AMREP Corp. 10-Q Summary: Period Ended October 31, 2009
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for AMREP Corporation for the fiscal quarter and six-month period ended October 31, 2009. The Company operates in four primary segments: Real Estate (AMREP Southwest), Subscription Fulfillment Services, Newsstand Distribution Services, and Product Fulfillment Services (collectively "Media Services" under Kable Media Services, Inc.).
Key Financial Metrics
| Metric | Three Months Ended Oct 31, 2009 | Six Months Ended Oct 31, 2009 |
|---|---|---|
| Revenues | $32.33 million | $64.79 million |
| Net Income (Loss) | $(0.99) million | $(2.04) million |
| Earnings Per Share (Basic/Diluted) | $(0.16) | $(0.34) |
| Cash and Cash Equivalents | $33.38 million (Balance Sheet) | $33.38 million (Balance Sheet) |
| Net Cash Provided by Operating Activities | N/A | $12.13 million |
| Total Debt (Notes Payable) | $30.81 million | $30.81 million |
| EBITDA (Consolidated) | $1.51 million | $2.65 million |
Material Changes vs. Prior Period
- Profitability Reversal: The Company reported a net loss of $0.99 million for the quarter and $2.04 million for the six-month period, compared to net income of $2.90 million and $2.97 million, respectively, in the prior year periods.
- Revenue Decline: Total revenues decreased 20% year-over-year for the quarter ($32.33M vs. $40.29M) and 15% for the six-month period ($64.79M vs. $75.86M).
- Real Estate Segment: Land sales revenue dropped significantly ($1.67M vs. $4.81M for the quarter) due to the absence of a large $3.85M undeveloped land sale that occurred in the prior year. Gross profit margins on land sales fell from 97% to 40% for the quarter.
- Media Services Segment: Revenues declined due to reduced advertising and subscription sales by magazine publishers. However, the "Product Fulfillment Services" segment grew significantly due to acquisitions in the prior fiscal year.
- Restructuring Costs: Net charges related to the consolidation of Subscription Fulfillment Services operations increased to $1.06 million for the quarter (vs. $0.075 million prior year) and $1.89 million for the six months (vs. $0.57 million prior year).
Outlook, Risks, and Management Commentary
- Debt Financing Risk: The AMREP Southwest revolving credit facility ($24M outstanding) was extended only to December 17, 2009. A replacement $22.5M non-revolving loan has been committed but not yet executed. Management notes there is no assurance the facility will be renewed or that the company has sufficient funds to repay the current facility if demanded immediately.
- Restructuring Project: The consolidation of fulfillment operations into Palm Coast, Florida, is underway. Total project costs are estimated at $12M in capital expenditures and $7M in non-recurring cash costs. As of Oct 31, 2009, $4.4M in capex and $4.15M in cash costs have been incurred.
- State Incentives: The Company recorded a $3M liability for a potential state grant related to the consolidation project. This amount will be recognized as income only if specific job retention and investment objectives are met by December 31, 2011.
- Industry Headwinds: Management warns that continued declines in magazine advertising and circulation could lead to further revenue reductions in the Media Services segment.
Investor Verification Checklist
- Debt Maturity: Verify the execution status of the replacement $22.5M loan for AMREP Southwest before the December 17, 2009 deadline.
- Real Estate Liquidity: Assess the impact of the lack of large land sales on future cash flow, given the high fixed costs of the real estate segment.
- Restructuring Execution: Monitor the timeline and cost overruns of the Florida consolidation project and the realization of state incentives.
- Media Services Trends: Evaluate the sustainability of revenue declines in the Subscription Fulfillment segment versus growth in the Product Fulfillment segment.
- Receivables Quality: Review the increase in Media Services receivables ($41.5M) and the netting arrangement with the publisher bearing credit risk.