AMREP Corp. 10-Q Summary: Period Ended October 31, 2003
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended October 31, 2003 (Q2 Fiscal 2004) and the six-month period ended October 31, 2003. AMREP Corporation operates primarily through two segments: magazine operations (via subsidiary Kable News Company) and real estate operations (via AMREP Southwest). The reporting period reflects significant growth driven by the April 2003 acquisition of the subscription fulfillment business of Electronic Data Systems Corporation (EDS).
Key Financial Metrics
| Metric | Q2 2004 (3 Months) | Q2 2003 (3 Months) | YTD 2004 (6 Months) | YTD 2003 (6 Months) |
|---|---|---|---|---|
| Total Revenues | $32.70 million | $16.34 million | $66.32 million | $32.35 million |
| Net Income | $2.72 million | $1.25 million | $6.25 million | $2.04 million |
| Diluted EPS | $0.41 | $0.19 | $0.95 | $0.31 |
| Cash and Equivalents | $23.43 million | $17.94 million | $23.43 million | $17.94 million |
| Total Debt (Notes Payable) | $21.23 million | $18.43 million | $21.23 million | $18.43 million |
| Operating Cash Flow (YTD) | $8.61 million (2004) vs $2.22 million (2003) |
Liquidity: As of October 31, 2003, the company had aggregate borrowing availability of $31.1 million, with $16.1 million borrowed. Kable specifically had $20.9 million available with $14.7 million outstanding.
Material Changes vs. Prior Period
- Revenue Surge: Total revenues doubled year-over-year for both the quarter and the six-month period. Magazine operations revenue increased from $13.18 million to $25.20 million (Q2) and $25.34 million to $51.19 million (YTD), primarily due to the EDS acquisition.
- Real Estate Growth: Real estate revenues rose from $2.09 million to $6.74 million (Q2) and $4.58 million to $13.14 million (YTD). This was driven by increased sales of residential lots in Rio Rancho, New Mexico, including a bulk sale of 265 unimproved lots.
- Profitability: Net income more than doubled in both periods. The gross profit margin on land sales improved to 54% for the six-month period (up from 49%) due to a higher proportion of unimproved lot sales.
- Expense Trends: Operating expenses increased significantly due to the scale of the new fulfillment business. However, general and administrative costs as a percentage of sales for magazine operations decreased from 12.5% to 8.6% (Q2) due to economies of scale.
Outlook, Risks, and Management Commentary
- Forward-Looking Warning: Management anticipates that revenues and net income from the acquired EDS fulfillment business will be reduced in the second half of Fiscal 2004, particularly in the fourth quarter. This is due to known customer losses identified prior to the acquisition that are expected to continue.
- Dividend: A special one-time dividend of $0.25 per share was paid in August 2003. The Board indicated it may consider future special dividends based on earnings and cash position.
- Asset Disposal: The contract for the sale of the water utility subsidiary in Eldorado, New Mexico, expired in September 2003. Related assets and liabilities have been reclassified as "held and used."
- Market Risk: No material changes to market risk were reported for the six-month period.
Investor Verification Checklist
- EDS Customer Attrition: Verify the specific timeline and magnitude of expected customer losses in the fulfillment segment for the remainder of Fiscal 2004.
- Real Estate Inventory: Confirm the remaining inventory levels and sales velocity for the Rio Rancho residential lots, given the volatility of bulk sales.
- Debt Covenants: Review the specific financial performance covenants attached to the real estate lines of credit, as these are subject to collateral availability.
- Receivables Quality: Assess the aging of the $47.6 million in magazine receivables, which increased significantly following the EDS acquisition.