AMREP CORP. 10-K/A-1 Summary: Fiscal Year Ended April 30, 2002
Business Context and Reporting Period
This filing is an amended Annual Report (Form 10-K/A-1) for AMREP Corporation for the fiscal year ended April 30, 2002. The Company operates two unrelated business segments: Real Estate (primarily land development in Rio Rancho, New Mexico, having exited homebuilding and sold most landholdings outside New Mexico) and Magazine Circulation (fulfillment services and distribution operated by Kable News Company, Inc.). The Company changed its independent auditors from Arthur Andersen LLP to McGladrey & Pullen, LLP during the fiscal year.
Key Financial Metrics
| Metric | Fiscal 2002 | Fiscal 2001 | Change |
|---|---|---|---|
| Total Revenues | $83.4 million | $73.2 million | +13.9% |
| Net Income | $3.7 million | $2.6 million | +44.6% |
| Earnings Per Share (Basic/Diluted) | $0.56 | $0.38 | +47.4% |
| Total Assets | $149.7 million | $164.8 million | -9.2% |
| Notes Payable (Debt) | $16.6 million | $44.3 million | -62.5% |
| Cash and Cash Equivalents | $15.7 million | $15.9 million | -1.3% |
| Shareholders' Equity | $93.5 million | $89.8 million | +4.1% |
Segment Performance: Real Estate revenues increased to $30.9 million (driven by land sales outside New Mexico), while Magazine Circulation revenues rose slightly to $49.2 million. Gross profit margins on land sales decreased to 24% in 2002 from 42% in 2001 due to the sale of large tracts with low margins.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased primarily due to $13.6 million in land sales from Colorado and California, markets from which the Company is exiting. Magazine fulfillment revenues declined slightly, while distribution revenues increased.
- Debt Reduction: Total notes payable dropped significantly from $44.3 million to $16.6 million. This was achieved by repaying borrowings using proceeds from land sales and cash generated from operations.
- Homebuilding Exit: The Company completed all homebuilding activities in 2002, realizing only $0.6 million in revenue compared to $4.6 million in 2001.
- Expense Management: Operating expenses for magazine circulation decreased 6% due to reduced bad debt expense and cost-cutting measures. Interest expense-net fell from $2.8 million to $1.3 million due to lower borrowing levels.
- Tax Impact: Unlike 2001, which included a $3.5 million tax benefit from an IRS settlement, 2002 had no similar tax adjustments.
Outlook, Risks, and Contingencies
Legal Proceedings: The Company faces two significant lawsuits involving its Kable subsidiary:
- United Magazine Company v. Murdoch Magazines: Plaintiffs seek treble damages of at least $275 million plus punitive damages alleging Robinson-Patman Act violations. The plaintiff is no longer in business and may lack assets to pay counterclaims.
- Northeast Sort & Fulfillment Corp. v. Kable: Plaintiff seeks damages of not less than $15 million plus punitive damages for alleged tortious interference. The case is stayed pending a judgment against a third party (RDMC), which has agreed to indemnify Kable, though Kable is uncertain of RDMC's financial resources.
Industry Risks: The magazine distribution industry has seen significant consolidation, reducing the number of wholesalers by 60% since 1995. Approximately 62% of Kable's distribution accounts receivable is due from just three customers, creating concentration risk. The financial failure of a major wholesaler remains a significant risk.
Real Estate Strategy: The Company is focused on selling remaining landholdings outside New Mexico and developing land in Rio Rancho. A utility subsidiary is under contract for sale, expected to close in fiscal 2003, though no assurance of closing is provided.
Investor Verification Checklist
- Land Sale Margins: Verify the sustainability of real estate revenue given the drop in gross profit percentage (from 42% to 24%) on recent large land sales.
- Legal Exposure: Assess the potential financial impact of the pending litigation, specifically the solvency of the indemnifying party (RDMC) in the Northeast Sort case.
- Customer Concentration: Monitor the creditworthiness of the three major wholesalers that comprise 62% of distribution receivables.
- Debt Covenants: Review the financial covenants in the new $20 million Kable line of credit, which restricts dividends and capital expenditures.
- Utility Sale: Confirm the status of the utility subsidiary sale scheduled for fiscal 2003 and any regulatory hurdles.