AMREP Corp. 10-Q Summary: Quarter Ended July 31, 2012
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for AMREP Corporation for the three-month period ended July 31, 2012 (First Quarter of Fiscal 2013). The Company operates primarily in four 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 2013 (Jul 31, 2012) | Q1 2012 (Jul 31, 2011) |
|---|---|---|
| Total Revenues | $19,596,000 | $21,493,000 |
| Net Loss | $(608,000) | $(279,000) |
| Loss Per Share (Basic/Diluted) | $(0.10) | $(0.05) |
| Cash and Equivalents | $22,006,000 | $27,288,000 |
| Total Assets | $203,419,000 | $203,039,000 |
| Total Liabilities | $129,382,000 | $128,394,000 |
| Notes Payable (Total) | $23,107,000 | $21,325,000 |
| Operating Cash Flow | $(7,593,000) | $2,629,000 |
| EBITDA | $493,000 | $1,323,000 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 8.8% year-over-year. Media Services revenues dropped from $21.4M to $19.6M, driven by a 18.4% decline in Subscription Fulfillment Services due to reduced magazine sales and customer losses. Real Estate land sales were $0 compared to $108,000 in the prior year.
- Increased Loss: Net loss more than doubled to $608,000. This was exacerbated by a non-cash impairment charge of $169,000 related to a real estate investment asset.
- Cash Flow Deterioration: Operating cash flow swung from a positive $2.6M in Q1 2012 to a negative $7.6M in Q1 2013. This was primarily due to a $7.2M increase in receivables (timing of billings/collections) and a decrease in deferred income taxes.
- Debt Structure: Total notes payable increased to $23.1M. Notably, the ASW Credit Facility ($16.2M) was purchased by an affiliate of the Company's Vice Chairman in August 2012 for $15.25M, extending the maturity to December 1, 2012.
Outlook, Risks, and Contingencies
- Liquidity and Debt Covenants: The Media Services Credit Facility ($20M limit, potentially reduced to $15M) matures May 2013 (agreed in principle to extend to 2014). Management believes future violations of the Fixed Charge Coverage Ratio covenant are possible, which could bar distributions to the parent company and trigger immediate repayment.
- Pension Funding Obligation: The Company has an agreement with the PBGC regarding an accelerated funding obligation of approximately $11.7M. A $3M payment was made in August 2012. The remaining liability must be paid or secured within one year, or the Company must provide a letter of credit or cash escrow. There is no assurance the Company can meet these requirements.
- State of Florida Grant: The Company holds a $3M liability related to a grant from the State of Florida. Performance requirements (job retention/creation) have not been fully met due to industry conditions. The Company is in discussions regarding the potential return of these funds.
- Real Estate Market: The Real Estate segment continues to face severe market declines in the Albuquerque/Rio Rancho area, resulting in minimal sales activity.
Investor Verification Checklist
- Debt Extension Status: Verify the final terms of the extension for the ASW Credit Facility (purchased by Vice Chairman affiliate) and the Media Services Credit Facility.
- Pension Plan Solvency: Confirm the Company's ability to secure or pay the remaining ~$8.7M pension liability within the one-year deadline to avoid PBGC enforcement actions.
- Florida Grant Resolution: Monitor the outcome of negotiations with the State of Florida regarding the potential clawback of the $3M grant.
- Receivables Quality: Assess the collectability of the $47.8M in receivables, which increased significantly quarter-over-quarter, particularly in the Newsstand segment.
- Covenant Compliance: Review future quarterly reports for any breaches of the Fixed Charge Coverage Ratio covenant under the Media Services Credit Facility.