AMREP Corporation — Form 10-K Summary
Reporting period: Fiscal year ended April 30, 2013. The source filing is an annual report, not a 2012 fourth-quarter filing; quarterly data for the quarter ended April 30, 2013 is included below.
Business Context
- AMREP operates through Media Services and real estate businesses.
- Media Services include subscription fulfillment, newsstand distribution, product packaging and fulfillment, and temporary staffing.
- Real estate operations are concentrated primarily in Rio Rancho, New Mexico.
- On December 31, 2012, FulCircle Media acquired certain assets in marketing strategy, call-center, product distribution and operational solutions; it contributed $1.759 million of revenue from acquisition through year-end.
Financial Performance and Condition
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Revenue | $83.001 million | $85.360 million | Down 2.8% |
| Net loss | $2.838 million | $1.143 million | Loss increased |
| Basic and diluted loss per share | $0.47 | $0.19 | Loss increased |
| Loss before income taxes | $4.597 million | $2.039 million | Loss increased |
| Net cash from operating activities | $(11.614) million | $5.812 million | Significant deterioration |
| Cash and cash equivalents | $13.714 million | $27.847 million | Down $14.133 million |
| Total assets | $195.856 million | $203.039 million | Down $7.183 million |
| Total liabilities | $123.315 million | $128.394 million | Down $5.079 million |
| Shareholders’ equity | $72.541 million | $74.645 million | Down $2.104 million |
- Media Services revenue was $82.105 million, down from $83.447 million. Subscription Fulfillment revenue declined to $57.472 million from $62.230 million, Newsstand Distribution declined to $8.867 million from $9.127 million, and Product Packaging and Fulfillment and Other increased to $15.766 million from $12.090 million.
- Real estate land-sale revenue declined to $0.833 million from $1.889 million. Acres sold fell to 12 from 104, while average revenue per acre increased to approximately $69,000 from $18,000 because of differing property mix.
- Media Services operating expenses were $69.880 million, or 85.1% of Media Services revenue, compared with 84.0% in FY2012. The implied operating expense margin deteriorated despite modest expense reductions.
- Land-sale gross profit before indirect costs was 38% in FY2013 versus 86% in FY2012.
- FY2013 included $1.511 million of non-cash real estate impairment charges and a $2.000 million bad-debt charge related to magazine wholesaler Mercury. Excluding the impairment charges and the bad-debt reserve, the company reported a net loss of approximately $0.626 million versus $0.784 million in FY2012.
- EBITDA, as defined by the company, was $2.187 million versus $4.913 million in FY2012.
- Capital expenditures were $1.049 million, and the FulCircle acquisition used $1.123 million of cash. Financing activities used $0.347 million after $21.219 million of debt proceeds and $21.566 million of principal repayments.
Debt, Liquidity and Obligations
- Notes payable totaled $20.978 million at April 30, 2013, including $16.007 million owed to a related party lender in connection with AMREP Southwest’s real estate loan.
- The Media Services revolving credit facility provides up to $15 million, subject to borrowing-base limitations. Availability was $12.895 million, with $0.620 million outstanding at year-end; the highest borrowing during FY2013 was $6.770 million. The facility matures May 12, 2015, and the company was in compliance with its covenants at year-end.
- AMREP Southwest’s related-party real estate loan matures December 1, 2017, bears interest at 8.5%, prohibits new borrowings, and requires 25% of defined net real estate sale proceeds to be applied to the loan.
- Media Services had negative working capital of $25.752 million. A significant customer contract supporting this liquidity expires in June 2014 and will not be renewed. The associated Newsstand Distribution obligation was approximately $19.086 million, which the business stated it could not currently fund or refinance in full.
- The defined benefit pension plan was underfunded by $13.805 million. The company contributed $4.572 million in FY2013, including a $3 million PBGC-related contribution, and expected approximately $0.784 million of required FY2014 contributions.
- A Florida incentive award created a $3 million liability; the state demanded repayment of approximately $1.305 million, subject to ongoing settlement discussions.
Material Changes and Subsequent Events
- Media Services revenue continued to decline because of reduced print-magazine demand, customer losses, publisher pressure and competition from digital media.
- In the fourth quarter, Mercury’s liquidity problems resulted in a $2 million reserve against substantially all related net receivables.
- Real estate impairment charges increased to $1.511 million from $0.570 million, including a $1.342 million fourth-quarter impairment related to repossessed lots.
- On June 27, 2013, AMREP completed a rights offering of 1,199,242 shares at $6.25 per share, raising approximately $7.1 million net of expenses. Proceeds were intended for working capital and potentially approximately $3 million of PBGC obligations.
- On July 3, 2013, a Subscription Fulfillment customer notified the company that a contract representing 15.6% of that segment’s revenue and 10.8% of consolidated revenue would not be renewed after February 2015.
- The company operated without a chief executive officer following Theodore Gaasche’s resignation as president and CEO on January 22, 2013. The filing states that the company has no CEO at the holding-company level.
Outlook, Risks and Contingencies
The filing provides no formal revenue, earnings or margin guidance. Management expects capital expenditures to be funded through operating cash flow and financing capacity, but emphasizes substantial uncertainty regarding liquidity and refinancing.
- Key risks include the June 2014 loss of a major Newsstand customer and related liquidity source, the February 2015 loss of a major Subscription Fulfillment contract, and the May 2015 maturity of the Media Services credit facility.
- Magazine industry contraction, digital substitution, publisher failures, wholesaler consolidation, return-rate estimates and customer concentration may pressure revenue and cash flow.
- Real estate results remain exposed to weak Rio Rancho demand, limited land sales, valuation declines, water availability, development approvals and the company’s geographic concentration.
- Material litigation includes the Anderson News antitrust case, a Puerto Rico distribution dispute seeking $2 million, and a patent infringement case. The company could not estimate potential losses in these matters.
- The company reported effective disclosure controls and effective internal control over financial reporting as of April 30, 2013. The independent auditor issued an unqualified opinion on the consolidated financial statements.
Investor Verification Priorities
- Verify the status and funding terms of the approximately $19.086 million Newsstand-related obligation after the June 2014 contract expiration.
- Verify whether the rights offering proceeds and subsequent financing were sufficient to address PBGC and other liquidity requirements.
- Assess the financial impact of the non-renewed Subscription Fulfillment contract scheduled to expire in February 2015.
- Review Mercury’s ultimate recovery, additional bad-debt exposure and concentration of receivables with the three largest wholesalers.
- Confirm the PBGC restructuring, remaining accelerated pension obligation and required future contributions.
- Evaluate the carrying value and impairment risk of the $73.906 million real estate inventory and $10.876 million of investment assets.
- Review related-party lending, collateral restrictions, approval rights and the 8.5% AMREP Southwest loan.