outer Rim Investments.
- Management stated that both principal credit facilities were in covenant compliance at January 31, 2013. Contractual obligations totaled $43,943, including $26,430 of notes payable and $17,513 of operating leases and other obligations.
- Media Services operated with negative working capital of $18,451 and depended materially on a customer contract expiring in June 2014. Management stated that loss of the contract could materially adversely affect the company.
- The company made a $3,000 pension contribution in August 2012. It may need to pay, secure, or otherwise fund approximately $8,700 of remaining accelerated pension obligations by August 15, 2013; management could not assure compliance or further relief from the PBGC.
- Palm Coast had not satisfied certain job retention, job creation, and capital investment requirements under a $3,000 Florida incentive award. The State of Florida could require repayment of some or all of the award, and the timing and amount remained uncertain.
- Media Services customers, particularly magazine publishers, continued to face competition from digital media and weak economic conditions, contributing to reduced magazine sales, customer losses, title closures, and pricing pressure.
- The company had no Chief Executive Officer after Theodore J. Gaasche resigned on January 22, 2013. The filing also identifies potential conflicts involving significant shareholder Nicholas G. Karabots, who reportedly controlled approximately 36% of outstanding shares and whose affiliates held the AMREP Southwest debt.
- Kable Distribution Services remains involved in the Anderson News litigation. The case was proceeding in federal district court, with discovery continuing.
Investor Verification Items
- Verify the status and renewal prospects of the material customer contract expiring in June 2014.
- Confirm the company’s ability to fund or secure the remaining accelerated pension obligation and monitor PBGC actions.
- Monitor potential repayment exposure under the Florida incentive award.
- Assess the sustainability of operating cash flow given the sharp nine-month cash outflow and reliance on receivables-based borrowing.
- Evaluate FulCircle’s revenue performance and the potential contingent purchase price of up to $1,000.
- Review the related-party real estate loan, collateral requirements, ownership relationships, and applicable covenants.
- Track the Anderson News litigation and any resulting financial or operational exposure.