AMREP Corp. 10-Q Summary: Period Ended January 31, 2010
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended January 31, 2010, and the nine-month period ended on the same date. AMREP Corporation operates through two primary subsidiaries: AMREP Southwest (real estate land sales) and Kable Media Services (subscription fulfillment, newsstand distribution, and product services). The company is an accelerated filer with 5,996,212 shares of common stock outstanding as of February 28, 2010.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Jan 31, 2010 | 9 Months Ended Jan 31, 2010 |
|---|---|---|
| Total Revenues | $28,916 | $93,706 |
| Net Loss | $(721) | $(2,762) |
| Loss Per Share (Basic/Diluted) | $(0.12) | $(0.46) |
| Cash and Cash Equivalents | $26,433 | $26,433 (Ending Balance) |
| Total Debt (Notes Payable) | $28,867 | $28,867 (Ending Balance) |
| Operating Cash Flow (9 Months) | N/A | $7,488 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 19% year-over-year for the quarter ($28.9M vs. $35.7M) and 16% for the nine-month period ($93.7M vs. $111.6M).
- Real Estate: Land sales revenue dropped due to a soft market in the Albuquerque/Rio Rancho area and the absence of a large 50-acre sale that occurred in Q2 2009.
- Media Services: Revenues declined due to reduced advertising and subscription sales by magazine publishers, impacting Kable's fulfillment and distribution volumes.
- Profitability Shift: The company reported a net loss of $721,000 for the quarter and $2.76 million for the nine months, compared to a net loss of $100,000 and net income of $2.87 million in the respective prior-year periods.
- Restructuring Costs: Net charges of $1.29 million (quarter) and $3.18 million (nine months) were recorded related to the consolidation of Kable's operations into a single Florida facility.
- Real Estate Margins: Gross profit on land sales turned negative (-18%) for the quarter due to the resale of repossessed "take-back lots" recorded at fair market value rather than original cost.
- Debt Reduction: Total notes payable decreased from $37.9 million (April 30, 2009) to $28.9 million (January 31, 2010), driven by principal payments and the restructuring of credit facilities.
Outlook, Risks, and Management Commentary
- Restructuring Project: The consolidation of Kable's Subscription Fulfillment Services into Palm Coast, Florida, is underway and expected to be substantially complete by October 31, 2010. Total project costs are estimated at $12 million in capital expenditures and $7 million in non-recurring cash costs. As of January 31, 2010, $4.65 million in capital and $5.46 million in cash costs have been incurred.
- Liquidity and Financing Risks:
- AMREP Southwest: A new non-revolving credit facility of $22.5 million matures on December 16, 2010. There is no assurance of renewal or replacement financing.
- Kable Media: Revolving credit facilities mature on May 1, 2010. While the bank has informally indicated willingness to extend, no formal commitment has been received.
- Market Conditions: Management notes continued softness in the real estate market and ongoing declines in the magazine publishing industry (advertising and circulation), which pose risks to future revenue stability.
- Unusual Items: The company recognized a tax benefit of $2.1 million for the quarter, partially due to a $1.15 million reduction in liabilities for unrecognized tax benefits. Additionally, insurance reimbursements related to a 2007 warehouse fire resulted in a net gain of $73,000 for the quarter.
Investor Verification Checklist
- Debt Maturity Wall: Verify the status of refinancing for the $22.5 million AMREP Southwest loan (due Dec 2010) and Kable's revolving credit (due May 2010).
- Restructuring Progress: Monitor the completion of the Florida consolidation project and the realization of projected cost efficiencies versus the $7 million in non-recurring costs.
- Real Estate Inventory: Assess the valuation and liquidity of the $82.8 million real estate inventory, particularly the impact of "take-back lots" on future margins.
- Media Industry Trends: Evaluate the sustainability of Kable's revenue base given the structural decline in magazine advertising and circulation.
- Cash Flow Sufficiency: Confirm that operating cash flows ($7.5M for 9 months) are sufficient to cover debt service and capital expenditures without immediate external financing.