AMREP Corp. 10-Q Summary: Quarter Ended July 31, 2010
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for AMREP Corporation and subsidiaries for the three-month period ended July 31, 2010 (First Quarter of Fiscal 2011). The Company operates in four primary segments: Real Estate (AMREP Southwest), Subscription Fulfillment Services, Newsstand Distribution Services, and Product Services and Other (collectively Kable Media Services). The Company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | Q1 2011 (Jul 31, 2010) | Q1 2010 (Jul 31, 2009) |
|---|---|---|
| Total Revenues | $25,087,000 | $32,457,000 |
| Net Loss | $(498,000) | $(1,056,000) |
| Loss Per Share (Basic/Diluted) | $(0.08) | $(0.18) |
| Operating Cash Flow | $1,639,000 | $4,477,000 |
| Cash and Equivalents (End of Period) | $26,297,000 | $31,619,000 |
| Total Debt (Notes Payable) | $27,916,000 | $28,654,000 |
| Total Assets | $212,747,000 | $211,509,000 |
Segment Performance (Revenues): Real Estate ($824k), Subscription Fulfillment ($18.85M), Newsstand Distribution ($3.11M), Product Services ($2.27M).
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 22.7% year-over-year. Media Services revenues dropped $6.53M, driven by a 25% decline in Subscription Fulfillment due to publisher losses and reduced volumes. Real Estate land sales revenue fell 44.5% to $824k due to a severe decline in the New Mexico real estate market.
- Improved Profitability: Net loss narrowed by 52.8% to $498k. This improvement was driven by a $7.28M reduction in Media Services operating expenses (down to 85.3% of revenue from 90.8%), largely due to payroll reductions and facility closures associated with a consolidation project.
- Restructuring Costs: Net charges related to the consolidation project were $309k for the current quarter, compared to $828k in the prior year. Fire recovery costs were minimal ($7k) compared to a $162k gain in the prior year.
- Interest Expense: Interest expense increased to $423k from $202k, reflecting higher debt utilization and rates.
Outlook, Risks, and Unusual Items
- Going Private Proposal: On September 8, 2010, the Board received a proposal from Nicholas G. Karabots (beneficial owner of ~60% of stock) to merge the company and pay remaining shareholders $12.00 per share. A special committee has been formed to evaluate this.
- Debt Maturity Risk: The AMREP Southwest credit facility of $22.5M matures on December 16, 2010. Management is initiating renewal discussions, but there is no assurance of renewal on acceptable terms. Failure to refinance could force asset sales or equity issuance.
- Consolidation Project: The consolidation of Subscription Fulfillment operations into Palm Coast, Florida, is expected to be completed by October 31, 2010. The company has incurred $6.4M in capital expenditures and $8.4M in non-recurring costs to date.
- Legal Proceedings: A civil action against American Media, Inc. was dismissed with prejudice in August 2010, though plaintiffs have filed a motion for reconsideration. An employment practices lawsuit was settled and dismissed.
Investor Verification Checklist
- Debt Renewal: Verify the status of negotiations for the $22.5M AMREP Southwest loan maturing in December 2010.
- M&A Status: Monitor the progress of the $12.00/share merger proposal and the special committee's recommendation.
- Real Estate Market: Assess the continued weakness in the Rio Rancho, New Mexico market and its impact on land sales velocity and pricing.
- Consolidation Completion: Confirm the timeline and final cost of the Florida consolidation project to ensure projected efficiencies are realized.
- Delinquent Receivables: Review the status of the $901k delinquent real estate receivable for which a foreclosure notice was sent.