AMREP Corp. 10-K Summary: Fiscal Year Ended April 30, 2009
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended April 30, 2009. AMREP Corporation operates through two primary divisions: Real Estate (AMREP Southwest), focused on land development and sales in Rio Rancho, New Mexico, and Media Services (Kable Media Services), which provides subscription fulfillment, newsstand distribution, and product fulfillment services. The company is a "controlled company" with a principal shareholder owning approximately 60% of outstanding stock.
Key Financial Metrics
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Total Revenues | $145.9 million | $172.1 million | -15.2% |
| Net Income (Loss) | ($43.5 million) | $13.7 million | Turned to Loss |
| EPS (Basic & Diluted) | ($7.25) | $2.19 | N/A |
| Total Assets | $227.7 million | $285.0 million | -20.1% |
| Shareholders' Equity | $96.3 million | $145.1 million | -33.6% |
| Notes Payable (Debt) | $37.9 million | $26.0 million | +45.8% |
| Cash & Equivalents | $29.0 million | $32.6 million | -11.0% |
| Operating Cash Flow | ($2.5 million) | $26.3 million | Turned Negative |
Material Changes vs. Prior Period
- Goodwill Impairment: The company recorded a non-cash impairment charge of $50.2 million ($41.6 million after-tax) related to the Subscription Fulfillment Services segment. This was driven by lower-than-expected revenues and revised future cash flow projections due to the economic recession and decline in the magazine publishing industry.
- Real Estate Decline: Land sales revenue plummeted from $27.9 million in 2008 to $8.9 million in 2009. Total acres sold dropped from 406 to 148, reflecting a severe downturn in the Rio Rancho housing market and reduced builder activity.
- Media Services Performance: Media Services revenues decreased slightly by 2% to $136.2 million. This segment was impacted by a $6.5 million write-off of an uncollectible receivable from Anderson News, L.L.C., a major wholesaler that ceased operations in Q4 2009.
- Pension Liability: The unfunded pension liability increased significantly from $2.0 million to $10.7 million due to a decrease in the fair market value of plan assets.
Guidance, Outlook, and Risks
Management Commentary: Management attributes the net loss primarily to the goodwill impairment and the real estate market contraction. Excluding the impairment charge, the company reported a net loss from continuing operations of $1.9 million. The company is consolidating its Subscription Fulfillment operations into a single location in Palm Coast, Florida, to reduce costs, with expected capital expenditures of $9–12 million over two years.
Risks and Contingencies:
- Concentration Risk: Real estate assets are concentrated in Rio Rancho, NM. Media Services receivables are concentrated among three major wholesalers (45% of net receivables).
- Legal Proceedings: The company is defending against lawsuits related to a 2007 warehouse fire (claims exceeding $1.1 million) and an antitrust lawsuit filed by Anderson News regarding alleged boycotts. One antitrust suit (Source Interlink) was settled in April 2009 with no payment required.
- Liquidity: The company relies on internally generated funds and bank borrowings. A $24 million revolving credit facility for real estate operations matures in September 2009, with a commitment in place for a replacement facility.
Investor Verification Checklist
- Goodwill Impairment Validity: Verify the assumptions used in the discounted cash flow analysis that led to the $50.2 million write-off.
- Real Estate Inventory Valuation: Assess the fair market value of the $81.6 million real estate inventory given the continued decline in the Rio Rancho market.
- Wholesaler Credit Risk: Monitor the financial stability of the three remaining major wholesalers that hold 45% of media services receivables following the Anderson News closure.
- Pension Funding: Track the company's ability to meet the projected $1.1 million contribution for fiscal 2010 and the long-term funding gap.
- Debt Covenants: Confirm compliance with financial covenants on the $37.9 million in notes payable, particularly the minimum tangible net worth and debt service coverage ratios.