AXR

AMREP CORP. 10-K Summary: Fiscal Year Ended April 30, 1998

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended April 30, 1998. AMREP Corporation operates in two primary segments: Real Estate Operations (development and construction of single-family homes and land sales in New Mexico, Colorado, California, Nevada, and Oregon) and Magazine Circulation Operations (national distribution and subscription fulfillment services via its subsidiary, Kable News Company, Inc.). The company is headquartered in New York, with real estate operations based in Rio Rancho, New Mexico.

Key Financial Metrics

Segment Performance: Real estate operating income was $14.2 million (up from $4.5 million in 1997). Magazine circulation operating income was $6.4 million (up from $3.8 million in 1997).

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 17% year-over-year. Real estate revenues rose 23% due to increased housing deliveries (677 units vs. 599) and a significant increase in land sales ($25.1 million vs. $16.9 million). Magazine revenues grew 5%.
• Profitability: Net income increased 13% to $8.2 million. This was aided by a $4.2 million non-recurring gain from the sale of the Rio Rancho Golf and Country Club and a 50% interest in a Florida congregate care facility.
• Acquisitions: In September 1997, the company acquired SKK Enterprises, expanding operations into California, Oregon, and Nevada. This contributed to the increase in housing deliveries and inventory.
• Debt Levels: Notes payable increased to $84.2 million, driven by expansion in California and Colorado and higher borrowings against magazine receivables.
• Backlog: Signed contracts for housing sales totaled 272 units ($33.3 million) at year-end, up from 247 units ($29.3 million) in 1997.

Outlook, Risks, and Management Commentary

• Proposed Spin-Off: In May 1998, the company filed for an IRS ruling to spin off its real estate operations to shareholders on a tax-free basis. If approved, this could occur in fiscal 1999. Financial statements would be restated to show real estate as discontinued operations.
• Industry Consolidation: The magazine distribution sector faces ongoing consolidation of wholesalers, leading to reduced customer counts and pressure on pricing. Receivables from magazine operations increased $14.4 million due to payment delays from wholesalers.
• Tax Contingencies: The company has a $13.9 million liability for taxes payable related to years 1990-1995, following a settlement of audits for 1984-1989. Audits for 1990-1996 are ongoing.
• Liquidity: The company maintains $91.1 million in available credit lines. Management believes cash from operations and existing credit facilities are sufficient for anticipated capital expenditures and debt service.
• Year 2000 Compliance: The company is investing in software updates to ensure Year 2000 compliance, with no expected material financial impact.

Investor Verification Checklist

• Spin-Off Status: Verify the outcome of the IRS ruling regarding the proposed tax-free spin-off of real estate operations.
• Tax Liability: Monitor the resolution of ongoing IRS audits for tax years 1990-1996 and the payment schedule for the $13.9 million tax liability.
• Wholesaler Credit Risk: Assess the impact of continued industry consolidation on the collectibility of the $57.4 million in magazine circulation receivables.
• Debt Covenants: Review compliance with financial covenants on the $84.2 million debt load, noting one loan required a waiver at year-end.
• Real Estate Margins: Track the sustainability of the 50% gross profit margin on land sales, which is subject to transaction timing and mix.